Easwaran Kanason

Co - founder of NrgEdge
Last Updated: September 26, 2016
1 view
Business Trends
image

Last week in the world oil

Oil Prices. Tensions between Iran and Saudi Arabia threatening to scupper any deal tabled at the OPEC meeting in Algiers caused crude prices to weaken last week, though a comment from Algeria’s energy minister that ‘all options were are open’ for an output cut or freeze lifted prices slightly today. 

ExxonMobil is reportedly selling some of its Norwegian North Sea oil fields in a deal worth more than US$1 billion. The supermajor currently operates the Ringhorne, Balder, Sigyn and Jotun fields in the North Sea, producing some 64 kb/d, but with the fields maturing, it may be on the look out for greener pastures, as Norway falls down the priority list. 

With US crude oil inventories falling sharply last week, a signal that might push up prices to trigger more supply, more US oil rigs are coming back into production. Two more rigs started up again, bringing the total operating count to 418 oil rigs, with an additional 92 gas rigs operational. 

The government of Curacao has reportedly signed an agreement with China’s Guangdong Zhenrong Energy allowing the latter to operate and upgrade the island’s aging Isla refinery. Opened in 1918 and operated by Venezuela’s PDVSA for decades under a lease agreement as a strategic site to store and ship crude to Asia on VLCCs, the deal appears to phase out PDVSA’s involvement after the Curacao Prime Minister stated that ‘all efforts to reach a new contract with Venezuela did not yield positive results.’ PDVSA has hit back with a statement that its refinery lease was not yet up for negotiation, though the company does not have the pockets to invest the US$1.5 billion required to modernise the 335 kb/d facility. 

France’s Technip has been awarded the contract to increase ENOC’s Jebel Ali refinery capacity by 50%. The project is budgeted at US$1 billion, and will increase the UAE site’s refining capacity to 210 kb/d from 140 kb/d when completed in late 2019. 

Petrobras is planning to exit the biofuels sector as part of a sweeping suite of asset sales aimed at paring down the company’s swelling debt, which would allow it to focus on investing in its core business of oil and gas. Petrobras has a significant biofuels portfolio, including three biodiesel plants  and stakes in several mills, all in Brazil. 

Upstream giant ConocoPhillip’s Alaskan unit has entered into an agreement with the Alaskan state government to form a venture to market Alaskan LNG to global markets. Given the geography of the state, the venture would be focusing on shipping LNG to East Asia, focusing on North Slope gas suppliers in co-operations with other producers. 

In a sign that the oil majors is expecting oil prices to remain in prolonged weakness, France’s Total is cutting back its expenditure by US$2 billion, now aiming to spend only US$15-17 billion from 2017 to 2020. The firm is also targeting cost savings of US$2-4 billion by 2018, most of which will come from upstream. 

India’s BPCL is changing the way it approaches upstream investment, moving away from focusing on new sites to buying more stakes in existing, producing assets. Having just spent US$1.5 billion in overseas exploration assets, the Indian major is now looking at buying into operating oilfields in Russia to speed up investment returns. BPCL was the first Indian state refiner to venture into upstream, buying stakes in Brazilian and Mozambique oil and gas blocks in 2007 and 2008, but returns have been slow and the company has now earmarked US$2-3 billion to speed up the buildup of its upstream portfolio.
 
Indonesia will eliminate taxes on oil and gas exploration immediately in an effort to stimulate investment in the country’s waning upstream industry. Once a production powerhouse with some of the largest oil and gas fields in the world – Duri, Minas, Natuna – enthusiasm for upstream has been flagging in Indonesia over a combination of few significant discoveries and a fiscal/policy framework unfriendly to foreign investors. State oil company Pertamina cannot bear the burden of increasing oil and gas output alone, though it is bravely trying to, so the government must now improve the investment environment to attract foreign companies. 

A new giant refinery in China may be taking shape. Rongsheng Petrochemical Co. has cleared more than 10,000 acres of land in Zhoushan island in Zhejiang to build a 400 kb/d refinery that is budgeted at US$24 billion. Ambitiously slated for completion by 2018, with capacity doubling in 2020, the project is aimed at plastics rather than petrol, maximising the naphtha yield to produce petrochemicals over oil products. The project is one of several petrochemical-focused ones announced in recent weeks, signalling a renewed confidence in the manufacturing industry in China that will consume growing amounts of petrochemicals like paraxylene and ethylene. 

Better late than never as India is starting to fill up its strategic crude storage in Mangalore. Most large crude-consuming countries in the world have a strategic storage capacity of at least 50 days, with China aiming for 90 days, but India has a mere 10 days. Only the Vizag storage site is currently operational, with 1.33 million tons of capacity, though Mangalore (1.5 million tons) and Padur (2.5 million tons) are on the horizon. India has begun talks with Iran, Saudi Arabia and the UAE to secure supplies for Mangalore, with Vizag being filled with Basra crude from Iraq. Iran is expected to contribute half of the supply required for Mangalore, with the other half expected from ADNOC and Saudi Aramco. 

Papua New Guinea has laid out its vision for its LNG industry, now backing a new export facility by Total to operate alongside the existing PNG LNG project led by ExxonMobil, which will undergo a US$19 billion expansion. The fate of the second project was up in the air when ExxonMobil conclude a sale to buy InterOil, whose Elk-Antelope gas field was meant to feed to second project, but the PNG government is confident that it has enough reserves to support both export sites. 

Have a productive week ahead!

Read more:
oil and gas report weekly oil report nrgedge nrgbuzz oil and gas commentary oil and gas oil markets
3
0 0

Something interesting to share?
Join NrgEdge and create your own NrgBuzz today

Latest NrgBuzz

Iran drives unplanned OPEC crude oil production outage to highest levels since late 2015

Unplanned crude oil production outages for the Organization of the Petroleum Exporting Countries (OPEC) averaged 2.5 million barrels per day (b/d) in the first half of 2019, the highest six-month average since the end of 2015. EIA estimates that in June, Iran alone accounted for more than 60% (1.7 million b/d) of all OPEC unplanned outages.

EIA differentiates among declines in production resulting from unplanned production outages, permanent losses of production capacity, and voluntary production cutbacks for OPEC members. Only the first of those categories is included in the historical unplanned production outage estimates that EIA publishes in its monthly Short-Term Energy Outlook (STEO).

Unplanned production outages include, but are not limited to, sanctions, armed conflicts, political disputes, labor actions, natural disasters, and unplanned maintenance. Unplanned outages can be short-lived or last for a number of years, but as long as the production capacity is not lost, EIA tracks these disruptions as outages rather than lost capacity.

Loss of production capacity includes natural capacity declines and declines resulting from irreparable damage that are unlikely to return within one year. This lost capacity cannot contribute to global supply without significant investment and lead time.

Voluntary cutbacks are associated with OPEC production agreements and only apply to OPEC members. Voluntary cutbacks count toward the country’s spare capacity but are not counted as unplanned production outages.

EIA defines spare crude oil production capacity—which only applies to OPEC members adhering to OPEC production agreements—as potential oil production that could be brought online within 30 days and sustained for at least 90 days, consistent with sound business practices. EIA does not include unplanned crude oil production outages in its assessment of spare production capacity.

As an example, EIA considers Iranian production declines that result from U.S. sanctions to be unplanned production outages, making Iran a significant contributor to the total OPEC unplanned crude oil production outages. During the fourth quarter of 2015, before the Joint Comprehensive Plan of Action became effective in January 2016, EIA estimated that an average 800,000 b/d of Iranian production was disrupted. In the first quarter of 2019, the first full quarter since U.S. sanctions on Iran were re-imposed in November 2018, Iranian disruptions averaged 1.2 million b/d.

Another long-term contributor to EIA’s estimate of OPEC unplanned crude oil production outages is the Partitioned Neutral Zone (PNZ) between Kuwait and Saudi Arabia. Production halted there in 2014 because of a political dispute between the two countries. EIA attributes half of the PNZ’s estimated 500,000 b/d production capacity to each country.

In the July 2019 STEO, EIA only considered about 100,000 b/d of Venezuela’s 130,000 b/d production decline from January to February as an unplanned crude oil production outage. After a series of ongoing nationwide power outages in Venezuela that began on March 7 and cut electricity to the country's oil-producing areas, EIA estimates that PdVSA, Venezuela’s national oil company, could not restart the disrupted production because of deteriorating infrastructure, and the previously disrupted 100,000 b/d became lost capacity.

July, 18 2019
The Strait of Hormuz and Oil Prices

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:

  • Connects the Persian Gulf to the Gulf of Oman/Indian Ocean
  • Length: 167km
  • Width: 96km (widest) to 39km (narrowest)
  • Controlled by Iran, the UAE and Musandam (Oman)
  • The conduit for 33% of all LNG trade and 20% of total crude oil demand
July, 16 2019
Your Weekly Update: 8 - 12 July 2019

Market Watch 

Headline crude prices for the week beginning 8 July 2019 – Brent: US$64/b; WTI: US$57/b

  • Bolstered by the renewed OPEC+ supply pact but rattled by increasing tensions between Iran and the US, oil prices started the week steady after gaining over the previous week
  • With the OPEC+ supply deal extended to March 2020, focus will now shift to adherence and in particular, Russian commitments to the agreement that previously wavered over 1H19
  • More critical to the market is the escalating standoff between the US and Iran around the Straits of Hormuz and even beyond; British forces seized an oil tanker off Gibraltar that was suspected to carrying Iranian crude to Syria, drawing share criticism from Iran
  • Iran itself confirmed that it was raising its level of nuclear enrichment above levels agreed to in the 2015 deal that ended sanctions, and accused European signatories to the deal of ‘not doing enough’
  • Iranian forces also confronted a British tanker escorted by a warship in the Persian Gulf, with the narrow channel now a flashpoint for action
  • As a recipient of Middle Eastern crude, China has also raised security levels for its vessel passing through the Straits of Malacca after doing the same for the Straits of Hormuz, raising some eyebrows
  • While the confrontation – or lack of – between the US and Iran will be the main driver behind oil prices movement in the second half of 2019, the trade policies of the Trump administration that may now hit secondary Asian manufacturing nations such as Vietnam is also leaving the global economy increasingly fragile
  • Against this backdrop, the US active oil and gas rig count fell again, dropping five oil sites and gaining one gas site for a net loss of four rigs
  • As the Iranian situation deteriorates, the market will be pricing more risk premiums into traded prices, which should inch up towards the US$65-67/b range for Brent and US$59-61/b for WTI

Headlines of the week

Upstream

  • Marathon Oil has completed the sale of its UK businesses to RockRose Energy, handing over the Brae and Foinaven area fields for US$345 million
  • Despite pulling out from the UK North Sea, ConocoPhillips is still active in Norway, recently submitting a new plan to re-develop the Tor field in Great Ekofisk, which was shut down in 2015 despite only 20% of resources extracted
  • In a bit to boost national production, Nigerian independent Aiteo Eastern E&P has announced plans to spend up to US$15 billion over the next five years to drill new wells and re-visit existing assets
  • Eni and Vitol have been awarded rights to Block WB03 in the offshore Tano basin in Ghana, with Eni holding 70% and expanding its presence in the country
  • Total has approved Phase 3 development at the onshore Dunga field in Kazakhstan that will increase capacity by 10% to some 20,000 b/d by 2022
  • Eni has launched production from the Mizton field in Mexico’s Bay of Campeche Area 1 – the first new offshore new field development by an international firm since reforms in 2008
  • Halliburton and Kuwait Oil have signed an agreement to explore for oil offshore Kuwait which makes Kuwait’s first foray in offshore upstream services
  • Energean Oil & Gas has purchased Electricite de France’s Italian unit for US$850 million, gaining assets in Egypt, Italy, Algeria, Croatia and the North Sea to complement its existing fields in Israel and Greece

Midstream/Downstream

  • China will be launching a new low-sulfur bunker fuel oil contract on the Shanghai Futures Exchange by the end of 2019, just as new IMO regulations on marine fuel oil sulfur content caps kick into effect in 2020
  • Just as American crude production hits new highs, American refining capacity has also reached a new record high of 18.8 million b/d
  • China has issued a new round of crude oil import quotas for private oil refiners, allowing them to bring in an additional 56.85 million tonnes (~1 mmb/d) over the remainder of 2019
  • In the fallout over the contaminated crude scandal at the Druzhba pipeline, Russian pipeline operator Transneft has capped volumes of Rosneft crude that can be transported to Germany and Poland on the pipeline
  • The US Environmental Protection Agency (EPA) has proposed an increased biodiesel mandate to 20.04 billion gallons in 2020 up from 19.92 billion gallons in 2019, but may not extend the hardship waiver program which drew criticism
  • Iraq and Oman have signed a new MoU to cooperate in the oil and gas sector which includes plans for a shared Omani refinery processing Iraqi crude

Natural Gas/LNG

  • Kosmos Energy has struck new gas at the Greater Tortue Ahmeyim-1 well in the Albian reservoir offshore Mauritania and Senegal, which will support the Greater Tortue Ahmeyim LNG project that is on track for a 2022 start
  • Kenya and Tanzania have entered into talks to explore cross-border natural gas trading, aimed at delivering Tanzanian natural gas to Kenya to bypass requiring and building facilities for LNG imports
  • Energean Oil & Gas is reportedly looking to sell its stake in the major Glengorn gas discovery in the UK once its acquisition of Edison E&P is completed
  • Saudi Aramco has started work on the Jafurah gas terminal that will take unconventional gas from the Ghawar oil field to the coast for processing
July, 12 2019