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Last Updated: August 10, 2016
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Oil Prices

Rumblings among OPEC members of restricting output rallied prices lifted oil prices slightly, but weak fundamentals particularly in demand outpacing supply kept prices in the low US$40/b level.

 

After reporting a net loss in Q2, Chevron is accelerating its plan to raise as much as US$10 billion by 2017 through the sale of Asia assets. The US giant is aiming to sell its stake in its offshore venture with CNOOC, which could raise as much as US$1 billion, as well as geothermal assets in Indonesia and natural gas assets in Thailand, which will be eyed by PTT.

India has poured cold water on recent reports that the government was planning to merge the 13 state energy firms into one giant conglomerate. The Petroleum Ministry has clarified that instead of a concrete idea, the proposal is only one of many that India is considering to streamline the complicated energy network in the country.

China is planning a cull of its petrochemical industry. Excess capacity in the petrochemical industry is a looming issue in the country, and the government is addressing it by identifying out-dated plants to be shut down and ordering consolidation among the big players to boost efficiency.

In a sign of the growing relationship between international traders and Chinese teapots, Trafigura has extended the credit period for crude purchases for two independent Chinese refiners – Shouguang Luqing Petrochemical and Huifeng Petrochemical Group. Under a third party processing agreement, the Chinese teapots will then provideTrafigura with refined products, mainly gasoline, that then enter its trading portfolio.

Indonesia’s Pertamina has shut down its RFCC unit at Cilacap for repairs for two weeks, with full production resuming only in mid-August. Gasoline imports into Indonesia will spike over this period, given that Indonesia is a net importer of the fuel. Pertamina had recently received a 200,000-barrel cargo of gasoline from Rosneft, the Russia firm’s first gasoline delivery to South-East Asia, part of a larger 1.2 million barrel deal signed in June.

Tokyo Gas is in talks with European companies to engage in LNG cargo swaps, sending the cargos it owns from Cove Point on the US East Coast to Europe instead of Asia, saving on shipping time and cost as it aims to introduce more flexibility into its LNG supply system.

A civil war is brewing in the normally sedate Japanese energy industry. The planned marriage of Idemitsu and Showa Shell is opposed by the founding family of Idemitsu, who have bought a stake Showa Shell in a bid to block to takeover, arguing that the two companies’ cultures are too different to successfully merge. The founding family now own 0.1% of Showa Shell, forcing Idemitsu to consider purchases less than its initial planned 33.24% stake in Showa Shell; the combined Idemitsu shareholding in that case would have exceeded a third of Showa Shell, which is barred under Japanese law.

 

The Iranian government is expected to ratify a new model oil contract this week, aiming to encourage foreign investment as the country returns to the international community after years of sanctions and decades of a unfavourable petroleum contract system that drove investors away.

 

More International Oil and Gas updates

More US oil rigs are coming back online – up by 7 last week – bringing the total number of operational oil and gas rigs in the US to 464, as five gas rigs (mainly in Marcellus shale) shut down. This is the sixth week of rises in the rig count, pumping out more volumes that places downward pressure on prices.

Canada’s Irving Oil has agreed to buy the only refinery in Ireland from Phillips66. The Whitegate refinery exchanges hands for ‘less than US$90 million’ reportedly. The Whitegate refinery near Cork will remain operational with no cuts; Phillips66 has been attempting to sell the refinery since 2013, but poor refining margins had hampered the sale.

South African refineries remain operational despite a strike by the 15,000 workers across the petrochemicals industry over poor wages. The strike enters its second week today, and while the refineries continue to operate, fuel distribution in the country has been affected.

The long-standing LPG trade between the US Gulf and Asia looks shaky at the moment, as collapsing prices have led to Asian buyers cancelling at least three LPG cargoes in the last month, incurring cancellation fees that still make it more economical to buy spot cargoes in Asia.

Italy’s Eni has reportedly wrapped up talks to sell its multi-billion stake in the planned Mozambique LNG development to ExxonMobil. The deal concerns Eni’s offshore gas reserves in Mozambique’s Area 4, which is aims to pipe to an LNG export plant to serve Asia; the scale of the project may be beyond Eni’s expertise, hence ExxonMobil being a natural fit, given its existing presence in Mozambique

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Recalibrating Singapore’s Offshore Marine Industry

The state investment firm Temasek Holdings has made an offer to purchase control of Singaporean conglomerate Keppel Corp for S$4.1 billion. News of this has reverberated around the island, sparking speculation about what the new ownership structure could bring – particularly in the Singaporean rig-building sector.

Temasek already owns 20.5% of Keppel Corp. Its offer to increase its stake to 51% for S$4.1 billion would see it gain majority shareholding, allowing a huge amount of strategic flexibility. The deal would be through Temasek’s wholly-owned subsidiary Kyanite Investment Holdings, offering S$7.35 per share of Keppel Corp, a 26% premium of the traded price at that point. The financial analyst community have remarked that the bid is ‘fair’ and ‘reasonable’, and there appears to be no political headwinds against the deal being carried out with the exception of foreign and domestic regulatory approval.

The implications of the deal are far-ranging. Keppel Corp’s business ranges from property to infrastructure to telecommunications, including Keppel Land and a partial stake in major Singapore telco M1. Temasek has already said that it does not intend to delist and privatise Keppel Corp, and has a long-standing history of not interfering or getting involved in the operations or decisions of its portfolio companies.

This might be different. Speculation is that this move, if successful could lead to a restructuring of the Singapore offshore and marine industry. Since 2015, Singapore’s rig-building industry has been in the doldrums as global oil prices tumbled. Although prices have recovered, cost-cutting and investment reticence have provided a slower recovery for the industry. In Singapore, this has affected the two major rigbuilders – Keppel O&M and its rival Sembcorp Marine. In 2018, Keppel O&M reported a loss of over SS$100 million (although much improved from its previous loss of over SS$800 million); Sembcorp Marine, too, faces a challenging market, with a net loss of nearly 50 million. Temasek itself is already a majority shareholder in Sembcorp Marine.

Once Keppel Corp is under Temasek’s control, this could lead to consolidation in the industry. There are many pros to this, mainly the merging of rig-building operations and shipyards will put Singapore is a stronger position against giant shipyards of China and South Korea, which have been on an asset buying spree. With the overhang of the Sete Brasil scandal over as both Keppel O&M and Sembcorp Marine have settled corruption allegations over drillship and rig contracts, a merger is now increasingly likely. It would sort of backtrack from Temasek’s recent direction in steering away from fossil fuel investments (it had decided to not participate in the upcoming Saudi Aramco IPO for environmental concerns) but strengthening the Singaporeans O&M industry has national interest implications. As a representative of Temasek said of its portfolio – ‘(we are trying to) re-purpose some businesses to try and grasp the demands of tomorrow.’ So, if there is to be a tomorrow, then Singapore’s two largest offshore players need to start preparing for that now in the face of tremendous competition. And once again it will fall on the Singaporean government, through Temasek, to facilitate an arranged marriage for the greater good.

Keppel and Sembcorp O&M at a glance:

Keppel Offshore & Marine, 2018

  • Revenue: S$1.88 billion (up from S$1.80 billion)
  • Net Profit: -S$109 million (up from -S$826 million)
  • Contracts secured: S$1.7 billion

Sembcorp Marine, 2018

  • Turnover: S$4.88 billion (up from S$3.03 billion)
  • Net Profit: -S$48 million (down from S$157 million)
  • Contracts secured: S$1.2 billion
October, 22 2019
Global energy consumption driven by more electricity in residential, commercial buildings

Energy used in the buildings sector—which includes residential and commercial structures—accounted for 20% of global delivered energy consumption in 2018. In its International Energy Outlook 2019 (IEO2019) Reference case, the U.S. Energy Information Administration (EIA) projects that global energy consumption in buildings will grow by 1.3% per year on average from 2018 to 2050. In countries that are not part of the Organization for Economic Cooperation and Development (non-OECD countries), EIA projects that energy consumed in buildings will grow by more than 2% per year, or about five times the rate of OECD countries.

building sector energy consumption

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case

Electricity—the main energy source for lighting, space cooling, appliances, and equipment—is the fastest-growing energy source in residential and commercial buildings. EIA expects that rising population and standards of living in non-OECD countries will lead to an increase in the demand for electricity-consuming appliances and personal equipment.

EIA expects that in the early 2020s, total electricity use in buildings in non-OECD countries will surpass electricity use in OECD countries. By 2050, buildings in non-OECD countries will collectively use about twice as much electricity as buildings in OECD countries.

average annual change in buildings sector electricity consumption

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case
Note: OECD is the Organization for Economic Cooperation and Development.

In the IEO2019 Reference case, electricity use by buildings in China is projected to increase more than any other country in absolute terms, but India will experience the fastest growth rate in buildings electricity use from 2018 to 2050. EIA expects that use of electricity by buildings in China will surpass that of the United States by 2030. By 2050, EIA expects China’s buildings will account for more than one-fifth of the electricity consumption in buildings worldwide.

As the quality of life in emerging economies improves with urbanization, rising income, and access to electricity, EIA projects that electricity’s share of the total use of energy in buildings will nearly double in non-OECD countries, from 21% in 2018 to 38% in 2050. By contrast, electricity’s share of delivered energy consumption in OECD countries’ buildings will decrease from 24% to 21%.

building sector electricity consumption per capita by region

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case
Note: OECD is the Organization for Economic Cooperation and Development.

The per capita use of electricity in buildings in OECD countries will increase 0.6% per year between 2018 and 2050. The relatively slow growth is affected by improvements in building codes and improvements in the efficiency of appliances and equipment. Despite a slower rate of growth than non-OECD countries, OECD per capita electricity use in buildings will remain higher than in non-OECD countries because of more demand for energy-intensive services such as space cooling.

In non-OECD countries, the IEO2019 Reference case projects that per capita electricity use in buildings will grow by 2.5% per year, as access to energy expands and living standards rise, leading to increased use of electric-intensive appliances and equipment. This trend is particularly evident in India and China, where EIA projects that per capita electricity use in buildings will increase by 5.3% per year in India and 3.6% per year in China from 2018 to 2050.

October, 22 2019
Natural gas inventories surpass five-year average for the first time in two years

Working natural gas inventories in the Lower 48 states totaled 3,519 billion cubic feet (Bcf) for the week ending October 11, 2019, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). This is the first week that Lower 48 states’ working gas inventories have exceeded the previous five-year average since September 22, 2017. Weekly injections in three of the past four weeks each surpassed 100 Bcf, or about 27% more than typical injections for that time of year.

Working natural gas capacity at underground storage facilities helps market participants balance the supply and consumption of natural gas. Inventories in each of the five regions are based on varying commercial, risk management, and reliability goals.

When determining whether natural gas inventories are relatively high or low, EIA uses the average inventories for that same week in each of the previous five years. Relatively low inventories heading into winter months can put upward pressure on natural gas prices. Conversely, relatively high inventories can put downward pressure on natural gas prices.

This week’s inventory level ends a 106-week streak of lower-than-normal natural gas inventories. Natural gas inventories in the Lower 48 states entered the winter of 2017–18 lower than the previous average. Episodes of relatively cold temperatures in the winter of 2017–18—including a bomb cyclone—resulted in record withdrawals from storage, increasing the deficit to the five-year average.

In the subsequent refill season (typically April through October), sustained warmer-than-normal temperatures increased electricity demand for natural gas. Increased demand slowed natural gas storage injection activity through the summer and fall of 2018. By November 30, 2018, the deficit to the five-year average had grown to 725 Bcf. Inventories in that week were 20% lower than the previous five-year average for that time of year. Throughout the 2019 refill season, record levels of U.S. natural gas production led to relatively high injections of natural gas into storage and reduced the deficit to the previous five-year average.

The deficit was also decreased as last year’s low inventory levels are rolled into the previous five-year average. For this week in 2019, the preceding five-year average is about 124 Bcf lower than it was for the same week last year. Consequently, the gap has closed in part based on a lower five-year average.

Lower 48 natural gas inventories, difference to five-year average

Source: U.S. Energy Information Administration, Weekly Natural Gas Storage Report

The level of working natural gas inventories relative to the previous five-year average tends to be inversely correlated with natural gas prices. Front-month futures prices at the Henry Hub, the main price benchmark for natural gas in the United States, were as low as $1.67 per million British thermal units (MMBtu) in early 2016. At about that same time, natural gas inventories were 874 Bcf more than the previous five-year average.

By the winter of 2018–19, natural gas front-month futures prices reached their highest level in several years. Natural gas inventories fell to 725 Bcf less than the previous five-year average on November 30, 2018. In recent weeks, increasing the Lower 48 states’ natural gas storage levels have contributed to lower natural gas futures prices.

Lower 48 natural gas inventories and Henry Hub futures prices

Source: U.S. Energy Information Administration, Weekly Natural Gas Storage Report and front-month futures prices from New York Mercantile Exchange (NYMEX)

October, 21 2019