Easwaran Kanason

Co - founder of PetroEdge
Last Updated: August 30, 2016
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Business Trends
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Last week in the world oil

As its usual, OPEC poured some cold water on speculation that it was ready to embarked on a systematic cut in its oil production, dampening prices last week after a previous rally that hinged on hopes that global supply would be brought back in line by the organisation. Iran seems to be the bolt that fails to hold supply back, stating that it would only cooperate in the upcoming OPEC talks in September if other exporters recognised its right to regain market share lost during the recent international sanction, a clause that Saudi Arabia will definitely oppose. 

For the first time in nine weeks, the number of oil rigs operating in the US did not rise. Instead the count stayed at 406, as American producers took a wait-and-see approach on weaker price signals last week. 

Angola’s Sonangol has suspended all construction at two projects as part of reforms initiated at the state-owned company. Work at the Lobito refinery and the Ocean Terminal at Barra do Dande have been halted while reassessment on the projects’ financial and strategic standing take place; the Lobito refinery, in particular, has been beset by rising costs and financing issues, delaying it from the original planned 2011 start date. 

Sadara Chemical, the US$20 billion petrochemical joint venture between Saudi Aramco and Dow Chemical has started up its mixed-feed cracker in Jubail, processing both ethane and naphtha. Up to 85 million cubic feet per day of ethane and 50 kb/d of naphtha can be processed by the cracker, part of Saudi Arabia’s strategy to expand further downstream. 

Qatar’s Barzan gas project is expected to start operations in November. The US$10 billion joint venture between Qatar Petroleum and ExxonMobil was originally supposed to come online in 2014, and will boost Qatari gas production by 2 bcf per day in 2017, much of which is earmarked for the domestic market as Qatar embarks on an infrastructure spending binge ahead of the 2022 Fifa World Cup. 

ExxonMobil has reportedly backed out of the proposed LNG export terminal, paving the way to transition the project from a private-led to a state one. The Alaska LNG project was pegged at US$45-65 billion, expected to start up in 2023, but the exit of ExxonMobil will likely trigger similar exits from BP and ConocoPhillips, leaving the Alaskan state government to handle the project on its own, if at all. 

South Korea will now trade with Iran in the euro, a move by the Korean government to facilitate greater trade between the two nations. Prior to this, Korean purchases of Iranian oil and gas, as well as construction projects, were conducted in Korean won, a restriction now removed that should pave the way for greater trade. South Korea has been a particularly enthusiastic supporter of Iranian oil and gas, after Western sanctions were lifted recently. 

Beijing is reportedly preparing a crackdown on tax evasion in the oil refining industry specifically targeted at the country’s independent refineries, also known as teapots. The Chinese government is looking to ban crude imports or revoke import licenses for up to a year for any teapots found guilty of tax fraud, following complaints by state oil companies. The teapots have largely underpinned China’s growth in crude imports and refinery production this year, and a crackdown may halt any momentum in demand over the next two years. 

China’s oil refining, petrochemical and chemical companies are banding together to propose a plan for benchmarking their carbon dioxide (CO2) emissions, a first step towards creating a national emissions market for the 2,400 companies operating in the sector in 2017. 

Saudi Aramco has intimated that it may reduce its stake in the proposed Cilacap refinery upgrade to 30%, from its original 45%. The move will come as a setback for Indonesia and Pertamina, struggling to push new refining projects through to cut down on oil imports. Pertamina will likely take up the remainder of the stake, but expect more delays on the front. 

Vitol has suspended operations at its terminal Tanjong Pelepas Johor after an oil spill occurred following an incident during a bunker fuel transport operation. The closure was ordered by the Johor Port Authority, and operations are expected to resume shortly. 

The acquisition of InterOil by ExxonMobil has prompted a realignment of the Oil Search’s plans in Papua New Guinea. The Australia firm was originally aiming to develop a second standalone LNG export terminal, but having been beaten out by ExxonMobil for the purchase of InterOil, Oil Search now expects the shift focus to development the PNG LNG export terminal with partners ExxonMobil and Total. 

Pakistan is believed to be close to signing a deal for a FSRU for its second LNG import terminal. LNG imports to Pakistan are a recent phenomenon, and the country has been marked as an up-and-coming demand outlet, not least because the Pakistani government is betting on LNG to solve its chronic energy and power woes.

As expected, Sinopec posted lower profits for the first half of 2016, impaired by lower crude prices. Earnings were down 21.6% y-o-y, with lower crude prices offsetting a relatively strong performance in refining. PetroChina and CNOOC also posted weak results, with CNOOC actually declaring a RMB7.74 billion loss for 1H16.

Have a productive week ahead! 

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Your Weekly Update: 15 -19 April 2019

Market Watch

Headline crude prices for the week beginning 15 April 2019 – Brent: US$71/b; WTI: US$63/b

  • Crude oil futures could be on the verge of snapping its longest weekly rally since 2016, as the market continues to balance managed crude supply from the OPEC+ nations with accelerating American output
  • Analysts are predicting that things could be coming to a head, which might see OPEC+ abandon its plans to stabilise supply and prices for an intense battle for market share with American shale producers instead
  • This seems to be echoed by comments from Saudi Arabia, hinting at a U-turn in OPEC+’s dedication to extending the current supply quota agreement
  • Russian Premier Vladimir Putin also chimed in, saying that he was ‘keeping his options open’ on the cuts and that he does not support an ‘uncontrollable’ increase in oil prices
  • Ongoing concerns in Libya, Venezuela and Iran are giving other OPEC nations some room to breathe in their supply deal, with the organisation reporting that its output plunged in March to 758,000 b/d below the expected Q2 average
  • After Japan reported it would hold back on resuming Iranian crude imports, India is now doing the same until clarification of American waivers on the sanctions is received
  • The International Energy Agency reports that it sees global oil markets tightening, warning that this could lower actual demand and forecasts
  • After a large 19 rig gain last week, the US reversed gear to lose 3 rigs, adding two oil sites while dropping five gas rigs, bringing the total active count to 1022
  • Rumbles of a shale slowdown in the US could keep crude prices on a gentle upward curve, with Brent likely to trade at US$71-72/b and WTI and US$63-64/b


Headlines of the week

Upstream

  • Shell has sold its 22.45% non-operating interest in the US Gulf of Mexico Caeser-Tonga asset to the Delek Group for some US$965 million in cash
  • US President Donald Trump is aiming to limit state powers over cross-border pipeline to promote projects stalled by state regulators over permit and environmental concerns through the issuance of Executive Orders
  • CNOOC has signed a new PSC with Smart Oil Investment for the Bohai 09/17 block in the shallow-water Qikou area of the Bohai Bay Basin in China
  • Also in the Bohai Bay, CNOOC and ConocoPhillips are planning to double production from the Penglai 19-3 field over the next few years
  • Shell has partnered with Sinopec in a maiden exploration of China’s shale oil potential, targeting the Dongying trough in Shengli in eastern China
  • Shell has also announced an ambitious drilling programme in Brazil, targeting the Argonauta pre-salt areas in the Santos Basin
  • Petrobras and the Brazilian government have settled a deepwater contract dispute for US$9.06 billion, paving the way for Petrobras and its partners to begin development of the crude deposits under the 2010 Transfer of Rights

Midstream & Downstream

  • Continuing on its diversification strategy, Saudi Aramco is now looking to double its global refining network to some 10 mmb/d by 2030 as a means of locking in buyers for its crude amidst intense competition, which would see Aramco to continue investing in key global refining centres
  • Shell is aiming to complete the overhaul of its RCCU at the 218 kb/d Norco refinery in Louisiana by May, ahead the US summer driving gasoline demand
  • Sinopec reports that its Jinling refinery in Jiangsu has sold its first 4,200-ton cargo of low-sulfur marine fuel ahdad of the new IMO standards kicking in
  • Saudi Aramco has signed an agreement with Poland’s PKN Orlen to trade Arabian-grade crude to the refiner in exchanges for high-sulfur fuel oil

Natural Gas/LNG

  • Total has been awarded an exploration licence for Block 12 in Oman, with the onshore 10,000 sq.km asset near the gas-rich Greater Barik area that is expected to hold ‘significant prospective gas resources’
  • Saudi Aramco is planning to move into LNG for first time ever, offering to supply Pakistan with cargos on a spot or short-term basis, even though it does not produce LNG and has only just begun developing an LNG trading desk
  • First feed gas has begun to flow at Sempra Energy’s Cameron LNG Train 1 in Louisiana, the final commissioning phase for the project
  • Keppel Gas in Singapore has imported its first 160,000 cbm cargo of US LNG under the country’s Spot Import Policy, its first from outside Southeast Asia and the first trickle in an exported flood of American LNG into the region

Corporate

  • Saudi Aramco has issued its first global bond, raising US$100 billion from the sale, above and beyond the initial expectations of US$10-15 billion
  • Abu Dhabi’s Mubadala Investment Company has sold a ‘significant minority interest’ of 30-40% in Spanish energy firm Cepsa to investment group The Carlyle Group, but will retain majority shareholder
  • Canadian player Africa Oil has acquired 18.8% of fellow Canadian upstream firm Eco (Atlantic) Oil and Gas, but stressed that the acquisition was for investment purposes with no intention of exercising control
April, 23 2019
In 2018, the United States consumed more energy than ever before

U.S. total energy consumption

Source: U.S. Energy Information Administration, Monthly Energy Review

Primary energy consumption in the United States reached a record high of 101.3 quadrillion British thermal units (Btu) in 2018, up 4% from 2017 and 0.3% above the previous record set in 2007. The increase in 2018 was the largest increase in energy consumption, in both absolute and percentage terms, since 2010.

Consumption of fossil fuels—petroleum, natural gas, and coal—grew by 4% in 2018 and accounted for 80% of U.S. total energy consumption. Natural gas consumption reached a record high, rising by 10% from 2017. This increase in natural gas, along with relatively smaller increases in the consumption of petroleum fuels, renewable energy, and nuclear electric power, more than offset a 4% decline in coal consumption.

U.S. total energy consumption

Source: U.S. Energy Information Administration, Monthly Energy Review

Petroleum consumption in the United States increased to 20.5 million barrels per day (b/d), or 37 quadrillion Btu in 2018, up nearly 500,000 b/d from 2017 and the highest level since 2007. Growth was driven primarily by increased use in the industrial sector, which grew by about 200,000 b/d in 2018. The transportation sector grew by about 140,000 b/d in 2018 as a result of increased demand for fuels such as petroleum diesel and jet fuel.

Natural gas consumption in the United States reached a record high 83.1 billion cubic feet/day (Bcf/d), the equivalent of 31 quadrillion Btu, in 2018. Natural gas use rose across all sectors in 2018, primarily driven by weather-related factors that increased demand for space heating during the winter and for air conditioning during the summer. As more natural gas-fired power plants came online and existing natural gas-fired power plants were used more often, natural gas consumption in the electric power sector increased 15% from 2017 levels to 29.1 Bcf/d. Natural gas consumption also grew in the residential, commercial, and industrial sectors in 2018, increasing 13%, 10%, and 4% compared with 2017 levels, respectively.

Coal consumption in the United States fell to 688 million short tons (13 quadrillion Btu) in 2018, the fifth consecutive year of decline. Almost all of the reduction came from the electric power sector, which fell 4% from 2017 levels. Coal-fired power plants continued to be displaced by newer, more efficient natural gas and renewable power generation sources. In 2018, 12.9 gigawatts (GW) of coal-fired capacity were retired, while 14.6 GW of net natural gas-fired capacity were added.

U.S. fossil fuel energy consumption by sector

Source: U.S. Energy Information Administration, Monthly Energy Review

Renewable energy consumption in the United States reached a record high 11.5 quadrillion Btu in 2018, rising 3% from 2017, largely driven by the addition of new wind and solar power plants. Wind electricity consumption increased by 8% while solar consumption rose 22%. Biomass consumption, primarily in the form of transportation fuels such as fuel ethanol and biodiesel, accounted for 45% of all renewable consumption in 2018, up 1% from 2017 levels. Increases in wind, solar, and biomass consumption were partially offset by a 3% decrease in hydroelectricity consumption.

U.S. energy consumption of selected fuels

Source: U.S. Energy Information Administration, Monthly Energy Review

Nuclear consumption in the United States increased less than 1% compared with 2017 levels but still set a record for electricity generation in 2018. The number of total operable nuclear generating units decreased to 98 in September 2018 when the Oyster Creek Nuclear Generating Station in New Jersey was retired. Annual average nuclear capacity factors, which reflect the use of power plants, were slightly higher at 92.6% in 2018 compared with 92.2% in 2017.

More information about total energy consumption, production, trade, and emissions is available in EIA’s Monthly Energy Review.

April, 17 2019
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April, 17 2019