Easwaran Kanason

Co - founder of PetroEdge
Last Updated: September 26, 2016
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Business Trends
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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!

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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