As oil demand remains lower than past levels, oil storage has become of particular focus, with inventories at record high levels. The Asia Pacific region plays an important role in the global oil and chemicals storage terminal industry, accounting for 18.4% of global storage capacity.
With the backdrop of the global financial slowdown, much of the industry continues to undergo a transformation from being government regulated to privately owned, and countries in the region are developing new storage terminals.
The area has witnessed rapid economic growth since the late 1990s that has mandated a surge in energy demand across the region, especially from the fastest-growing economies, China and India. Oil and refined product imports meet 73% of the total energy demand in the region and the remainder is fed by indigenous productions.
The Energy Information Administration estimates that the use of crude oil in Asia Pacific will increase from 25.52m barrels per day in 2007 to 28.99m barrels per day by 2011 when the global economy turns around.
To keep pace with increased demand, petroleum products and chemicals storage capacities need to be enhanced across the region, according to a new report by GlobalData, Asia Pacific Oil and Chemicals Storage Industry to 2013: Investment Opportunities, Analysis and Forecasts of All Active and Planned Oil and Chemical Terminals in Asia Pacific. As such, capacity is expected to increase from 68,823 thousand m3 in 2008 to 89,990.4 thousand m3 in 2013, at an AAGR of 5.4%
With deregulation in the oil and chemicals storage industry across the region, more private companies are entering the market. Since 2002 deregulation in the industry has increased competition and consequently brought down storage prices.
Specific countries are trying to diversify their energy sources and the number participating in the global LNG trade is expected to increase from 32 in 2008 to 52 in 2013. Singapore, which is already an established oil-marketing hub, is making efforts to become a hub for LNG business in South-East Asia, which indicates the increasing interest for LNG in Asia Pacific.
Regional distinctions
China and India will witness the maximum number of new storage terminals between 2008 and 2013. While China will witness capacity growth at an AAGR of 12.1%, India’s storage capacity will grow at an AAGR of 3.7% between 2008 and 2013.
The country with the largest total share is the Republic Of Korea, which in 2008 had a storage capacity of 22,780.0 thousand m3 – a third of Asia Pacific’s total and 5% more than China’s. The storage capacity in China, however, increased from 10,384.1 thousand m3 in 2000 to 19,605.6 thousand m3 in 2008, at an AAGR of 7.94%. It is expected to have an additional AAGR of about 12% until 2013.
Most of Asia’s remaining storage is in Singapore (11.3%) and India, where Indian Oil Corporation, Essar Group and IMC dominate. Surprisingly, Japan and Australia trail the rest of the pack, with each having only minimal storage capacity.
Complex company strategies
To cope with the varying trends of deregulation, added competition and growing demand, the main players in the sector are beginning to change the direction of their businesses, and each in a distinct way.
China Petroleum & Chemical Corporation (Sinopec) is a vertically integrated energy and chemical company, engaged in the exploration, production and trading of crude oil and natural gas. For the fiscal year 2007, the chemicals segment accounted for revenues of 217.45bn yuan, an increase of 10.9% over 2006.
The company’s strategies for its chemicals segment include strengthening anagement to ensure safe, stable and high-load operation of chemical facilities and producing higher value-added products. It also plans to capitalise on the strengths of its chemicals sales subsidiary to improve competitiveness by optimising operational process and improving sales networks.
Regulated domestic refined oil prices have not allowed the company to realise the full value from its refining and marketing assets, according to GlobalData. However strong refining and distribution operations remain a company strength and will provide it with a competitive advantage in a deregulated scenario.
However, even though the Chinese economy is expected to maintain a stable and rapid growth and is following a steady and continuous growth of the demand for basic energy products such as oil and natural gas, the company may need to diversify its operations in terms of its geographic presence. It is also heavily dependent on outside sources for its crude oil requirements.
Meanwhile India Oil Corporation’s (ICOL) strategy for its E&P business focuses on expansion across the hydrocarbon value chain, within and outside the country. IOCL is India’s largest oil company and its main activities are petroleum refining, operation of crude oil and petroleum products pipelines, petroleum products marketing and research and development.
Primarily its business is in India, although it has operations in other Asian and African countries.
The company’s pipelines division intends to extend full logistics support to its sister divisions of refineries and marketing to ensure the company remains competitive. Upstream ICOL has farmed into an exploration block in Gabon with Oil India (OIL) as the operator.
In addition IOCL with OIL has acquired participating interest in a block in Nigeria, and in consortium with Kuwait Energy and Medco Energi of Indonesia, they have acquired participating interest in two exploration blocks in Yemen.
However according to GlobalData, the company’s status as a government-owned corporation means IOCL is unable to give due consideration to the ‘profit earning motive’. Even during the period of soaring oil prices, IOCL has not been able to pass on its raw material costs to the consumer.
While the Government of India had implemented a package of measures, including issue of Special Oil Bonds, to partially mitigate the resulting losses, the strain on the liquidity of the oil companies continues due to increase in working capital focused on inventories. In addition, the company’s cash from operating activities has been negative in the past three years and got worse last year.
This clearly illustrates the worsened liquidity position of the company in 2008 and there is a possibility that it will face difficulties paying its short-term liabilities.
Mitsubishi is shining star
GlobalData notes Mitsubishi’s strong financials – and in particular its Innovation 2009 Plan – as indictors of a company gaining strength. Under the plan the company intends to increase its consolidated net income by channeling business resources to high-growth areas.
Mitsubishi is actively investing in R&D and is principally focusing on anotechnology and its communication technology business. The company expects to exploit these avenues by adopting a vertical (value chain) development type business model, which includes investing in upstream and downstream businesses, shifting to the BPO model and venturing into increasingly diversified areas of R&D.
This focus could stand the company in good stead in the coming months when oil demand picks up and storage levels reduce. As more storage plans get the go ahead across the Asia Pacific region and the number of oil players increase, 2009 will see the industry become increasingly dynamic.
The GlobalData report is available for purchase at www.global-market-research-data.com
