Fuel and Lubes Asia

AUSTRALIA
Limit ethanol use to 10 percent, lobby groups warn

Fuel experts, automotive industry officials, and consumer associations have been strongly lobbying the Federal Government to limit ethanol levels to 10 percent, claiming that prolonged and excessive ethanol use could result in car engine deterioration. Car, boat and gasoline pump manufacturers have also warned that ethanol in fuel could increase safety risks and could void warranties on pumps. Leading gasoline pump maker Gilbarco has announced it will not honor warranties on pumps used with gasoline containing more than 10 percent ethanol. According to soil and groundwater expert Robert Niven, high levels of ethanol could also heighten the possibility of fuel leaks and contamination to groundwater supplies, and increase corrosion and leaks in storage tanks. A review of scientific research on the effects of high ethanol concentrations conducted by the Orbital Engine Co. have also shown that excessive ethanol could result in corroded metal as well as damaged carburetors, fuel pumps, lines, filters and gasoline tanks. The Federal government has been criticized for avoiding the ethanol issue allegedly to protect struggling sugar farmers. Meanwhile, the Federal Cabinet has asked the New South Wales state government to make labeling of ethanol content in gasoline mandatory to allay fears of motorists and car manufacturers.

BANGLADESH
Gov’t to privatize troubled firms to revive economy

Hoping to revive the country’s ailing economy, the Bangladeshi government is actively pursuing the privatization of financially troubled state-owned companies. The state had hoped to sell more than 30 loss-making firms by the end of November. According to State Minister for Industry Rezaul Karim, the government will hold an open bidding for state enterprises ranging from jute, textile and leather factories to paper and edible oil mills. International donors such as the World Bank have been pressuring Bangladesh to revitalize its economy to reduce its dependence on donor aid. Lukewarm investor interest, however, continue to hamper the government’s privatization efforts.

Dhaka embarks on clean fuel project, converts vehicles to CNG use

The city of Dhaka will convert thousands of vehicles to run on cleaner compressed natural gas (CNG) in the next few years. Funded in part by the Asian Development Bank, the US$113.4 million Dhaka Clean Fuel Project will involve the construction of a 60-kilometer natural gas pipeline between Dhanua and Aminbazar in Savar as well as 97 kilometers of pipelines to improve natural gas distribution in the city. It will also purchase 10,000 CNG conversion kits for gasoline-powered vehicles, CNG-fueled buses and auto rickshaws, and build three workshops to convert vehicles to CNG and do repair and maintenance work. The cities of Bangladesh have long suffered from serious air pollution problems largely caused by emissions from poorly maintained vehicles and two-stroke auto rickshaws.

CHINA
Development guidelines issued for petroleum industry

The State Economic and Trade Commission (SETC) issued in December the guidelines for the development of China’s petroleum industry in the coming years. According to the SETC plan, the country will verify more quality oil and natural gas reserves in Ordos, Junggar, Songliao, Tarim and Qiuquan basins, and increase verified reserves and stabilize output in the Bohai Bay and the Turpan-Hami Basin. To meet growing natural gas demand, China will evaluate natural gas reserves in the Sichuan Basin and make significant oil discoveries in Ordos, south Sichuang, and the offshore areas of the East China Sea. To increase the efficiency of natural gas development, it will intensify evaluation efforts prior to the development of a natural gas field, and devise a strategy for capacity utilization. It will also adjust its oil output and formation strategies and slow down crude oil output by tapping the oilfields in its eastern part. Meanwhile, it plans to increase oil exploration and boost production in its western part and offshore areas. Other strategies include the accelerated construction of oil pipelines, improvement of shipping patterns and operations to reduce oil transport costs, and the development of new technologies for oil exploration, oil and natural gas field development, and oil and natural gas transport.

Gov’t sets stricter diesel fuel standard
The government will announce in March the national urban standard for vehicle-use diesel fuel. Finalized by the Chemical Science Research Institute in December, the new standard requires diesel fuel for urban vehicles to contain no more than 0.05 percent sulfur. It should also have a cetane number not lower than 49 and an oxidation stability of not more than 2.5 percent. The stricter specification will take effect in July 2004, the same time the national government enforces the Euro II exhaust emission standard. It will not cover diesel fuel used for other purposes such as agriculture, shipping, mining and power generation.

China to liberalize aviation fuel market
China will gradually open its aviation fuel market and reform its aviation fuel supply system to dismantle the existing monopoly and introduce healthy competition. The state will allow qualified aviation fuel suppliers to sign supply contracts through bidding or consultation with airlines, and operate aviation fuel filling stations. It will set up healthy competition mechanisms and ensure equal access to airport oil supply facilities among qualified suppliers. Finally, it will develop a multi-level aviation fuel pricing system that will give suppliers full autonomy in setting fuel prices.

CNOOC builds large refinery in Guangdong
China National Offshore Oil Co. (CNOOC) will build a large refinery in Guangdong, Huizhou. The 12 million tons per year (tpy) facility will supply feedstock to the 800,000 tpy ethylene project of CNOOC and Shell. Following the completion of the refinery, the company will work to develop its terminal marketing network by building filling stations throughout the country. CNOOC is also constructing
China’s biggest fertilizer plant in Hainan and will set up the country’s first imported liquefied natural gas receiving station in Shenzhen, Guangdong.

Dalian Petchem renovates heavy oil catalytic unit
Dalian Petrochemical Branch Co. has completed the renovation of its 3.5 million tons per year heavy oil catalytic unit. Considered the largest in China, the unit will enable the company to process qualified products, and considerably improve its oil processing structure, deep-processing capability, and profitability. Its successful renovation completes the first stage of Dalian Petrochemical’s ambitious plan to build the largest crude oil processing base in China by the end of 2005.

INDIA
Gov’t eyes Rs 175 billion investment in bio-diesel production

The Indian government plans to invest more than Rs 175 billion (US$3.6 billion) in a comprehensive program involving the extraction of oil from Jatropha plantations for blending with diesel. To be pursued under a National Mission on Jatropha during the 10th Plan, the program will ensure the availability of bio-diesel nationwide, cultivate five million hectares of wasteland, generate employment, and reduce greenhouse gas emissions. According to the Planning Commission, if the program is approved now, the nurseries and seedlings will be ready for planting in the wastelands next year while bio-diesel from the plantations will be available beginning 2004. The program is targeting bio-diesel output of as much as 5.5 million tons by 2008. Bio-diesel production is expected to reduce India’s oil import bill by Rs 200 billion (US$4.1 billion) per year by the end of the 10th Plan.

IOC launches branded fuels
Indian Oil Corp. (IOC) launched in December its Premium brand gasoline and Super brand diesel across the country. The company hopes to sell 10,000 kiloliters of Premium gasoline and 8,000 kiloliters of Super diesel by February. IOC has reported monthly sales of 3,000 kiloliters of Premium and 1,200 kiloliters of Super since it introduced the brands in New Delhi last August. The company is currently developing a new logo for the branded fuels.

Oil firms, motorists await gov’t decision on auto LPG use
Oil companies as well as motorists eager to switch to a cleaner and cheaper auto fuel are awaiting the government’s decision on the use of liquefied petroleum gas (LPG) in vehicles. Both Indian Oil Corp. and Bharat Petroleum Corp. have already commissioned their respective auto LPG dispensing stations in Koyambedu and Guindy in Chennai. The Transport Department, however, has yet to authorize retrofitting centers and announce the approval of the LPG conversion kits and other equipment already cleared by Central agencies. Oil companies currently supply LPG only to vehicles that have been endorsed by the Transport Department. Despite the department’s apparent slowness, oil industry officials believe the government will soon step up efforts to promote LPG use in vehicles.

HPCL, GAIL tie up to market clean fuels
Hindustan Petroleum Corp. Ltd. (HPCL) and Gas Authority of India Ltd. (GAIL) have agreed to set up a joint venture to market environment-friendly fuels in and around the cities of Andra Pradesh. HPCL and GAIL will each take a 22.5 percent stake in Bhagyanagar Gas Ltd. while the Andra Pradesh government may acquire a five percent stake. The remaining shares will be offered to financial institutions and other strategic investors. The new venture will distribute and market natural gas, compressed natural gas (CNG), piped gas and auto liquefied petroleum gas (LPG) for use in various sectors and industries. Investing around 700 to 1,000 crore (US$145 to 208 million) in the next seven to eight years, it will develop the required infrastructure, build, operate and maintain its own pipeline, and set up retail outlets for auto LPG and CNG.
Oil firms ordered to sell clean diesel in several cities

In a bid to curb air pollution in the country, the Ministry of Petroleum and Natural Gas has ordered state-owned oil companies to sell clean, low-sulfur diesel in Hyderabad-Secunderabad and the Mumbai metropolitan region beginning December 16, 2002. Petroleum Minister Ram Naik has also announced that cleaner gasoline and diesel will be sold in Ahmedabad, Bangalore, Pune and Kanpur beginning April 1. The cleaner diesel, currently available in Delhi, Mumbai, Chennai and Kolkata, has a sulfur content of 0.05 percent and meets Euro II emission standards. Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. have so far invested a total of Rs 11,000 crore (US$2.2 billion) to upgrade their facilities and produce cleaner fuels.

Gov’t to decide on Auto Fuel Policy
The Indian government is expected to decide on the Auto Fuel Policy recommended by the Mashelkar Committee by the end of January. According to Petroleum Minister Ram Naik, the views of state governments, concerned central ministries, stakeholders, and the general public will be studied and included in the integrated policy that will be submitted to the Cabinet for approval. The committee led by Dr. R.A. Mashelkar has proposed compliance with Euro III emission norms for vehicles by 2005 and Euro IV norms by 2010. This will entail an investment of about Rs 450 billion (US$9.3 billion). The policy also calls for the use of both liquid and gaseous fuels that meet the emission standards.

INDONESIA
Higher oil product imports seen in 2003

State-owned Pertamina predicts that oil product imports will increase to around 30 percent of the country’s total demand this year from the estimated 25 percent in 2002. According to the company, local refineries will be able to produce only 42.02 million kiloliters out of the estimated domestic oil products consumption of 60.9 million kiloliters in 2003. The lower oil output will be due in part to the scheduled shutdown of Pertamina’s Balongan and Balikpapan refineries this year for routine maintenance.

New fuel price formula to be announced soon
The Indonesian government will soon announce a new fuel price formula for 2003. Energy and Mineral Resources Minister Purnomo Yusgiantoro said in late December that although a team is still finalizing the new formula, ceiling and floor prices in 2003 will definitely be based on the currently used Mid Oil Platts Singapore (MOPS) prices. However, prices of some types of fuel oil, which were set at 75 percent of market prices in 2002, will be raised to 100 percent this year. Purnomo revealed that in the coming years, prices of fuel oil will be set according to its real economic value. He underscored the need to improve the pricing policy for fuel oil in view of the scheduled abolition of oil subsidy by the end of 2004.

JAPAN
Japan to push production, use of ethanol-blended gasoline

Japan plans to promote the production and use of ethanol-blended gasoline to create a cleaner fuel for motor vehicles and consequently reduce greenhouse gas (GHG) emissions. The Environment Ministry will work to replace all forms of regular gasoline with fuel containing 10 percent plant-derived ethanol by 2008. The new fuel policy should compel automakers to start producing vehicles that can run on the blended fuel this year. Meanwhile, the ministry will determine the safety and environmental impact of gasoline with one to five percent ethanol. According to ministry officials, the blended fuel can reduce GHG emissions by more than one percent from the 1990 level. The 1997 Kyoto Protocol requires Japan to cut its GHG emissions by six percent between 2008 and 2012.

JNOC produces fuels via GTL process
Japan National Oil Corp. (JNOC) has successfully completed the first domestic production of liquid petroleum products from natural gas. Using the gas-to-liquids (GTL) process, JNOC in cooperation with Cosmo Oil Co., Nippon Steel Corp., Japan Petroleum Exploration Co., Chiyoda Corp. and Inpex Corp. started producing petroleum products from natural gas at its pilot plant in Tomakomi, Hokkaido, last August. The company will continue operating the plant until December 2003 to produce GTL products and study the commercialization of the technology. The GTL process converts natural gas to products such as diesel and kerosene that are free from sulfur and nitrogen oxide. The technology will help in the development of small or remote gas fields that have remained untapped due to high transportation and development costs.

MALAYSIA
Petronas posts pre-tax profit of 12 billion ringgit

Petroliam Nasional Bhd (Petronas) reported a pre-tax profit of 12.1 billion ringgit (US$3.1 billion) in the first half of fiscal year 2002-2003. Its net profit in the period that ended September 2002 stood at 8.27 billion ringgit (US$2.1 billion) based on revenues of 37.35 billion ringgit (US$9.8 billion). International operations contributed 11.4 billion ringgit (US$3 billion) to its total revenues. Export sales totaled 16.3 billion ringgit (US$4.2 billion) while domestic sales stood at 9.7 billion ringgit (US$2.5 billion). The company attributed its improved profitability to higher oil prices.

PAKISTAN
Sale of PSO moved to first quarter

The Privatization Committee has deferred the sale of state-owned enterprises led by Pakistan State Oil (PSO) to the first quarter of 2003. Abdul Hafeez Shaikh, adviser on Privatization and Investment, said the government remains committed to the privatization program and will work to accelerate the process to encourage both local and foreign investors. Hoping to sell its 51 percent stake in PSO to investors, the state will soon hold the bidding for the oil company as well as other state-owned firms.

PHILIPPINES
Petron launches cleaner diesel fuel

Supporting government’s efforts to control air pollution, Petron Corp. has launched an environment-friendly yet powerful diesel fuel specially formulated for jeepneys, buses, and certain models of sedans, sports utility and Asian utility vehicles. Petron Diesel Max’s cleaning ability prevents and removes deposit formation in the filter injectors, thereby ensuring an efficient spray pattern for the fuel. As it helps the engine get more power out of the fuel, a correct spray pattern guarantees better fuel economy and lower emissions. Diesel Max also ensures good oxidation stability, thus minimizing the possibility of degradation and breakdown as well as the formation of carbon and gum-like deposits.

SRI LANKA
Oil majors eye entry to Sri Lanka’s oil retail market

Foreign oil companies led by Shell Gas Lanka and Caltex Ceylon have expressed interest in penetrating Sri Lanka’s small but promising gasoline retail market. The government had earlier invited a third player to enter the petroleum marketing and retail sector. Officials of the foreign oil firms, however, predict the government will most likely limit the field to three players, given the small market of just 65,000 barrels per day. They also contend that opening up the market to greater competition will not result in cheaper fuel since the government has long been subsidizing fuel prices. In 2002, the government allowed Indian Oil Corp. to take over more than 100 gasoline stations owned by Ceylon Petroleum Corp. (Ceypetco), lease oil storage space at Ceypetco’s tank farm in Trincomalee, and supply the country with 480,000 tons of petroleum products. State-owned Ceypetco has long monopolized oil importation and refining in Sri Lanka.

SOUTH KOREA
TotalFinaElf forms petchem venture with Samsung General

Hoping to gain access to the rapidly expanding Asian petrochemicals market, TotalFinaElf SA will spend 750 million euros (US$712 million) to put up a 50-50 joint venture with Korean firm Samsung General Chemicals. The company, represented by chemicals unit Atofina, and Samsung General have signed a preliminary contract for the establishment of a venture that will produce and market petrochemicals and polyolefins from an integrated plant in Daesun. The JV will raise Atofina’s Asian market share to 13 percent from zero, and allow it to evenly divide its chemicals portfolio between petrochemicals and a combination of intermediate and specialty chemicals. It will also make TotalFinaElf a leading global producer of ethylene. The partners expect to finalize the agreement in the first quarter of this year.

SK Group to invest US$100 million in China
The SK Group will invest US$100 million in China this year in the hope of fully penetrating the world’s largest and fastest growing consumer market. SK China President and CEO Xie Cheng revealed that the group and SK China will each invest US$50 million in the fields of telecommunications, life sciences and energy-chemicals. SK’s energy and chemicals business in China will focus on the construction of a nationwide network of light automotive repair service outlets that will also serve as distributors of SK’s auto-related products such as lubricants, car accessories and second-hand vehicles. It will also build a special polymer production facility and a sales company in Guangdong in September to expand its market share to 50 percent. Finally, it will work to strengthen its cooperation with China Petroleum and Chemical Corp. in the oil refining and petrochemicals sectors. SK plans to build an independent business empire in China in line with its globalization strategy. According to Xie, the company expects its Chinese operations to grow into a 14 billion yuan (US$1.6 billion) conglomerate and surpass its domestic operations within 10 years.

TAIWAN
FPC, Sinochem ink oil trade deal

Formosa Petrochemical Corp. (FPC) and China National Chemicals Import & Export Corp. (Sinochem) have signed their first ever oil trade agreement in a bid to strengthen their relationship as trading partners. Under the deal, FPC will refine part of Sinochem’s crude oil starting this year. The contract also requires Sinochem to increase its diesel purchases from FPC and resell them to Chinese power generation firms. The two companies plan to cooperate in crude oil, oil products and petrochemicals trading in the future.
CPC to convert refinery into industrial park

Chinese Petroleum Corp. (CPC) has proposed to convert its Kaohsiung oil refinery into a high-technology industrial park in place of its original plan of dismantling the facility 25 years after its construction. Approved by the CPC board, the industrial park development plan hopes to attract the nanotechnology, biotechnology, semiconductor, manufacturing and environmental industries. Companies that will operate in the NT$30 billion (US$862 million) industrial park are expected to generate some 37,000 jobs with an annual production value of NT$95.7 billion (US$2.7 billion). The CPC management is negotiating with residents in the neighboring area while awaiting the approval of the Ministry of Economic Affairs.

THAILAND
Thai Lube to resume operations

Thai Lube Base Co. will resume its operations in February, following the complete restructuring of its US$200 million debt. The company, a unit of PTT Plc, suspended production at its lube oil and asphalt plant in the last two years due to financial troubles. Under the debt deal, creditors will write down US$140 million in debt to US$60 million. Shareholders will repay US$28 million out of the US$60 million while the company’s operating cash flow upon resumption of operations will pay for the balance. PTT President Viset Choopiban expects Thai Lube to recover and realize profits within the first year of resumption.

Finance Ministry denies reports of BPC-Thai Oil merger
The Ministry of Finance has strongly denied reports of a possible merger between debt-laden Bangchak Petroleum (BPC) and Thai Oil Co. Calling the rumors “groundless,” Punpit Surithin, director-general of the State Enterprises Policy Office, said the merger issue is not among the three solutions proposed by the ministry. Financial advisers have suggested that the ministry either increase BPC’s 6 billion baht (US$138 million) capital or guarantee a loan of the same amount for the company. The third solution is a combination of an increase in capital and loan guarantees. Regional investment house ADM Capital Fund had earlier expressed interest in injecting funds into the company. The Finance Ministry, however, advised ADM to consider other investment opportunities in view of uncertainties over BPC’s rehabilitation plan.

PTT eyes merger of subsidiaries to boost profits
PTT Plc is studying the possibility of consolidating its subsidiaries, namely, PTT Exploration and Production (PTTEP), National Petrochemical (NPC), and Thai Oil to expand its power business and improve profitability. PTT holds 61 percent of PTTEP, 49.99 percent of Thai Oil, and 38 percent of NPC. PTTEP has a 26 percent stake in Thaioil Power, which runs a 115 MW co-generation power plant and owns 56 percent of Independent Power’s 700 MW gas-fired power plant. Meanwhile, NPC plans to raise the capacity of its 170 MW power plant to satisfy the demands of corporate clients at Rayong’s Map Ta Put industrial estate. Given their tremendous energy capacity and earning potential, PTT believes a merger of its power-related units will ensure bigger profits in the coming years. The company has projected revenues of about 400 billion baht (US$9.2 billion) for 2002, up six percent from the previous year.

ATC mulls US$20 million investment in diesel production
Aromatics Thailand (ATC) plans to invest US$20 million in a condensate splitter refinery to produce high-quality diesel from its by-products. The facility will allow the company to use condensate residues from its aromatics output as the primary raw material for diesel production. ATC’s diesel will compete with that of Rayong Pure Refine.

VIETNAM
Russian partner backs out of Dung Quat refinery project

Russia’s Zarubezhneft has decided to withdraw from the US$1.3 billion Vietross joint venture tasked to build Vietnam’s first oil refinery. State-owned Vietnam Oil and Gas Corp. (PetroVietnam) and its Russian partner reportedly disagreed over the acquisition of modern technology and equipment for the 6.5 million tons per year Dung Quat refinery. The latter allegedly preferred to use outdated Russian technology for the facility. The two parties decided to change the form of cooperation, making PetroVietnam the sole investor at the end of a two-day meeting between Vietnamese Deputy Prime Minister Vu Khoan and Russian counterpart Victor Khristenko in late December. PetroVietnam Chairman Pham Quang Du said construction of the facility has been delayed due to Zarubezhneft’s apparent lack of experience in building oil refineries.