Easwaran Kanason

Co - founder of NrgEdge
Last Updated: November 15, 2016
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Business Trends
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Last week in world oil:

Oil markets have largely shrugged off the victory of Donald Trump in the US presidential elections and instead focused on tangible numbers – that OPEC output rose in September, with a 200 kb/d leap in Iran alone. With oversupply on the market, and the likelihood of a supply freeze slim, prices are now in the US$43-44/b range. 

The opening of the Brazil’s upstream industry is opportunity enough for Shell to commit US$10 billion towards over the next five years. Although it has been shying away from investment elsewhere, Brazil is enough of a jewel to warrant funding, with Shell particularly interest in the country’s vast offshore subsalt reserves, which will be opened up to foreign investment after being previously monopolised by Petrobras. 

Another week and the operating US oil rig count have risen again, up by 2 to 452 sites, although the pace of expansion has slowed down markedly. The gas rig count fell by 2, leaving the total number unchanged 

China’s Guangdong Zhenrong Energy has signed an agreement with the UK’s BP on supply and offtake at the Isla refinery in Curacao, once the Chinese commodity trader completes its takeover and planned upgrade of the aging refinery. Under the terms of the agreement, BP will supply crude to the 335 kb/d refinery, currently leased by Venezuela’s PDVSA, and take all of the refined products produced, which will be marketed in the Americas. PDVSA will likely not be sidelined completely; it remains the most logical, and closest, crude oil supplier to the site. 

Mexico’s national oil company PEMEX is aiming to establish a network of partners that help it reconfigure and upgrade its refinery network in the country, which is ailing and inefficiently. The Bank of America has been hired to lead Pemex’s search for joint ventures to upgrade the Tula, Salamanca and Salina Cruz refineries. Priority will be given to the Tula refinery’s aging coking unit, currently operating at minimum levels, contributing to disappointing national output in September, at less than 50% of the total Mexican refinery capacity. 

France’s Total has signed the first post-sanction deal by a western energy company in Iran, confirming its participation in the South Pars Phase 11 development with NIOC in the world’s largest natural gas field. The field, which extends in Qatari waters as the North Field, will cost US$2 billion to develop, with the gas earmarked for Iran’s gas and power grid. Total was heavily involved in Phases 2 and 3 of South Pars in the 2000s, but exited in 2010 after sanctions was slapped over Iran’s nuclear programme. 

Nigeria is aiming to overhaul its state oil company NNPC from a lumbering, bureaucratic behemoth into a modern, streamlined company to minimise graft and mismanagement. Possibly using Malaysia’s Petronas as a blueprint, the goal is to eventually list NNPC on the stock exchange and separate the cumbersome regulatory and policy tasks it is currently responsible for to focus entirely on commercial activity. 

After hitting a record high in September, Chinese crude oil imports fell to its lowest level since January this year as independent teapot refiners cut back on purchases over higher crude prices and dwindling import quotas. Imports are still significantly higher on annual basis, but it appears that the teapots’ ravenous appetite for processing over summer have left them with little room to import as the country moves into winter heating mode. 

With Chevron looking to exit the upstream industry in Bangladesh, the country’s government is aiming to keep Chevron’s assets – which include three gas productions fields (Jalalabad, Moulavi and Bibiyana) with a collective output of 720 million cubic feet a day – in its own hands by directing state-owned Petrobangla to acquire them. With a value of US$2-3 billion, the government is hoping to settle for a price of US$1.5 billion.

Oman Oil Company is switching partners for its Duqm refinery from Abu Dhabi’s International Petroleum Investment Co to Kuwait Petroleum Corporation after it failed to reach an agreement with the former. The 230 kb/d Duqm refinery is part of a massive industrial zone meant to diversify Oman’s economy away from upstream oil. Under the new partnership, Duqm will now process a mix of Omani and Kuwaiti crude. 

While Australia is on course to become the world’s top exporter of LNG, the status pulls natural gas supply in the sparsely-populated west away from the main population centres in the east. This creates a hole in east Australia which may have to be plugged by imports, as AGL Energy considers building a LNG terminal somewhere along the country’s southeast coast by 2021. Currently, domestic gas supply in the southeast is dominated by ExxonMobil, BHP Biliton, Origin Energy and Santos, which hiked up prices in July almost sixfold during a winter cold snap.

The Japanese parliament has passed a bill that will allow the state-run Japan Oil, Gas and Metals National Corp (JOGMEC) to participate on foreign acquisitions. Previously restricted to purchases of foreign natural gas assets, the change in the law allows JOGMEC to work with Japanese firms, or on its own, in acquiring foreign state or private firms, as the government seeks to expand the financial muscle for Japanese companies in the race with China and India to acquire energy assets. 

Chevron has been slapped with a US$200 million tax bill by the Thai government over shipments of oil to its offshore facilities in the Gulf of Thailand. The issue centres on the interpretation of customs legislations; Chevron believes that the law classifies shipments of oil exceeding the 12 nautical mile limit to be exports and therefore exempt from customs duties. However, the Customs department believes that since the destination falls within Thai waters, it should be subject to excise tax, oil fund levy and a 7% VAT, backdated to 2001. Discussion between Chevron and the Thai government continue over the issue. 

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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