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
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
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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The UK has just designated the Persian Gulf as a level 3 risk for its ships – the highest level possible threat for British vessel traffic – as the confrontation between Iran with the US and its allies escalated. The strategically-important bit of water - and in particular the narrow Strait of Hormuz – is boiling over, and it seems as if full-blown military confrontation is inevitable.
The risk assessment comes as the British warship HMS Montrose had to escort the BP oil tanker British Heritage out of the Persian Gulf into the Indian Ocean from being blocked by Iranian vessels. The risk is particularly acute as Iran is spoiling for a fight after the Royal Marines seized the Iranian crude supertanker Grace-1 in Gibraltar on suspicions that it was violating sanctions by sending crude to war-torn Syria. Tensions over the Gibraltar seizure kept the British Heritage tanker in ‘safe’ Saudi Arabian waters for almost a week after making a U-turn from the Basrah oil terminal in Iraq on fears of Iranian reprisals, until the HMW Montrose came to its rescue. Iran’s Revolutionary Guard Corps have warned of further ‘reciprocation’ even as it denied the British Heritage incident ever occurred.
This is just the latest in a series of events around Iran that is rattling the oil world. Since the waivers on exports of Iranian crude by the USA expired in early May, there were four sabotage attacks on oil tankers in the region and two additional attacks in June, all near the major bunkering hub of Fujairah. Increased US military presence resulted in Iran downing an American drone, which almost led to a full-blown conflict were it not for a last-minute U-turn by President Donald Trump. Reports suggest that Iran’s Revolutionary Guard Corps have moved military equipment to its southern coast surrounding the narrow Strait of Hormuz, which is 39km at its narrowest. Up to a third of all seaborne petroleum trade passes through this chokepoint and while Iran would most likely overrun by US-led forces eventually if war breaks out, it could cause a major amount of damage in a little amount of time.
The risk has already driven up oil prices. While a risk premium has already been applied to current oil prices, some analysts are suggesting that further major spikes in crude oil prices could be incoming if Iran manages to close the Strait of Hormuz for an extended period of time. While international crude oil stocks will buffer any short-term impediment, if the Strait is closed for more than two weeks, crude oil prices could jump above US$100/b. If the Strait is closed for an extended period of time – and if the world has run down on its spare crude capacity – then prices could jump as high as US$325/b, according to a study conducted by the King Abdullah Petroleum Studies and Research Centre in Riyadh. This hasn’t happened yet, but the impact is already being felt beyond crude prices: insurance premiums for ships sailing to and fro the Persian Gulf rose tenfold in June, while the insurance-advice group Joint War Committee has designated the waters as a ‘Listed Area’, the highest risk classification on the scale. VLCC rates for trips in the Persian Gulf have also slipped, with traders cagey about sending ships into the potential conflict zone.
This will continue, as there is no end-game in sight for the Iranian issue. With the USA vague on what its eventual goals are and Iran in an aggressive mood at perceived injustice, the situation could explode in war or stay on steady heat for a longer while. Either way, this will have a major impact on the global crude markets. The boiling point has not been reached yet, but the waters of the Strait of Hormuz are certainly simmering.
The Strait of Hormuz:
Headline crude prices for the week beginning 8 July 2019 – Brent: US$64/b; WTI: US$57/b
Headlines of the week
Utility-scale battery storage units (units of one megawatt (MW) or greater power capacity) are a newer electric power resource, and their use has been growing in recent years. Operating utility-scale battery storage power capacity has more than quadrupled from the end of 2014 (214 MW) through March 2019 (899 MW). Assuming currently planned additions are completed and no current operating capacity is retired, utility-scale battery storage power capacity could exceed 2,500 MW by 2023.
EIA's Annual Electric Generator Report (Form EIA-860) collects data on the status of existing utility-scale battery storage units in the United States, along with proposed utility-scale battery storage projects scheduled for initial commercial operation within the next five years. The monthly version of this survey, the Preliminary Monthly Electric Generator Inventory (Form EIA-860M), collects the updated status of any projects scheduled to come online within the next 12 months.
Growth in utility-scale battery installations is the result of supportive state-level energy storage policies and the Federal Energy Regulatory Commission’s Order 841 that directs power system operators to allow utility-scale battery systems to engage in their wholesale energy, capacity, and ancillary services markets. In addition, pairing utility-scale battery storage with intermittent renewable resources, such as wind and solar, has become increasingly competitive compared with traditional generation options.
The two largest operating utility-scale battery storage sites in the United States as of March 2019 provide 40 MW of power capacity each: the Golden Valley Electric Association’s battery energy storage system in Alaska and the Vista Energy storage system in California. In the United States, 16 operating battery storage sites have an installed power capacity of 20 MW or greater. Of the 899 MW of installed operating battery storage reported by states as of March 2019, California, Illinois, and Texas account for a little less than half of that storage capacity.
In the first quarter of 2019, 60 MW of utility-scale battery storage power capacity came online, and an additional 108 MW of installed capacity will likely become operational by the end of the year. Of these planned 2019 installations, the largest is the Top Gun Energy Storage facility in California with 30 MW of installed capacity.
As of March 2019, the total utility-scale battery storage power capacity planned to come online through 2023 is 1,623 MW. If these planned facilities come online as scheduled, total U.S. utility-scale battery storage power capacity would nearly triple by the end of 2023. Additional capacity beyond what has already been reported may also be added as future operational dates approach.
Of all planned battery storage projects reported on Form EIA-860M, the largest two sites account for 725 MW and are planned to start commercial operation in 2021. The largest of these planned sites is the Manatee Solar Energy Center in Parrish, Florida. With a capacity of 409 MW, this project will be the largest solar-powered battery system in the world and will store energy from a nearby Florida Power and Light solar plant in Manatee County.
The second-largest planned utility-scale battery storage facility is the Helix Ravenswood facility located in Queens, New York. The site is planned to be developed in three stages and will have a total capacity of 316 MW.