Easwaran Kanason

Co - founder of NrgEdge
Last Updated: October 11, 2016
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Business Trends

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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The New Wave of Renewable Fuels

In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.

Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.

Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.

This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.

But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.

In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.

But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.

Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.

Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.

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Market Outlook:

  • Crude price trading range: Brent – US$71-73/b, WTI – US$68-70/b
  • Global crude benchmarks have stayed steady, even as OPEC+ sticks to its plans to ease supply quotas against the uncertainty of rising Covid-19 cases worldwide
  • However, the success of vaccination drives has kindled hope that the effect of lockdowns – if any – will be mild, with pockets of demand resurgence in Europe; in China, where there has been a zero-tolerance drive to stamp out Covid outbreaks, fuel consumption is strengthening again, possibly tightening fuel balances in Q4
  • Meanwhile, much of the US Gulf of Mexico crude production remains hampered by the effects of Hurricane Ida, providing a counter-balance on the supply side

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