Conservative estimates suggest that in the wake of oil prices crashing in late 2014, the Malaysian oil and gas services and equipment (OGSE) sector contracted by at least 11%. Analysis of overall financials for the OGSE sector by the Malaysian Petroleum Resource Corp, an agency under the Prime Minister’s Department, reveal that revenue for 2015 fell by 11%, while profits contracted by a severe 52.3%. Including companies such as MISC, Sapura Energy, Dialog, Scomi, Bumi Armada, the numbers for 2016 are not available yet, but a glance over the financial reports released for the bigger players indicate that while sector revenue will probably be down for the year, profits maybe be up, after aggressive cost-cutting that included a tide of retrenchments.
So what is in store in 2017 and beyond?
If we go by the health of Petroliam Nasional Berhad, better known as Petronas, the word seems to be “cautiously optimistic”. The guardian and bellwether of Malaysia’s Oil & Gas sector, Petronas is one of the few major integrated state oil companies that is holding up fairly well during the current on-going oil crises. Petrobras is engulfed in debt, as is PDVSA, while Pertamina appears to be struggling with corruption and clarity of its long term investment direction while select Russian entities battle being used as political tools. Full year 2016 revenue for Petronas fell by 17.3% from lower sales coupled with weak crude prices but profit was up by a whopping 28% to RM16.95 billion (US$3.82 billion), just slightly behind Shell’s own profit for 2016. For 2017, Petronas projects better times ahead, promising no more staff redundancies and bolstering defences by pegging its 2017 capex expenditure at US$45/b, while it prepares to focus on natural gas - both at home in Sarawak and Sabah, and abroad in its Canadian LNG export project, and the recent go-ahead given to its massive US$27 billion RAPID refinery and petrochemicals project.
However if oil prices fall any further or just lingers within the US$50-55/b range, the so called recovery being experienced now, may just stagnate or not be strong enough to re-boot the industry to its previous glorious days and create the jobs badly needed for Malaysia. The threat of market oversupply is still there as US shale oil continues to grow unabatedly. The reality is low oil prices for (much) longer. The future prosperity of Petronas would depend on how much it can increase its productivity and lower production costs. Petronas has moved very decisively and embarked on intensifying its internal cost competitiveness through better collaboration amongst other upstream operators in Malaysia through the CORAL 2.0 project, and is beginning to see lower cost scenarios for its well engineering programs already. On the new technology front, Petronas is collaborating with MIT Innovation Sdn Bhd (MIT) to promote a smart and efficient technology that significantly lowers drilling costs. All moves in the right direction.
The weak link to Petronas’s current cost strategy and competitiveness globally could however be its very own local supply chain. As Petronas tries to prosper in the current climate, the industry that supports it needs to be similarly positioned to do the same - efficient and cost competitive. With the exception of a few large players like MISC, Sapura Energy and Dialog that have the width and breadth to survive challenging conditions like in 2015 and 2016, further down the supply chain, the smaller players many of whom are just agents or third-party equipment representatives do not necessarily own technology, are extremely vulnerable to volatility. (Debt is a particularly pressing concern in this end of spectrum especially in the offshore segment, with players like UMW Oil & Gas, Dayang Entreprise and Perisai Petroleum Teknologi facing recent problems in renegotiating their debt incurred during the good times. Those who can’t keep afloat will be targets for acquisition or forced mergers, like the recent merger between UMW Oil and Gas, Icon Offshore and Orkim.) In a recent business seminar, Malaysia Petroleum Resources Corp (MPRC) senior vice-president Syed Azlan Syed Ibrahim said that “although we foresee 2017 will not be far off than 2016, I do not think it will be worse. This is the opportunity for players to make the hard decision to restructure or reform. That time is now. They (local oil & gas supply chain companies) need to do it now so that when the market goes back up they will be ready” Calls for consolidation amongst local companies, especially in the upstream segment will help strengthen the industry, allowing for greater combination of resources for increased technological innovation and value creation that is urgently needed for Petronas to be competitive locally and overseas. Less reliance on foreign US dollar denominated technology or service providers will help Petronas achieve its low cost operations goal.
As Petronas announces fewer projects in 2017 compared to pre-2014 levels, local service player will need to compete and work outside Malaysia for revenue and business growth. It will be useful here for the local oil industry to emulate the success in the Norway. As we have seen and witnessed the growth of Statoil, Norway's national oil company, as a global player in the oil industry, it is backed-up with a group of highly matured and capable technology and services providers. The grouping is now known as Norwegian Energy Partners or NORWEP in short. NORWEP looks beyond the shores of Norway for new business, and compete for projects globally. It independently (without Statoil’s direct assistance) builds relations with other governments and strategically partners with other state controlled oil companies. To date, it has achieved a respectable track record in developing new technologies in enhanced oil recovery methods as well as strong health & safety in its operations.
Looking into the future of energy, the argument for diversification into how energy will be generated, distributed and utilised also seems compelling. Shell is convinced that the next phase of fossil fuel energy will belong to gas. Petronas is well positioned in the gas business, as it continues to be within the top 3 exporters of LNG globally with strong gas reserves and infrastructure locally as well as internationally, especially in Canada. However the argument for energy diversification goes further from fossil fuels. During the 2017 CERAWeek, the fossil fuel big annual conference, most speakers proclaim a long and prosperous future for their industry. But companies and countries that rely on oil and gas income are recognizing that renewable forms of electricity are gaining traction as prices come down and their popularity rises. Oil executives are adapting their portfolios to add cleaner fuels and moderating their rhetoric on climate change. "A low-carbon future will reshape the energy space. Some see this as a threat to our industry, but we should rather look for and act on the opportunities it offers," said Eldar Sætre, CEO of Norway's Statoil. "We have to respond more forcefully to the challenge of climate change." The oil and gas industry has clearly recognized that its monopoly on transportation fuels is weakening for the first time since automobiles replaced horse-drawn carriages. To be fair, Petronas has embarked on feasibility projects in renewable energy space with the commissioning of a Solar Independent Power Plant (IPP) project in Gebeng in Kuantan. The Solar IPP project came on-stream in 2013 has a capacity of 10 megawatt peak (MWp). However this venture seems to be dwarfed by recent announcements especially from the gulf operators. Saudi Aramco is planning to produce 10 gigawatts of power from renewable energy sources including solar, wind and nuclear by 2023 and transform Aramco into a diversified energy company. The kingdom also plans to develop a renewable energy research and manufacturing industry as part of an economic transformation plan announced by Deputy Crown Prince Mohammed bin Salman. Shell, Europe’s largest oil company, has also recently established a separate division, called New Energies, to invest in renewable and low-carbon power. The new division brings together its existing hydrogen, biofuels and electrical activities. Should Petronas make bigger investment in-roads into the renewable energy sector now rather than later? Shell is projecting that it will not make any money from renewable investments at least for another 10 years. Getting ahead in the game will certainly help any new player. Noting of course that there are other players in Malaysia in the renewable energy scene, for example Tenaga Nasional Berhad or TNB is growing its portfolio in solar energy aggressively.
In conclusion, Petronas seems to be generally on the right path in evolving its energy mix and growth strategy in the energy sector. Being a state controlled company, it will require undivided political support to transform its local supply chain and embark on a commercially driven low cost structure. If the large dividends that Petronas pays annually to Government are to continue, it should be an incentive for the Government for more action to reform the industry’s supply and support base.
Petronas being a large and complex business, reforms typically take time. However due to the prolonged nature of the low oil price climate, the pace of change impacting the industry seems to be moving faster compared to previous downturns. As the oil business is global and fairly transparent in terms of revenue and cost structure, Petronas is unfortunately unable to dictate it’s not own timeline in reforming itself and the industry that supports it. “Faster the better..lah” seems to come to mind. Easier said than done.
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Anthony Rizzo Players Can't Sit On Bench According to a report from the Chicago Sun-Times, the world-famous Anthony Rizzo Phrase "Zombie Rizzo" has been told to never be used again. Of course, this is not the first time that the Zombified Chicago Cubs' first baseman has made headlines this year. A year ago, "Rosebud" was the catchphrase that he coined for himself. Also, there is Anthony Rizzo Shirts that come in his name. Now that the Cubs are World Series Champions, Anthony Rizzo is on his way to superstardom. He is leading the World Series in several categories, including hits, runs, home runs, RBI's, OBP, and SLG. Also, he's on track for a staggering year in hits, RBI's, and total bases, all while being second in home runs.
The Cubs Phenom
This season the Chicago Cubs are over 3.5 million in earnings from the local broadcasts alone. The Cubs could lose a good deal of local revenue if they fail to get back to the World Series. But the local revenue is not the biggest factor in the Cub's success. A large part of their success comes from two of their most popular players, third baseman Kris Bryant and first baseman Anthony Rizzo. These two players are now the favorites to win the MVP awards this year, especially if the Cubs are able to stay on top of the wild card standings. A Look at Rizzo Anthony Rizzo is often compared to his college teammate Andrew McCutchen. Both players have performed well at the plate.
The wood pellet mill, that goes by the name of a wood pellet machine, or wood pellet press, is popular in lots of countries around the world. With all the expansion of "biomass energy", there are now various production technologies utilized to convert biomass into useable electricity and heat. The wood pellet machines are one of the typical machines that complete this task.
Wood pellet mills turn raw materials such as sawdust, straw, or wood into highly efficient biomass fuel. Concurrently, the entire process of converting these materials in a more dense energy form facilitates storage, transport, and make use of on the remainder of any value chain. Later on, you will find plans for biomass fuel to replace traditional fuels. Moreover, wood pellet machines supply the chances to start many different types of businesses.
What Is A Wood Pellet Mill?
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.
The Benefits Of A Wood Pellet Mill
- The gearboxes are made of high-quality cast iron materials which provide excellent shock absorption and low noise. The wood pellet mills adopt a gear drive that makes a better efficiency in comparison with worm drive or belt drive. The gear drive setup really helps to prevent belt slippage while extending the lifespan in the belt drive.
- The equipment shell includes reinforced ribs and increased casting thickness, which significantly enhances the overall strength of those mills, preventing the breakage in the shell.
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How To Maintain A Wood Pellet Mill
- The belt tightness ought to be checked regularly. If it is now slack, it needs to be tightened immediately.
- The equipment should be situated in a nicely-ventilated area to ensure the temperature created by the motor can emit safely, to extend the lifespan of your machine.
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- To ensure the cutter remains sharp, check this part regularly to prevent unnecessary damages for any other part.
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- The machine should take a seat on an excellent foundation. Regular maintenance of your machine will prolong the complete lifespan of the machinery.
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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