Easwaran Kanason

Co - founder of NrgEdge
Last Updated: October 24, 2016
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Last week in world oil:

All of Saudi Arabia’s bluster can’t hide the fact that the tenuous OPEC agreement to cut production had hit a number of obstacles, with the latest being that Iraq wants exemption from the cuts, just as Nigeria, Libya and Iran do. That was enough to send oil prices lower today, though they remain just above the US$50/b level.

Mexico has approved Italy’s Eni to go ahead with test drilling at the Amoca 2 well, a shallow water field in the Gulf of Mexico. It is only the second well to be drilled in Mexico since reforms to open up its energy sector dissolved Pemex’s upstream monopoly. The first well was Amoca 1, also by Eni, part of an acreage that is estimated to hold some 800 million barrels of oil and 480 bcf of associated gas. 

Announcements of asset sales by supermajors are common these days, particularly from Shell, seeking to pay for its acquisition of the BG Group. The latest involves some US$1.3 billion of non-core oil and gas properties in western Canada exchanging hands between Shell and Tourmaline Oil, including onshore land in the Gundy area of British Columbia and the Deep Basin area of Alberta that currently have a minor production output of 25 kb/d, with reasonable room for growth.

Higher prices spur more rigs, and the US operational oil rig count jumped by 11 last week, bringing the total to 443. Gas rigs also added 3 to their number, up to 108, as nimble onshore producers react to the positive price signals. The number of offshore rigs remains unchanged at 23.

There’s a problem looming in PDVSA and it threatens to spill over into the US Gulf. Beset with a huge amount of debt, the Venezuelan national oil company has been attempting to negotiate short-term measures to defer its debt, with the spectre of a default looming on the horizon. Already, Curacao appears to be abandoning PDVSA, seeking Chinese involvement in its refinery, while the woes are affecting PDVSA’s subsidiary Citgo in the USA and its Aruba refinery. A default would also wreck havoc with the US Gulf Coast refining system, dependent on Venezuela’s output that supplies a third of the crude processed along the Gulf Coast.

Qatargas has inked a deal with Petronas LNG UK to supply 1.1 million tons of LNG per year through 2023, extending a contract that was due to expire at the end of 2018. The deal is particularly important for Qatar, as it seeks to secure long-term supply agreements in the face of a looming global glut of gas supplies from Australia and the US, with Europe being a priority target. The LNG will be supplied from Qatargas 4, a joint venture between Qatar Petroleum and Shell, with the supplies delivered to the Dragon LNG terminal in Milford Haven in the UK. Qatargas is also looking at securing supply agreements in Rotterdam, which would be its gateway into western continental Europe.

The Chinese upstream sector is considered expensive, inefficient and now, declining. China’s crude output fell by 9.8% y-o-y in September, as low oil prices make imports cheaper while making the case that the country’s high-cost fields, like Daqing and Shengli, should be shut down. Crude output in August fell by 9.9%, the highest y-o-y decline on record, while September crude imports growth reached 18%.

Petrobras has finally reached a deal for its mothballed Nansei Seikyu refinery in Okinawa, agreeing to sell it to Japan’s Taiyo Oil for US$129.3 million as it continues on its asset sale spree to reduce its debt. The Okinawan refinery, an oddball choice that was acquired by Petrobras in 2007, has proven particularly difficult to sell, having its refining operations shut down last year due to the industry downturn. 

With the downstream oil market in doldrums but the petrochemical industry still holding strong, Saudi Arabia is aiming to capitalise on that by focusing on a giant crude-to-chemicals project. Saudi Aramco and SABIC have formed a joint management team, together with a unnamed third party, to assess the viability of such a project that would cut out the middle link in petrochemical production, bypassing gasoline and diesel to go straight into chemicals. A preliminary study is expected in 2017, and is in line with the Kingdom’s stated desire to diversify its economy away from crude petroleum sales.

After the US$15 billion Inpex/Shell plan to boost output at the Masela natural gas field by 2.5 mtpa utilising a floating LNG facility was rejected by the Indonesian government in March, a new plan has been proposed to build an onshore LNG plant on the islands of Aru or Saumlaki. The anticipated start date of the giant gas field has been pushed into the late 2020s, and to recoup investment, Inpex is proposing a near quadrupling of output, to between 7.5-9.5 mtpa in total now. A decision on the new proposal is expected from the Indonesian government within the month.

Under pressure gas player Santos has sold its offshore natural gas assets in Victoria to Australia’s Cooper Energy for US$62 million. The sale marks the exit of Santos from offshore Victoria following the sale of its Kipper field for US$520 million in March. The assets include interests in the Casino-Henry gas project, as well as control of the Sole field and Orbost gas plant in Gippsland Basin.

In another sign that petrochemicals are booming, India’s Reliance has beaten forecasts by posting an 18% y-o-y increase in its Q2 profit, buoyed by its petrochemicals business. Reliance’s petrochemicals margins for Q216 were 15%, the highest in nearly four years, while its refining margins fell sharply due to weak product prices. 

Meanwhile in the rig-making sector, Singapore’s Keppel Oil saw its quarterly profits fall by 38% on a weak offshore market. Cost-cutting measure and job cuts – more than 8,000 so far in 2016 – are continuing, and the company will also look at mothballing some facilities until 2020. 

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