TNAG-0947-FCO40-1166-Oil-developments-in-and-around-Hong-Kong-1980 — Page 64

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HONG KONG

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In

Singapore postings are normally pitched so as to yield a reasonable return to the seller given that he acquires crude at OGSP. these times of widely differing crude prices, however, those refiners who acquire crude relatively cheaply (like the Aramco partners), pitch their postings lower than those who cannot acquire cheap crude. Thus so long as this two-tier crude pricing situation continues, to be competitive a new refinery must first acquire its crude cheaply and then compete with the written down plant of existing refiners. Also, a refiner servicing a fuel oil oriented market will earn a lower gross income per tonne across the barrel thus increasing the difficulty of remunerating his investment.

The economics are not significantly sensitive to reductions in capital cost but are senstive to:

(i) Crude acquisition cost

(ii) Hong Kong product import parity

(iii)

Alterations in the shape of the demand barrel

To test the degree of demand shift required to allow the project (given the above assumptions) to return a gross refiner's margin of $1/bbl, the worth of the products produced from the crude was increased to $249/mt. (This equates with Chinese crude at $33/bbl ($241.7/mt) and a 5% real return on the investment ($7.31/mt). In this way, using current prices, the degree of demand shift required between fuel oil and gas oil to reach $249/mt was determined. (Appendix 9). To give this result, gas oil demand would need to more than double and fuel oil demand reduce by over a third; both against 1990 forecasts.

Given the prevalent uncertainties about some key assumptions, it is not possible to assess the potential economic attractiveness. of a refinery with any confidence. However, to yield more promising indications than the preliminary ones above, some or all of the following factors will need to be revised in a more optimistic direction:

(i) The assumption that Hong Kong import values for products

are no more than Singapore postings plus freight.

(ii) The assumption that Singapore postings will remain at their

present relatively depressed levels.

(iii)

The assumption that fuel oil demand will remain preponderant in the Hong Kong market barrel.

(iv) The assumption that China will not moderate its hawkish crude

oil pricing policy.