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Last Updated: March 29, 2017
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Last week in World Oil:

Prices

  • Crude oil seems stuck in its current range – US$48/b for WTI and US$51/b for Brent – as traders remain pessimistic of an extension to the OPEC supply freeze that, even if implemented, may not have much effect given the rise in American drilling that is sure to follow.

Upstream & Midstream

  • Permit for the Keystone XL oil pipeline has been issued by President Donald Trump. The battleground now shifts to courtroom, where activists and landowners are plotting regulatory and legal challenges to keep the TransCanada pipeline from moving ahead.
  • The 29th offshore licensing round in the UK North Sea has been completed, with 25 licences handed out to mostly majors, including Shell, BP, ExxonMobil and Statoil. Centred on frontier areas off the Hebrides and Shetlands, the success of the round indicates renewed vigour that has been gaining over the last year in what was once a declining area.
  • The US active rig count jumped by a massive 20 last week, led mainly by oil rig gains, as American drillers put faith in steady crude oil prices. The bulk of the gains were in the onshore Permian Basin, with gains in Eagle Ford and Marcellus shale plays as well.

Downstream

  • A shakeup is happening at PDVSA, where high-level managers across all refining and downstream divisions have been removed recently. Ostensibly to battle corruption, the changes while Venezuela is struggling to provide fuel for its citizens, with reports of long queues to buy gasoline as PDVSA struggles with debt, imports and distribution woes.
  • Shell has completed talks with Tesoro to lease its capacity at an oil terminal in Panama. The three-year agreement at Petroterminal de Panama, which has 14 million barrels of capacity, and a pipeline network connecting the Atlantic to the Pacific, bolsters Shell’s storage capacity in the Gulf and Caribbean, which anchors its crude trading operations.
  • The US government is considering retaliatory actions against Argentina and Indonesia over biodiesel dumping. Between 2014 and 2016, biodiesel imports from both countries have risen by 464%, prompting complaints by American biodiesel producers of underpricing. Indonesia, facing similar complaints from the EU, plans to protest together with Argentina.

Natural Gas and LNG

  • Unable to rely on Saudi Arabia to supply its energy needs, Egypt has been looking elsewhere, issuing a flurry of tenders late last year. The Egyptian Natural Gas Holding Company has signed an agreement with Russia’s Rosneft to buy 10 LNG cargoes this year, starting in May, up from three cargoes bought in 2016. Until Egypt’s natural gas discoveries, including Zohr, begin producing, tenders such as this will be more common. 

Corporate

  • Petrobras has raised its target for divestitures, aiming to raise US$21 billion over 2017 and 2018 in a bid to pare down debt. Despite legal challenges in Brazilian courts that have blocked several of attempted sales, Petrobras intends to accelerate its asset sales plan, while expanding joint ventures in key areas such as refining and E&P.

Last week in Asian oil:

Upstream & Midstream

  • A trend is emerging, as Japan’s Inpex has decided to exit the Natuna Sea in Indonesia. Selling its entire stake in subsidiary Inpex Natuna to Indonesia’s PT Medco Daya Sentosa (a subsidiary of PT Medco Energi Internasional), the sale will see Inpex leave the South Natuna Sea Block B. This follows ConocoPhillips’ decision to exit the Natuna Sea block last year, with PT Medco also gaining in that case. Inpex has been involved in the prodigious Natuna Sea since 1977, but returns have been dwindling recently with little replenishment, leading to declining interest.
  • Petronas is beefing up its presence in Myanmar, farming into two ultra-deep water exploration permits operated by Shell in the Rakhine basin of the Bay of Bengal. Petronas already operates the Yetagun field in Myanmar, and plans to boost involvement in Myanmar as it seeks to deepen its external asset base. With the upstream business in the country heating up, UK oilfield services firm James Fisher and Sons last week signed an MoU with Myanmar’s Royal Marine Technology to expand the country’s marine services industry.

Downstream & Shipping

  • China’s Sinopec has officially acquired its first major refining operation in Africa, following in the footsteps of its upstream division by paying almost US$1 billion for a 75% stake in Chevron’s South African downstream assets, which includes the 100 kb/d Cape Town refinery, the Durban lubricants plant and operations in Botswana. Sinopec will retain the Caltex brand for six years for all retail operations, before rebranding.
  • Indian Oil has inked an agreement with the government of Nepal to supply the landlocked Himalayan nation’s refined product demand for the next five years. This extends a supply agreement dating back to 1974, with the new contract involving 1.3 million tons of refined products, principally gasoline, diesel, jet fuel and LPG for cooking. A natural gas pipeline is also being considered, as well as a refined products pipeline linking Motihari in the Indian state of Bihar to Amlekhgunj in Nepal.

Natural Gas & LNG

  • As the gigantic Gorgon and Wheatstone LNG projects, collectively costing US$88 billion, approached completion, Chevron has signalled that it does not intend to sanction any further expansion. Instead, it will focus on boosting returns and perhaps smaller, linked developments, as the LNG industry adjusts to the slump in oil prices.
  • South Korea’s KOGAS has signed an agreement with Japan’s JERA and China’s CNOOC, as the world’s largest LNG buyers aim to boost cooperation as bargaining power in the LNG industry increasingly shifts from sellers to buyers. Jointly, the three companies buy a third of global LNG, and the agreement potentially creates an influential buyers’ club that could demand more favourable contracts and clauses.

Corporate

  • Indonesian President Joko Widodo has named Elia Massa Manik as the new CEO of Pertamina, tasked with turning around the beleaguered state giant. A relative outsider to the country’s vast oil and gas bureaucracy, Elia lands in the position with a solid reputation for restructuring state-owned firms, including turning around operations at his previous position as head of PTPN III, Indonesia’s state plantation company, and at PT Elnusa, Pertamina’s oil services subsidiary.
  • Malaysia’s oilfield services firm Sapura Kencana will now be known as Sapura Energy Berhad. Proposed in early February and adopted at the recent AGM, the name was chosen to reflect the firm’s ‘global corporate identity.’

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China’s Strategic Petroleum Reserves

After the OPEC+ club met on September 1st,  and confirmed that it would be sticking to its plan of increasing its crude supply by 400,000 b/d a month through December, China made a rather unusual announcement. It announced that it was going to release some crude oil from its strategic petroleum reserves, selling it to domestic refiners that were grappling with crude’s heady price rise over 2021. The release of strategic oil reserves isn’t news in itself. What is news is that the usually secretive China did it and did it publicly.

And it did it to send a message to OPEC+: attempts to create artificial scarcity to maintain crude prices will not be tolerated. China has a right to feel that way. Even though great strides have been made to ease the effects of the Covid-19 pandemic worldwide, the virus is still exerting major effects on the global economy. Not least a massive ripple through the health of global supply chains that has seen the price of almost everything – plastics, semiconductors, agricultural commodity, lumber, steel – spike due to supply issues. In some cases, the prices of raw materials are at historic highs. Crude oil is still nowhere near its peak of above US$100/b, but it is high enough to be concerning, especially since it is happening within a major inflationary environment. And for a manufacturing-heavy economy like China, that matters. That matters a lot. So China’s National Food and Strategic Reserves announced that it would be releasing some of the country’s crude stocks to ‘better stabilise domestic market supply and demand, and effectively guarantee the country’s energy security’, a month after the country’s producer price inflation – ie. the cost of manufacturing – hit a 13-year high.

China made good on that promise, releasing 7.38 million barrels from its stockpile to domestic bidders on September 24 with more tranches expected. This was the first ever recorded release from China’s Strategic Petroleum Reserves (SPR), which began back in 2009 in serendipitous response to crude oil prices exceeding the US$100/b mark for the first time in 2008. But curiously, it may not have been the first ever release. So secretive is the SPR that China does not reveal the size of the reserve, although analysts have estimated it at some 300-400 million barrels with total capacity of 500 million barrels using satellite imaging. It has been speculated that batches of crude from the SPR have been released before on the quiet. But this is the first time China has gone public. Compared to the country’s overall oil consumption, 7.38 million barrels is small, almost tiny. And even if additional supplies are released, it will not make a major impact on China’s oil balances. But the message is what is important.

It is a message that China is not alone in sending. US President Joe Biden has already called on OPEC+ to accelerate its supply easing plans, given indications that the crude glut built up over 2020 has been all but erased. It is a notion that would be supported by some OPEC+ members – Russia, Mexico, the UAE – but so far, the discipline advocated by Saudi Arabia has held. The US too has attempted to release of its own crude reserve stocks – the largest in the world with a capacity of 727 million barrels – but this was also in response to the devastating impact of Hurricane Ida. India, China’s closest analogue to size and stage, has been complaining too. As a major oil importer and with a shakier economic situation, India is particularly sensitive to oil price swings. US$70/b is way above what New Delhi is comfortable with. But since India’s appeals to OPEC+ have fallen on deaf ears, it is attempting domestic directives instead. India’s state refiners have been ordered to reduce crude purchases from the Middle East, but with supply tight, there aren’t many other people to buy from. India has also been selling oil from its strategic reserve – officially stated to be for clearing space to lease storage capacity to refiners – although since India is more transparent about these announcements, the announcement isn’t as surprising.

Will it work? At least immediately, no. Crude prices did come under pressure in the wake of China’s announcement, but then recovered with Brent hitting US$75/b. But the fact that China timed the announcement of the September 24 auction to coincide with peak global trading time and with a lot of details (again an unusual move) shows that Beijing is serious about wielding its strategic reserves as weapons. If not to moderate crude prices, then to at least stabilise it. But this is a war of attrition. China may very well have a planned schedule to release more crude reserves over 2021 and 2022 if prices remain high, but its supplies are finite. And they will have to eventually be replenished, possibly at an even higher cost if the attempt to quell crude price inflation fails. Thus far, the details of the SPR release hint that this is a tentative dip in the pool: the volume of 7.38 million barrels was far lower than the 35-70 million barrels predicted by some market participants. And because successful bidders can lift the oil up to December 10, it seems unlikely that a second auction for 2021 is in concrete plans at this point.

But, at the very least, the message has been sent. Beijing has a tool that it can wield if crude prices get out of hand, and it is not afraid to use it. The first step might have been small, and it is a giant leap in what mechanics are available to influence crude prices. And as history has proven, China can be very quick to scale up and very single-minded in its approach. Over to you, OPEC+.

End of Article

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Market Outlook:

  • Crude price trading range: Brent – US$73-76/b, WTI – US$71-74/b
  • Global crude benchmarks retain their strength, with Brent zipping past US$75/b, as supply-side issues and healthy demand continue to reverberate
  • After Hurricane Ida, US upstream players have gradually brought back some 70% of Gulf of Mexico production, easing some supply concerns, but a standoff between Libya’s Ministry of Oil and National Oil Corp could disrupt Libyan output

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September, 23 2021
Chicago Cubs Shirts: Wear Style with Ultimate Comfort!

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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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September, 16 2021