Easwaran Kanason

Co - founder of NrgEdge
Last Updated: November 7, 2016
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Business Trends
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Last week in world oil:

OPECs internal squabbling has erased all its efforts to raise oil prices from languishing in the US$40/b range, as hope fades that the quixotic supply cut could be engineered. In fact, whispers suggest that Saudi Arabia is mulling punishing the rest of the organisation by pumping more oil to cause prices to free fall in a harsh attempt to get the other members in line. The next OPEC meeting begins November 30. Analysts remain split about   its success.

Venzuelas PDVSA has completed deals with Delta Petroleum and Indias ONGC totalling US$1.45 billion to raise production at their joint venture operations. The Delta Petroleum deal will see US$1.13 billion pumped in to raise production at Petrodelta from 40 kb/d to 110 kb/d, while the ONGC agreement will inject US$318 billion into Petrolera Indovenezolana to double production at the Cristobal field to 40 kb/d.

After a brief break, the operating oil rig count in the US resumed its climb, adding nine new oil and three new gas rigs, bringing the total up to 450 and 117, respectively, even as oil prices retreated from recent highs over uncertainty in OPEC and a massive crude build reported by the EIA.

Curacaos divorce with Venezuela over the Isla refinery now seems imminent, with Chinas Guangdong Zhenrong Energy now moving to secure funds for its US$5.5 billion plan to upgrade the refinery, a strategic spot in the Caribbean that serves as a oil hub for the Atlantic. PetroChina, Sinopec and CNOOC are expected to collaborate with the state-owned firm in the project, which now includes plans for the natural gas terminal.

Just weeks after announcing a new retail fuel pricing plan, Petrobras is now changing its pricing for LPG. Aimed to eliminating indirect subsidies by charging more for distributors using its facilities, it is the latest in Petrobras attempt to bolster earnings to pare down debt.

Canada has approved the C$1.3 billion expansion of the NOVA Gas Transmission natural gas gathering pipeline. The project by TransCanada will streamline some 75% of natural gas (some 11.3 bcf) in western Canada, including the Montney and Duverney shale fields in BC and Alberta, with completion expected in Q2 2018.

Shell and BP have both reported higher-than-expected earnings for Q316, with Shell reporting a rare instance of higher revenue than ExxonMobil. Much of the improvement in earnings comes from the supermajors sustained cost cutting, their adaptation strategy to low prices.

General Electric will merge its oil and gas business with Baker Hughes to create the second-largest oilfield services company in the world, behind Schlumberger. To be known as Baker Hughes, A GE Company, the new US$32 billion company will combine GEs equipment expertise with Baker Hughes speciality in drilling and fracking, as the industry responds to the prolonged slump in crude oil prices.

Italys ENi has signed four agreements with Bahrain to move into onshore and offshore upstream activities in Bahrain. The agreements were signed by Bahrain Petroleum Company (Bapco) and Tatweer Petroleum, representing a preliminary step in evaluating selected E&P assets in Bahrain that may eventually led to asset stakes for Eni if viable.

Malaysias Petronas is stoking some interest in the battered offshore contracting industry by requesting submissions for its K5 sour gas project off Sarawak in Malaysia. If the project, with its 4 tcf of recoverable gas, moves ahead, it will require a large production facility, and the possibility of Petronas moving ahead with the project has whet the appetite for a industry currently starved of projects.

In a bid to spur Chinas oil exports given that the country is now swamped with an oversupply of oil products the export tax rebate for gasoline, diesel and jet fuel has been raised to 17% effective November 1. The rebate, which eliminates double taxation for exported goods, comes as China is swamped by an oversupply of oil products, owing to vast expansions of refining capacity by the state players and a flood of products coming from independent teapot refiners after crude imports were deregulated last year. Unable to the consumed domestically, the products must now head out, contributing to the continued glut in Asia.

ExxonMobils acquisition of InterOil central to its plans to exploit the vast natural gas potential of Papua New Guinea has hit a snag. An objection by InterOils founder filed in Canada has moved to the appeals court, which overturns approval of the US$2.5 billion sale, potentially derailing the deal. The Canadian approval is the sole remaining hurdle to the completion of the deal, and now ExxonMobil must move to appease InterOil founder Phil Mulacek to salvage its plans.

Tokyo Gas, the largest city gas supplier in Japan, has signed an MoU with Malaysias Petronas that will see the two companies co-operating over existing and future natural gas and LNG projects in Southeast Asia. Tokyo Gas has worked with Petronas LNG for over 33 years, buying LNG from three Petronas projects, and the agreement will deepen the ties as Tokyo Gas seeks to secure more supply to feed Japans appetite for natural gas.

Indias Reliance has been slapped with a US$1.55 billion fine by the Indian government for allegedly extracting and selling gas belonging to ONGC in the KG basin of the Bay of Bengal over the last seven years. It is claimed that up to 11 bcf of gas seeped from ONGCs blocks to the adjacent block held by Reliance, BP and Niko Resources. Reliance will contest the fine

Keppel Corp had agreed to purchase bonds offered by struggling oil and gas explorer KrisEnergy, raising its stake in the company to as much as 67.33%. Much of the offshore marine contracting and engineering industry in Singapore is withering, with smaller firms unable to service debt, raising that possibility that the government may officially step in to offer direct aid, as well as through government-linked companies.

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.

End of Article

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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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