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Last Updated: December 14, 2016
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Last week in the world oil:

Prices

  • News that a group of non-OPEC producers would join OPEC in implementing a supply cut has jolted oil prices into optimism, rising to US$55/b, with producers hoping it will test the US$60 barrier soon. Mexico, Azerbaijan, Kazakhstan and Oman have joined Russia to agree to implement a 600 kb/d cut, with Russia contributing half of the total.

Upstream & Midstream

  • The rise in oil prices has revived interest in Canadian oil sands, moribund since the price slump. Cenovus Energy and Canadian Natural Resources have announced a go-ahead with their expansion projects, adding 50 kb/d to Christina Lake and 40 kb/d to Kirby North in capacity, respectively.
  • Despite a Brazilian court ordering Petrobras to halt the sale of its fuel distribution subsidiary over labour concerns, the Brazilian state giant says it is pushing ahead with its ambitious divestment program that includes inking some US$4 billion in asset sales this month. The apparent speed at which the deals are taking place has triggered legal concerns that rigging and bribery may have been part of the divestment negotiations.
  • It was to be expected. With prices rising, American producers are capitalising on the expectation of higher prices by restarting rigs. The US rig count jumped by 27 last week, with 21 of those being oil rigs. Last minute drilling to maintain leases may have also contributed to the spike, with the market largely shrugging off the increase.

Downstream

  • Saudi Arabia has begun telling its customers that they will receive reduced crude shipments beginning January, affecting refineries that have long-term contracts with the Kingdom. The curbs are focused on Europe and North America, with Asian refineries largely spared the cull, where Saudi Arabia is battling Iran and Russia for market share.
  • The EUs biofuels push is evolving to reduce dependence on crop-based feeds, aiming to reduce plant-based biofuels from 7% in 2021 to 3.8% in 2030 to assuage concerns of deforestation. Instead, the EU wants to focus on advanced biofuels, involving agriculture and forestry waste.
  • Once a major player in both upstream and downstream, Venezuelas PDVSA is facing trying times. Chronic underinvestment and low oil prices have slashed operating rates at its giant Paraguana, Amuay and Cardon refineries to some 40-45%, while it appears to have been elbowed out of its toll-refining arrangements in Curacao and possibly Aruba. Meanwhile, PDVSA is asking a US court for some US$600 million in compensation from a bribery scheme of two businessmen that bribed PDVSA officials over US$1 billion in supply contracts.

Natural Gas & LNG

  • Anadarko and Eni will now be allowed to sell the Mozambique governments share of gas from their projects in the Rovuma Basin. The countrys government has approved an amendment to its LNG contracts to relinquish its rights to natural gas quotas and gas production tax in an attempt to boost the viability of the projects in the coming era of LNG oversupply. The contracts involved are Anadarkos Dolphin Tuna and Enis South Coral sites, both due for FID next year.

Last week in Asian oil:

Upstream & Midstream

  • Japans state-run JOGMEC has extended its contract with Saudi Aramco to allow the latter to store up to 6.3 million barrels of crude oil in Okinawa for the next three years. Japan allows Saudi Aramco (as well as Abu Dhabis ADNOC) to store crude in Okinawa as a distribution hub for East Asia, in exchange for priority claims on the stock during emergencies.
  • Australias Origin Energy is spinning off its upstream oil and gas unit in an IPO worth at least US$1 billion. The new company, NewCo, has a upstream assets in Australia and the gas market in New Zealand, but will remain smaller than Santos and Woodside, triggering speculation that it could be acquired by an Asian producer, with an eye towards Origins stake in the APLNG plant as it returns to being a gas/power retailer.

Downstream & Shipping

  • Chinas independent teapot refineries are confident that Beijing will keep their 2017 import quotas steady at 2016 level or possibly just a little higher. The teapots were one of the brighter spots in Asia refining this year, sucking up large amounts of crude in the first year they were allowed to directly import crude, and are looking to import more in 2017, a move that would help ease the crude supply glut but contribute to the refined products oversupply in Asia.

Gas & LNG

  • As Papua New Guinea tries to figure out its LNG export strategy, the countrys Prime Minister is now leaning to a single export site, which would require Totals Papua LNG project to export its gas through ExxonMobils existing PNG LNG facility. The merits of having two or a single site have been debated extensively, but concerns over cost are pushing the stakeholders towards having a single large site.
  • The Thai energy policy committee has given its consent to a PTT proposal to acquire LNG from Malaysias Petronas over a 15 year period, beginning with 1 mtpa in 2017 and 2018, then rising to 1.2 mtpa from 2019. Thailand is highly dependent on natural gas for its power infrastructure, and declining domestic production is forcing it to turn to imports.
  • Indonesia has ordered natural gas contractors to cut prices in the fertiliser, steel and petrochemicals sectors beginning January, replacing oil with the more plentiful natural gas to boost economic growth.
  • Malaysias Petronas has inked a deal with Japans Hokuriku Electric Power to supply up to six cargoes of LNG per year to the power provider in northwestern Honshu. The contract will begin March 2018. Petronas is aiming to boost its LNG business, with its PFLNG Satu the first floating LNG unit in the world producing its first cargo last week.

Corporate

  • As part of Beijings attempt to reform the oil and gas industry in China to boost competitiveness, Sinopec has sold a 50% stake in its Sichuan-East China gas pipeline to China Life Insurance and SDIC for some US$6.6 billion. Sinopec will retain a stake in the pipeline, aiming to use proceeds from the sale to expand its other gas pipeline and storage infrastructure. Gas pipeline are increasing in importance in China, with CNPC recently starting up the eastern portion of its third East-West cross-country pipeline, eventually connecting to CNOOCs network in Fujian.

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Permian’s Pipeline Lifeline

The Permian is in desperate need of pipelines. That much is true. There is so much shale liquids sloshing underneath the Permian formation in Texas and New Mexico, that even though it has already upended global crude market and turned the USA into the world’s largest crude producer, there is still so much of it trapped inland, unable to make the 800km journey to the Gulf Coast that would take them to the big wider world.

The stakes are high. Even though the US is poised to reach some 12 mmb/d of crude oil production next year – more than half of that coming from shale oil formations – it could be producing a lot more. This has already caused the Brent-WTI spread to widen to a constant US$10/b since mid-2018 – when the Permian’s pipeline bottlenecks first became critical – from an average of US$4/b prior to that. It is even more dramatic in the Permian itself, where crude is selling at a US$10-16/b discount to Houston WTI, with trends pointing to the spread going as wide as US$20/b soon. Estimates suggest that a record 3,722 wells were drilled in the Permian this year but never opened because the oil could not be brought to market. This is part of the reason why the US active rig count hasn’t increased as much as would have been expected when crude prices were trending towards US$80/b – there’s no point in drilling if you can’t sell.

Assistance is on the way. Between now and 2020, estimates suggest that some 2.6 mmb/d of pipeline capacity across several projects will come onstream, with an additional 1 mmb/d in the planning stages. Add this to the existing 3.1 mmb/d of takeaway capacity (and 300,000 b/d of local refining) and Permian shale oil output currently dammed away by a wall of fixed capacity could double in size when freed to make it to market.

And more pipelines keep getting announced. In the last two weeks, Jupiter Energy Group announced a 90-day open season seeking binding commitments for a planned 1 mmb/d, 1050km long Jupiter Pipeline – which could connect the Permian to all three of Texas’ deepwater ports, Houston, Corpus Christi and Brownsville. Plains All American is launching its 500,000 b/d Sunrise Pipeline, connecting the Permian to Cushing, Oklahoma. Wolf Midstream has also launched an open season, seeking interest for its 120,000 b/d Red Wolf Crude Connector branch, connecting to its existing terminal and infrastructure in Colorado City.

Current estimates suggest that Permian output numbered around 3.5 mmb/d in October. At maximum capacity, that’s still about 100,000 b/d of shale oil trapped inland. As planned pipelines come online over the next two years, that trickle could turn into a flood. Consider this. Even at the current maxing out of Permian infrastructure, the US is already on the cusp on 12 mmb/d crude production. By 2021, it could go as high as 15 mmb/d – crude prices, permitting, of course.

As recently reported in the WSJ; “For years, the companies behind the U.S. oil-and-gas boom, including Noble Energy Inc. and Whiting Petroleum Corp. have promised shareholders they have thousands of prospective wells they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%. But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.”

The immense growth experienced in the Permian has consequences for the entire oil supply chain, from refining balances – shale oil is more suitable for lighter ends like gasoline, but the world is heading for a gasoline glut and is more interested in cracking gasoil for the IMO’s strict marine fuels sulphur levels coming up in 2020 – to geopolitics, by diminishing OPEC’s power and particularly Saudi Arabia’s role as a swing producer. For now, the walls keeping a Permian flood in are still standing. In two years, they won’t, with new pipeline infrastructure in place. And so the oil world has two years to prepare for the coming tsunami, but only if crude prices stay on course.

Recent Announced Permian Pipeline Projects

  • September 2018 – EPIC Midstream Holdings – 675,000 b/d, 1125km, 24-30’ diameter, 4Q19 target opening
  • November 2018, Wolf Midstream Partners – 500,000 b/d, 65km, 16’ diameter, 2H2019 target opening
  • November 2018, Jupiter Energy – 1 mmb/d, 1050km, 36’ diameter, 2020 target opening
  • December 2018, Plains All American Pipeline – 575,000 b/d, 830km, 26’ diameter, 3Q19 target opening
December, 04 2018
Your Weekly Update: 3 - 7 December 2018

Market Watch

Headline crude prices for the week beginning 3 December 2018 – Brent: US$61/b; WTI: US$52/b

  • After falling down to fresh lows last week – with WTI prices dipping below US$50/b at one point – crude oil prices improved after the G20 meeting in Buenos Aires, where the US and China agreed to a temporary truce over their trade war
  • While no concrete agreements over energy were announced at the G20 summit, the slightly thawing in trade tensions allowed crude benchmarks to rise slightly, assisted by an announcement by Canadian producers in Alberta that output would be cut by 325,000 b/d beginning January
  • Russia and Saudi Arabia agreed at the G20 summit to extend the OPEC+ deal into 2019, suggesting that a coordinated oil output cut was in the works, also supported prices ahead of OPEC’s meeting in Vienna this week
  • Not present at the OPEC meeting, however, will be Qatar, which quit the oil cartel in a surprise move; the tiny sultanate said it was quitting due to its small oil production, choosing instead to focus on its LNG industry, but the move can be seen as a response to the Saudi-led boycott of Qatar, calling into question Saudi Arabia’s ability to hold the fragile OPEC coalition together
  • Consensus among analysts point to OPEC+ agreeing to remove some 800,000 b/d of crude oil from the market beginning January, aimed at establishing a floor for oil prices at some US$65/b
  • The downward spiral of crude prices has put the brakes on US drilling activity, with 2 new oil rigs offset by the loss of 5 gas rigs last week; analysts are expecting shale explorers to cut spending budgets in 2019 in response to weak prices, raising spectres of the 2015 price slump
  • Crude price outlook: Ahead of the OPEC meeting on December 6, crude should be kept up by expectations of a renewed supply cut, with Brent likely to trade rangebound around US$61-63/b and WTI at US$52-53/b

Headlines of the week

Upstream

  • Buoyed by the prolific nature of the Permian Basin, Shell has announced plans to nearly double its production in the shale patch with AI-powered technology
  • China and the Philippines have set aside sovereignty issues, signing an agreement for joint exploration and development in the South China Sea
  • Facing severe pipeline bottlenecks, Canada’s Alberta province is looking to purchase rail cars to ship more crude oil by train out of the province towards the US, as a temporary measure while new pipeline are proposed and built
  • Shell has completed the sale of Shell E&P Ireland to Nephin Energy Holdings, which includes a 45% in the Corrib gas venture, for US$1.3 billion
  • In Norway, Shell also sold its interests in the Draugen and Gjøa fields for US$526 million to OKEA AS, but retains its interests in the Ormen Lange and Knarr fields, as well as the Troll, Valemon and Kvitebjørn projects
  • Petrobras has sold its stake in 34 onshore production fields to Brazilian firm 3R Petroleum for US$453.1 million, as well as stakes in three shallow-water offshore fields off Rio de Janeiro to Perenco for US$370 million
  • Pemex tripled its estimated reserves in the Ixachi field to 1.3 billion barrels of oil, calling it the ‘most important onshore field in 25 years’ and expecting peak production of 80,000 b/d of condensate and 720 mscf/d of gas by 2022

Downstream

  • Uganda has pushed back the opening of its first oil refinery to 2023, in line with estimates by Total, CNOOC and Tullow Oil, as crude oil production is now only expected to begin in 2021
  • Malaysia will be introducing a B10 biodiesel mandate in December over a phased rollout, with complete implementation expected by February 2018
  • Pertamina expects to begin works on upgrading its Balikpapan refinery in early 2019, aimed to increasing fuel standards to Euro V and upgrading capacity to process sour crude together with its current medium heavies
  • ExxonMobil plans to upgrade its Rotterdam refinery to expand Group II base stock production, following the installation of a new hydrocracker
  • The US EPA has increased its annual blending mandate for advanced biofuels by 15% and kept conventional biofuels blending requirement steady for 2019, while maintaining waivers for selected refineries

Natural Gas/LNG

  • Petronas and Vitol Asia have signed a long-term LNG supply agreement, with Petronas providing LNG from the LNG Canada project in Kitimat, providing up to 800,000 tons per annum for 15 years beginning 2024
  • Eni and Anadarko have been giving a 2023 deadline to submit key development plans for the Area 1 and 4 LNG complex in Mozambique
  • Tullow Oil is backing the attempt by three former Cove Energy executives in the Comoros Islands by taking stakes in Discover Exploration’s blocks, hoping to repeat the trio’s success in discovering the Rovuma block
  • South Korea’s Posco Daewoo has signed a deal with Brunei National Petroleum Company to jointly explore LNG opportunities in Brunei, with specific focus on the development of the Dehwa area operated by Posco Daewoo
  • Rosnedt and the Beijing Gas Group have set up a joint venture focusing on building and operating a network of up to 170 CNG fuel stations in Russia, using LNG as motor fuel
December, 06 2018
Overall Lubricants Market Is Growing In Bangladesh

The engine oil market has grown up around 10 to 12% in the last three years because of various reasons, mostly because of the rise of automobiles. 

According to the Bangladesh Road Transport Authority (BRTA), the number of registered petrol and diesel-powered vehicles is 3,663,189 units.

The number of automotive vehicles has increased by 2.5 times in the last eight years.

The demand for engine oils will rise keeping pace with the increasing automotive vehicles, with an expected 3% yearly growths.

Mostly, for this reason, the annual lubricant consumption raised over 14% growth for the last four years. Now its current demand is around 160 million tonnes.

The overall lubricants demand has increased also for the growth of the power sector, which has created a special market for industrial lubricants oil.

The lubricants oil market size for industries has doubled in the last five years due to the establishment of a number of power plants across the country.

The demand for industrial oil will continue to rise at least for the next 15 years, as the quick rental power plants need a huge quantity of lube oil to run.

The industries account for 30% of the total lubricant consumption; however, it is expected to take over 35% of the overall demand in the next 10 years.

Mobil is the market leader with 27% market share; however, market insiders say that around 70% market shares belong to various brands altogether, which is still undefined.

 It is already flooded with many global and local brands.

December, 01 2018