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OPEC net oil export revenue in 2015 drops to lowest level since 2004

Members of the Organization of the Petroleum Exporting Countries (OPEC) earned $404 billion in net oil export revenue in 2015, according to recently published U.S. Energy Information Administration (EIA) estimates. This represents a 46% decline from the estimated $753 billion earned in 2014 and a 56% drop from the estimated $921 billion revenue received in 2012. While these net export earnings include Iran's revenues, they are not adjusted for possible price discounts that Iran may have offered its customers between late 2011 and January 2016, when nuclear-related sanctions targeting Iran's oil sales were in place.

EIA's estimated net oil export revenue is based on its oil production and consumption estimates, as well as its forecast for oil prices from the Short-Term Energy Outlook (STEO) published in June 2016. EIA assumes that exports are sold at prevailing spot prices, and adjusts the benchmark crude oil prices that are forecasted in the STEO (Brent, West Texas Intermediate, and the average imported refiner crude oil acquisition cost) to incorporate historical price differentials between spot prices for the different OPEC crude oil types. For countries that export several different varieties of crude oil, EIA assumes that the proportion of total net oil exports represented by each variety is equal to the proportion of the total domestic production represented by that variety. For example, if Arab Medium represents 20% of total oil production in Saudi Arabia, the estimate assumes that Arab Medium also represents 20% of total net oil exports from Saudi Arabia.

OPEC revenue has fallen in step with the steep decline in crude oil prices. The monthly average Brent spot price dropped from $112 per barrel (b) in June 2014 to $38/b in December 2015. Based on EIA price forecasts, which are subject to a wide range of uncertainty, OPEC revenue is expected to fall further in 2016 to $341 billion before rising to $427 billion in 2017.

OPEC members' 2015 net export revenue was the lowest since 2004, with significant implications for the fiscal condition of member countries that rely heavily on oil sales to fund social programs and import other goods and services. In inflation-adjusted terms, OPEC per capita net oil export revenue totaled $606 in 2015, down 83% from the 1980 level of $3,500.

The effects of recent declines in net oil export revenue vary across OPEC member states, depending on the degree of other export streams and existence of other financial assets. Overall, OPEC members are heavily dependent on petroleum exports for revenue, with petroleum exports accounting for 5% (Indonesia) to 99% (Iraq) of total export revenues in 2015, according to OPEC data. Broadly, countries with sizeable financial assets, such as the Gulf States (Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates), are affected to a lesser degree than other oil producing countries such as Iraq, Nigeria, and Venezuela that do not have significant financial reserves. Government deficits, high reliance on oil revenue, and asset coverage of government spending are indicators of geopolitical stress exposure. Therefore, countries such as Venezuela, Nigeria, and Iraq, with fewer financial assets, are more exposed to geopolitical stress than countries with greater financial assets.

While declining crude oil prices have been the main driver behind lower OPEC revenues since mid-2014, unplanned production outages among some OPEC members have also contributed to lower earnings. A number of OPEC countries have experienced relatively high levels of unplanned outages. Some of these are because of political factors, such as the sanctions-related production shut-ins in Iran between 2011 and early 2016, when roughly 0.8 million barrels per day (b/d) remained off the market. Since January 2016, when the Joint Comprehensive Plan of Action (JCPOA) was implemented, Iran has been able to increase its crude oil production to presanctions levels of about 3.6 million b/d, with unplanned disruptions effectively disappearing at that time.

Other unplanned outages are related to armed conflict and militant activity. Libya, for example, has struggled to maintain crude oil production and exports since the fall of the Qaddafi regime in 2011. Political infighting and outright armed conflict among opposing factions since then led to an average shut-in volume of more than 1.0 million b/d of crude oil in 2015, with crude oil production averaging only about 0.4 million b/d during the year. Most recently, opposing factions have been clashing for control over the country's oil export terminals, and lack of available oil export outlets has necessitated that most of Libya's production capacity remain shut in. EIA estimates that Libya's effective production capacity currently stands at 1.3 million b/d with roughly 1.0 million b/d shut in. Libya's crude oil production was 0.3 million b/d in July 2016.

During 2015, Nigeria experienced a relatively low level of crude oil disruptions, which averaged roughly 0.3 million b/d. However, since the beginning of 2016, militant groups have stepped up their attacks in the Niger Delta region, an oil-rich area bordering the Gulf of Guinea that is the mainstay of the country's crude production. So far this year, there have been numerous attacks on oil and natural gas infrastructure throughout the region, largely in response the reduction in amnesty payments and the termination of security contracts to former militants. EIA estimates that Nigeria's production shut-ins were 0.7 million b/d in July, with production averaging less than 1.5 million b/d. EIA estimates that Nigeria's effective production capacity stands at roughly 2.2 million b/d.

In addition to price, unplanned production outages are another source of uncertainty for EIA's OPEC net export revenue estimate. For example, in Venezuela, crude oil production has declined sharply since the end of 2015, as oil service companies have largely stopped work in response to a lack of payment by state-owned Petroleos de Venezuela (PdVSA). As a result, Venezuela's crude oil production declined from an estimated 2.4 million b/d in December 2015 to 2.1 million b/d in July 2016. EIA's crude oil production forecast for Venezuela includes further declines through the end of 2017, but Venezuela's production forecast faces considerable downside risk as PdVSA's financial situation may result in accelerated production declines.

The weekly estimates of domestic crude oil production are reviewed monthly to identify disconnects with recent trends in domestic production reported in the Petroleum Supply Monthly (PSM) and other current data. If a disconnect between the two series is observed, the weekly production estimate may be re-benchmarked on a monthly basis to address it. This week's domestic crude oil production estimate incorporates a re-benchmarking. Any subsequent re-benchmarking of the weekly production estimate will be implemented on weeks when EIA's Short-Term Energy Outlook (STEO) is released.

The U.S. average regular gasoline retail price was $2.15 per gallon on August 15, virtually unchanged from the previous week but down 57 cents from the same time last year. The Midwest, East Coast, and Gulf Coast prices each increased one cent to $2.12 per gallon, $2.08 per gallon, and $1.94 per gallon, respectively. These increases were offset by a four cent price drop in the West Coast to $2.53 per gallon and a more modest decline in the Rocky Mountains, down one cent to $2.21 per gallon.

The U.S. average diesel fuel price fell by one cent to $2.31 per gallon, down 31 cents from the same time last year. The West Coast, East Coast, and Gulf Coast prices each fell one cent to $2.58 per gallon, $2.31 per gallon, and $2.18 per gallon, respectively. The Rocky Mountain and Midwest prices remained virtually unchanged at $2.39 per gallon and $2.27 per gallon, respectively.

U.S. propane stocks increased by 1.8 million barrels last week to 93.7 million barrels as of August 12, 2016, 0.1 million barrels (0.1%) lower than a year ago. East Coast and Gulf Coast inventories increased by 0.9 million barrels and 0.7 million barrels, respectively, while Midwest and Rocky Mountain/West Coast inventories each increased by 0.1 million barrels. Polypropylene non-fuel-use inventories represented 2.4% of total propane inventories.

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China’s Strategic Petroleum Reserves

After the OPEC+ club met on September 1st,  and confirmed that it would be sticking to its plan of increasing its crude supply by 400,000 b/d a month through December, China made a rather unusual announcement. It announced that it was going to release some crude oil from its strategic petroleum reserves, selling it to domestic refiners that were grappling with crude’s heady price rise over 2021. The release of strategic oil reserves isn’t news in itself. What is news is that the usually secretive China did it and did it publicly.

And it did it to send a message to OPEC+: attempts to create artificial scarcity to maintain crude prices will not be tolerated. China has a right to feel that way. Even though great strides have been made to ease the effects of the Covid-19 pandemic worldwide, the virus is still exerting major effects on the global economy. Not least a massive ripple through the health of global supply chains that has seen the price of almost everything – plastics, semiconductors, agricultural commodity, lumber, steel – spike due to supply issues. In some cases, the prices of raw materials are at historic highs. Crude oil is still nowhere near its peak of above US$100/b, but it is high enough to be concerning, especially since it is happening within a major inflationary environment. And for a manufacturing-heavy economy like China, that matters. That matters a lot. So China’s National Food and Strategic Reserves announced that it would be releasing some of the country’s crude stocks to ‘better stabilise domestic market supply and demand, and effectively guarantee the country’s energy security’, a month after the country’s producer price inflation – ie. the cost of manufacturing – hit a 13-year high.

China made good on that promise, releasing 7.38 million barrels from its stockpile to domestic bidders on September 24 with more tranches expected. This was the first ever recorded release from China’s Strategic Petroleum Reserves (SPR), which began back in 2009 in serendipitous response to crude oil prices exceeding the US$100/b mark for the first time in 2008. But curiously, it may not have been the first ever release. So secretive is the SPR that China does not reveal the size of the reserve, although analysts have estimated it at some 300-400 million barrels with total capacity of 500 million barrels using satellite imaging. It has been speculated that batches of crude from the SPR have been released before on the quiet. But this is the first time China has gone public. Compared to the country’s overall oil consumption, 7.38 million barrels is small, almost tiny. And even if additional supplies are released, it will not make a major impact on China’s oil balances. But the message is what is important.

It is a message that China is not alone in sending. US President Joe Biden has already called on OPEC+ to accelerate its supply easing plans, given indications that the crude glut built up over 2020 has been all but erased. It is a notion that would be supported by some OPEC+ members – Russia, Mexico, the UAE – but so far, the discipline advocated by Saudi Arabia has held. The US too has attempted to release of its own crude reserve stocks – the largest in the world with a capacity of 727 million barrels – but this was also in response to the devastating impact of Hurricane Ida. India, China’s closest analogue to size and stage, has been complaining too. As a major oil importer and with a shakier economic situation, India is particularly sensitive to oil price swings. US$70/b is way above what New Delhi is comfortable with. But since India’s appeals to OPEC+ have fallen on deaf ears, it is attempting domestic directives instead. India’s state refiners have been ordered to reduce crude purchases from the Middle East, but with supply tight, there aren’t many other people to buy from. India has also been selling oil from its strategic reserve – officially stated to be for clearing space to lease storage capacity to refiners – although since India is more transparent about these announcements, the announcement isn’t as surprising.

Will it work? At least immediately, no. Crude prices did come under pressure in the wake of China’s announcement, but then recovered with Brent hitting US$75/b. But the fact that China timed the announcement of the September 24 auction to coincide with peak global trading time and with a lot of details (again an unusual move) shows that Beijing is serious about wielding its strategic reserves as weapons. If not to moderate crude prices, then to at least stabilise it. But this is a war of attrition. China may very well have a planned schedule to release more crude reserves over 2021 and 2022 if prices remain high, but its supplies are finite. And they will have to eventually be replenished, possibly at an even higher cost if the attempt to quell crude price inflation fails. Thus far, the details of the SPR release hint that this is a tentative dip in the pool: the volume of 7.38 million barrels was far lower than the 35-70 million barrels predicted by some market participants. And because successful bidders can lift the oil up to December 10, it seems unlikely that a second auction for 2021 is in concrete plans at this point.

But, at the very least, the message has been sent. Beijing has a tool that it can wield if crude prices get out of hand, and it is not afraid to use it. The first step might have been small, and it is a giant leap in what mechanics are available to influence crude prices. And as history has proven, China can be very quick to scale up and very single-minded in its approach. Over to you, OPEC+.

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Market Outlook:

  • Crude price trading range: Brent – US$73-76/b, WTI – US$71-74/b
  • Global crude benchmarks retain their strength, with Brent zipping past US$75/b, as supply-side issues and healthy demand continue to reverberate
  • After Hurricane Ida, US upstream players have gradually brought back some 70% of Gulf of Mexico production, easing some supply concerns, but a standoff between Libya’s Ministry of Oil and National Oil Corp could disrupt Libyan output

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September, 23 2021
Chicago Cubs Shirts: Wear Style with Ultimate Comfort!

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September, 16 2021
The New Wave of Renewable Fuels

In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.

Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.

Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.

This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.

But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.

In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.

But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.

Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.

Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.

End of Article

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Market Outlook:

  • Crude price trading range: Brent – US$71-73/b, WTI – US$68-70/b
  • Global crude benchmarks have stayed steady, even as OPEC+ sticks to its plans to ease supply quotas against the uncertainty of rising Covid-19 cases worldwide
  • However, the success of vaccination drives has kindled hope that the effect of lockdowns – if any – will be mild, with pockets of demand resurgence in Europe; in China, where there has been a zero-tolerance drive to stamp out Covid outbreaks, fuel consumption is strengthening again, possibly tightening fuel balances in Q4
  • Meanwhile, much of the US Gulf of Mexico crude production remains hampered by the effects of Hurricane Ida, providing a counter-balance on the supply side

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September, 16 2021