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Last Updated: March 8, 2017
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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.

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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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