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Last Updated: April 5, 2017
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Last Week in World Oil

Prices

  • While strong Asian economic data offers hope that oil demand will strengthen, rebounding Libyan production – with the Sharara field resuming production – offset some strength in crude prices. Brent started this week at US$53/b, while WTI edged up into the low US$50/b levels.

Upstream & Midstream

  • As the shine continues to come off oil sands, ConocoPhillips will be selling much of its Canadian oil sands assets to Cenovus for C$17.7 billion (US$13.3 billion). The assets include COP’s 50% non-operator interest in Foster Creek Christine Lake, along with most of its Deep Basin gas assets. The assets have an expected production of 298,000 boe/d per year.
  • Ten new oil rigs and five new gas rigs entered service in the US last week, bringing the total active rig count to 824, attracted by crude prices steadying around the US$50/b level. However, Canada lost 30 rigs, split evenly between oil and gas sites, facing more headwinds in terms of cost.  

Downstream

  • Contrary to the expectation that a mature market like the US would shed refineries, two new refineries are being planned in Texas. Located within the hot Eagle Ford and Permian Basin shale plays, Raven Petroleum and MMEX Resurces are planning to a 50kb/d refinery each, focusing on processing light crude into gasoline for the Mexican market, which is short on the fuel and recently deregulated.
  • Italy’s Trans Adriatic Pipeline (TAP) has been given the go-ahead by the country’s top country, extending the US$40 billion Southern Gas Corridor that will transport natural gas from Azerbaijan’s Shah Deniz gas field in the Caspian Sea through Turkey, Greece, Albania and now Italy.

Natural Gas and LNG

  • Qatar has lifted its self-imposed moratorium on North Field. Development at the world’s largest natural gas field, shared between Qatar and Iran (which calls it South Pars), had been halted in 2005 to study the impact of rapid development under a huge slate of projects. Qatar now expects to start new production from the field – in the southernmost part – within five to seven years, potentially adding some 2 bcf/d of production, underlining Qatar’s throne as the world’s top LNG exporter.
  • With the debate over the Nordstream-2 pipeline heating up, Poland is considering alternatives. The country is now considering building a second LNG terminal in the Baltic Sea to diversify its natural gas sources. Planned for 2021 with a budget of €700 million, it will serve as an alternative should the gas pipeline from Norway not come to fruition.

Corporate

  • Saudi Arabia has decided to cut the amount of tax paid to the government by its state oil firm Saudi Aramco. The move to slash the tax rate from 85% to 50%, according to financial analysts, could boost the value of the national oil giant by as much as US$1 trillion as it prepares for its impending IPO that will likely be the world’s largest.
  • Saudi Aramco has signed MoUs with ADNOC and green energy firm Masdar. The former focus on technological and efficiency cooperation, while the latter focuses on renewables and carbon management.

Last week in Asian oil:

Upstream & Midstream

  • Just a few months after Iran regained its status as India’s top supplier of crude oil, that reign is under threat over a political squabble. Demanding that the development of Iran’s Farzad B gas field be awarded to an Indian consortium, the impasse has led New Delhi to order Indian state refiners to cut Iranian crude imports by a fifth – from 240 kb/d to 190 kb/d. In retaliation, Iran is threatening to reduce the discount it offers Indian buyers on freight from 80% to 60%. An Indian consortium headed up by ONGC was favourite to win the Farzad B concession, but the recent lifting of sanctions may be tempting Iran to look elsewhere for a better deal.
  • Thailand will be holding petroleum concession auctions for the Erawan and Bongkot fields this December. Currently operated by Chevron and PTTEP, respectively, the existing concessions for the fields expire in 2022 and 2023, with the auction aiming to introduce more competition into Thailand’s upstream industry as well as introduce elements of PSCs.

Downstream & Shipping

  • Sinopec will be centralising its domestic fuels procurement in its Beijing office from April, a move that streamlines operations for the state refiner but leaves teapot refiners at a disadvantage. Sinopec has previously acquired gasoline and diesel through its regional offices that dealt with local suppliers, but the move to centralise buying in Beijing seems a bid to bolster bargaining power by depressing third-party margins.
  • Taiwan’s CPC will be starting trial runs of a new 150 kb/d CDU, two hydrotreaters with a total capacity of 70 kb/d and a 50 kb/d condensate splitter at its refinery in Talin in May. The move will modernise the aging refinery, which will have its existing 100 kb/d CDU scrapped, yielding a net capacity increase of 50 kb/d to 350 kb/d.

Natural Gas & LNG

  • Japan’s Kansai Electric Power Co, the country’s second largest power utility, is setting up a trading unit in Singapore. Aimed at boosting its buying and negotiation power over LNG trade, moving from cumbersome multi-decade contracts to short-term, opportunistic trading, the new desk is one of a score set up in Singapore over the last year, strengthening the island nation’s bid to become Asia’s LNG trading hub.
  • More woes at the massive Gorgon project, where production was halted at Train Two again, once of several shutdowns since it began producing gas last October. The most recent shutdown was linked to a ‘planned turnaround to enhance reliability.’ Meanwhile, production has kicked off at Train Three, the final production unit at Gorgon, ending a trouble-prone development period that Chevron will now be eager to monetise.
  • Shell will be doubling the capacity of its planned LNG import facility at Hazira, India. Spurred by growing demand, the original plan called for capacity to be increased to 7.5 million tons by 2017, but Shell is now aiming to go higher to hit 10 million tons per year by 2020.
  • Malaysia’s Petronas and Singapore’s Pavilion Energy have inked an MoU that will see both companies collaborate on LNG trading. Pavilion Energy, backed by Singapore Temasek, is the gatekeeper to Singapore’s LNG ambitions, made all the more important as it races to become an LNG hub.

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Wood pellet machines are kinds of pellet machines to process raw materials including peanut shells, sawdust, leaves, straw, wood, plus more. Today the pellet mills can be purchased in different types. Both the main types include the ring die pellet mills as well as the flat die pellet mills. Wood pellet mills are designed for processing many different types of raw materials irrespective of size. The pellet size is very simple to customize with the use of a hammer mill.

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June, 12 2022
OPEC And The Current State of Oil Fundamentals

It was shaping up to yet another dull OPEC+ meeting. Cut and dry. Copy and paste. Rubber-stamping yet another monthly increase in production quotas by 432,000 b/d. Month after month of resisting pressure from the largest economies in the world to accelerate supply easing had inured markets to expectations of swift action by OPEC and its wider brethren in OPEC+.

And then, just two days before the meeting, chatter began that suggested something big was brewing. Whispers that Russia could be suspended made the rounds, an about-face for a group that has steadfastly avoided reference to the war in Ukraine, calling it a matter of politics not markets. If Russia was indeed removed from the production quotas, that would allow other OPEC+ producers to fill in the gap in volumes constrained internationally due to sanctions.

That didn’t happen. In fact, OPEC+ Joint Technical Committee commented that suspension of Russia’s quota was not discussed at all and not on the table. Instead, the JTC reduced its global oil demand forecast for 2022 by 200,000 b/d, expecting global oil demand to grow by 3.4 mmb/d this year instead with the downside being volatility linked to ‘geopolitical situations and Covid developments.’ Ordinarily, that would be a sign for OPEC+ to hold to its usual supply easing schedule. After all, the group has been claiming that oil markets have ‘been in balance’ for much of the first five months of 2022. Instead, the group surprised traders by announcing an increase in its monthly oil supply hike for July and August, adding 648,000 b/d each month for a 50% rise from the previous baseline.

The increase will be divided proportionally across OPEC+, as has been since the landmark supply deal in spring 2020. Crucially this includes Russia, where the new quota will be a paper one, since Western sanctions means that any additional Russian crude is unlikely to make it to the market. And that too goes for other members that haven’t even met their previous lower quotas, including Iraq, Angola and Nigeria. The oil ministers know this and the market knows this. Which is why the surprise announcement didn’t budge crude prices by very much at all.

In fact, there are only two countries within OPEC+ that have enough spare capacity to be ramped up quickly. The United Arab Emirates, which was responsible for recent turmoil within the group by arguing for higher quotas should be happy. But it will be a measure of backtracking for the only other country in that position, Saudi Arabia. After publicly stating that it had ‘done all it can for the oil market’ and blaming a lack of refining capacity for high fuel prices, the Kingdom’s change of heart seems to be linked to some external pressure. But it could seemingly resist no more. But that spotlight on the UAE and Saudi Arabia will allow both to wrench some market share, as both countries have been long preparing to increase their production. Abu Dhabi recently made three sizable onshore oil discoveries at Bu Hasa, Onshore Block 3 and the Al Dhafra Petroleum Concession, that adds some 650 million barrels to its reserves, which would help lift the ceiling for oil production from 4 to 5 mmb/d by 2030. Meanwhile, Saudi Aramco is expected to contract over 30 offshore rigs in 2022 alone, targeting the Marjan and Zuluf fields to increase production from 12 to 13 mmb/d by 2027.

The UAE wants to ramp up, certainly. But does Saudi Arabia too? As the dominant power of OPEC, what Saudi Arabia wants it usually gets. The signals all along were that the Kingdom wanted to remain prudent. It is not that it cannot, there is about a million barrels per day of extra production capacity that Saudi Arabia can open up immediately but that it does not want to. Bringing those extra volume on means that spare capacity drops down to critical levels, eliminating options if extra crises emerge. One is already starting up again in Libya, where internal political discord for years has led to an on-off, stop-start rhythm in Libyan crude. If Saudi Arabia uses up all its spare capacity, oil prices could jump even higher if new emergencies emerge with no avenue to tackle them. That the Saudis have given in (slightly) must mean that political pressure is heating up. That the announcement was made at the OPEC+ meeting and not a summit between US and Saudi leaders must mean that a façade of independence must be maintained around the crucial decisions to raise supply quotas.

But that increase is not going to be enough, especially with Russia’s absence. Markets largely shrugged off the announcement, keeping Brent crude at US$120/b levels. Consumption is booming, as the world rushes to enjoy its first summer with a high degree of freedom since Covid-19 hit. Which is why global leaders are looking at other ways to tackle high energy prices and mitigate soaring inflation. In Germany, low-priced monthly public transport are intended to wean drivers off cars. In the UK, a windfall tax on energy companies should yield US$6 billion to be used for insulating consumers. And in the US, Joe Biden has been busy.

With the Permian Basin focusing on fiscal prudence instead of wanton drilling, US shale output has not responded to lucrative oil prices that way it used to. American rig counts are only inching up, with some shale basins even losing rigs. So the White House is trying more creative ways. Though the suggestion of an ‘oil consumer cartel’ as an analogue to OPEC by Italian Prime Minister Mario Draghi is likely dead on arrival, the US is looking to unlock supply and tame fuel prices through other ways. Regular releases from the US Strategic Petroleum Reserve has so far done little to bring prices down, but easing sanctions on Venezuelan crude that could be exported to the US and Europe, as well as working with the refining industry to restart recently idled refineries could. Inflation levels above 8% and gasoline prices at all-time highs could lead to a bloody outcome in this year’s midterm elections, and Joe Biden knows that.

But oil (and natural gas) supply/demand dynamics cannot truly start returning to normal as long as the war in Ukraine rages on. And the far-ranging sanctions impacting Russian energy exports will take even longer to be lifted depending on how the war goes. Yes, some Russian crude is making it to the market. China, for example, has been quietly refilling its petroleum reserves with Russian crude (at a discount, of course). India continues to buy from Moscow, as are smaller nations like Sri Lanka where an economic crisis limits options. Selling the crude is one thing, transporting it is another. With most international insurers blacklisting Russian shippers, Russian oil producers can still turn to local insurance and tankers from the once-derided state tanker firm Sovcomflot PJSC to deliver crude to the few customers they still have.

A 50% hike in OPEC’s monthly supply easing targets might seem like a lot. But it isn’t enough. Especially since actual production will fall short of that quota. The entire OPEC system, and the illusion of control it provides has broken down. Russian oil is still trickling out to global buyers but even if it returned in full, there is still not enough refining capacity to absorb those volumes. Doctors speak of long Covid symptoms in patients, and the world energy complex is experiencing long Covid, now with a touch with geopolitical germs as well. It’ll take a long time to recover, so brace yourselves.

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June, 12 2022