Oil in 2017
With OPEC defying the pessimists and actually agreeing on a
production freeze, oil prices have rallied. Will this be a good sign as we
enter into 2017? The World Bank predicts that oil prices would average
US$53-55/b over 2017, a sentiment echoed by the EIA in the US. Both have no
issued new forecasts since OPEC’s agreement to slash production by 1.2 mb/d,
but it is likely that the target range has now shifted to the a range of
With Saudi Arabia already informing its customers of cuts in their January
2017 deliveries, it seems there is will enough within OPEC to follow through on
the agreement. The issue now moved from agreement to enforcement, and therein
lies some thorns. Historically, the Gulf state – Saudi Arabia, UAE and Kuwait –
have been the most disciplined in enforcing cuts, with members elsewhere –
Venezuela, Ecuador and Angola – more likely to discreetly flout the quotas.
OPEC is also meeting with some non-OPEC producers in Vienna this week to see if
consensus can be made on non-OPEC cuts; Russia has publically agreed to a 300
kb/d cut (with caveats, of course), and OPEC says a non-OPEC cut of 600 kb/d is
This might be an issue in the US, particularly with the new Trump
administration that wishes to encourage drilling. While oil prices rose
immediately in the wake of the OPEC announcement, they fell back quickly again
as US oil production announced a weekly increase. The Baker Hughes survey of
active oil rigs in the US has risen to its highest weekly level in almost a
year, as onshore producers restarted rigs in response to higher price signal.
From US$55/b last Thursday, crude oil prices are now in the low US$50s. Donald
Trump’s provisional cabinet is full of climate skeptics and energy bulls and he
has named Scott Pruitt as the head of the new American Environmental Protection
Agency, with the fossil fuel industry ally is likely to call for further
deregulation in American hydrocarbons. With Keystone XL back as a possibility
and longer-term moves to open up drilling in new areas like the Arctic likely,
it could unleash a new wave of oil in the market depressing prices. The US
under Trump is not going to agree to any supply cuts, which may very well
defeat the entire purpose of the OPEC exercise. Saudi Arabia’s attempt to wipe
up US shale oil by keeping prices down has only kept the shale producers at
bay, who will return once prices hit a decent level. This ebb and flow will
persist, and we believe a general oversupply will endure.
Here’s our prediction. The OPEC quotas will hold, but the cuts will
not be as deep as envisioned because some members – especially Iran – will take
advantage of the situation to sneak extra sales. The big producers – Russia,
Saudi Arabia, Iraq and Iran will focus on relative pricing to defend their market
share. American production will continue to be nimbly driven by price signals,
balancing out the cuts elsewhere. Oil prices will strengthen – probably to the
US$55-60/b level – which is a good place to be, all things considered. It won’t
be the dramatic recovery that many will hope for, but it won’t be a complete
collapse either, and in this environment that’s good enough already.
Natural Gas in 2017
With OPEC and a group of major non-OPEC producers coming together to
agree on shave up to 1.8 mb/d in their oil production, it is a rising tide that
will lift all other energy commodities. This includes natural gas, once the red-headed
cousin of oil but now a crowning beauty of its own.
In the natural gas space, this will lead to higher prices for
pipeline gas, rising slightly from prices that are already relatively cheap.
With a cold winter expected, natural gas demand will be high in the northern
hemisphere as well, while domestic consumption in both Europe and the US is on
a steady growth trend. However, the bigger impact will be in the LNG space.
On the LNG side, higher crude prices means higher LNG prices. Spot
prices in Asia have already hit US$8.10/mmbtu in the last week, the highest
since mid-2015, due to the OPEC agreement and cold weather in north Asia and
Europe. LNG, though, is a contract market. It is estimated that some 80% of LNG
sold in the world in based on long-term contracts linked to oil. Typically a
function of oil, indexation may vary but the general rule of thumb is that a
US$1/b increase leads to a US$0.07-0.15/mmbtu increase in oil-indexed LNG
contract prices. But those are for existing contracts, inherited from the days
when the seller was king and could command all sorts of price structures –
S-curves, for example - to benefit them. Today, that is a thing of the past.
With the glut of LNG currently existing and more still to come – Wheatstone and
Gorgon in Australia being the two big ones in 2017 – LNG has been a buyer’s
market for the last two years And the buyers are getting bolder.
Specifically, the Japanese buyers are getting bolder. If 2015 and
2016 were the years when Japanese buyers realised that a low price environment
gave them far more clout, 2017 will be the year when they begin to assert
themselves. Moves towards this are already happening. Japan is trying to render
location destination clauses in existing long-term LNG contracts void through
anti-competitive laws, which would free Japan buyers like Tokyo Gas and Chubu
Electric to swap and re-route cargoes, instead of being locked into specific
ports. Newer contracts will probably have to do away with the clauses
altogether. This creates a more dynamic environment where buyers can move their
LNG cargoes around based on supply and demand, effectively becoming traders. It
is a step towards creating an Asia trading hub for LNG, with Singapore having
already developed its own sport LNG price assessments and agreeing to work with
Japan to possibly create a Singapore-Japan benchmark. China and Korea, both
large LNG consumers as well, have also launched attempts of their own, with the
Shanghai gas derivatives exchange starting up last month. Efforts towards this
will continue, and 2017 will see a more vibrant LNG trading market.
Looking ahead, there is so much LNG coming onto the market that it
is almost a tsunami. Canada’s projects on the BC Pacific Coast. The US Gulf of
Mexico projects, with the newly-expanded Panama Canal as a conduit. The vast
projects off Western Australia. Plenty of supply coming from Mozambique and
Papua New Guinea as well. All of these volumes will be chasing Asian clients.
LNG will be a buyer’s market for a long time to come, and 2017 will be the year
that companies, utilities and governments will step up to expand and create
infrastructure to support a gas-rich future.
Downstream Oil in 2017
The upstream portion of the oil industry is ending the year on a bit
of a cheer, with rallying crude prices. In the downstream section, however, it has
been a challenging year and 2017 repeats the same situation as 2016.
Looking specifically at Asia, refined oil product demand is slowing
down. Part of this is due to the natural decline in Japan and South Korea, and
part of this is due to a natural deceleration in China, where annual growth
rates at 9-10% could never be sustained indefinitely. Demand growth in India
and developing economies is improving, but years of high oil prices have pushed
their infrastructure in different directions, not necessarily to the benefit of
oil, even in a lower price environment.
Even if there is good demand growth, not all of it will benefit
refineries. One bright spark in the downstream arena has been petrochemicals,
with countries like China still adding capacity. Traditionally, these have
depended on naphtha as their feedstock – hence the trend over the past decade
for integrated refinery-petchem facilities. US shale gas remains a gamechanger
here. There is so much ethane (and to a lesser extent, LPG liquids propane and
butane) coming out of the US that prices are low and petrochemical operations
in Asia are reconfiguring to focus on natural gas liquids as feedstock. BP
estimates that a third of global downstream demand growth may bypass refineries
altogether, placing further pressure on refineries.
This is not good for refiners. In general, refined oil product
cracks in Asia have been at historical lows in 2016, thought there are few
bright spots like naphtha. Though this will ebb and flow depending on shortages
and seasonal demand, the overall trend is shrinking cracks. Cheap oil prices
have not caused an equivalent surge in Asian oil demand. In fact, there is
simply too much product sloshing around the market. This is been exacerbated in
2016 when Chinese independent refiners – the teapots – were granted licences to
import crude for the first time, leading to them raising runs to records levels
and lifting Chinese exports. Far from being a ‘sink’ for refined products,
China is now becoming a net exporter. However, in a move last week, China
removed export quotas for the teapots, effectively preventing them from
exporting any of their products. Their import licences may still be held
steady, but the teapots will now have to consider the limited domestic market
when planning runs. This could improve the supply glut in Asia somewhat, but
traditional product ‘sinks’ are evolving on their own.
Vietnam’s second refinery, Nghi Son, is supposed to start up in
mid-2017. It will face delays. And if Dong Quat is any precedent, Nghi Son will
face production troubles in its first year. So Vietnam will remain a reliable
product ‘sink’ in 2017, but this will dissipate when Nghi Son comes onstream.
India, where oil product growth has been strong this year, will also absorb
major amounts of products, but the Indian refiners – IOC, BPCL and HPCL – all
have extensive capacity upgrade plans over the next five years, removing this
window. Indonesia continues to claim ambitious refining plans that could
potentially eliminate the need for imports, but it has been spouting this line
for a decade now and there seems to be little movement beyond announcement in
this arena, leaving Indonesia a large ‘sink’ for the time being. But Indonesian
oil product specs are generally lower than the average Asian standards,
limiting the refineries it can buy product from. There will be growth else –
notably Myanmar and Bangladesh – but this will be unable to offset the declines
in Japan and South Korea.
This is a death knell for major export-oriented refinery projects in
Asia. Projects like Petronas’ RAPID in Malaysia, due for startup in 2019, will
go ahead, but fewer will make it off the drawing board. New refineries will be
contained to net importer countries, as they try to reduce their import burden,
as we have seen this year in Pakistan, Uganda and Middle East countries moving
up the value chain. Product demands will also continue to move up the barrel,
placing more pressure on simple, topping refineries. 2016 saw a slew of
refinery sales and closures in Europe – even low oil prices couldn’t help a
determined structural trend – and that is a likely future for Asian downstream.
There will be no major surprised downstream in 2017, just confirmation of
Corporate Oil in 2017
Rex Tillerson, head of ExxonMobil since 2006, is packing his bags
and heading to the White House to serve as Donald Trump’s Secretary of State.
As part of his job, he will be jetting around the world promoting American
interests. That’s not much different in scope from his current position, except
that corporate deal-making is very different from diplomacy.
It’s an indication that 2017 will be a pivot away from prevailing
corporate trends in the energy business. Under Tillerson, US ties with Russia
are likely to get closer, as the Trump administration places business and
capitalist interests above issues such as healthcare, environment and social
justice that have taken the forefront. Tillerson will pass his seat to Darren
Woods, the current head of refining at ExxonMobil, with the company likely to
be the only one that will pursue a diversified strategy among the supermajors.
Under Woods, ExxonMobil’s refining arm has remained strong despite low margins,
having already embarked on a divestment drive that saw the company dispose of
peripheral assets in marginal markets.
ExxonMobil, like Shell and Chevron, will remain global brands. But
the assets will no longer be controlled by them. Shell has been following
ExxonMobil’s move, selling its downstream and upstream assets globally to pay
for its pricey acquisition of the BG Group. Natural gas and chemicals are in
Shell’s future, with downstream now of lesser concern; Shell, like ExxonMobil
in Latin America, will now merely licences its name to third-party players. BP
has already done the same over the last decade, with its logo now a rarity in
retail across the world, though oddly enough it is tying up with Reliance in
India. Chevron’s divestment extends further than downstream, moving into
smaller-scale upstream assets, with its attempt to exit Bangladesh and Thailand
in recent months. 2016 has been a year of divestments and debt-paring among the
supermajors as they seek to become leaner and meaner, just like Petrobras,
though for completely different reasons. Meanwhile, France’s Total still has
ambitions of being a global behemoth that the supermajors once were, picking up
assets in Asia and Africa. This will continue in 2017, with the directions
clear. Shell to natural gas and chemicals, BP to LNG, Chevron to large-scale
upstream and ExxonMobil everywhere, with top priority to sort out its
acquisition of InterOil in PNG.
The vacuum left by the supermajors particularly in downstream has
been picked up by global traders. Players like Vitol, Glencore and Gunvor have
been extending their trading empires to actual retail participation since 2013,
and the move will continue in 2017. Some might even try to set up brands of
their own, instead of piggy-backing on existing ones (and their associated
Meanwhile, the national counterparts of the supermajors, the major
NOCs, will still find 2017 a challenging year. Oil prices have risen, but
nowhere near the level that required to balance national budgets. Saudi Aramco
and to a lesser extent Adnoc and KPC have the reserves to see through the
storm, but PDVSA is in trouble. Iraq and Iran will flout OPEC supply quotas to
sneak a few extra sales to resume what they see as their rightful position,
while Libya tries to rebuild its infrastructure and Nigeria tries its hand at
privatisation. Indonesia’s Pertamina will continue to flounder in too many
directions, Malaysia’s Petronas will remain weak and Brazil’s Petrobras will
continue its fire sale to reduce its huge debts. China’s triad – PetroChina,
Sinopec and CNOOC – will continue to extend their tendrils oversees, while
Japan’s bloated energy sector will try to consolidate. And largely fail,
resulting in a friendly informal cooperation instead. Russia has a lot of debt
issues simmering under Putin’s bluster. India’s state players are probably in
the best position, where energy demand is sprinting ahead.
Higher crude oil prices will be a good way to start off 2017 for
most energy companies; but there’s still a lot of work to be done. Much like
the global political landscape, corporate energy players will become more
insular, focusing on specific areas of profit instead of a broad-based
strategy. The notion of an integrated player with tentacles in every pie is
over. With the possible exception of ExxonMobil.
Have a productive year ahead!
Something interesting to share?
Join NrgEdge and create your own NrgBuzz today
Anthony Rizzo Players Can't Sit On Bench According to a report from the Chicago Sun-Times, the world-famous Anthony Rizzo Phrase "Zombie Rizzo" has been told to never be used again. Of course, this is not the first time that the Zombified Chicago Cubs' first baseman has made headlines this year. A year ago, "Rosebud" was the catchphrase that he coined for himself. Also, there is Anthony Rizzo Shirts that come in his name. Now that the Cubs are World Series Champions, Anthony Rizzo is on his way to superstardom. He is leading the World Series in several categories, including hits, runs, home runs, RBI's, OBP, and SLG. Also, he's on track for a staggering year in hits, RBI's, and total bases, all while being second in home runs.
The Cubs Phenom
This season the Chicago Cubs are over 3.5 million in earnings from the local broadcasts alone. The Cubs could lose a good deal of local revenue if they fail to get back to the World Series. But the local revenue is not the biggest factor in the Cub's success. A large part of their success comes from two of their most popular players, third baseman Kris Bryant and first baseman Anthony Rizzo. These two players are now the favorites to win the MVP awards this year, especially if the Cubs are able to stay on top of the wild card standings. A Look at Rizzo Anthony Rizzo is often compared to his college teammate Andrew McCutchen. Both players have performed well at the plate.
The wood pellet mill, that goes by the name of a wood pellet machine, or wood pellet press, is popular in lots of countries around the world. With all the expansion of "biomass energy", there are now various production technologies utilized to convert biomass into useable electricity and heat. The wood pellet machines are one of the typical machines that complete this task.
Wood pellet mills turn raw materials such as sawdust, straw, or wood into highly efficient biomass fuel. Concurrently, the entire process of converting these materials in a more dense energy form facilitates storage, transport, and make use of on the remainder of any value chain. Later on, you will find plans for biomass fuel to replace traditional fuels. Moreover, wood pellet machines supply the chances to start many different types of businesses.
What Is A Wood Pellet Mill?
Wood pellet machines are kinds of pellet machines to process raw materials including peanut shells, sawdust, leaves, straw, wood, plus more. Today the pellet mills can be purchased in different types. Both the main types include the ring die pellet mills as well as the flat die pellet mills. Wood pellet mills are designed for processing many different types of raw materials irrespective of size. The pellet size is very simple to customize with the use of a hammer mill.
The Benefits Of A Wood Pellet Mill
- The gearboxes are made of high-quality cast iron materials which provide excellent shock absorption and low noise. The wood pellet mills adopt a gear drive that makes a better efficiency in comparison with worm drive or belt drive. The gear drive setup really helps to prevent belt slippage while extending the lifespan in the belt drive.
- The equipment shell includes reinforced ribs and increased casting thickness, which significantly enhances the overall strength of those mills, preventing the breakage in the shell.
- The rollers and die are made of premium-quality alloy steel with 55-60HRC hardness.
- These mills adopt an appropriate wood-processing die-hole structure and die-hole compression ratio.
- The electric-control product is completely compliant with CE standard-os.
- The Emergency Stop button quickly shuts along the mill if you are up against an unexpected emergency.
How To Maintain A Wood Pellet Mill
- The belt tightness ought to be checked regularly. If it is now slack, it needs to be tightened immediately.
- The equipment should be situated in a nicely-ventilated area to ensure the temperature created by the motor can emit safely, to extend the lifespan of your machine.
- Before restarting the appliance, any remaining debris has to be cleared from the machine room to reduce starting resistance.
- Oil must be filled regularly to every bearing to market inter-lubricating.
- To ensure the cutter remains sharp, check this part regularly to prevent unnecessary damages for any other part.
- Regularly inspect the cutter screws, to make sure the bond involving the knife and blade remains strong.
- The machine should take a seat on an excellent foundation. Regular maintenance of your machine will prolong the complete lifespan of the machinery.
It was shaping up to yet another dull OPEC+ meeting. Cut and dry. Copy and paste. Rubber-stamping yet another monthly increase in production quotas by 432,000 b/d. Month after month of resisting pressure from the largest economies in the world to accelerate supply easing had inured markets to expectations of swift action by OPEC and its wider brethren in OPEC+.
And then, just two days before the meeting, chatter began that suggested something big was brewing. Whispers that Russia could be suspended made the rounds, an about-face for a group that has steadfastly avoided reference to the war in Ukraine, calling it a matter of politics not markets. If Russia was indeed removed from the production quotas, that would allow other OPEC+ producers to fill in the gap in volumes constrained internationally due to sanctions.
That didn’t happen. In fact, OPEC+ Joint Technical Committee commented that suspension of Russia’s quota was not discussed at all and not on the table. Instead, the JTC reduced its global oil demand forecast for 2022 by 200,000 b/d, expecting global oil demand to grow by 3.4 mmb/d this year instead with the downside being volatility linked to ‘geopolitical situations and Covid developments.’ Ordinarily, that would be a sign for OPEC+ to hold to its usual supply easing schedule. After all, the group has been claiming that oil markets have ‘been in balance’ for much of the first five months of 2022. Instead, the group surprised traders by announcing an increase in its monthly oil supply hike for July and August, adding 648,000 b/d each month for a 50% rise from the previous baseline.
The increase will be divided proportionally across OPEC+, as has been since the landmark supply deal in spring 2020. Crucially this includes Russia, where the new quota will be a paper one, since Western sanctions means that any additional Russian crude is unlikely to make it to the market. And that too goes for other members that haven’t even met their previous lower quotas, including Iraq, Angola and Nigeria. The oil ministers know this and the market knows this. Which is why the surprise announcement didn’t budge crude prices by very much at all.
In fact, there are only two countries within OPEC+ that have enough spare capacity to be ramped up quickly. The United Arab Emirates, which was responsible for recent turmoil within the group by arguing for higher quotas should be happy. But it will be a measure of backtracking for the only other country in that position, Saudi Arabia. After publicly stating that it had ‘done all it can for the oil market’ and blaming a lack of refining capacity for high fuel prices, the Kingdom’s change of heart seems to be linked to some external pressure. But it could seemingly resist no more. But that spotlight on the UAE and Saudi Arabia will allow both to wrench some market share, as both countries have been long preparing to increase their production. Abu Dhabi recently made three sizable onshore oil discoveries at Bu Hasa, Onshore Block 3 and the Al Dhafra Petroleum Concession, that adds some 650 million barrels to its reserves, which would help lift the ceiling for oil production from 4 to 5 mmb/d by 2030. Meanwhile, Saudi Aramco is expected to contract over 30 offshore rigs in 2022 alone, targeting the Marjan and Zuluf fields to increase production from 12 to 13 mmb/d by 2027.
The UAE wants to ramp up, certainly. But does Saudi Arabia too? As the dominant power of OPEC, what Saudi Arabia wants it usually gets. The signals all along were that the Kingdom wanted to remain prudent. It is not that it cannot, there is about a million barrels per day of extra production capacity that Saudi Arabia can open up immediately but that it does not want to. Bringing those extra volume on means that spare capacity drops down to critical levels, eliminating options if extra crises emerge. One is already starting up again in Libya, where internal political discord for years has led to an on-off, stop-start rhythm in Libyan crude. If Saudi Arabia uses up all its spare capacity, oil prices could jump even higher if new emergencies emerge with no avenue to tackle them. That the Saudis have given in (slightly) must mean that political pressure is heating up. That the announcement was made at the OPEC+ meeting and not a summit between US and Saudi leaders must mean that a façade of independence must be maintained around the crucial decisions to raise supply quotas.
But that increase is not going to be enough, especially with Russia’s absence. Markets largely shrugged off the announcement, keeping Brent crude at US$120/b levels. Consumption is booming, as the world rushes to enjoy its first summer with a high degree of freedom since Covid-19 hit. Which is why global leaders are looking at other ways to tackle high energy prices and mitigate soaring inflation. In Germany, low-priced monthly public transport are intended to wean drivers off cars. In the UK, a windfall tax on energy companies should yield US$6 billion to be used for insulating consumers. And in the US, Joe Biden has been busy.
With the Permian Basin focusing on fiscal prudence instead of wanton drilling, US shale output has not responded to lucrative oil prices that way it used to. American rig counts are only inching up, with some shale basins even losing rigs. So the White House is trying more creative ways. Though the suggestion of an ‘oil consumer cartel’ as an analogue to OPEC by Italian Prime Minister Mario Draghi is likely dead on arrival, the US is looking to unlock supply and tame fuel prices through other ways. Regular releases from the US Strategic Petroleum Reserve has so far done little to bring prices down, but easing sanctions on Venezuelan crude that could be exported to the US and Europe, as well as working with the refining industry to restart recently idled refineries could. Inflation levels above 8% and gasoline prices at all-time highs could lead to a bloody outcome in this year’s midterm elections, and Joe Biden knows that.
But oil (and natural gas) supply/demand dynamics cannot truly start returning to normal as long as the war in Ukraine rages on. And the far-ranging sanctions impacting Russian energy exports will take even longer to be lifted depending on how the war goes. Yes, some Russian crude is making it to the market. China, for example, has been quietly refilling its petroleum reserves with Russian crude (at a discount, of course). India continues to buy from Moscow, as are smaller nations like Sri Lanka where an economic crisis limits options. Selling the crude is one thing, transporting it is another. With most international insurers blacklisting Russian shippers, Russian oil producers can still turn to local insurance and tankers from the once-derided state tanker firm Sovcomflot PJSC to deliver crude to the few customers they still have.
A 50% hike in OPEC’s monthly supply easing targets might seem like a lot. But it isn’t enough. Especially since actual production will fall short of that quota. The entire OPEC system, and the illusion of control it provides has broken down. Russian oil is still trickling out to global buyers but even if it returned in full, there is still not enough refining capacity to absorb those volumes. Doctors speak of long Covid symptoms in patients, and the world energy complex is experiencing long Covid, now with a touch with geopolitical germs as well. It’ll take a long time to recover, so brace yourselves.
End of Article