NrgEdge Editor

Sharing content and articles for users
Last Updated: March 8, 2017
1 view
Business Trends
image

Last week in World Oil:

Prices

  • Global crude prices remain firmly in their existing range, with Brent starting the week around US$56/b and WTI at US$53/b. Rising US production and signs that buyers are seeking alternate supplies have capped any gains made from the OPEC production cut, with the Iraqi oil minister publicly stating that he believes the cuts may have to be extended to the end of the year to support the current price environment.

Upstream & Midstream

  • Iran’s northern city of Kirkuk continues to be an incendiary environment. After four bombs hit a pipeline connecting the Bai Hassan oilfield to the degassing station – thought to be the world of Islamic State militants – additional disruption came when Kurdish forces seized a processing site, threatening to hold it hostage until the national Iraqi government to building a refinery in a region that wants additional autonomy.
  • Another week and another rise, though the rate of expansion is slowing down. This is the seventh consecutive rise in the weekly US active site count, with seven new gains in oil outweighing a loss of five gas rigs.

Downstream

  • South American nation Guyana has struck oil. With ExxonMobil and its partners discovering between 800 million to 1.4 billion barrels of oil offshore Guyana and production expected in 2020, the next question is what to do with the oil. Guyana does not currently have any refinery facilities, and the government is now mulling striking an agreement with neighbours Trinidad and Tobago, a Caribbean refinery centre, to ship its crude there for third-party processing. Suriname, which also has an underperforming refinery, has also been approached.
  • Two separate American lobbies behind the rise of Donald Trump are clashing, over the nation’s biofuels program. In the fossil fuel corner, billionaire Carl Icahn wants to shift the responsibility of the ethanol blending mandate from oil refiners (where it currently lies) to fuel blenders, who oppose the regulation change that has the potential to effect the entire ethanol chain, including farmers that supported Trump.

Natural Gas and LNG

  • That Canada is an LNG powerhouse is not in doubt, but it has not actually exported a single parcel of LNG yet, waiting for its export facilities along the British Columbia to approach completion. In a roundabout way, however, the very first Canadian LNG parcel may be sold overseas this year…. from Louisiana. American LNG player Cheniere has been quietly building a portfolio of natural gas suppliers to support its Sabine Pass export terminal, and has now begun sourcing gas from as far as the Montney shale play, straddling Canada’s Alberta and BC provinces.

Corporate

  • Total and Brazilian state player Petrobras have sealed a ‘strategic alliance’ that will see both companies collaborate closely. Petrobras will be transferring rights to some of its domestic fields to Total, maintaining ownership of key assets while balancing its severe debt situation. Total is a strategic choice in this case with its open attitude to investment.


Last week in Asian oil:

Upstream & Midstream

  • Attempting to fulfil its ambitious forecast of tripling its crude production, Pertamina has been looking overseas for assets. Shut out of sites in Africa and Asia over competitive forces, Iran has been the main target on its radar. The state player has submitted official proposals to Iran’s NIOC to develop the Ab-Teymour and Mansouri fields, containing up to 1.5 billions of oil each, meeting the deadline set back in August 2016 when Pertamina and NIOC agreed to a MoU to evaluate the development of the fields.

Downstream & Shipping

  • China’s Sinopec has announced a US$29 billion plan to upgrade four refineries over the next four years, envisioning a literal brighter future by siphoning out the pollution responsible for the perpetual smog in China’s cities. The four sites – in Shanghai, Nanjing, Zhenhai and Zhanjiang – will have their collective capacity raised to 2.6 mmb/d (and ethylene capacity up to 9 million tons per year), representing 45% of Sinopec’s refining capacity. The fuel specifications will be based on the so-called National VI standard, up from the current Euro V, which is being implemented in Beijing this year and rolled out across China over the next four years.
  • China’s largest independent refiner is teaming up with CEFC China Energy and the Rizhao port authority to construct what is believed to be the first ‘teapot’-owned crude oil terminal in Shandong. Long restricted from importing crude until last year, China’s refined products output from independent refineries exploded last year, but also revealed a weakness – the complete lack of crude terminal facilities to serve the teapots. The logistical bottleneck has prevented the teapots from expanding further, so a move into storage and terminals is natural. Dongming Petrochemical, the largest such teapot, is planning to build a 300,000 deadweight tonnage (DWT) crude terminal, two 150,000 DWT crude berths and a 9.8 million barrel storage farm in Rizhao, south of Qingdao, China’s largest oil port by volume that is almost completely saturated.
  • Indonesia’s Pertamina expects to finalise its partner for the US$10 billion Bontang refinery by April. Unusually offering a majority stake in the 300 kb/d refinery – up to 95% – the move seems an admission that Pertamina simply does not have the capacity to develop its expansion plans alone. Rosneft and Saudi Aramco are names that have been linked as possible partners, but interest seems to have petered out, a chronic problem in Indonesia as ambition clashes with practical reality. This also casts doubt on Pertamina’s ability to develop the Balongan refinery expansion project on its own, after Saudi Aramco pulled out of the project last year.

Natural Gas & LNG

  • India’s state gas player GAIL has inked a deal with Swiss trader Gunvor for LNG cargo swaps. A glut in Asia has caused Asian spot LNG prices to fall sharply over the past six months, making it unfeasible economically to bring GAIL’s US LNG cargoes over. Gunvor will supply 800,000 tons of LNG to India’s west coast from its portfolio at more feasible prices, receiving 600,000 tons of Sabine Pass LNG in return.  GAIL went on a spending spree in the US, buying into natural gas assets during a period when prices kept rising, and now that the market has upended, is stuck with an overhang of expensive (and distant) gas.

3
2 0

Something interesting to share?
Join NrgEdge and create your own NrgBuzz today

Latest NrgBuzz

Your Weekly Update: 20 -24 May 2019

Market Watch

Headline crude prices for the week beginning 20 May 2019 – Brent: US$73/b; WTI: US$63/b

  • As the OPEC+ group signals its intentions to continue its supply deal through to the end of 2019 and US President Donald Trump increases pressure on Iran, crude prices have kept their strength
  • The OPEC+ group met in Jeddah last weekend to lay the groundwork for the upcoming OPEC meeting in Vienna on June 25, with Saudi Arabia and Russia committing to keep oil supplies constrained over the rest of the year but avoiding any ‘genuine shortage’
  • There appears to be some reticence on the part of Russia to sign up to extending the supply deal, with Energy Minister Alexander Novak recently dropping hints about relaxing curbs and the country barely fulfilling its current pledge
  • But more worrisome than Russian reluctance is the issue of Iran; the risk of full-blown military conflict has escalated with America offering barbed words after attacks on a key Saudi pipeline spooked the market while the UAE said it is committed to ‘de-escalation’ after attacks on ships in the Persian Gulf
  • While these geopolitical issues have been driving prices up, the ever-present issue of surging American production remains – with US shale set oil for a 16% growth in 2019, and 470 million barrels of US crude finding home in 38 countries over the six-month period between October 2018 and March 2019, up from 359 million barrels across 31 countries in the previous period
  • While US crude production continues to rise, the active US rig count continues to moderate; three oil rigs were dropped and two gas rigs were gained in the last week, leading to a net decline of one rig – the third consecutive week of losses
  • OPEC+’s definitive statement on their strategy for the remainder of 2019 will calm the markets, but the boiling US-China trade conflict now threatens global growth, as the US fired a major salvo by introducing harsh restrictions on Chinese telecommunication giant Huawei; crude prices will trend downwards, with Brent at US$68-70/b and WTI at US$59-61/b


Headlines of the week

Upstream

  • Eni has struck oil at Block 15/06 offshore Angola in the Ndungu exploration prospect, estimated to contain up to 250 million barrels of light oil in place
  • Norway’s Equinor has exercised preferential rights to acquire an additional 22.45% in the Caesar Tonga oil field in the US Gulf of Mexico from Shell for US$965 million, increasing its stake in the field to 46%
  • The main cross-country pipeline network in Saudi Arabia, which connects the Persian Gulf and the Red Sea, has been restarted after a drone attack on two pumping stations by Iranian-backed rebels halted operations for a week
  • Uganda has launched its second licensing round, with the Avivi, Omuka, Kasuruban, Turaco and Ngaji blocks in the oil-rich Albertine Graben on offer
  • Kuwait’s Kufpec has signed a deal to explore and potentially develop the onshore Block 3371-19 in Pakistan
  • Eni has begun drilling and exploration activities at Block 114 in the Song Hong basin offshore central Vietnam
  • Eni and Total picked up a joint 4 offshore blocks at Cote d’Ivoire’s latest block sale, with the state aiming to generate US$275 million from the sale

Midstream & Downstream

  • China has issued a second batch of fuel export quotas for 2019 that was 30% higher than the first batch in January, allowing 23.79 million tons of products to be shipped overseas just as Hengli’s 400 kb/d Dalian refinery starts up
  • The UAE’s Brooge Petroleum and Gas Investment Co has announced plans for a 250 kb/d refinery in Fujairah to produce clean IMO-compliant bunker fuels
  • The fallout from tainted Russian crude exports through the Druzhba pipeline and Ust-Luga port continues as Russia admits that clean-up will take longer than expected, as Kazakhstan seeks damages for its tainted crude and Total halts operations at its 230 kb/d Leuna refinery in Germany over contamination
  • Sinopec’s 200 kb/d Qingdao refinery is set to shut down for an extended period for a planned major overhaul to upgrade fuel quality
  • PDVSA’s 310 kb/d Cardon refinery in Venezuela has been shut down due to damages at some units, exacerbating the country’s ongoing fuel crisis

Natural Gas/LNG

  • Santos has struck a deal to acquire a 14.3% stake in the PRL3 licence in Papua New Guinea, which includes the 4.4 tcf P’nyang natural gas field, which will underpin the planned expansion of PNG LNG with the a new 2.7 mtpa train
  • First LNG has been produced at the Cameron LNG project in Louisiana as Train 1 begins output, the first of three 4.5 mtpa trains to start up in Phase 1
  • The US state of New York has denied a permit for the US$1 billion Williams Co shale gas pipeline, scuppering plans to deliver shale gas from Pennsylvania, Ohio and West Virginia to New York City and the US Northeast
  • Saudi Aramco’s march into the LNG space continues as it is set to take a ‘sizeable’ stake in Sempra Energy’s proposed Port Arthur LNG export project
  • Petronas’ PFLNG Satu has started first LNG production within three days of being relocated to the Kebabangan Cluster gas field offshore Sabah
  • Freeport LNG has now received federal approval to add a fourth train to its Texas LNG export terminal, bringing total capacity to over 20 mtpa
May, 24 2019
The Battle for Anadarko

At first, it seemed like a done deal. Chevron made a US$33 billion offer to take over US-based upstream independent Anadarko Petroleum. It was a 39% premium to Anadarko’s last traded price at the time and would have been the largest industry deal since Shell’s US$61 billion takeover of the BG Group in 2015. The deal would have given Chevron significant and synergistic acreage in the Permian Basin along with new potential in US midstream, as well as Anadarko’s high potential projects in Africa. Then Occidental Petroleum swooped in at the eleventh hour, making the delicious new bid and pulling the carpet out from under Chevron.

We can thank Warren Buffet for this. Occidental Petroleum, or Oxy, had previously made several quiet approaches to purchase Anadarko. These were rebuffed in favour of Chevron’s. Then Oxy’s CEO Vicki Hollub took the company jet to meet with Buffet. Playing to his reported desire to buy into shale, Hollub returned with a US$10 billion cash infusion from Buffet’s Berkshire Hathaway – which was contingent on Oxy’s successful purchase of Anadarko. Hollub also secured a US$8.8 billion commitment from France’s Total to sell off Anadarko’s African assets. With these aces, she then re-approached Anadarko with a new deal – for US$38 billion.

This could have sparked off a price war. After all, the Chevron-Anadarko deal made a lot of sense – securing premium spots in the prolific Permian, creating a 120 sq.km corridor in the sweet spot of the shale basin, the Delaware. But the risk-adverse appetite of Chevron’s CEO Michael Wirth returned, and Chevron declined to increase its offer. By bowing out of the bid, Wirth said ‘Cost and capital discipline always matters…. winning in any environment doesn’t mean winning at any cost… for the sake for doing a deal.” Chevron walks away with a termination fee of US$1 billion and the scuppered dreams of matching ExxonMobil in size.

And so Oxy was victorious, capping off a two-year pursuit by Hollub for Anadarko – which only went public after the Chevron bid. This new ‘global energy leader’ has a combined 1.3 mmb/d boe production, but instead of leveraging Anadarko’s more international spread of operations, Oxy is looking for a future that is significantly more domestic.

The Oxy-Anadarko marriage will make Occidental the undisputed top producer in the Permian Basin, the hottest of all current oil and gas hotspots. Oxy was once a more international player, under former CEO Armand Hammer, who took Occidental to Libya, Peru, Venezuela, Bolivia, the Congo and other developing markets. A downturn in the 1990s led to a refocusing of operations on the US, with Oxy being one of the first companies to research extracting shale oil. And so, as the deal was done, Anadarko’s promising projects in Africa – Area 1 and the Mozambique LNG project, as well as interest in Ghana, Algeria and South Africa – go to Total, which has plenty of synergies to exploit. The retreat back to the US makes sense; Anadarko’s 600,000 acres in the Permian are reportedly the most ‘potentially profitable’ and it also has a major presence in Gulf of Mexico deepwater. Occidental has already identified 10,000 drilling locations in Anadarko areas that are near existing Oxy operations.

While Chevron licks its wounds, it can comfort itself with the fact that it is still the largest current supermajor presence in the Permian, with output there surging 70% in 2018 y-o-y. There could be other targets for acquisitions – Pioneer Natural Resources, Concho Resources or Diamondback Energy – but Chevron’s hunger for takeover seems to have diminished. And with it, the promises of an M&A bonanza in the Permian over 2019.

The Occidental-Anadarko deal:

  • US$38 billion cash-and-stock
  • Oxy will received a US$10 billion injection from Berkshire Hathaway
  • Oxy will sell US$8.8 billion of assets in Africa to Total
  • Chevron receives a US$1 billion break-up fee
May, 23 2019
Venezuelan crude oil production falls to lowest level since January 2003

monthly venezueal crude oil production

Source: U.S. Energy Information Administration, Short-Term Energy Outlook

In April 2019, Venezuela's crude oil production averaged 830,000 barrels per day (b/d), down from 1.2 million b/d at the beginning of the year, according to EIA’s May 2019 Short-Term Energy Outlook. This average is the lowest level since January 2003, when a nationwide strike and civil unrest largely brought the operations of Venezuela's state oil company, Petróleos de Venezuela, S.A. (PdVSA), to a halt. Widespread power outages, mismanagement of the country's oil industry, and U.S. sanctions directed at Venezuela's energy sector and PdVSA have all contributed to the recent declines.

monthly venezuela crude oil rig count

Source: U.S. Energy Information Administration, based on Baker Hughes

Venezuela’s oil production has decreased significantly over the last three years. Production declines accelerated in 2018, decreasing by an average of 33,000 b/d each month in 2018, and the rate of decline increased to an average of over 135,000 b/d per month in the first quarter of 2019. The number of active oil rigs—an indicator of future oil production—also fell from nearly 70 rigs in the first quarter of 2016 to 24 rigs in the first quarter of 2019. The declines in Venezuelan crude oil production will have limited effects on the United States, as U.S. imports of Venezuelan crude oil have decreased over the last several years. EIA estimates that U.S. crude oil imports from Venezuela in 2018 averaged 505,000 b/d and were the lowest since 1989.

EIA expects Venezuela's crude oil production to continue decreasing in 2019, and declines may accelerate as sanctions-related deadlines pass. These deadlines include provisions that third-party entities using the U.S. financial system stop transactions with PdVSA by April 28 and that U.S. companies, including oil service companies, involved in the oil sector must cease operations in Venezuela by July 27. Venezuela's chronic shortage of workers across the industry and the departure of U.S. oilfield service companies, among other factors, will contribute to a further decrease in production.

Additionally, U.S. sanctions, as outlined in the January 25, 2019 Executive Order 13857, immediately banned U.S. exports of petroleum products—including unfinished oils that are blended with Venezuela's heavy crude oil for processing—to Venezuela. The Executive Order also required payments for PdVSA-owned petroleum and petroleum products to be placed into an escrow account inaccessible by the company. Preliminary weekly estimates indicate a significant decline in U.S. crude oil imports from Venezuela in February and March, as without direct access to cash payments, PdVSA had little reason to export crude oil to the United States.

India, China, and some European countries continued to receive Venezuela's crude oil, according to data published by ClipperData Inc. Venezuela is likely keeping some crude oil cargoes intended for exports in floating storageuntil it finds buyers for the cargoes.

monthly venezuela crude oil exports by destinatoin

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, and Clipper Data Inc.

A series of ongoing nationwide power outages in Venezuela that began on March 7 cut electricity to the country's oil-producing areas, likely damaging the reservoirs and associated infrastructure. In the Orinoco Oil Belt area, Venezuela produces extra-heavy crude oil that requires dilution with condensate or other light oils before the oil is sent by pipeline to domestic refineries or export terminals. Venezuela’s upgraders, complex processing units that upgrade the extra-heavy crude oil to help facilitate transport, were shut down in March during the power outages.

If Venezuelan crude or upgraded oil cannot flow as a result of a lack of power to the pumping infrastructure, heavier molecules sink and form a tar-like layer in the pipelines that can hinder the flow from resuming even after the power outages are resolved. However, according to tanker tracking data, Venezuela's main export terminal at Puerto José was apparently able to load crude oil onto vessels between power outages, possibly indicating that the loaded crude oil was taken from onshore storage. For this reason, EIA estimates that Venezuela's production fell at a faster rate than its exports.

EIA forecasts that Venezuela's crude oil production will continue to fall through at least the end of 2020, reflecting further declines in crude oil production capacity. Although EIA does not publish forecasts for individual OPEC countries, it does publish total OPEC crude oil and other liquids production. Further disruptions to Venezuela's production beyond what EIA currently assumes would change this forecast.

May, 21 2019