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Last Updated: January 10, 2017
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Last week in world oil:

Prices

-       Rising production in the US and Iraq have raised fears that OPEC’s attempt to raise prices might be prove to be insufficient. While the rise in the US is expected, additional output from Iraq over December based on loadings in Basra points to the difficulty in whipping OPEC members in line. Oil started this week at US$55/b for Brent and US$52/b for WTI. 

Upstream & Midstream

-       The rise is Iraqi exports of crude oil, responsible for the dip in crude oil prices as the week started, has been blamed on the country’s Kurdish region. The autonomous Kurdish region has been exporting more than its allocated share of oil, hampering Iraq’s attempt to comply with its OPEC quota, which is now 4.3 mmb/d. Kurdish authorities reportedly pumped more than twice its allocated crude amount under the national Iraqi budget, funnelling it through Turkey to avoid passing through Baghdad.

-       The US rig count increased for the tenth consecutive week, gaining four oil and three gas sites to start the year with a total active rig count of 665.

Downstream

-       US refiner LyondellBasell has decided to retain its Houston refinery following a broad strategic review of options. The Houston site was reportedly up for sale last year, in the crosshairs of Saudi Aramco’s post-divorce Motiva as an acquisition target, but the company has now decided to keep the 264 kb/d site within its asset portfolio. Natural Gas & LNG.

-       Mexican gasoline prices have risen, part of a broader price liberalisation strategy pursued by President Enrique Pena Nieto. While necessary to make the Mexican energy sector more competitive, the hikes have proven highly unpopular. Mexicans have been taking the streets to protest daily since last Friday, spilling over into wider violence and looting.

-       Nigeria’s oil union is threatening to strike at fuel depots in the country owned by Chevron and ExxonMobil if talks with the government fail. The union is unhappy over a spat of recent sackings. If the strike goes ahead, as many as 10,000 union workers could down tools, potentially crippling distribution across Nigeria’s entire downstream sector. 

Natural Gas & LNG

-       ExxonMobil has taken over at the Mamba gas field in Mozambique. The American supermajor bought a 20% stake in the project from Italy’s Eni in August, fulfilling its goal of expanding its natural gas asset portfolio while assisting Eni in monetizing its Mozambique LNG ambitions. As part of the deal, ExxonMobil also takes over operatorship of Mamba from Eni. 

Corporate

-       The Blackstone Group has abandoned its US$5 billion attempt to purchase assets owned by Energy Transfer Partners. Energy Transfer is one of the largest oil and gas infrastructure firms in the US, while the Blackstone Group is a major buyout firm globally. Instead, Energy Transfer Partners will pursue a private placement deal worth US$568 million with its parent entity Energy Transfer Equity, as it gears up to face challenges it’s the Dakota Access oil pipeline it is currently building.

 

Last week in Asian oil:

Upstream & Midstream

-       Timor Leste has torn up its maritime treaty with Australia. The CMATS agreement – which created a temporary maritime border in the Timor Sea and its estimated US$40 billion of oil/gas deposits – will end in three months. The move follows Timor Leste’s attempt to negotiate the maritime border with Australia at the International Court of Arbitration, and is likely an acknowledgement by Australia that it can no longer bully its smaller neighbour. The next step is for both countries to agree on a permanent maritime border.

-       China has revised its crude oil production target for 2017, down to 4 mmb/d as it acknowledges that a deficit of new production sites will be unable to offset the natural decline in the country’s largest fields in the northeast and Bohai Bay. Falling domestic production means increased imports, which will only strengthen China’s resolve to acquire overseas upstream assets to secure a steady supply of necessary crude. 

Downstream & Shipping

-       After years of promises, Indonesia has finally officially lowered the sulphur content in its subsidised diesel, from 3,500ppm to 2,500ppm. Indonesia is one of the main laggards in Asia in terms of fuel specifications, still tottering around Euro II levels while the rest of the continent is adopting Euro IV. The move won’t have a significant impact on trade flows; in fact, it will be welcomed by refiners, who have found it increasingly hard to supply high-sulphur gasoil to Indonesia, which is off-spec for Asia. Higher spec diesel – 500ppm and 350ppm – is also used in Indonesia, but is only a fraction of the volumes of subsidised diesel.

-       China has announced ambitious plans to plough some US$362 billion through 2020 into renewable power generation, focusing on wind, solar, hydro and nuclear power over its existing reliance on dirty coal power. In this drive, other fossil fuels, mainly natural gas/LNG, will also gain as China seeks a multi-pronged approach to reduce its excessive pollution. 

Natural Gas & LNG

-       BP has signed a long-term agreement with Thailand’s PTT, which will see the UK supermajor supply the Thai energy conglomerate with 1 millions tons per annum of LNG over 20 years. Faced with declining domestic production, Thailand and its power utilities have been on the hunt for LNG contracts over last year, to ensure that its natural gas-fed power and petrochemicals infrastructure does not go hungry.

-       Chevron’s massive Gorgon project is back online after being out for a month. Gorgon LNG Train 1 was taken offline in late November to ‘assess performance variations’, while Gorgon LNG Train 2 remained unaffected. The US$54 billion, with its masses of LNG destined for East Asia, has been plagued by a string of operational issues since its start up in March 2016.

-        The first LNG from a US shale source has arrived in Japan, opening what American shale gas producers hope will be a floodgate to Asia. Japan’s JERA – a joint venture between Tokyo Electric and Chubu Electric – received the shipment from Cheniere’s Sabine Pass terminal in Louisiana, which is also the first American LNG to arrive in Japan from the lower 48 states of the USA. The parcel is the first of a contracted 700,000 tons through January 2018 in a short-term agreement between JERA and Cheniere. 

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September, 16 2021
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.

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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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