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Last Updated: March 1, 2017
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Business Trends

Last week in the world oil:


-       Persistently high US crude stockpiles continue to put pressure on global oil prices, overshadowing a high compliance rate within OPEC in meeting the organisation’s agreed cuts. Resurgence in American shale production has kept inventories high as demand flags, raising the possibility that OPEC may have to extend its supply freeze to have any impact.

Upstream & Midstream

-       ConocoPhillips has reduced its Canadian oil sand reserves by over a billion barrels, as low global crude prices are forcing it to write down resources previously flagged as recoverable. From 2.4 billion barrels of developed and undeveloped bitumen reserves in Alberta at the end of 2015, the number was revised down to 1.2 billion barrels in the company’s annual financial filings for 2016.

-       The active US rig count inched up again by 3 last week, as five additional oil rigs offset a loss of two gas rigs. All gains were on land or in inland waters, with the additions being in the Permian and Eagle Ford basin.


-       The UAE’s Adnoc has secured a deal with trader Vitol to supply 528,000 tons of LPG per year over the next 10 years. Beginning January 2017 and lasting through December 2026, it is an attempt to pioneer long-term LPG contracts to deal with an oversupplied market, the additional volumes will likely head to Asia where LPG is fast becoming a new petrochemical feedstock due to the sharp rise in NGL supplies from the US Gulf.

Natural Gas and LNG

-       Shell, now the world’s largest LNG trader following its acquisition of the BG Group, has set out its vision for the future of LNG contracts. Instead of multi-decade, mass volume contracts common from the 1980s and 1990s, clients will instead begin to demand shorter, smaller contracts to give themselves flexibility in a competitive market that now favours buyers. Shell also predicts that the bulk of new LNG growth will come from countries aiming to replace declining domestic gas production, like Egypt, Thailand and Pakistan, or where demand is growing strongly, like China.

-        The Interconnector Greece-Bulgaria (IGB) natural gas pipeline will begin construction at the beginning of 2018, eventually delivering a billion cubic metres of Azeri gas from the Shah Deniz 2 field to Bulgaria. The project is part of a wider EU vision of a Southern Gas Corridor that will bring gas from the Middle East and Caspian region to reduce dependency on Russia natural gas.


-       Under its new CEO, Darren Woods, ExxonMobil looks to continue the supermajor’s stance of promoting energy efficiency and discouraging polluting fossil fuels. Succeeding Rex Tillerson, who led the same stance as CEO before he joined the Trump administration as Secretary of State, Woods has called for a carbon tax to incentivise low-carbon energy solutions for the future. This would put ExxonMobil at odds with the White House, which views a resurgence in fossil fuel exploitation as central to its plan to boost the American economy.


Last week in Asian oil:

Upstream & Midstream

-       Iran may be getting in on the shale oil revolution, reporting that it has struck a two billion barrel find in the western province of Lorestan. The area is thought to hold major reserves of shale oil and gas, and the Ghali Koh field discovery confirms it. Iran has rapidly ramped up its crude production levels to pre-sanction levels, and the find signals that it still has room to grow, as it competes with rival Saudi Arabia.

Downstream & Shipping

-       After reportedly close to pulling out of the Petronas RAPID refinery project in January, Saudi Aramco is now back on the project. Announced by Malaysian Prime Minister Najib Razak, Aramco will now partner with Petronas on the project as originally planned, investing up to US$7 billion and securing the refinery’s vital crude supply.

-       After years of delays, Vietnam’s second refinery – Nghi Son – is finally ready to begin production. First crude oil deliveries are expected at the 200 kb/d site in May, the second of three planned refineries that will serve Vietnam’s south, central and north regions. Nghi Son is designed to process Kuwaiti crude, with Kuwait Petroleum international and Japan’s Idemitsu Kosan being major stakeholders with 35.1%. PetroVietnam, which operates the country’s first refinery Dung Quat, has 25.1%, while Mitsui Chemicals has 4.7% of the integrated refining project.

-       Taiwan’s Formosa Plastics Group, hampered at home at its attempts to grow, has applied to the US state of Louisiana to invest up to US$9.4 billion to build petrochemical plants. With the amount of natural gas liquids coming out of the shale revolution, petrochemical feedstock in the US are plentiful (and cheap) at the moment, with Formosa aiming to move production over to the US instead of bringing the NGLs over to Taiwan.

Natural Gas & LNG

-       China’s LNG imports rose by nearly 40% in January to 3.44 million tons, providing an opportunity in an oversupplied market. It is the second-highest figure on record behind December 2016, as China imports the fuel for winter heating, and providing hope that continued Chinese demand may lift the slump in LNG prices triggered by fears of a supply overhang.

-       Bangladesh will be raising the state-controlled price for natural gas for the second time in under two years. Gas prices will be raised by some 23% in two phases over the year, in March and in June. It is an attempt to reduce the government’s burden over subsidised gas prices. Domestic natural gas is currently sold at half the imported price, and the hike raises fears of inflation across Bangladesh’s critical garment industry, as most of the gas used in the country goes to the power industry.


-       Rumours that the Indian government was planning to merge all or most of the state oil firms into an energy titan may have gotten some credence with the announcement that upstream-focused ONGC may be acquiring downstream player HPCL. The deal apparently calls for the Indian government to transfer its majority 51.11% stake in HPCL to ONGC, and the purchase of an additional 26% from shareholders by ONGC, worth US$6.6 billion in total.


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In 2018, the United States consumed more energy than ever before

U.S. total energy consumption

Source: U.S. Energy Information Administration, Monthly Energy Review

Primary energy consumption in the United States reached a record high of 101.3 quadrillion British thermal units (Btu) in 2018, up 4% from 2017 and 0.3% above the previous record set in 2007. The increase in 2018 was the largest increase in energy consumption, in both absolute and percentage terms, since 2010.

Consumption of fossil fuels—petroleum, natural gas, and coal—grew by 4% in 2018 and accounted for 80% of U.S. total energy consumption. Natural gas consumption reached a record high, rising by 10% from 2017. This increase in natural gas, along with relatively smaller increases in the consumption of petroleum fuels, renewable energy, and nuclear electric power, more than offset a 4% decline in coal consumption.

U.S. total energy consumption

Source: U.S. Energy Information Administration, Monthly Energy Review

Petroleum consumption in the United States increased to 20.5 million barrels per day (b/d), or 37 quadrillion Btu in 2018, up nearly 500,000 b/d from 2017 and the highest level since 2007. Growth was driven primarily by increased use in the industrial sector, which grew by about 200,000 b/d in 2018. The transportation sector grew by about 140,000 b/d in 2018 as a result of increased demand for fuels such as petroleum diesel and jet fuel.

Natural gas consumption in the United States reached a record high 83.1 billion cubic feet/day (Bcf/d), the equivalent of 31 quadrillion Btu, in 2018. Natural gas use rose across all sectors in 2018, primarily driven by weather-related factors that increased demand for space heating during the winter and for air conditioning during the summer. As more natural gas-fired power plants came online and existing natural gas-fired power plants were used more often, natural gas consumption in the electric power sector increased 15% from 2017 levels to 29.1 Bcf/d. Natural gas consumption also grew in the residential, commercial, and industrial sectors in 2018, increasing 13%, 10%, and 4% compared with 2017 levels, respectively.

Coal consumption in the United States fell to 688 million short tons (13 quadrillion Btu) in 2018, the fifth consecutive year of decline. Almost all of the reduction came from the electric power sector, which fell 4% from 2017 levels. Coal-fired power plants continued to be displaced by newer, more efficient natural gas and renewable power generation sources. In 2018, 12.9 gigawatts (GW) of coal-fired capacity were retired, while 14.6 GW of net natural gas-fired capacity were added.

U.S. fossil fuel energy consumption by sector

Source: U.S. Energy Information Administration, Monthly Energy Review

Renewable energy consumption in the United States reached a record high 11.5 quadrillion Btu in 2018, rising 3% from 2017, largely driven by the addition of new wind and solar power plants. Wind electricity consumption increased by 8% while solar consumption rose 22%. Biomass consumption, primarily in the form of transportation fuels such as fuel ethanol and biodiesel, accounted for 45% of all renewable consumption in 2018, up 1% from 2017 levels. Increases in wind, solar, and biomass consumption were partially offset by a 3% decrease in hydroelectricity consumption.

U.S. energy consumption of selected fuels

Source: U.S. Energy Information Administration, Monthly Energy Review

Nuclear consumption in the United States increased less than 1% compared with 2017 levels but still set a record for electricity generation in 2018. The number of total operable nuclear generating units decreased to 98 in September 2018 when the Oyster Creek Nuclear Generating Station in New Jersey was retired. Annual average nuclear capacity factors, which reflect the use of power plants, were slightly higher at 92.6% in 2018 compared with 92.2% in 2017.

More information about total energy consumption, production, trade, and emissions is available in EIA’s Monthly Energy Review.

April, 17 2019
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Candidates :Drilling engineers/ drilling supervisors- Venue: Istanbul/Turkey- Duration: 5 days- For more information contact me at: Tel: +905364320900- [email protected] [email protected]
April, 17 2019
A New Frontier for LNG Pricing and Contracts

How’s this for a first? As the world’s demand for LNG continues to grow, the world’s largest LNG supplier (Shell) has inked an innovative new deal with one of the world’s largest LNG buyers (Tokyo Gas), including a coal pricing formula link for the first time in a large-scale LNG contract. It’s a notable change in an industry that has long depended on pricing gas off crude, but could this be a sign of new things to come?

Both parties have named the deal an ‘innovative solution’, with Tokyo Gas hailing it as a ‘further diversification of price indexation’ and Shell calling it a ‘tailored solutions including flexible contract terms under a variety of pricing indices.’ Beneath the rhetoric, the actual nuts and bolts is slightly more mundane. The pricing formula link to coal indexation will only be used for part of the supply, with the remainder priced off the conventional oil & gas-linked indexation ie. Brent and Henry Hub pricing. This makes sense, since Tokyo Gas will be sourcing LNG from Shell’s global portfolio – which includes upcoming projects in Canada and the US Gulf Coast. Neither party provided the split of volumes under each pricing method, meaning that the coal-linked portion could be small, acting as a hedge.

However, it is likely that the push for this came from Tokyo Gas. As one of the world’s largest LNG buyers, Tokyo Gas has been at the forefront of redefining the strict traditions of LNG contracts. Reading between the lines, this deal most likely does not include any destination restriction clauses, a change that Tokyo Gas has been particularly pushing for. With the trajectory for Brent crude prices uncertain – owing to a difficult-to-predict balance between OPEC+ and US shale – creating a third link in the pricing formula might be a good move. Particularly since in Japan, LNG faces off directly with coal in power generation. With the general retreat from nuclear power in the country, the coal-LNG battle will intensify.

What does this mean for the rest of the industry? Could coal-linked contracts become the norm? The industry has been discussing new innovations in LNG contracts at the recent LNG2019 conference in Shanghai, while the influx of new American LNG players hungry to seal deals has unleashed a new sense of flexibility. But will there be takers?

I am not a pricing expert but the answer is maybe. While Tokyo Gas predominantly uses natural gas as its power generation fuel (hence the name), it is competing with other players using cheaper coal-based generation. So in Japan, LNG and coal are direct competitors. This is also true in South Korea and much of Southeast Asia. In the two rising Asian LNG powerhouses, however, the situation is different. In China – on track to become the world’s largest LNG buyer in the next two decades – LNG is rarely used in power generation, consumed instead by residential heating. In India – where LNG imports are also rising sharply – LNG is primarily aimed at petrochemicals and fertiliser. LNG based power generation in China and India could see a surge, of course, but that will take plenty of infrastructure, and time, to build. It is far more likely that their contracts will be based off existing LNG or natural gas benchmarks, several of which are being developed in Asia alone.

If it takes off  the coal-link LNG formula is likely to remain a Asian-based development. But with the huge volumes demanded by countries in this region, that’s still a very big niche. Enough perhaps for the innovation to slowly gain traction elsewhere, next stop -  Europe?

The Shell-Tokyo Gas Deal:

Contract – April 2020-March 2030 (10 Years)

Volume – 500,000 metric tons per year

Source – Shell global portfolio

Pricing – Formula based on coal and oil & gas-linked indexes

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