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Last Updated: March 1, 2017
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Last week in the world oil:

Prices

-       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.

Downstream

-       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.

Corporate

-       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.

Corporate

-       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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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.

End of Article

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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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