Last week in the world oil:
- Crude oil ended the week aroundUS$45/b, as the market largely shrugged off the attempted coup in Turkey andlooked ahead to healthy economic indicators from the US and China, although astronger US dollar weighed down on prices slightly.
Last week in Asian oil:
- Iran’s new oil industryinvestment framework will be ready by the end of July, with the once-isolatednation looking to entice international oil firms to assist in bringing its oilindustry out from the cold. Several Asian firms, including those from China,India and Iran, have already announced proposed plans, and the new contractshould bring in other Western firms, including BP, Total, Rni and Repsol. Thenew system replaces the old buy-back system where foreign firms were bannedfrom booking reserves or taking equity in Iranian companies.
- Pertamina’s goal of increasingits domestic output to meet federal targets by taking over private oil fieldsin Indonesia is gaining pace, with reports indicating that it is eyeing a partof the gas-rich Masela block in Arafura Sea, while expediting its takeover ofthe mature Mahakam block in East Kalimantan from Japan’s Inpex and Shell.
- China’s refineries processed arecord amount of crude in June, rising 3.2% y-o-y to 11 million b/d,contributing to the highest refining figure for the first six months of anyyear. The increase in mainly coming from the ‘teapot’ refineries – independentrefiners that were last year allowed to directly import crude – tempted byhealthy refining margins.
- Meanwhile, CNOOC (ChinaNational Offshore Oil Company) is aiming to cap its crude runs to 1 million b/dby 2020 to ease oil product oversupply, and instead focus on expanding itsservice station fleet to 2000 over the same period, as the upstream firmcontinues its push downstream.
- Flooding along the Yangtze hasdisrupted oil distribution and also damaged facilities in China’s central andsouthern regions, with Sinopec stating that some 500 of its gas stations weredamaged and some refining operations disruption.
- Indonesia’s state power firmPLN has criticised the government’s upcoming B30 mandate for gasoil used inindustrial/power burning. Indonesia has ambitious plans to move to higherbiodiesel blends to ease pressure on oil product imports, but PLN says that thenew rules are ‘unworkable’ as it has not allowed for sufficient technicaltesting, potentially damaging equipment.
- Echoing Japan, South Korea isaiming to become an LNG hub as well. The Korean efforts will focus on becominga regional LNG bunkering hub along its southern cost, as the shipping industrygradually moves away from burning dirty fuel oil to cleaner LNG. The hope isthat by creating a hub, Korea’s LNG import volumes will rise, giving it morebargaining power as a buyer.
- Thailand’s PTT wants to investmore in Malaysia, including a proposed LNG project with Petronas that PTT hopeswill ease its long-term energy demands. Thailand uses natural gas for almost70% of its power generation, traditionally from Thai gas fields in the Bay ofBangkok and its west offshore coast, but output is dwindling and PTT is lookingoverseas.
Last week in international markets
Upstream & Midstream
- ExxonMobil has declare a force majeure on its Nigerian Qua Iboe crudeexports, traced to a ‘system anomaly’ at its loading facility that may take upto four weeks to repair. The issue is thought not to be connected to therampage of the Niger Delta Avengers, which continue its sabotage with morepipeline attacks on Eni, Shell, Exxon and NNPC facilities in the last twoweeks.
- Aiming to capitalise on the post-Brexit shuffle in the UK government,where the climate change department has been bundled into the department ofbusiness, petrochemical giant Ineos is aiming to accelerate shale gasdevelopment in the UK by lodging up to 30 planning application for drill testwells through to the end of 2016.
- BP’s Argentine subsidiary Pan American Energy plans to spend some US$1.4billion to exploit Argentina’s conventional and unconventional resources,including the Cerro Dragón oil field and shale gas in Neuquén and Tierra delFuego.
- In a sign that US crude producers are seeing brighter times ahead, theUS oil rig count increased for the sixth time in seven weeks, up by 6 to 357,coming from Louisiana and New Mexico. The gas rig count rose by one, bringingtotal operational rigs in the US to 447.
- The 65 kb/d Cienfuegos refineryis Cuba will be partially shut down for 120 days, or four months, for extensivemaintenance. Technical problems have kept the Soviet-era refinery running atminimum capacity, causing shortages. Cuba depends on Venezuela for most of itscrude and oil imports, and problems there have affected the isolated Caribbeannation.
- South African Airways hascompleted a test flight using bio-jetfuel refined from tobacco, part of aglobal aviation push to move to renewable resources. With refining marginsdeclining, jet fuel a dependable bright spot in oil products, but even thismight come under pressure soon.
- Shell and its partners on theLNG Canada project have delayed the final investment decision on the proposedLNG export terminal on Canada’s western coast for the second time this year.‘Global industry challenges, including capital constraints’ were cited as thereason to delay the project, aimed at exporting LNG to Asia, principally due toan emerging LNG glut.
- ExxonMobil has made another bidto acquire Canada’s InterOil, outbidding Oil Search Ltd with a ‘superior offer’as it looks to merge InterOil’s large natural gas reserves in Papua New Guineawith its own. Exxon has faced issues in building pipelines, and InterOil’sfields are logistically less complicated, and closer to the proposed coastalLNG plant, speeding up the ambition of PNG becoming a major LNG exporter.
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The Permian is in desperate need of pipelines. That much is true. There is so much shale liquids sloshing underneath the Permian formation in Texas and New Mexico, that even though it has already upended global crude market and turned the USA into the world’s largest crude producer, there is still so much of it trapped inland, unable to make the 800km journey to the Gulf Coast that would take them to the big wider world.
The stakes are high. Even though the US is poised to reach some 12 mmb/d of crude oil production next year – more than half of that coming from shale oil formations – it could be producing a lot more. This has already caused the Brent-WTI spread to widen to a constant US$10/b since mid-2018 – when the Permian’s pipeline bottlenecks first became critical – from an average of US$4/b prior to that. It is even more dramatic in the Permian itself, where crude is selling at a US$10-16/b discount to Houston WTI, with trends pointing to the spread going as wide as US$20/b soon. Estimates suggest that a record 3,722 wells were drilled in the Permian this year but never opened because the oil could not be brought to market. This is part of the reason why the US active rig count hasn’t increased as much as would have been expected when crude prices were trending towards US$80/b – there’s no point in drilling if you can’t sell.
Assistance is on the way. Between now and 2020, estimates suggest that some 2.6 mmb/d of pipeline capacity across several projects will come onstream, with an additional 1 mmb/d in the planning stages. Add this to the existing 3.1 mmb/d of takeaway capacity (and 300,000 b/d of local refining) and Permian shale oil output currently dammed away by a wall of fixed capacity could double in size when freed to make it to market.
And more pipelines keep getting announced. In the last two weeks, Jupiter Energy Group announced a 90-day open season seeking binding commitments for a planned 1 mmb/d, 1050km long Jupiter Pipeline – which could connect the Permian to all three of Texas’ deepwater ports, Houston, Corpus Christi and Brownsville. Plains All American is launching its 500,000 b/d Sunrise Pipeline, connecting the Permian to Cushing, Oklahoma. Wolf Midstream has also launched an open season, seeking interest for its 120,000 b/d Red Wolf Crude Connector branch, connecting to its existing terminal and infrastructure in Colorado City.
Current estimates suggest that Permian output numbered around 3.5 mmb/d in October. At maximum capacity, that’s still about 100,000 b/d of shale oil trapped inland. As planned pipelines come online over the next two years, that trickle could turn into a flood. Consider this. Even at the current maxing out of Permian infrastructure, the US is already on the cusp on 12 mmb/d crude production. By 2021, it could go as high as 15 mmb/d – crude prices, permitting, of course.
As recently reported in the WSJ; “For years, the companies behind the U.S. oil-and-gas boom, including Noble Energy Inc. and Whiting Petroleum Corp. have promised shareholders they have thousands of prospective wells they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%. But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.”
The immense growth experienced in the Permian has consequences for the entire oil supply chain, from refining balances – shale oil is more suitable for lighter ends like gasoline, but the world is heading for a gasoline glut and is more interested in cracking gasoil for the IMO’s strict marine fuels sulphur levels coming up in 2020 – to geopolitics, by diminishing OPEC’s power and particularly Saudi Arabia’s role as a swing producer. For now, the walls keeping a Permian flood in are still standing. In two years, they won’t, with new pipeline infrastructure in place. And so the oil world has two years to prepare for the coming tsunami, but only if crude prices stay on course.
Recent Announced Permian Pipeline Projects
Headline crude prices for the week beginning 3 December 2018 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
The engine oil market has grown up around 10 to 12% in the last three years because of various reasons, mostly because of the rise of automobiles.
According to the Bangladesh Road Transport Authority (BRTA), the number of registered petrol and diesel-powered vehicles is 3,663,189 units.
The number of automotive vehicles has increased by 2.5 times in the last eight years.
The demand for engine oils will rise keeping pace with the increasing automotive vehicles, with an expected 3% yearly growths.
Mostly, for this reason, the annual lubricant consumption raised over 14% growth for the last four years. Now its current demand is around 160 million tonnes.
The overall lubricants demand has increased also for the growth of the power sector, which has created a special market for industrial lubricants oil.
The lubricants oil market size for industries has doubled in the last five years due to the establishment of a number of power plants across the country.
The demand for industrial oil will continue to rise at least for the next 15 years, as the quick rental power plants need a huge quantity of lube oil to run.
The industries account for 30% of the total lubricant consumption; however, it is expected to take over 35% of the overall demand in the next 10 years.
Mobil is the market leader with 27% market share; however, market insiders say that around 70% market shares belong to various brands altogether, which is still undefined.
It is already flooded with many global and local brands.