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Last week in the world oil
It’s happier days for crude prices, as OPEC’s upcoming meeting in Algeria has triggered speculation that the organisation will finally agree to a production freeze not only within its members, but also with non-OPEC producers like Russia. Brent closed above US$50/barrel last week, and WTI just a shade below the mark, but analysts are warning that the rally is based on optimism and not fundamentals.
With Iran engaging in a mild price war with Saudi Arabia over crude market share in Asia, buyers are welcoming the challenge. Japan tripled its crude imports from Iran in July, while South Korea has quadrupled its Iranian crude liftings y-o-y. The lifting on sanctions on Iran has been a boon for Asian refiners, benefiting from lower prices as Iran and Saudi Arabia jostle for position to supply crude, scrambling with Russia as well. India’s July imports from Iran also leapt, even as total imports fell slightly.
A Malaysian oil tanker reported as missing and possibly hijacked early last week has instead been taken to Indonesia over an ‘internal dispute’ between the crew and the ship’s operator.
India’s growing appetite for natural gas is currently fed by imports, but BP India believes that the country has the potential to unlock gas reserves of at least 10-15 trillion cubic feet (tcf) by 2022, which would halve imports. The announcement came as part of a push to stimulate investment and simplify rules to revitalise the country’s existing and upcoming natural gas fields in line with increasing the gas share of energy mix from 8% to 15% by 2030.
With its once prodigious local fields faltering, Thailand is preparing to expand its LNG import capacity to feed its vast network of gas-fed infrastructure that came about from the discovery of domestic sources. State oil firm PTT announced plans to nearly double LNG imports to 5 million tons in 2017, aiming to source LNG from Shell, BP and Qatar.
Just next to Thailand, Australia’s Woodside is preparing to begin its drilling campaign in Myanmar next year, to commercialise its Shwe Yee Htun-1 and Thalin-1a discoveries with 2.4 tcf of gas reserves. Long isolated due to the ruling military junta, Myanmar has tremendous reserves of natural gas, traditionally exploited by Thailand’s PTT, but the thawing of international relations after political developments have now brought up plenty of foreign investors eager to capitalise on the country.
Two Australian upstream giants – Santos and Woodside – have reported disappointing results for the first half of 2016. Santos recovered a loss of US$1.1 billion, while Woodside’s profits halved to US$340, as weak oil and gas prices offset gains in production. Woodside is in a better position, given its low holdings of debt, but Santos is in a trickier position scrambling to slash costs and reduce debts.
The oil debt malaise hitting Singapore that claimed Swiber is spreading to Malaysia, with offshore rig contractor Perisai Petroleum Teknology likely to miss a US$125 million securities payout due in October, triggering a fall in its bonds to distressed levels. Expect the contagion to keep spreading, as offshore contractors in Singapore and Malaysia combat mounting debts amidst a stagnant market.
After a year of delay, Iran will begin exporting natural gas to Iraq via pipeline in September, beginning with a contract to supply 7 million cubic metres a day to a power plant in Baghdad. A second route to Basra will be added next year, with the long-term goal of reaching 70 million cubic metres per day. The move will help Iraq to free up crude supplies for export, with fields in Kurdistan resuming pumping last week after a dispute between the government and the Kurdish regional authorities was settled.
The number of oil and gas rigs operating in the US rose for an eighth-consecutive week, up by 10 to 491. Oil rigs were up by ten, as producers came in to capitalise on rising crude prices ahead of OPEC’s September meeting.
Saudi Arabia’s combined crude and product exports reached 8.83 million barrels in June 2015, 450,000 barrels higher y-o-y and 1.1 million barrels higher than June 2014. The uptick comes during a period when the Kingdom traditionally exports less to divert fuel to local power stations for cooling during its scorching summers, indicating the level of aggression Saudi Arabia is taking to maintain and combat Russia and Iran over oil market share, particularly in Asia.
Iraq has started up its Misan natural gas processing plant in its southeastern
region to capture gas that was previously flared for power generation purposes.
Iraq currently flares some 70% of its gas output, a tremendous waste that it is
aiming to rectify, ordering that all fields coming onstream in Misan, including
Fakka and Bazargan, be connected to the plant.
Russia’s Yamal LNG project led by Novatek has received some €780 million in funding from China to help move to project ahead. The Yamal project in Siberia is remote and costly, and with Western powers cutting off Russia’s access to funds over its role in the Ukrainian crisis, China through the China Development Bank and Export-Import Bank of China has stepped in filled the gap, and no doubt enable China to demand more offtake of Yamal LNG when it starts up in 2017.
If the oil industry has taken a battering from low prices, it is worst in shipping. Danish shipping giant AP Moller-Maersk has been badly hit by the slump in shipping, raising the option of the company being split into two: one focusing on shipping and transport, and one focusing on energy.
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Market Watch
Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
Upstream
Midstream & Downstream
Natural Gas/LNG
Forecast Highlights
Global liquid fuels
Natural gas
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
1. ExxonMobil:
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
2. Shell:
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
3. Chevron:
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
4. BP:
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
5. Total:
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)