NrgEdge Staff

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Last Updated: December 7, 2016
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Last week in the world oil:

Prices

- Though unexpected, the OPEC deal reached last week is certainly welcome news for the oil markets, sending crude oil rising to its highest level in nearly two years, reaching US$55/b today. OPEC producers agreed to shave 1.2 mb/d from January onwards, with non-OPEC contributing an additional 600 kb/d of cuts, numbers that could (if adhered to) reduce considerably the current global supply glut.

Upstream & Midstream

- Justin Trudeaus administration in Canada has been delicately maintaining a balance between the environmental and energy lobbies. His decision to approve the Kinder Morgan pipeline expansion is an example of this. While Kinder Morgan will be allowed to build a second pipeline as an upgrade to the existing Trans Mountain pipeline to bring more oil to the West Coast to send to Asia, Trudeau has also blocked Enbridge from moving ahead with the Northern Gateway pipeline that would transport oil sands to the Pacific Coast directly through pristine rainforest.

- Japans Mitsui has agreed to buy Shells stakes in four US Gulf of Mexico oil blocks. The deal, for an undisclosed amount, will see the Japanese trading house acquire 20% stakes in four Mississippi Canyon blocks, which have an estimated recoverable volume of 100 million barrels of oil equivalent. The move represents bold steps for Mitsui, after it signed off on developing the Greater Enfield reserves in Western Australia and the third train of Tangguh LNG in Indonesia earlier this year.

- Supermajor ExxonMobil has relinquished 60 deepwater blocks in the Gulf of Mexico, including 20 that were part of a joint venture with Russias Rosneft, citing disappointing exploration results alongside persistent low crude oil prices. The two companies joined forces in 2013, when Rosneft bought a 30% stake in the 20 blocks.

- The US rig count is up again. Three new oil rigs and one new gas rig was added last week, bringing the total up to 477 and 119, respectively, as US oil players saw the OPEC decision as a lead-in to higher prices.

Downstream

- Brazil wants to further reduce its gasoline imports by stimulating domestic ethanol production. Sugar (from sugarcane) is the main source of biofuels in Brazil, but mills have been prioritising sugar production over ethanol owing to the tight global supply of sugar. All gasoline sold in Brazil now contains 27% sugarcane-derived ethanol, and the proposed new ethanol program is aimed to stimulating output to increase this.

Natural Gas & LNG

- Nigeria and Morocco has signed an agreement that could see a gas pipeline built linking Africa to Europe. The joint venture was reached as the Moroccan King visited Nigeria, with the project aimed at linking the gas resources of Nigeria and surrounding West African nations, and piping it north to Morocco with the intent of connecting to European demand centres via Spain or Portugal.


Last week in Asian oil:

Upstream & Midstream

- Less than a year after re-joining OPEC, Indonesia has once again suspended its membership in the cartel, as it was unable or unwilling to agree to a supply cut. Though its crude output is dwindling, Indonesia still depends heavily on oil to fund its government and the proposed 37 kb/d cut in Indonesian production was unacceptable, leading to the countrys second withdrawal from OPEC.

- India has invited initial bids to begin filling its Karnataka strategic petroleum storage facility. The Padur facility will be the third such site in India, and is the largest with 2.5 million tons of storage space. If experience at the previous two facilities in Vizag and Mangalore are to go by, then the crude oil sources are likely to be Iraq and Iran, which have helped India boost its strategic reserves to 10 days a small number by global standards of at least 50 days, but far better than the precariously tight position the country was in previously.

- Just months after Shell cancelled its US$4.6 billion order for three FLNG vessels, Samsung Heavy Industries has been hit with another major cancellation, this time for a US$777 million FLNG substructure for a European firm. The order was cancelled as the client did not issue a work order, with the low crude oil price environment possibly being the main concern. South Korean shipbuilders have been in trouble recently, and will be hoping that the recent upswing in prices will continue.

Downstream & Shipping

- The cheap price environment of LPG is causing a few Asian petrochemical crackers to turn to propane as a feedstock. Idemitsu in Japan is embarking on an expansion to boost propane processing by up to four times at its joint venture with Mitsui Chemicals in Q317, relying on imported LPG brought into the neighbouring LPG facility at the Chiba refinery.

Gas & LNG

- Chinas CNPC the parent company of PetroChina will separate its natural gas sales and transportation divisions. CNPC currently supplies nearly 80% of Chinas gas market, and the Chinese government wants to open the sector up to more competition, compelling CNPC to separate its gas sales and transportation arms, which should encourage investment in areas that were previously monopolised by CNPC.

- BP has acquired Repsols 3.06% stake in the Tangguh LNG project for US$313 million, bringing the UK operators stake to just over 40%. This consolidates BPs control over Tangguh, which has been given the go-ahead for the US$8 billion expansion of the Tangguh third LNG train.

Corporate

- The Azerbaijan state oil company SOCAR is beefing up its crude trading division in London, targeting China. Specifically, Socar wants to sell crude directly to the independent Chinese refiners the so-called teapots that were given licences to import crude directly this year.

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September, 21 2019
Your Weekly Update: 16 - 20 September 2019

Market Watch  

Headline crude prices for the week beginning 16 September 2019 – Brent: US$69/b; WTI: US$63/b

  • Global crude oil prices surged at the start of the week as news that a successful drone strike on the Abqaiq processing plant and the Khurais oil field in Saudi Arabia took out over half of the Kingdom’s crude production capacity
  • Brent prices jumped above US$70/b at one point on fears on global supply disruption, but abated as President Donald Trump authorises the release of US strategic petroleum reserves to cover the market
  • Initial fears that the Saudi Arabian crude output would be crippled for months proved to be extreme, with Saudi Aramco announcing that some 70% of capacity at Abqaiq had been restored within days
  • But more worryingly is that this incident escalates the risk of a full-blown military confrontation with Iran; the US was quick to accuse Iran of the attack, citing data on the attack, which was denied by Iran
  • Yemen’s Iran-backed Houthi rebels claimed responsibility for the attack, although initial results of a Saudi investigation pointed to the weapons originating from Iran
  • For now, crude oil prices have retreated as the risk of widespread supply disruption abated, but tensions are still high in the region
  • This comes after President Trump signals that he was considering easing sanctions in an apparent thaw in the US-Iran relationship; this opportunity now appears to have evaporated
  • Saudi Arabia’s new oil energy minister, Prince Abdulaziz bin Salman, made a positive impression at the recent OPEC+ meeting, with errant members of the group signalling that they were now ready to adhere to the supply deal
  • In Venezuela, the oil crisis continues as ongoing US sanctions now mean that the country cannot find enough vessels to transport its crude, as shippers fear losing insurance coverage if they transport Venezuelan oil
  • Iran has released the UK-flagged Stena Impero vessel that it had impounded, a lone bright spot in a region now clouded by geopolitical tensions
  • Against this backdrop, the US active rig count recorded yet another fall, losing five oil and seven gas rigs for a net drop of 12 to a new total of 886 rigs
  • With the shock of the Saudi drone attacks abating, crude oil prices are retreating back to their previous range – US$60-63 for Brent and US$56-59/b for WTI – as the impact of global supply was minimised; another attack, however, might cause a more permanent shift in prices


Headlines of the week

Upstream

  • Equinor has received consent from the Norwegian Petroleum Directorate to continue operations at the Tordis and Vigdis fields through 2036 and 2040, respectively, extending the life of the North Sea fields by 34 years
  • BP has announced that it will deploy continuous measurement of methane emissions for all future oil and gas projects in a bid to reduce emissions
  • CNOPC and Niger have agreed to collaborate on a 1,892km pipeline to carry oil from Niger’s Agadem rift basin to port facilities in Benin
  • The South African government is tabling a new law that will allow the state to take a free stake of up to 10% in all new oil and gas ventures, hoping to capitalise on a surge in upstream interest after Total’s Brulpadda discovery

Midstream/Downstream

  • As the IMO deadline for low-sulfur marine fuels approaches, refiners have begun stockpiling supplies of very low-sulfur fuel oil to ensure adequate supply; this includes Japan’s Cosmo Oil that aims to begin supplying VLSFO to the domestic marine market by October 2019
  • IndianOil’s Gujarat refinery stated it ready to produce 12,900 b/d of VLSFO by October while its Haldia refinery will start producing 5,500 b/d of VLSFO by December; this should be adequate to cover the India’s marine fuel demand
  • India is considering selling a stake in BPCL, the country’s second largest refiner, to an international firm to boost competition in downstream fuel retailing that has historically been dominated by state firms
  • Valero Energy and Darling Ingredients are launching the first renewable gasoil plant in Texas, focusing on producing renewable diesel and naphtha
  • In the UK, Essar Oil’s Stanlow refinery aims to increase its diet of US crude from a current 35% to 40%, leveraging on cheaper American oil
  • The after-effects of Russia’s contaminated crude through the Druzhba pipeline continues as Total issues a tender to sell 1.3 million barrels of tainted Ural crude through Rotterdam after failing to process it

Natural Gas/LNG

  • Poland has won a ruling from the EU courts to reduce Russian control over the key EU Opal pipeline that carries Russian gas from the Nord Stream link to Germany, preventing Gazprom from using most of Opal capacity in a bit to increase energy security for Eastern European countries
  • Vitol and Mozambique’s state player ENH have set up a new joint venture in Singapore to capitalise on trading opportunities for LNG, LPG, and condensate
  • Australia’s Liquefied Natural Gas Ltd and Delta Offshore Energy will supply gas from the Magnolia fields to an LNG-to-power project in Bac Lieu, Vietnam
  • Eni’s Baltim South West gas field offshore Egypt has started up production, only 3 years after discovery, producing an initial 100 mscf/d of gas
  • US gas player Sempra is looking to take FID on its Energia Costa Azul LNG project in Mexico’s Baja California region by the end of 2019
  • Egypt has announced that it expects to receive first natural gas from Israel by end-2019 through the East Mediterranean Gas pipeline, with initial supplies of 200 mscf/d that will rise to 500 mscf/d by 2020
  • The Independence floating LNG terminal in Lithuania – built to reduce the Baltic region’s dependence on Russian gas – is set to receive its first-ever cargo from Siberia, likely from Novatek’s LNG projects in Yamal
September, 20 2019
Financial Review: Second-Quarter 2019
Key findings
  • Brent crude oil daily average prices were 9% lower in second-quarter 2019 than in second-quarter 2018 and averaged $68 per barrel
  • The 117 companies in this study increased their combined liquids production 4.6% in second-quarter 2019 from second-quarter 2018, and their natural gas production increased 5.0% during the same period
  • Nearly half of the companies were free cash flow positive—that is, they generated more cash from operations than their capital expenditures
  • Dividends plus share repurchases were nearly one-third of cash from operations, slightly lower than the six-year high set in first-quarter 2019

Distributions to shareholders via dividends and share repurchases amounted to nearly 33% of cash from operations


See entire second-quarter review

September, 20 2019