OAO Lukoil, Russia"s second-biggest oil producer, plans to add storage capacity for oil products in the Persian Gulf and Asia.
OAO Lukoil, Russia"s second-biggest oil producer, plans to add storage capacity for oil products in the Persian Gulf and Asia to boost profit from those markets on bets that demand for fuels will rebound. Lukoil International Trading & Supply Co. will increase its storage facilities for gasoline and distillates in the Persian Gulf and expand storage in Singapore beyond the floating supertanker it uses to hold fuel oil, Gati al-Jebouri, chief executive officer of the Lukoil trading unit, said in an interview in Singapore yesterday.
?Without storage it"s difficult to implement a strategy,? al-Jebouri said. ?We want a solid, professional partner who operates the storage and we"re able to lease it at an economically viable rate.?
Next year may still be ?challenging? for the energy industry because of overcapacity, al-Jebouri said. Crude oil has risen 80 percent this year to about $80 a barrel in New York. Prices tumbled below $33 in December, a four-year low, as the global recession saps energy demand.
Lukoil, which raised $1.5 billion in a bond sale last month, bought refinery stakes in Italy and the Netherlands. The company will ?have to integrate better? before buying more refiners, said Geneva-based al-Jebouri. Lukoil aims to streamline operations by integrating existing assets, and boost capacity to turn crude oil into products including gasoline and diesel.
?On a very long-term basis, with the right refining margins, there are opportunities for us to increase our refining capacity,? he said in Singapore, where the company runs its regional operations. ?But that"s not something that we"re actively pursuing today -- today the active job is to integrate those assets which we have purchased.?
Lukoil Trading, which also operates from Dubai, may take up storage capacity in Fujairah in the United Arab Emirates, al- Jebouri said. Fujairah is the largest center for marine fuel supply in the Persian Gulf.
?Clearly, Fujairah is quite an interesting location but it"s not the geographical location alone, it"s the economics that has to make sense as well,? he said after speaking at the Asia-Pacific Petroleum Conference in Singapore.
There"s ?no necessity? currently to stockpile more crude oil and Lukoil Trading has no immediate plans to anchor a second Very Large Crude Carrier in Singapore to store fuel oil. A VLCC has the capacity to carry 2 million barrels of oil.
Last month, Abdalla El-Badri, the secretary-general of the Organization of Petroleum Exporting Countries, estimated there"s 125 million barrels of crude oil and product held in floating storage. That"s equivalent to more than 60 VLCCs.
?With a change of the market, we will be interested in expanding our storage outside of just fuel oil but other products as well,? al-Jebouri said. ?Whenever it becomes profitable, that"s when we"ll start again.?
Lukoil Trading, which pulled out of gasoline trading in the past year amid the collapse in global refining profits, is looking into expanding into other light products including liquefied petroleum gas, al-Jebouri said.
?We see LPG as an area of interest where we want to grow our business, we see naphtha as an area of growth,? he said. ?In Europe we see an opportunity to develop more our third- party trading on gasoline.?
Naphtha, refined from crude oil, is closely tied to gasoline as refiners use naphtha to ?blend? with the motor fuel. Asian refiners suffered a loss of $2.65 a barrel producing naphtha in October, compared with a profit of 80 cents in January, according to brokers PVM Oil Associates. The product is used to make petrochemicals or turned into gasoline.
?I subscribe to the theory that the economy is going to have a little bit of a further turn down before it starts on a solid and long-term growth,? al-Jebouri said. ?Europe will be challenging, certainly the U.S. as well.?