The recent hike in Crude Oil prices which has softened to USD 117 per barrel



level has raised questions from the importers of bitumen across the region.

The recently concluded Bitumen Asia 2008 Conference did tried to justiy the

de-link between the crude oil price and the production of bitumen by the

refiners, although sounded more like the whole course was engineered by the

refiners of this region , who participated actively.

The reasons cited were,

The differential between the Light and Heavy crude is not good enough.

1.Refiners are focusing on producing Coke instead of bitumen.

Only 10% of the heavy crude is suitable for bitumen production.

2. China does not allow import of crude by small and medium term refiners except that of two or three oil majors

3. Pollution and environmental concerns.

4. Poor Output/ efficiency in most of the refineries in Afrcia.

The major Oil prices although justifies the fluctuation in the pricing of

bitumen, there is not an established mechanism to derive the bitumen price

till date. The bitumen market is getting mature and liquid. The majority of

the exporting nations include Singapore, Iran, Saudi Arabia, Egypt, Thailand

in this region has different inputs and the range varies significantly.

Recently the Cartel led by Shell was exposed by the European regulators and

the was fined to the tune of price fixing on various petroleum products.

For Bitumen, there are no posted prices except for some compiled prices from

some paid subscription services ; marketers rely on a number of pricing

formulas that reference various posted crude qualities.

The various pricing mechanism includes

1.Spot Pricing - Most prevalent

2.Term Contract - Fast Vanishing

3.Long Term Contract - Vanished

4.Index based pricing - yet to born

5.Not to exceed pricing- Dead a while ago.

Market pricing is seasonal with higher prices during peak season like summer

being the norm due to higher demand for bitumen and other bitumen derived

products.

Saudi arabia has almost banned the export of Bitumen 60/70 , which considered as the raw material, obtained from the fractional distillation process, from

Saudi Aramco . The penetration grade bitumen 80/100, prepared from the

aforesaid raw material by adding additives, is the value added , before being

exported. The price sensitive Saudi bitumen industry, an unorganized industry, commands the most market value among the third world countries including

India, Pakistan and Bagladesh.

Singapore, Malaysia, Thailand, although except for Singapore, the rest of the regional economies , being net importer, the pricing is closely followed with each other, and which is not affordable for re-export for the developing nations.

By necessity, bitumen is regularly blended with diluent (typically in the

form of C5+ or synthetic light crude) in order to facilitate its transportation via pipeline to tankers.

As such, the effective field price for bitumen is also directly impacted by

the input cost of the diluent required, the demand and price of which is also seasonal in nature (in winter as colder temperatures necessitate more diluent for transportation).

Consequently, bitumen pricing is notoriously high in summer and during major

shutdown by the refineries and not reflective of the annual average realized

price or the economics of the business overall.

The strong bitumen demand disturbs the effective field prices during peak

season for a variety of reasons. In addition to the usual seasonal issues,

increase in bitumen demand and the premium for diluent was significant as a

consequence of various events such as production interruptions at a regional

refinery.

With billions of barrels of potential and billions of dollars of planned

capital investment, the bitumen resources are widely understood to be a cornerstone of future energy requirements and are attracting notable attention from overseas jurisdictions as well.

In fact, the adoption of the proposed methodology for all crude qualities

would have little or no effect on reported proved reserve quantities for all categories, bitumen excepted. For no other reason than bitumen alone is subject to the extreme seasonality in realized prices around calendar.