1、Asia,Buy,Sell,Sell,Hold,Hold,Buy,Buy,Buy,Sell,Deutsche BankMarkets Research,EnergyOil & Gas,PeriodicalAsia Refining Model,Date10 January 2013,David Hurd, CFA,Harshad Katkar,Capacity vs. Demand,Research Analyst Research Analyst(+852) 2203 6242 (+91) 22 6658 ,Asia refining modelThe purpose of this re
2、port is to: 1) update our Singapore complex refiningmargin forecasts for 2013-15e, 2) present a regional analysis of Asian CDUcapacity (Figures 14-41), and 3) look at product demand (Figure 8-9) across the,Shawn ParkResearch Analyst(+82) 2 316 ,John HirjeeResearch Analyst(+61) 3 9270-,region. Our ne
3、w Sing complex refining estimates can be found in Figure 1. Ourprevious estimates can be found in Figure 2. Our new 2013-15 estimates areUS$ 7.48, US$ 7.65 and US$ 8.00 / bbl. Our previous estimates were US$ 7.48,US$ 7.81 and US$ 8.00 / bbl, respectively. Our full-year 2012 Sing ComplexMargin came i
4、n at US$ 7.31/ bbl vs. our July estimate of US$ 7.20/ bbl.What we are looking at in 2013eWe have flat oil prices estimates for 2012-16e. Our DB Global, Brent oil priceestimates 2012-16e are: US$ 112; US$ 112.5; US$ 113.25; US$ 110 and US$110 / bbl, respectfully. We show China adding 32.6 mm tons (+3
5、9%) of newCDU capacity 2013 vs. 23.5 mm tons in 2012. Japans growing demand for oilin 2012 should revert to declining demand 2013-14 as the governmentreactivates its nuclear power plants. We suspect the government will begin toturn on the countrys nuclear generators (2H13), after the upcoming electi
6、ons.,Companies FeaturedReliance Industries (RELI.BO),INR849.55BPCL (BPCL.BO),INR381.00HPCL (HPCL.BO),INR331.10Caltex (CTX.AX),AUD19.04Thai Oil Pcl (TOP.BK),THB68.00Formosa Petrochemical(6505.TW),TWD86.00Essar Oil Ltd (ESRO.BO),INR71.35SK Innovation(096770.KS),KRW171,000.00S-Oil Corp (010950.KS),KRW9
7、8,500.00,Despite growing anticipation for improving global growth (Figure 3), we seeonly a modest pickup in Asia refining utilization rates (Figure 1) for 2013(82.2%) relative to 2012 (81.1%). As a result, we anticipate only a modestuptick in the Sing Complex Refining margin 2013/2012.The new normal
8、 (US$ 7.00 / bbl):We had an interesting conversation with Essars top management during mid-2012. We remember the “Golden Age” of refining (2004-08) when refiningmargins and oil prices surged. We remember US$ 7.45 / bbl Sing complexmargins in 2004 on a Brent oil price of US$ 38/ bbl. Notwithstanding
9、a 2.9xincrease in the average price of Brent crude since 2004, the Sing complexrefining margin has treaded water in the US$ 7.0 to 8.0 / bbl range (Figure 1).The question to Essar was whether the US$ 7.08.0 / bbl Sing complex marginseen in 2004-2008 / 2011-12 is the new norm? Given higher taxes and
10、higherenvironmental expenses (sulfur removal / Euro emission standards), Essarsmanagement thought US$ 7.0-8.0 / bbl represented a reasonable return formost complex refiners.Valuation and risksWe use historical price-to-book values to determine where we stand in theAsian refining cycle and P/B to ROE
11、 to judge relative values among our Asianrefiners. We also use DCF models to value our Asian refiners. Highercomplexity deserves higher multiples. Taiwan multiples are traditionally higherthan other Asian markets given the retail investor base. Looking full-cycle, wesee Asian refinery PB valuations
12、trough to peak of roughly 0.7x to 3.7x. Risksare ever-present when investing in refineries. The principal risks for theindustry are: 1) higher/lower-than-anticipated oil prices; 2) higher/lowerthan-anticipated regional product demand; 3) one-off shocks such as fires and/orearthquakes and 4) local pr
13、oduct policies such as taxes and competition._Deutsche Bank AG/Hong KongDeutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors shouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors
14、 shouldconsider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYSTCERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 072/04/2012.,difficult,utilization,10 January 2013Asia Refining ModelAnalyzing Figures 1-41,We publish this model and reset our Singapore
15、complex refining margins 2x/year, inJanuary and July. In January 2012 we shifted our Asia and product demand functionaway from the EIA and BP Statistical Review data to locally reported, country bycountry, government sourced, demand data. The downward shift in our aggregateproduct demand function (a
16、nd utilization rates) was meaningful, and as a result, wespent some time with the EIA attempting to reconcile the numbers. In conclusion, wesuspect that: 1) the EIA product demand numbers for Asia which are similar to thosepublished in the BP Statistical Review, are overstated; 2) the government-rep
17、orted datathat we publish in this report is understated; and 3) the real demand function for oilproducts in Asia lies somewhere between the local reporting agencies and theinternational reporting agencies. In Asia, we have stuck with the country-by-countryproduct demand data as reported by governmen
18、t agencies as it provides moregranularities in terms of product than the international agencies.When we first started compiling and publishing China oil and product demand data(2004), we noticed that the China Bureau of Statistics reported demand for gasoline,diesel, fuel oil, kerosene, LPG and naph
19、tha. The EIA confirmed and we agree that manyAsian countries do not report bottom-of-the-barrel products such as lubes, wax, asphaltand coke. As a result, government demand data in Asia tends to understate full demandfor oil products. On the other hand, the EIA in reporting Asia oil product demand:
20、1)does not report naphtha for any Asian country and 2) estimates an “Other” product lineagainst oil demand. In China, for example, oil demand includes crude that is going tothe Strategic Petroleum Reserve. Asian governments understate the EIA andseemingly BP Statistical Review overstate oil product
21、demand and there is not much wecan do about it. What we are looking for, however, is not necessarily the nominal levelof refining utilization in Asia, rather the trend of utilization rates.Figure 1 is our summary supply-demand model for CDU refining capacity in Asia. Figure2 is our previous (July 20
22、12) summary supply-demand model for CDU refining capacityin Asia. CDU capacity numbers generally do not move around much as there is anample 3-to-5-year construction period involved in adding capacity. However, not allrefineries are publically listed which makes data collection more difficult, while
23、 inChina there is a large grey market of refineries (tea pot refineries) generally owned /managed by provincial governments, but not officially recognized by the centralgovernment. Demand is more difficult to quantify as noted above in our discussionabout local reporting vs. international agency rep
24、orting of product demand. Aside fromone-off shocks fires, tsunamis, earthquakes, etc. we suspect that demand, ratherthan supply is where most get it wrong.From Figure 1, we can say that the product pricing power passes from consumers toindustry when utilization rates rise above 80%. When we try to f
25、orecast Sing complexrefining margins for 2012-15e, utilization rates in Asia seem to be calling for moderatelyhigher Sing complex margins. The slight reduction in Asian refining utilization ratesfrom 2011 into 2012 is principally the result of Japanese capacity coming back online(Figures 6, 13 and 2
26、0) after the Fukushima earthquake / tsunami, April 2011.Additional takeaway points from Figures 1 and 2 are: 1) the drop-off in oil productdemand 2001 vs. 2000 (Figure 1) is the shift in our source for product demand datafrom the international agencies to local reporting agencies, and 2) the argumen
27、t ofhigher/lower oil prices leading to higher/lower refining margins seems to have held truefor 2009-11; however, it was far from the truth in 2005, 2006 and 2008, when (average)Page 2,Reporting differencesIts the utilization trend thatcounts mostSupply is easy demandPricing power at 80%Oil prices a
28、nd refiningmargins dont always move inthe same directionDeutsche Bank AG/Hong Kong,capacity,imports,10 January 2013Asia Refining Modeloil prices rose but (average) Sing margins fell year-on-year. During periods when oilprices and Sing margins were running hand-in-hand in similar directions, the refi
29、ningmargin tended to run harder by 2-2.5x than the oil price.,We assume that 1) Shell Oil (Australia) will shut down its Clyde refinery (86k bpd) in2013e as reported; 2) Caltex (Australia) will shut down its Kurnell refinery as reported(130k bpd) in 2015 (Figures 6 and 5) a small amount is exported
30、to Japan.Since 2003, we have not heard any of the Chinese SOEs formally comment on Chinasteapot refineries. It is sort of a taboo discussion point. Government restrictions on crudeoil imports have always played into the hands of strangling the teapots in order forSOEs to dominate the domestic refini
31、ng space. PetroChinas Mr. Mao Zefung, DeputySecretary to the Board, spoke recently at DBs Access China Conference (January2012). In his presentation, Mr. Mao rejected the notion of oil product shortages in Chinaas frequently reported by the press. Mr Mao suggested that there was excess capacityin th
32、e system, given 40m-100m tons of teapot refining capacity that is underutilized atany point in time. Putting it into context, 40m-100m tons of additional capacity wouldadd 800k to 2,000k bpd of product to a system that consumes 8,000-9,000k bpd.Deutsche Bank AG/Hong Kong,Shutting down capacityThe te
33、a pots Chinas excessMiddle East politicsAsia is an island limitedChinas excess capacityPage 3,Page4,DeutscheBankAG/HongKong,AsiaRefiningModel,10January2013,Figure 1: Asia Refining : Supply - Demand Summary; / DB Estimates Singapore Complex Margins (2013-15E) January 2013,Asia Refining : Utilization
34、Rates vs Sing MarginsOil Product Demand (000 bpd)- Y/y growthOil Refining (CDU) Capacity (000 bpd)- Y/y growth- Excess / (Deficit) Refining Capacity- Reserve Capacity (% of Total)- Capacity UtilizationSing Complex Rf Margin (US$ / bbl)Avg Brent Oil Price (US$ / bbl)- Change in price oil ( % )- Chang
35、e in Capacity Utilization ( % )- Change in Singapore Complex Margin ( % )Asia Refining - DB ForecastsOil Product Demand (000 bpd)Oil Refining (CDU) Capacity (000 bpd)- Excess / (Deficit) Refining Capacity- Reserve Capacity (% of Total)- Capacity UtilizationDB Estimates - Sing Complex Rf Margins (US$
36、 / bbl)DB Brent Oil Price Estimates (US$ / bbl)- Change in price oil ( % )- Change in Capacity Utilization ( % )- Change in Singapore Complex Margin ( % ),Q1Q2Q3Q4,200019,91522,2092,29410.3%89.7%3.5928.5200721,29625,3864,09016.1%83.9%7.716.559.556.658.1072.711.1%1.0%36.6%,200117,37522,6385,26323.2%7
37、6.8%2.3324.4-14.3%-14.4%-35.1%200821,5231.1%26,2083.2%4,68417.9%82.1%7.598.0010.977.463.9297.734.4%-2.1%-1.6%,200218,0984.2%22,9481.4%4,85021.1%78.9%2.0125.02.5%2.8%-13.8%200921,8721.6%28,1607.5%6,28822.3%77.7%2.984.372.983.191.5162.7-35.8%-5.4%-60.7%,200318,7463.6%23,3391.7%4,59319.7%80.3%3.9528.91
38、5.4%1.8%96.8%201023,2636.4%29,1753.6%5,91220.3%79.7%4.684.784.274.694.9880.328.2%2.7%56.8%,200419,7545.4%23,4970.7%3,74315.9%84.1%7.4538.332.7%4.7%88.4%201123,3540.4%28,667-1.7%5,31218.5%81.5%7.667.078.078.517.00111.138.2%2.2%63.7%,200520,1111.8%24,0722.4%3,96116.5%83.5%6.9254.542.2%-0.6%-7.0%2012F2
39、4,0723.1%29,6963.6%5,62418.9%81.1%7.317.346.738.816.36112.00.9%-0.5%-4.6%,200620,5532.2%24,7492.8%4,19617.0%83.0%5.6565.420.0%-0.6%-18.4%2013F24,7142.7%30,0701.3%5,35617.8%82.2%7.487.507.707.407.30112.50.4%1.4%2.2%,200721,2963.6%25,3862.6%4,09016.1%83.9%7.7172.711.1%1.0%36.6%2014F25,5383.3%30,8952.7
40、%5,35617.3%82.7%7.657.608.007.607.40113.30.7%0.6%2.3%,200821,5231.1%26,2083.2%4,68417.9%82.1%7.5997.734.4%-2.1%-1.6%2015F26,4213.5%30,848-0.1%4,42814.4%85.6%8.008.008.507.807.70110.0-2.9%3.6%4.6%,Source: Deutsche Bank, Oil & Gas Journal, Company data, Country energy data sources, Reuters, Wood Macke
41、nzie,DeutscheBankAG/HongKong,Page5,AsiaRefiningModel,10January2013,Figure 2: ASIA Refining : Supply vs. Demand Summary; / DB Estimates Singapore Complex Margins (2012-15E) July 2012,Asia Refining : Utilization Rates vs Sing MarginsOil Product Demand (000 bpd)- Y/y growthOil Refining (CDU) Capacity (
42、000 bpd)- Y/y growth- Excess / (Deficit) Refining Capacity- Reserve Capacity (% of Total)- Capacity UtilizationSing Complex Rf Margin (US$ / bbl)Avg Brent Oil Price (US$ / bbl)- Change in price oil ( % )- Change in Capacity Utilization ( % )- Change in Singapore Complex Margin ( % )Asia Refining - D
43、B ForecastsOil Product Demand (000 bpd)Oil Refining (CDU) Capacity (000 bpd)- Excess / (Deficit) Refining Capacity- Reserve Capacity (% of Total)- Capacity UtilizationDB Estimates - Sing Complex Rf Margins (US$ / bbl)DB Brent Oil Price Estimates (US$ / bbl)- Change in price oil ( % )- Change in Capa
44、city Utilization ( % )- Change in Singapore Complex Margin ( % ),Q1Q2Q3Q4,200019,73922,2092,47111.1%88.9%3.5928.5200721,04625,3444,29817.0%83.0%7.716.559.556.658.1072.711.1%0.9%36.6%,200117,19122,6385,44724.1%75.9%2.3324.4-14.3%-14.6%-35.1%200821,2851.1%26,1603.2%4,87518.6%81.4%7.598.0010.977.463.9297.734.4%-2.0%-1.6%,200217,9064.2%22,9431.3%5,03722.0%78.0%2.0125.02.5%2.8%-13.8%200921,3940.5%28,1537.6%6,75924.0%76.0%3.014.372.983.191.5162.7-35.8%-6.6%-60.3%,
