Thailand’s PTT Exploration and Production, or PTTEP, will provide almost all of its equity crude production from its Oman upstream projects to domestic refineries rather than trading the barrels in the international market, strengthening the Southeast Asian nation’s energy security amid tight global supply, feedstock managers at state-run PTT’s refining business units said May 26.
PTTEP’s subsidiaries PTTEP Oman E&P Corp. and PTTEP MENA have recently tied up a term contract with PTT’s International Trading Business unit for the supply of around 9 million barrels/year of Oman crude. The state-run oil and gas explorer made a prudent decision to prioritize domestic end-users, according to feedstock management sources at PTT’s refining units Thaioil and IRPC.
The 9 million barrels/year of Oman crude comes as a big sentiment booster, especially in times of heightened global crude supply uncertainty with major disruptions to trading Russian oil, while OPEC+ remains hesitant to boost the pace and scale of the group’s current production hike strategy, the feedstock managers told S&P Global Commodity Insights.
With major refineries in Thailand ramping up run rates to meet rapid recovery in fuel demand from the country’s tourism sector, such term deals would allay feedstock supply concerns, the feedstock managers said.
“The collaboration is another milestone of successful synergy among PTT Group between upstream and downstream. Furthermore, such collaboration guarantees the energy security of Thailand as well as enhances the efficiency in managing supply/demand base and strengthens competitiveness of the group in international territories,” PTT said in a statement.
PTTEP has the investments in three producing projects in Oman – the Oman Block 61 Project, the PDO (Block 6) Project and the Mukhaizna (Block 53) Project – which are recognized as among the largest petroleum assets in Oman, according to PTT.
“Through the investment in these three projects, PTTEP has established a strong foothold, creates the company’s long-term growth in the Middle East as well as generates revenues for Thailand,” PTT said.
By combining the equity portions of the three projects, PTTEP holds approximately 24,000 b/d of Omani crude oil.
Term supply preference
Major refiners across Asia, including PTT, are aiming to increase term crude supply contracts and minimize spot purchases in an effort to trim their overall feedstock procurement costs.
Southeast Asia’s state-run oil and refining companies typically secure around 70%-75% of crude oil requirements via term deals and their own upstream operations, while the rest is sourced from spot purchases. However, the refiners have been looking for every means possible to reduce their spot procurement ratio recently as market premiums extend rallies amid tight supply conditions, trading sources at refiners in Vietnam, Indonesia and Thailand told S&P Global previously.
In South Asia, Indian government and refinery officials said India was looking for new term crude deals that would make commercial sense.
“Price differentials on medium sour grades in the Persian Gulf market and light sweet crudes in the Southeast Asian market are high … this is on top of the overheated outright benchmark prices, making spot purchases extremely costly,” said a refining margin and linear programming model strategist at PTT.
Thai refiners’ staple Abu Dhabi medium sour crude Upper Zakum has been assessed at an average premium of $4.90/b to front-month Platts Dubai to date in first half 2022, compared with an average premium of $2.10/b in H2 last year, S&P Global data showed.
Another Thai refiners’ favorite, Malaysian light sweet Kimanis crude, was assessed at an average premium of $8.6/b to Dated Brent to date in May, on course to set the highest monthly average spot premium since $9.40/b in January 2020.
According to Platts Analytics of S&P Global Commodity Insights, Dated Brent prices are expected to average $103/b in 2022, up from $71/b in 2021, before easing to $90/b in 2023.
Source: Platts