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26 April 2016

Petrol Stations Must Have Sufficient Fuel

And It's A Law!

Did you know that petrol stations must have sufficient fuel? If they run out of fuel supply, they must order more. This may not be a big thing in Kuala Lumpur, but imagine what happens in the more remote areas of the country! The scenario goes like this: Petrol prices are falling (they have been falling for a few months), and it's the last day of the month, maybe half a day to the next month. The petrol station owner is sorely tempted not to refill his station because he knows, if he orders fuel today, and fills his tanks, within 12 hours the oil in the storage tanks would be worth less than he paid for them. Because oil prices are falling, whatever he pays for oil today is more than what he would pay tomorrow (i.e. the next month).

So should the petrol station refill? In Kuala Lumpur and the Klang Valley in general (including Petaling Jaya), it might not be an issue. Just drive ten minutes and voila! There's another petrol station. But let's imagine that you're in some remote town in Sarawak (where there is an election going on right now). You go to your regular petrol station, and you see a signboard saying, "SORRY NO PETROL. COME BACK TOMORROW." You try to figure out where the next nearest petrol station is. It's about an hour away, not very far by Sarawakian terms. (Correct me if I'm wrong) Your car is nearly out of petrol and you believe that you won't make it to the next station. You might not even manage to cover half the distance to the next station. Now, would you think that that "sorry no petrol" is a good excuse? I do not think so. It is only a convenient excuse for the petrol station owner to say, "I've run out of petrol. Come back in 24 hours, when petrol is cheaper, so that I don't need to refill with more expensive petrol." And so you pull up a chair at the petrol station, and sit down to wait. It's only 12 hours to the refill....

RM1 Million or Three Months

On 1st February 2015, the Borneo Post reported as follows:
KUCHING: A petrol station in Bintulu was found to have violated its licence conditions under the Ministry of Domestic Trade, Cooperatives and Consumerism Act Section 21(1).
According to KPDNKK Sarawak deputy director and enforcement chief officer Abdul Hafidz A Rahim, the station failed to ensure that the fuel supply was sufficient and constantly available to its customers.
“We will take stern action against this petrol station in Bintulu which deliberately did not place an order for more fuel despite exhausting its fuel supply since 3pm yesterday (Saturday).
“An investigation will be carried out and if found guilty, the maximum penalty for this offense is RM1 million or three months in prison,” he said in a press statement today.
(Source: Borneo Post Online, 1st February 2015. Petrol station faces stern action)

So the maximum fine is RM1 million, or three months in prison. It sounds impressive.

But in reality, the maximum punishment is not often meted out. Being the "maximum", it is reserved for serious cases. I believe that we should ask ourselves, instead, what the minimum punishment is. What is the minimum fine? And what is the minimum prison time?

The KPDNKK were in Kuching last year looking at petrol stations. If your petrol station is half full, or half empty, you're doing all right. If your petrol station is completely empty, you're in big trouble!

Internet of Things To The Rescue?

Of late, Internet of Things, or more popularly called "IoT", has become a big thing. The promise is that machines, with intelligent sensors, coupled with 24/7 Internet access, will be able to automate many things. A common example is office printers. Many people print until the printer cartridges are empty. When the user realizes that the cartridge has been drained to the last drop, he goes to the shop to buy a new one. In the meantime, the printer cannot be used until the printer has been fitted with a new cartridge. If the user delays in going to the shop, the printer is offline and unusable for the duration of the delay. With today's fast-paced world, it's highly likely that the user will not be able to go out immediately to buy a new cartridge. ("Drop everything, let's go! No?") Even with e-commerce, it takes time for an order to be placed online, processed, packed, and delivered. Two days might be enough, but it's two days too long.

But with the Internet of Things, the story of the printer and its unhappy, unproductive user becomes transformed into a fairytale. With an IoT-enabled printer, it can sense when the printer cartridge is about to run out of ink or toner. It can sense when the drum is about to go bust. And it can connect to the Internet, make an order on behalf of its user, and send an email notification to the user as it does so. Two days later, the printer cartridge is spent, and the printer stops working. But only for 5 minutes, because a replacement cartridge is on standby.

Imagine if we had that kind of technology for petrol stations. Before the petrol station runs out of petrol, the intelligent sensor detects an impending shortage. The smart computer chip in the petrol station starts talking to the server in the petrol supplier's office. "Send me some fuel," it says, "before I am empty. Fill me again, and I will be full. I want to serve the Malaysian public." And so, an order is made electronically, and two days later, just as the petrol runs out in the petrol station, there is a delivery truck, with a tanker full of oil. A smart looking man steps out and says to the astonished petrol station owner, "We're here with your refill!"

And that's how you prevent petrol stations from running out of fuel.

18 April 2016

Shifting Dynamics of Oil Demand

In a report "Oil and Gas Reality Check 2015" by consulting firm Deloitte one of the issues discussed was the dynamics of the demand for oil. Among some of the points raised in the report on the shifting dynamics of oil demand, were:

  • The International Energy Agency forecasted that demand for oil would grow by 0.9 MMbbl/d in 2015. 
  • China's demand for oil is strong and remains a "demand center", with projected demand for oil at 18 MMbbl/d in 2040. However, its main sources for oil may change in time.
  • European demand for oil is expected to maintain at 14 MMbbl/d in 2040.
  • In the US, crude oil imports have dropped 3% year-on-year as of January 2015. Players in the oil industry are starting to focus on domestic (US) demand, which are seen as more stable.
  • Japan's oil demand has dropped 22% since 2000, with increasing reliance on natural gas and nuclear. Nuclear is seen as a viable main source of energy.
  • The Asia Pacific oil-importing countries accounted for 70% (estimate) of global oil demand from 2010 to 2020.
  • The recent drop in oil prices was a boon to many governments. Many countries took the opportunity to cut fuel subsidies: Mexico, Brazil, India, China, Indonesia, Kuwait , Oman, Egypt, Tunisia, Morocco and Malaysia

Challenge of Drying Wells

In 2014 the IEA confirmed that global demand for oil is increasing. However, the challenge to this is, as Primeast describes it:
It is no secret that oil wells are drying up, but many people underestimate just how quickly this is happening. Whilst total OECD commercial oil inventories inched down by 6.5 million barrels in February, to 2,567 million barrels, this doesn't tell the whole story.

Companies are having to work exceptionally hard to increase their stocks. New sources are being identified, but these are often much deeper than existing fields and extracting oil is far more dangerous. This means the very latest technology is required to access these wells, which obviously costs a lot of money.

Challenge of the 3 D's.

In another Primeast article on the "Top 5 Challenges Facing Oil and Gas Gompanies", it was further stated:
Businesses are finding new sources, but these are proving to be extremely hard to access. In many cases they are deep underground, difficult to drill and distant from companies' existing sites. You could call this the 3D effect, and it is essentially three challenges rolled into one.

To extract oil from these new wells, firms need cutting-edge technology and highly-skilled engineers - both of which come at a price. The demand for oil and gas is continuing to rise at a time when resources are at their most stretched and this is putting a huge amount of pressure on businesses.

What I Think

With the number of challenges facing the oil and gas sector, I wonder why it is that oil companies are not already investing in alternative energy industries. It would be great if oil companies invested in electric vehicles. With all the money they have, they could easily fund innovation in affordable electric vehicle motor engines.

National Oil Companies (NOC's) are estimated to control 90% of the world's oil reserves. (source: 2015 report by Deloitte, look above for link) That means that they are sitting on a lot of money.

It is a terrible irony when the world's governments agree that reducing their carbon emissions is a very pressing concern, but the world's national oil companies (NOC's) want to increase their production and do everything they can to push demand further. Obviously, a more consistent approach is required to deal with the challenges of climate change. This would require a more unified approach among climate change stakeholders - which include oil and gas companies.

08 April 2016

Ranhill Denies Link to Unaoil

Ranhill Holdings Bhd. is a Malaysian company. Recently it has denied being involved in the Unaoil bribery scandal. The following is a photograph of a recent newspaper report (source: The Sun Daily, 6th April 2016.)

The recent statement from Ranhill Holdings Bhd. reads as follows: "....we wish to clarify and confirm that neither Ranhill Holdings Bhd nor any of its group of companies has entered into any transaction or arrangement with Unaoil. We wish to further clarify that at Ranhill, we have due process prescribed in the forms of policies and procedures in regards to engagement of third parties that include due diligence process and we practise code of conduct and good business ethics."

For the curious readers, they may like to read the article linking Ranhill to Unaoil (article by The Age, Australia). 

My Thoughts on the Matter

Here is my advice to Ranhill: The right response would be to demand that The Age withdraw its statement from the offending article and publish an unreserved apology in a major newspaper in Malaysia, or better yet, in its own newspaper. If The Age fails to respond, sue them. 

I hope that Ranhill takes steps to prove its innocence by taking The Age to court. It would be better for Ranhill. Malaysians want to see this kind of action, the type where the victim proves his innocence by taking legal action. 

A certain prominent Malaysian politician has recently failed to sue an international newspaper, despite the amount of lies (allegedly) that the newspaper has published about the said politician. "We are innocent, we know it, let them say what they want." This kind of reasoning doesn't work anymore, and in this new age reputation management is important for maintaining the public's trust.

Update: Petronas Named

Petronas have been implicated in the Unaoil scandal as well. The original article which named Petronas is at The Age Australia, Unaoil: Dark Secrets of Asian Powers. The Age named Petrofac (UK) as the Unaoil client.

Unfortunately due to a paywall I was unable to access an article in the Edge. However thanks to a certain M.A. Wind, blogging about corporate governance in Malaysia, we know that Petronas responded as follows:
“Petronas takes the allegations very seriously,” the statement read. “The company has a zero-tolerance policy against all forms of bribery and corruption and expressly prohibits improper solicitation, bribery and other corrupt activity by employees, directors and third parties performing work or services for or on behalf of companies in the Petronas group.”
Thanks Mr. Wind.

07 April 2016

Looming petrol glut, oil prices to fall?

Extract: "In Asia, traders have stored excess gasoline on tankers as onshore storage facilities in Singapore and Malaysia are filled to the rims. Analysts say crude prices could soon fall again as an emerging gasoline glut potentially adds to a global overhang in crude output that sees more than 1 million barrels of oil produced in excess of demand everyday."

Former Shell President, John Hofmeister said that it's a good thing that oil prices have fallen. "It’s a good thing we have a lot of oil in storage because it provides some security on the supply side. And I worry about the day that our storage starts to drop because then how do we protect ourselves from all the threats out there to what is otherwise a market situation that’s seeking equilibrium?" 

Mr. Hofmeister also said that oil should be normalizing back to USD80 per barrel by this year's end. In the meantime, my wife's friend's British husband has lost his job in the offshore oil exploration company. Times are tough when oil prices are low: Malaysia relies on oil for a major part of its GDP.

In another report, it was stated, "Low oil prices have spurred some demand. People are buying larger vehicles and driving more." Yeah, that's it. Drive around more. :-)

Oil is expensive because of US Dollar?

According to the Petrol Dealers Association of Malaysia, crude oil is purchased in US Dollars.

It's president Datuk Hashim Othman said, "Even though the price of crude has gone down, our ringgit has depreciated, so we're buying at a higher price. All global trade in crude oil is in US dollars. Currency is the main reason."

Ironically, Malaysia produces crude oil as well. If oil mined from Malaysia is sold to Malaysian petrol dealers, would it not be cheaper for Malaysians? Can Malaysian crude oil be sold in Malaysian Ringgit to Malaysians?