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Last Updated: March 22, 2017
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Last Week in World Oil:

Prices

  • Despite a midweek bounce in prices last week on an unexpected fall in US stockpiles, oil prices started the week on a weaker note. WTI is now at US$48/b and Brent at US$51/b, as disrupted Libyan port shipments resume after insurgent activity and US data continues to show rising drilling.

Upstream & Midstream

  • BP and Ineos are in talks over the Forties pipeline. Comprising pipelines that transports over 450 kb/d of oil, Forties is the largest constituent of Dated Brent, the international crude benchmark. After selling its stake in the Central Area Transmission System for £324 million in 2015, BP is now mulling selling some or the entirety of Forties, which it owns outright, to pare down debt acquired over the Deepwater Horizon spill. BP has already sold to Forties field to Apache and the Grangemouth refinery to Ineos over the last decade, so a sale would continue the ongoing trend of BP withdrawing from its aging North Sea assets.
  • Production at Total’s Moho Nord site in the Republic of Congo has started up, after repeated delays. The field has estimated output of some 100 kb/d per day, shared between operator Total (53%), Chevron (31.5%) and Societe Nationale des Petroles du Congo (15%).
  • The US active rig count is now at an 18-month high, with 14 new oil rigs, 6 new gas rigs and 1 miscellaneous site starting up last week.

Downstream

  • Russian will be increasing their production of high-octane gasoline this year, when five refineries complete upgrades that could add up to 4.5 million tons of production capacity. Given that domestic consumption is relatively flat, the gasoline will likely be exported – probably to Central Asia and East Europe – up existing imports of some 3.4 million tons.
  • After suddenly halting oil product shipments to Egypt last October, Saudi Aramco has announced that it will resume the agreed shipments of 700,000 tons of oil products per month, signalling a thawing of relations between both countries after Egypt voted in favour of a UN resolution on Syria, which was opposed by Saudi Arabia.
  • ExxonMobil is reportedly selling half of its 2,500 strong fuel station network in Italy. With an estimated price of €500 million, the company joins Shell and Total in exiting the oversupplied Italian market. Private equity firm Apollo is the frontrunner to acquire the Esso-branded stations, possibly combining it with Total’s stations for rationalisation.

Natural Gas and LNG

  • Shell’s divestment drive continues and the latest target for sale appears to be the gas-rich Haynesville Shale portfolio, acquired during its purchase of the BG Group and now ironically identified for sale to pay for that buy.

Corporate

  • The John Wood Group will acquire engineering service provider Amec Foster Wheeler for £2.23 billion (US$2.7 billion), continuing a trend of service providers merging to combat the weak environment in the industry, including GE’s merger with Baker Hughes in October 2016.


Last Week in Asian Oil:

Upstream & Midstream

  • China’s YTD crude oil production slipped by 8% y-o-y to 31.44 million tons as upstream companies scale back operations at aging fields over rising costs, preferring instead to import more crude oil. Crude oil imports over January and February 2017 was up 12.5% while crude processing volumes were up by 4.3%, as both the Chinese majors and independent teapot refiners raise production runs.
  • Iran is now India’s second-largest supplier of crude, leapfrogging India in February. Iranian volumes rose by nearly 17%, as OPEC producers Saudi Arabia and Iraq sent less crude to India as part of the organisation’s production cuts, returning Iran to the position it occupied pre-sanctions.

Downstream & Shipping

  • Sinopec may be acquiring its first major African downstream assets, as it nears buying Chevron’s South African oil assets for US$1 billion. The assets include fuel retail and storage terminals, as well as the 110kb/d Cape Town refinery. Sinopec was one of the few parties that expressed interest in keeping the refinery running instead of converting it into a storage terminal, though talks on that with the government may still fail.
  • BP has sold half of its 20% stake in the New Zealand Refining Company for US$56.2 million. Part of its global portfolio review, the buyer was not identified and BP will be continuing its processing arrangement with New Zealand Refining, along with ExxonMobil and Z Energy.

Natural Gas & LNG

  • The beleaguered US$37 billion Ichthys LNG project in Australia, led by Japan’s Inpex, has hit another snag. More than 600 workers of a subcontractor were terminated over a contractual dispute regarding the building of LNG storage tanks near Darwin. Despite this, Inpex states it is sticking to the massive project’s expected start up of Q32017.
  • Total is seeking up to a 50% stake in the US$4 billion South Pars gas field project in Iran, after becoming the first Western oil major to sign preliminary energy pacts with Iran as it came in from the cold. If finalised, Total would be the operator of South Pars with 50.1%, with China’s CNPC (30%) and Iran’s Petropars (19.9%) being the other shareholders.

Corporate

  • Commodities trader Cargill is selling its petroleum business to Australian investment bank Macquarie Group, as it admits defeat after the prolonged slump in oil prices saw Cargill struggling. Macquarie has an existing global oil business and the Cargill deal will add operations in Geneva and Minneapolis, Minnesota to its portfolio.
  • Singapore’s offshore industry was hit with another blow last week as oilfield services firm Ezra Holdings filed for Chapter 11 bankruptcy in the US. The company said it had been trying to restructure over the last year in the face of challenging conditions, and it is joined by Emas Chiyoda Subsea, an affiliate that has also filed for bankruptcy for which Ezra has provided guarantees on nearly US$900 million in loans and liabilities. In another sign of the tough environment in Singapore, Keppel Offshore and Marine CEO Chow Yew Yuen announced a surprise step-down last week, with Chris Ong appointed as his acting replacement.

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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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