SIMON SAYS: Presidents can shape, as well as distort countries, and I’m not talking about President Trump!

Submitted by Simon Hill on Sun, 07/12/2020 - 17:00
Presidents can shape, as well as distort countries, and I’m not talking about President Trump!

I woke up this morning, looked quickly out of the window, and was thankfully reminded that we’re still in the middle of summer, albeit recovering from the ravages of the coronavirus pandemic, having only just survived the trauma of home schooling, and looking forward to the “new normal”, tinged with the fears of an extreme economic slowdown. It made me think that there was probably a little more to life in the unique world of LPG than the U.S./ Asia ARB, EIA numbers, the FEI, Baltic and of course the Saudi Aramco CP. I wondered what was happening in other areas I’ve covered back in the days of the daily SIMON SAYS blog. Most other reports were probably also in summer mode, suggesting a lackluster market, holidays here there and everywhere, and more importantly, not much going on. Crude oil prices pretty much look the same as the close last week, freight levels appear to be unchanged, Saudi CP running as usual against the tide, and the “to be or not to be” of cancellations continuing to be unanswered. So let’s delve somewhere relatively new, it’s been a while since I talked about Brazil, Turkey, Iran and Libya, but each of them are popping their heads above the water-line, not just on the BBC but also in LPG.

Brazil’s President Jair Bolsonaro has claimed that any panic caused by a lockdown would have been worse than the virus itself, and has boasted that his approach was actually saving lives, even as the number of cases and deaths have spiraled, making his country the worst hit by the coronavirus after the U.S., with 70,000+ deaths recorded by Friday. But what’s been happening on the LPG front, in a country where 95% of homes use LPG as their cooking fuel? Although the messages from the President and from the municipality leaders have been contradictory to say the least, the vast country has gone through its own form of “stay-at-home”/ social distancing routine, driving households to stock-up on LPG supplies, increasing demand by a tenth, notwithstanding the drop in the commercial and industrial LPG sectors.

As has been the case in other countries, any form of lockdown significantly impacts the transportation sector, and with it the need for refined products. With over 75% of the LPG supplied in Brazil originating from domestic refineries, the drop in refinery utilization by half, in the April/May period, significantly reduced LPG supply at a time when demand was increasing. Despite the President pushing for the partial opening of businesses in the country last month, and the increased economic flow passing through to the refinery sector, there’s still going to be a significant overall drop in the domestic supply of LPG in 2020, some feel this could be as high as 10%, bringing numbers below the 4 million Mt level , while at the same time demand will probably have increased by around 5%, potentially expanding the demand for imports to over 2.5 million Mt, up over a third on last year. The question will remain whether this is just coronavirus led, how long the serious health issues will continue, and by the end of the year will we see imports slip back, as the global “demand” factors start to set in. With President Bolsonaro having contacted the disease, who knows what the next move will be.

I’ve also been tracking news developing in Libya, not huge when it comes to LPG, but the role of Turkey is intriguing. From humble beginnings, Recep Tayyip Erdogan has grown into a political giant in his country, and you get this feeling he’s keen to expand his influence further afield, there’s already been the incursions into Syria and northern Iraq, but only yesterday the iconic Hagia Sophia, a UNESCO world heritage site revered by Muslims and Christians alike, was opened-up to Muslim worship by the President, causing acute interest the world over. And then there’s Libya, heavily supported by Turkey, the internationally recognized Government of National Accord pushed back the militia leader Khalifa Hafter’s forces, believed to be backed by the UAE, Russia and Egypt. It’s been a venture for Erdogan that appears to be at odds with just protecting his country’s borders, some believe it is a countermove to the burgeoning ties amongst Greece, Egypt, Cyprus and Israel, all seeking to exploit hydrocarbon resources in the eastern Mediterranean. There’s also the huge potential re-building contracts at stake in the oil sector, and it seems Hafter has already vacated the oilfields in his eastern stronghold. The Libyan National Oil Company announced on Friday the resumption of oil production and exports, after nearly a six-month shutdown due to the country’s civil war. The first ship was already due to load from the oil port of Al-Sidra. LPG is still a small part of the overall picture, but let’s not forget that Libya has the largest proven reserves of oil on the African continent, and future LPG development looks a strong possibility.

But back to Turkey, where the COVID-19 virus has also taken its toll, but it appears from government reporting that the impact has been a lot less than in other countries, may be the result of a relatively young population compared to the rest of Europe. But whereas Brazil’s demand has increased due to the high household consumption levels, Turkey’s consumption is dominated by Autogas, around 80% of total LPG consumption, and forcing people to stay in-doors has impacted this sector heavily. The segment was already coming under pressure from the growing sales of diesel cars, which now account for 40% of the vehicle market, with Autogas having dropped down 3% to around 37% since 2015.

Imports had already been in decline as domestic LPG supplies had jumped on the back of the late 2019 start-up of the Star refinery in Aliaga, increasing domestic LPG production by nearly 300,000 Mt per annum, but refiners are taking their foot off the throttle in response to the coronavirus and its impact on demand. Domestic production is expected to decline in 2020, but with demand significantly impacted we’re unlikely to see a change to declining imports, already less than 2.5 million Mt per annum. Also plans for new petrochemical complexes, including PDH, have been put on the back-burner, reducing any possible import recovery.

But one area that has somewhat defied gravity has been the significant move into the LPG trading world by BGN, the off-shoot of CEO Ruya Bayegan’s petrochemical company bearing her family’s name. The company had been strong in the Middle East and China for a number of years, but in the last couple it has expanded its worldwide trading volumes considerably, and some see BGN as probably the fastest growing global LPG trader. Aygaz have also moved into the international LPG trading world after many years concentrating on supplying their own domestic import requirements. Expansion outside of Turkey in a number of significant moves depicts the country’s leadership, as well as their current corporate ethos.

Oh yes, we haven’t heard too much on the Iranian front recently, well not until this week. New reports suggest that oil production has been slashed as storage tanks have reached capacity, together with the 30 or so floating storages the Iranians have chartered. Sanctions and the coronavirus have slashed exports and refinery running rates. Crude oil production levels have been slowly falling below 3 MM Bbls/d from a 2018 peak of nearly 4 MM Bbls/d, but it’s the lowest for 40 years. There are some LPG cargoes still finding their way to the usual undisclosed markets, but volumes are way down. Oh yes, did I mention these unusual explosions that occurred in Iran, which has brought little reaction from Tehran. The Natanz nuclear centrifuge site appears from satellite images to be in ruins, and other explosions close to military sites have become news in recent days. Although Israel are seen as the potential culprit, with the start of the U.S. presidential race starting to gather pace, it’s may be not too outrageous to believe we might potentially see a dangerous phase in the U.S./ Iranian tensions. How that might directly or indirectly impact crude oil and LPG exports, we can only guess. Now what is Kanye West’s policy on foreign affairs?