Easwaran Kanason

Co - founder of NrgEdge
Last Updated: October 11, 2016
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Last week in the world oil

Optimism that oil producers will be able to sustain a supply freeze has lifted prices over last week, reaching US$50/b and exceeding that level at the beginning of the week as Russias Vladimir Putin indicated his support for OPECs production freeze at the World Energy Congress in Turkey.

Taking cues from rising oil prices, the US rig count rose for the 14th time in 15 weeks, up by 2 to 524. Three new oil rigs started up (and one gas rig halted), bringing the number of operating oil rigs in the US to its highest level in almost two years. Expect this number is continue rising as oil prices appear to be on an ascending trajectory for the next month.

Saudi Arabia has halted the supply of refined oil products shipped to Egypt, triggering a scramble by the Egyptian General Petroleum Corporation to seek necessary volumes for October. No reason or timeline was given for the suspension, but it is likely that is likely to be political. Saudi Arabia agreed to supply refined oil products to Egypt for five years under a US$23 billion deal between Saudi Aramco and EGPC earlier this year, part of an aid package to shore up the Egyptian economy that is suffering from a huge budget deficit. Egypt may very well have to devalue or float its currency now, to qualify for an IMF loan.

The Ivory Coast is planning to create the largest fuel hub in sub-Saharan Africa within its borders, investing up to US$1 billion to create a Rotterdam of Africa that will become the shipping, delivery, storage and distribution point for West Africa. With demand rising, most oil products consumed in the region are imported, and the project (which has backing from Frances Total and Bollore) with its 1.2 million tons storage capacity could ensure a steady supply of oil products to West Africa

It appears that UK shale gas is now a go, as the new UK government under Theresa May signalled its support for shale gas exploration to move ahead at the Preston New Road and Roseacre Wood sites in Lanchasire. Despite protests by the local authority and residents, the decision is a tentative step forward to exploit shale gas in the UK, particularly relevant as the UK government attempts to stimulate the economy post-Brexit.

With shipping companies moving away from burning dirty fuel oil to power ships, Carnival Corporation has struck a deal with Shell to use LNG in its cruise ships. The first two Carnival LNG-powered ships will launch in 2019, running on LNG supplied by Shell Western LNGs portfolio.

Mozambique and Italys Eni have inked a deal to supply LNG from the Coral South field to BP under a 20-year deal. The deal secures the project a long-term customer, which is necessary to get the long-delayed export project with 3.3 million tons capacity off the ground.

The Ivory Coast and Frances Total agreed to build an LNG import terminal to feed the countrys growing demand for power. The FSRU project will be designed for an initial 0.1 bcf, rising up to 0.5 bcf, with first gas shipments aimed at 2018.

BP has axed its plans to drill in the Great Australia Bight, an offshore upstream project in South Australia that has the potential to rival production from the North West Shelf but also raised significant environmental concerns. After investing in a new oil rig built for the site, BP has withdrawn from the project citing competitive concerns over capital investment ie. the project would not be profitable under current crude oil prices. The cancellation was welcomed by environmental activists, but BP may very well revisit the project in the future if prices settle at a level that make the deepwater project viable.

Indonesias thwarted ambitions to raise its refining capacity got a boost as Russias Rosneft and Pertamina appear to agree on terms to build a 300 kb/d refinery in Tuban. Indonesia also has a refinery planned with Saudi Arabia, but all of its previous projects have been dashed by poor economics over the past decade. The Rosneft deal will involve the Russian firm taking up to a 45% in the refinery, while Pertamina may gain stakes in Rosnefts upstream projects in Russia, including up to 20% in the offshore Northern Chayvo and up to 37.5% in the Russkoye field, in line with Pertaminas aim to boost its overseas production.

In a surprising move, BP announced its intent to set up a network of up to 3,500 fuel stations in India. Shell is the only other supermajor currently present in Indian downstream, with a network size of less than a hundred, in a market where competition is fierce and dominated by the state refiners IOC, HPCL and HPCL. The move is surprising given BPs reluctance to invest in downstream in recent yeas, having focused its investment on upstream projects, but the rapid growth of fuel demand in India appears to have tempted BP to go retail again.

Sri Lanka will tie up with Indias IOC to build a 100 kb/d refinery in Triconmalee, the countrys second refining site. The announcement is part of a raft of Indian investment projects in Sri Lanka as Colombo aims to diversify its investment sources away from being dominated by China.

Thailands state power company EGAT is preparing to develop an FSRU to receive LNG imports as part of the governments plan to liberalise the LNG sector in Thailand. PTT is currently Thailands sole gas and LNG supplier, and though it works well with other state run energy companies, the Thai government wants to open up the sector to new firms.

Abu Dhabis ADNOC is merging the operations of two of its subsidiaries Abu Dhabi Marine Operating Co and Zakum Development to create a more profitable upstream business. The merger will consolidate the concessions held by both companies into a more streamlined structure that will also benefit ADNOCs partners in both companies, which include BP, ExxonMobil, Japan Oil Development Company and Total.

Brazil is to open up the countrys pre-salt oil fields to foreign investors. Its not the exclusive domain of Petrobras to hold 30% in partnership anymore. However Petrobras will have right of first refusal to control and drill before the fields are auctioned off. Desperate times, desperate measures.

Saudi Aramco announced that the company will now instead allow shares to be sold in ALL operations of the business, no longer limited to the downstream segments. The IPO is projected to take place in 2018, hoping to raise about USD100150 billion at a USD23 trillion valuation.

John Fredriksen, the chairperson and largest shareholder of Seadrill is planning to inject USD1.2 billion into the company. Saving Seadrill from bank maturies till 2020, as part of its re-structuring plan.

Surprisingly worldwide investment in clean energy is down 43% year-on-year and the lowest since the first quarter of 2013. The dip reflects a slowdown in spending on renewables in China, Japan and Europe. Indicating that slowing economies dont really need that much new energy, clean or otherwise.

Have a productive week ahead!

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Nigeria’s Energy Focus Must Change From Crude Oil to Gas – Dr Chukwueloka Umeh

According to the Nigeria National Petroleum Corporation (NNPC), Nigeria has the world’s 9th largest natural gas reserves (192 TCF of gas reserves). As at 2018, Nigeria exported over 1tcf of gas as Liquefied Natural Gas (LNG) to several countries. However domestically, we produce less than 4,000MW of power for over 180million people.

Think about this – imagine every Nigerian holding a 20W light bulb, that’s how much power we generate in Nigeria. In comparison, South Africa generates 42,000MW of power for a population of 57 million. We have the capacity to produce over 2 million Metric Tonnes of fertilizer (primarily urea) per year but we still import fertilizer. The Federal Government’s initiative to rejuvenate the agriculture sector is definitely the right thing to do for our economy, but fertilizer must be readily available to support the industry. Why do we import fertilizer when we have so much gas?

I could go on and on with these statistics, but you can see where I’m going with this so I won’t belabor the point. I will leave you with this mental image: imagine a man that lives with his family on the banks of a river that has fresh, clean water. Rather than collect and use this water directly from the river, he treks over 20km each day to buy bottled water from a company that collects the same water, bottles it and sells to him at a profit. This is the tragedy on Nigeria and it should make us all very sad.

Several indigenous companies like Nestoil were born and grown by the opportunities created by the local and international oil majors – NNPC and its subsidiaries – NGC, NAPIMS, Shell, Mobil, Agip, NDPHC. Nestoil’s main focus is the Engineering Procurement Construction and Commissioning of oil and gas pipelines and flowstations, essentially, infrastructure that supports upstream companies to produce and transport oil and natural gas, as well as and downstream companies to store and move their product. In our 28 years of doing business, we have built over 300km of pipelines of various sizes through the harshest terrain, ranging from dry land to seasonal swamp, to pure swamps, as well as some of the toughest and most volatile and hostile communities in Nigeria. I would be remiss if I do not use this opportunity to say a big thank you to those companies that gave us the opportunity to serve you. The over 2,000 direct staff and over 50,000 indirect staff we employ thank you. We are very grateful for the past opportunities given to us, and look forward to future opportunities that we can get.

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July, 19 2019
Your Weekly Update: 15 - 19 July 2019

Market Watch 

Headline crude prices for the week beginning 15 July 2019 – Brent: US$66/b; WTI: US$59/b

  • Global oil prices gained as US crude inventories shrank more than expected and a hurricane in the Gulf of Mexico threatened American offshore production
  • Tropical Storm Barry – which became a hurricane on landfall in Louisiana – was in the path of up to a third of Gulf of Mexico crude output, prompting producers to shut down most of their operations; resumption of normal service has begun
  • At the same time, US crude oil stockpiles fell by almost 10 million barrels, far more than expected, with US refineries ramping up production ahead of summer demand to add some bullishness to the market
  • The ongoing tensions between the US and Iran have not escalated further yet, but Iran has vowed to continue retaliating against the British seizure of its crude tanker in the Mediterranean off Gibraltar
  • These factors have been enough to keep current crude prices trending higher, but oil producing club OPEC warns that the market will swing back into surplus next year, estimating that it is currently producing 560,000 b/d more than will be needed without even factoring in rising US shale production
  • In Venezuela, where oil production has been crippled by sanctions, Chevron is reportedly seeking a waiver to continue operating in the country after the current waiver expires in July 27
  • The US active oil and gas rig count fell once again, shedding a net five rigs (including 4 oil rigs) as merely stable prices reduced the appetite for investment; the total active rig count is now 958, 96 sites lower than this period last year
  • As the threat of Tropical Storm Barry abated, crude prices fell back in line. Without any further disruptions on the horizon, Brent should trend in the US$62-64/b range and WTI in the US$55-57 range


Headlines of the week

Upstream

  • Norway’s Equinor has bought a 16% stake in Swedish upstream firm Lundin Petroleum for US$650 million, which gains it an additional 2.6% interest in the giant Johan Sverdrup oil field bringing Equinor’s total stake up to 42.6%
  • Inpex has picked up the exploration permit for Block AC/P66 in Australia’s Northwest Shelf, which lies in the vicinity of existing promising oil fields
  • US independent Callon Petroleum Company has acquired Carrizo Oil & Gas for US$3.2 billion, deepening its holdings in the Permian and Eagle Ford shale basins, including 90,000 net acres in the prolific Delaware Basin
  • Total has agreed to divest several of its non-core assets in the UK – covering the Balloch, Dumbarton, Lochranza, Drumtochty, Flyndre, Affleck, Cawdow, GoldenEagle, Scott and Telford fields – to Petrogas NEO for US$635 million
  • CNOOC and Sinopec has signed a new agreement to collaborate on exploration activities in the Bohai Basin, Beibu Gulf, North Jiangsu and South Yellow Sea
  • Murphy Oil has completed the sale of its Malaysian upstream assets to a unit of Thailand’s PTTEP for US$2.035 billion for five offshore projects in Sabah
  • Seven upstream discoveries were made in Colombia in 2Q19, making it the market with the most discoveries during the period, leading India, Russia and Pakistan which each made three new oil and gas finds
  • Turkey has vowed to continue drilling offshore Cyprus unless a cooperation proposal between Turkish and Greek Cypriots is accepted
  • Encana is reportedly selling off its assets in eastern Oklahoma’s Arkoma Basin for US$165 million in cash to an undisclosed buyer
  • Sinopec is hunting for partners or buyers for its Buck Lake assets in Alberta’s Duvernay shale basin in Canada, to reduce its current full ownership

Midstream/Downstream

  • The Governor of Pennsylvania Tom Wolf has ruled out using state funds to save the Philadelphia Energy Solutions refinery after it was shuttered following a massive fire that took out the entire site last month
  • Blackouts hit Venezuela’s Amuay and Cardon refineries, bringing the 955,000 b/d Paraguana refining Center to a complete halt on total lack of power
  • Chevron Phillips Chemical (CP Chem) and Qatar Petroleum have agreed to develop a new 2 mtpa petrochemical complex on the US Gulf Coast, with the US Gulf Coast II Petrochemical Project drawing on NGLs from the Permian
  • Marathon Petroleum will shut down the gasoline FCCU unit at its 585,000 b/d Galveston Bay Refinery in Texas for up to 8 weeks for repairs

Natural Gas/LNG

  • Total has agreed to buy NG from Tellurian’s Driftwood LNG facility in Lake Charles, Louisiana in two separate deals – 1 million tons per annum for Total Gas & Power North America and 1.5 mtpa for Total Gas & Power – as well as invest US$500 million in Driftwood Holdings LP
  • Mozambique has put on hold plans to raise funds for its stake in the Anadarko-led Mozambique LNG project, citing current bad market conditions
  • ExxonMobil and Lucid Energy Group have agreed to collaborate on a long-term natural gas gathering and processing project, bringing natural gas from New Mexico’s Delaware Basin to the South Carlsbad gas processing system before being delivered to ExxonMobil’s downstream facilities in the US Gulf Coast
July, 19 2019
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