|Bid||33.59 x 1000|
|Ask||33.69 x 1800|
|Day's Range||32.99 - 33.63|
|52 Week Range||19.19 - 62.27|
|Beta (5Y Monthly)||0.69|
|PE Ratio (TTM)||N/A|
|Forward Dividend & Yield||1.33 (4.16%)|
|Ex-Dividend Date||Nov 12, 2020|
|1y Target Est||41.80|
(Bloomberg) -- Earlier this month, Royal Dutch Shell Plc pulled the plug on its Convent refinery in Louisiana. Unlike many oil refineries shut in recent years, Convent was far from obsolete: it’s fairly big by U.S. standards and sophisticated enough to turn a wide range of crude oils into high-value fuels. Yet Shell, the world’s third-biggest oil major, wanted to radically reduce refining capacity and couldn’t find a buyer.As Convent’s 700 workers found out they were out of a job, their counterparts on the other side of Pacific were firing up a new unit at Rongsheng Petrochemical’s giant Zhejiang complex in northeast China. It’s just one of at least four projects underway in the country, totaling 1.2 million barrels a day of crude-processing capacity, equivalent to the U.K.’s entire fleet.The Covid crisis has hastened a seismic shift in the global refining industry as demand for plastics and fuels grows in China and the rest of Asia, where economies are quickly rebounding from the pandemic. In contrast, refineries in the U.S and Europe are grappling with a deeper economic crisis while the transition away from fossil fuels dims the long-term outlook for oil demand.America has been top of the refining pack since the start of the oil age in the mid-nineteenth century, but China will dethrone the U.S. as early as next year, according to the International Energy Agency. In 1967, the year Convent opened, the U.S. had 35 times the refining capacity of China.The rise of China’s refining industry, combined with several large new plants in India and the Middle East, is reverberating through the global energy system. Oil exporters are selling more crude to Asia and less to long-standing customers in North America and Europe. And as they add capacity, China’s refiners are becoming a growing force in international markets for gasoline, diesel and other fuels. That’s even putting pressure on older plants in other parts of Asia: Shell also announced this month that they will halve capacity at their Singapore refinery.There are parallels with China’s growing dominance of the global steel industry in the early part of this century, when China built a clutch of massive, modern mills. Designed to meet burgeoning domestic demand, they also made China a force in the export market, squeezing higher-cost producers in Europe, North America and other parts of Asia and forcing the closure of older, inefficient plants.“China is going to put another million barrels a day or more on the table in the next few years,” Steve Sawyer, director of refining at industry consultant Facts Global Energy, or FGE, said in an interview. “China will overtake the U.S. probably in the next year or two.”Asia RisingBut while capacity will rise is China, India and the Middle East, oil demand may take years to fully recover from the damage inflicted by the coronavirus. That will push a few million barrels a day more of refining capacity out of business, on top of a record 1.7 million barrels a day of processing capacity already mothballed this year. More than half of these closures have been in the U.S., according to the IEA.About two thirds of European refiners aren’t making enough money in fuel production to cover their costs, said Hedi Grati, head of Europe-CIS refining research at IHS Markit. Europe still needs to reduce its daily processing capacity by a further 1.7 million barrels in five years.“There is more to come,” Sawyer said, anticipating the closure of another 2 million barrels a day of refining capacity through next year.Chinese refining capacity has nearly tripled since the turn of the millennium as it tried to keep pace with the rapid growth of diesel and gasoline consumption. The country’s crude processing capacity is expected to climb to 1 billion tons a year, or 20 million barrels per day, by 2025 from 17.5 million barrels at the end of this year, according to China National Petroleum Corp.’s Economics & Technology Research Institute.India is also boosting its processing capability by more than half to 8 million barrels a day by 2025, including a new 1.2 million barrels per day mega project. Middle Eastern producers are adding to the spree, building new units with at least two projects totaling more than a million barrels a day that are set to start operations next year.Plastic DrivenOne of the key drivers of new projects is growing demand for the petrochemicals used to make plastics. More than half of the refining capacity that comes on stream from 2019 to 2027 will be added in Asia and 70% to 80% of this will be plastics-focused, according to industry consultant Wood Mackenzie.The popularity of integrated refineries in Asia is being driven by the region’s relatively fast economic growth rates and the fact that it’s still a net importer of feedstocks like naphtha, ethylene and propylene as well as liquefied petroleum gas, used to make various types of plastic. The U.S. is a major supplier of naphtha and LPG to Asia.These new massive and integrated plants make life tougher for their smaller rivals, who lack their scale, flexibility to switch between fuels and ability to process dirtier, cheaper crudes.The refineries being closed tend to be relatively small, not very sophisticated and typically built in the 1960s, according to Alan Gelder, vice president of refining and oil markets at Wood Mackenzie. He sees excess capacity of around 3 million barrels a day. “For them to survive, they will need to export more products as their regional demand falls, but unfortunately they’re not very competitive, which means they’re likely to close.”Demand TrapGlobal oil consumption is on track to slump by an unprecedented 8.8 million barrels a day this year, averaging 91.3 million a day, according to the IEA, which expects less than two-thirds of this lost demand to recover next year.Some refineries were set to shutter even before the pandemic hit, as a global crude distillation capacity of about 102 million barrels a day far outweighed the 84 million barrels of refined products demand in 2019, according to the IEA. The demand destruction due to Covid-19 pushed several refineries over the brink.“What was expected to be a long, slow adjustment has become an abrupt shock,” said Rob Smith, director at IHS Markit.Adding to the pain of refiners in the U.S. are regulations pushing for biofuels. That encouraged some refiners to repurpose their plants for producing biofuels.Even China may be getting ahead of itself. Capacity additions are outpacing its demand growth. An oil products oversupply in the country may reach 1.4 million barrels a day in 2025, according to CNPC. Even as new refineries are built, China’s demand growth may peak by 2025 and then slow as the country begins its long transition toward carbon neutrality.“In an environment where the world has already got enough refining capacity, if you build more in one part of the world, you need to shut something down in another part of the world to maintain the balance,” FGE’s Sawyer said. “That’s the sort of environment that we are currently in and are likely to be in for the next 4-5 years at least.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The itch is back for Paul Mead. After almost a decade investing in vineyards and startups in his native New Zealand, the former Barclays Plc and Enron Corp. trader wants to return to the power market.What’s luring Mead is the realization that efforts to slow global warming through renewable energy and electrification are creating new ways to make money in Europe’s $430 billion power market. Stricter climate targets are spurring investments in wind turbines, solar panels and battery systems, with Bloomberg Intelligence estimating the market may almost double in size in the next 10 years.With the European Union, U.K. and other governments increasingly turning their backs on fossil fuels, companies steeped in that business are looking over the horizon and seeing a new age of electricity. Royal Dutch Shell Plc is on a hiring spree as it plans to spend as much as $3 billion a year on its new-energies division, and Vitol Group is building out its trading desk. More power traders have changed jobs in 2020 than in the past three years combined, according to Oxwich Search Ltd.“For those companies that get the right people on board, take advantage of cheap money and position wisely for the future, there will be real gains to be made,” said Mead, 52, who is in talks about a new job. “Easy Street can go onto the back burner as the opportunity is far too compelling to not be involved.”The major energy companies are adding power plants, retail customers and car-charging networks, and need more staff to help manage those assets. Electricity is a volatile commodity, and traders will try to profit from increasing price swings caused by intermittent wind and solar output.The vast majority of power traders earn six-figure salaries, recruiters say. For the cream of the crop, guaranteed compensation for changing jobs is between $2 million and $3 million. That still trails the salaries of the best oil traders, but recruiters say the gap likely will narrow in coming years as the now-niche business goes mainstream and attracts more talent.“We’re seeing unprecedented interest in the market and power traders,” said Jonathan Funnell, head of gas, power and renewables at Proco Commodities Ltd., a search firm in London. “Those that are carbon heavy have realized they need to be involved in electricity and renewables.”About 8,744 terawatt-hours changed hands in the European market last year, according to industry consultant Prospex Research Ltd. That could increase to more than 16,000 terawatt-hours by 2030, according to Elchin Mammadov, a senior utilities analyst for Bloomberg Intelligence. The value of the market could jump to more than 630 billion euros ($748 billion) by then, he said.What sets power traders apart from peers in oil, metals or agriculture is the sheer amount of data they need to track – which fossil-fuel plants are running, ever changing demand, what the technical charts are showing, weather reports and the overall power-generation mix. Sometimes they operate in several markets.The usual degrees in mathematics, finance, economics or engineering come in handy, but firms increasingly are searching for candidates with programming skills, including in Python. Denmark’s second-biggest city, Aarhus, has become a hub for short-term trading where companies choose students straight out of university and train them on the job.Unlikely Trading Hub Grows Alongside Jumbo Jet-Size Wind Blades“Power markets are so complex that in order to make sense of it you have to build big machines,” said Stefan Wieler, head of energy market analysis at Swiss utility Axpo Holding AG and a former Goldman Sachs Group Inc. oil analyst. “It’s very data-intensive, it’s very coding-intensive, it takes time.”The traders’ attention was tested on a calm Sept. 15, when intraday prices soared to levels among the highest on record. What began with a warning from Britain’s network manager that supplies were running low ripped through Germany, the Benelux market and Denmark. Prices rocketed as wind parks, the backbone in the fight against global warming, almost came to a standstill. Oil-fired plants belching black smoke were needed to secure supplies.As U.K. wind output plunged more than two-thirds within hours, prices jumped 10-fold in Britain and surged 20 times in Germany. And there have been more warnings since.“Wind is the one factor that really moves the market all the time, and it’s always on our screens,” said Bo Palmgren, chief operating officer at MFT Energy A/S in Aarhus. The company recently opened offices in the U.S., Turkey and Singapore as the renewables market goes global.Trading also is at the heart of London-based BP Plc’s pledge to move away from fossil fuels without sacrificing profits. Renewable-energy projects typically give returns of 5%-6%, and traders have on average boosted the company’s returns by 2%, Chief Executive Officer Bernard Looney said.BP, which plans to cut 10,000 jobs amid the slump in oil prices, will expand its electricity trading during the next five years, increasing volume annually by about 40% to 350 terawatt-hours -- or about as much as the U.K.’s annual consumption.Like BP, Shell is undergoing a major restructuring which will also result in thousands of job losses. Power is a key element in its short-term strategy. The Anglo-Dutch major, which in 2018 bought a U.K. electricity provider, plans to invest “quite heavily” in power during the next decade, CEO Ben van Beurden, said. The company first will hire short-term traders for the continental markets and then expand “a lot more than that” within the next year or so, David Wells, vice president at Shell Energy Europe, said in an interview this month.This is all a long way from the early days of Mead’s career. Oil trading got going in the 1970s, but it wasn’t until two decades later that power markets started evolving. The U.K. and Nordic markets were first to open up. Germany, now the biggest market, followed later. Before its notorious bankruptcy in 2001, Enron lobbied hard for liberalization.At the start, there were only a few trades a week.“We used to call it the ‘Hotel California,’ Mead said. “You could check in, but it could be hard to check out.”He recalls that desks in those early days were an eclectic mix of number crunchers and foreign-language speakers as local market players rarely spoke English. Trading systems were mostly built in Microsoft Excel, with brokers working the phones.Now, screen trading dominates, and thousands of deals are done each day.And in the latest sign of how renewable energy is penetrating not just markets but the whole economy, U.K. Prime Minister Boris Johnson this month announced a plan to tackle climate change through creating or supporting as many as 250,000 jobs. It follows the EU’s flagship Green Deal strategy from last year designed to make Europe the world’s first climate-neutral continent by mid-century.“Climate change and an electric future are reordering the industry,” Mead said. “The next 10 years suggest massive change.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Oil majors in the United States and Europe are undertaking different initiatives to address climate change.