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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Permian’s Pipeline Lifeline

The Permian is in desperate need of pipelines. That much is true. There is so much shale liquids sloshing underneath the Permian formation in Texas and New Mexico, that even though it has already upended global crude market and turned the USA into the world’s largest crude producer, there is still so much of it trapped inland, unable to make the 800km journey to the Gulf Coast that would take them to the big wider world.

The stakes are high. Even though the US is poised to reach some 12 mmb/d of crude oil production next year – more than half of that coming from shale oil formations – it could be producing a lot more. This has already caused the Brent-WTI spread to widen to a constant US$10/b since mid-2018 – when the Permian’s pipeline bottlenecks first became critical – from an average of US$4/b prior to that. It is even more dramatic in the Permian itself, where crude is selling at a US$10-16/b discount to Houston WTI, with trends pointing to the spread going as wide as US$20/b soon. Estimates suggest that a record 3,722 wells were drilled in the Permian this year but never opened because the oil could not be brought to market. This is part of the reason why the US active rig count hasn’t increased as much as would have been expected when crude prices were trending towards US$80/b – there’s no point in drilling if you can’t sell.

Assistance is on the way. Between now and 2020, estimates suggest that some 2.6 mmb/d of pipeline capacity across several projects will come onstream, with an additional 1 mmb/d in the planning stages. Add this to the existing 3.1 mmb/d of takeaway capacity (and 300,000 b/d of local refining) and Permian shale oil output currently dammed away by a wall of fixed capacity could double in size when freed to make it to market.

And more pipelines keep getting announced. In the last two weeks, Jupiter Energy Group announced a 90-day open season seeking binding commitments for a planned 1 mmb/d, 1050km long Jupiter Pipeline – which could connect the Permian to all three of Texas’ deepwater ports, Houston, Corpus Christi and Brownsville. Plains All American is launching its 500,000 b/d Sunrise Pipeline, connecting the Permian to Cushing, Oklahoma. Wolf Midstream has also launched an open season, seeking interest for its 120,000 b/d Red Wolf Crude Connector branch, connecting to its existing terminal and infrastructure in Colorado City.

Current estimates suggest that Permian output numbered around 3.5 mmb/d in October. At maximum capacity, that’s still about 100,000 b/d of shale oil trapped inland. As planned pipelines come online over the next two years, that trickle could turn into a flood. Consider this. Even at the current maxing out of Permian infrastructure, the US is already on the cusp on 12 mmb/d crude production. By 2021, it could go as high as 15 mmb/d – crude prices, permitting, of course.

As recently reported in the WSJ; “For years, the companies behind the U.S. oil-and-gas boom, including Noble Energy Inc. and Whiting Petroleum Corp. have promised shareholders they have thousands of prospective wells they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%. But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.”

The immense growth experienced in the Permian has consequences for the entire oil supply chain, from refining balances – shale oil is more suitable for lighter ends like gasoline, but the world is heading for a gasoline glut and is more interested in cracking gasoil for the IMO’s strict marine fuels sulphur levels coming up in 2020 – to geopolitics, by diminishing OPEC’s power and particularly Saudi Arabia’s role as a swing producer. For now, the walls keeping a Permian flood in are still standing. In two years, they won’t, with new pipeline infrastructure in place. And so the oil world has two years to prepare for the coming tsunami, but only if crude prices stay on course.

Recent Announced Permian Pipeline Projects

  • September 2018 – EPIC Midstream Holdings – 675,000 b/d, 1125km, 24-30’ diameter, 4Q19 target opening
  • November 2018, Wolf Midstream Partners – 500,000 b/d, 65km, 16’ diameter, 2H2019 target opening
  • November 2018, Jupiter Energy – 1 mmb/d, 1050km, 36’ diameter, 2020 target opening
  • December 2018, Plains All American Pipeline – 575,000 b/d, 830km, 26’ diameter, 3Q19 target opening
December, 04 2018
Your Weekly Update: 3 - 7 December 2018

Market Watch

Headline crude prices for the week beginning 3 December 2018 – Brent: US$61/b; WTI: US$52/b

  • After falling down to fresh lows last week – with WTI prices dipping below US$50/b at one point – crude oil prices improved after the G20 meeting in Buenos Aires, where the US and China agreed to a temporary truce over their trade war
  • While no concrete agreements over energy were announced at the G20 summit, the slightly thawing in trade tensions allowed crude benchmarks to rise slightly, assisted by an announcement by Canadian producers in Alberta that output would be cut by 325,000 b/d beginning January
  • Russia and Saudi Arabia agreed at the G20 summit to extend the OPEC+ deal into 2019, suggesting that a coordinated oil output cut was in the works, also supported prices ahead of OPEC’s meeting in Vienna this week
  • Not present at the OPEC meeting, however, will be Qatar, which quit the oil cartel in a surprise move; the tiny sultanate said it was quitting due to its small oil production, choosing instead to focus on its LNG industry, but the move can be seen as a response to the Saudi-led boycott of Qatar, calling into question Saudi Arabia’s ability to hold the fragile OPEC coalition together
  • Consensus among analysts point to OPEC+ agreeing to remove some 800,000 b/d of crude oil from the market beginning January, aimed at establishing a floor for oil prices at some US$65/b
  • The downward spiral of crude prices has put the brakes on US drilling activity, with 2 new oil rigs offset by the loss of 5 gas rigs last week; analysts are expecting shale explorers to cut spending budgets in 2019 in response to weak prices, raising spectres of the 2015 price slump
  • Crude price outlook: Ahead of the OPEC meeting on December 6, crude should be kept up by expectations of a renewed supply cut, with Brent likely to trade rangebound around US$61-63/b and WTI at US$52-53/b

Headlines of the week

Upstream

  • Buoyed by the prolific nature of the Permian Basin, Shell has announced plans to nearly double its production in the shale patch with AI-powered technology
  • China and the Philippines have set aside sovereignty issues, signing an agreement for joint exploration and development in the South China Sea
  • Facing severe pipeline bottlenecks, Canada’s Alberta province is looking to purchase rail cars to ship more crude oil by train out of the province towards the US, as a temporary measure while new pipeline are proposed and built
  • Shell has completed the sale of Shell E&P Ireland to Nephin Energy Holdings, which includes a 45% in the Corrib gas venture, for US$1.3 billion
  • In Norway, Shell also sold its interests in the Draugen and Gjøa fields for US$526 million to OKEA AS, but retains its interests in the Ormen Lange and Knarr fields, as well as the Troll, Valemon and Kvitebjørn projects
  • Petrobras has sold its stake in 34 onshore production fields to Brazilian firm 3R Petroleum for US$453.1 million, as well as stakes in three shallow-water offshore fields off Rio de Janeiro to Perenco for US$370 million
  • Pemex tripled its estimated reserves in the Ixachi field to 1.3 billion barrels of oil, calling it the ‘most important onshore field in 25 years’ and expecting peak production of 80,000 b/d of condensate and 720 mscf/d of gas by 2022

Downstream

  • Uganda has pushed back the opening of its first oil refinery to 2023, in line with estimates by Total, CNOOC and Tullow Oil, as crude oil production is now only expected to begin in 2021
  • Malaysia will be introducing a B10 biodiesel mandate in December over a phased rollout, with complete implementation expected by February 2018
  • Pertamina expects to begin works on upgrading its Balikpapan refinery in early 2019, aimed to increasing fuel standards to Euro V and upgrading capacity to process sour crude together with its current medium heavies
  • ExxonMobil plans to upgrade its Rotterdam refinery to expand Group II base stock production, following the installation of a new hydrocracker
  • The US EPA has increased its annual blending mandate for advanced biofuels by 15% and kept conventional biofuels blending requirement steady for 2019, while maintaining waivers for selected refineries

Natural Gas/LNG

  • Petronas and Vitol Asia have signed a long-term LNG supply agreement, with Petronas providing LNG from the LNG Canada project in Kitimat, providing up to 800,000 tons per annum for 15 years beginning 2024
  • Eni and Anadarko have been giving a 2023 deadline to submit key development plans for the Area 1 and 4 LNG complex in Mozambique
  • Tullow Oil is backing the attempt by three former Cove Energy executives in the Comoros Islands by taking stakes in Discover Exploration’s blocks, hoping to repeat the trio’s success in discovering the Rovuma block
  • South Korea’s Posco Daewoo has signed a deal with Brunei National Petroleum Company to jointly explore LNG opportunities in Brunei, with specific focus on the development of the Dehwa area operated by Posco Daewoo
  • Rosnedt and the Beijing Gas Group have set up a joint venture focusing on building and operating a network of up to 170 CNG fuel stations in Russia, using LNG as motor fuel
December, 06 2018
Overall Lubricants Market Is Growing In Bangladesh

The engine oil market has grown up around 10 to 12% in the last three years because of various reasons, mostly because of the rise of automobiles. 

According to the Bangladesh Road Transport Authority (BRTA), the number of registered petrol and diesel-powered vehicles is 3,663,189 units.

The number of automotive vehicles has increased by 2.5 times in the last eight years.

The demand for engine oils will rise keeping pace with the increasing automotive vehicles, with an expected 3% yearly growths.

Mostly, for this reason, the annual lubricant consumption raised over 14% growth for the last four years. Now its current demand is around 160 million tonnes.

The overall lubricants demand has increased also for the growth of the power sector, which has created a special market for industrial lubricants oil.

The lubricants oil market size for industries has doubled in the last five years due to the establishment of a number of power plants across the country.

The demand for industrial oil will continue to rise at least for the next 15 years, as the quick rental power plants need a huge quantity of lube oil to run.

The industries account for 30% of the total lubricant consumption; however, it is expected to take over 35% of the overall demand in the next 10 years.

Mobil is the market leader with 27% market share; however, market insiders say that around 70% market shares belong to various brands altogether, which is still undefined.

 It is already flooded with many global and local brands.

December, 01 2018