NrgEdge Editor

Sharing content and articles for users
Last Updated: April 27, 2017
1 view
Business Trends
image

Last week in world oil:

Prices

  • After a flurry of support over supply disruptions in Libya and the extension of OPEC supply cuts, crude oil prices have returned to their previous levels, at US$52/b for Brent and US$49/b for WTI. While analysts and traders remain reasonably confident that OPEC will agree to extend the freeze, there are jitters over non-OPEC commitments to the move, with Russia indicating it could begin lifting output. 

Upstream & Midstream

  • ExxonMobil’s attempt to apply for a waiver that would allow it to override existing sanctions to drill for oil in Russia has been refused by the Trump administration. Perhaps an indication that the White House does not want to show overt favouritism, the decision comes during a time when the US government is probing Russian influence in US elections. 
  • Suncor’s Syncrude Canada oil sands project will resume production in May and June, but at reduced rates, after output was knocked out completely by a fire in March. The 350 kb/d plant produces light synthetic crude, necessary to be mixed with heavy oil sands to enable flow through pipeline. The unavailability of Syncrude has hampered oil sands production in Alberta over April, and will only pick up in late May. 
  • The active US oil and gas rig count continues to rise, hitting 857 sites last week. Ten new rigs – five apiece between oil and gas – entered production, though this was offset by a loss of 19 rigs in Canada.  

Downstream

  • ExxonMobil and Saudi Arabia’s petrochemicals firm SABIC have selected a site in Corpus Christi, Texas as the site for their joint venture petrochemical complex. One of the 11 projects proposed by ExxonMobil as part of its US$20 billion US Gulf Coast investment drive, the ethylene-focused plant will have a capacity of 1.8 million tons per annum. 
  • Philadelphia Energy Solutions, the largest refiner on the US East Coast, will no longer receive rail deliveries of Bakken crude in June, a sign that the impending Dakota Access Pipeline is changing trade flows – diverting volumes from North Dakota down to the US Gulf Coast, and possibly ending the crude-by-rail boom that has sustained East Coast refiners. 
  • As negotiations between the UK and the EU over Brexit continue, British negotiators should aim to secure continue participation in the EU energy market, according to energy minister Greg Clark. The UK has deep connections in the energy sector, particularly in LNG and in Ireland, in the arena of electricity transmission and grid connections.
  • Chevron has sold its downstream assets in Canada’s British Columbia to Parkland Fuel Corp, for US$1.09 billion. The assets include 129 fuel stations, three terminals and the 52 kb/d Burnaby oil refinery, which will held boost Parkland’s extensive existing operations in Canada. 

Natural Gas and LNG

  • American natural gas transmission company William Partners is divesting its interest in the Nova Chemicals olefins plant, for US$2.1 billion, as it prepares to focus more on its core product. Williams Partners will continue to work with Nova, supplying natural gas in long-term supply deals to the ethylene-focused plant. 

Last week in Asian oil:

Upstream & Midstream

  • Iraq will build three new plants to capture natural gas at its southern oil fields. The gas is currently being flared, a chronic problem in the country as it lacks the necessary infrastructure to isolate and process gas hydrocarbons. Only one gas processing company exists – the Basrah Gas Company – and Iraq thinks three more are necessary to convert all gas (at the fields controlled by the government) into fuel for power generation. 
  • China is making a second attempt at launching a domestic crude oil futures contract after failing in 2014, as domestic stock volatility and the depression in commodity markets hit. The International Energy Exchange in Shanghai is now aiming to relaunch the contract in the third quarter of 2017, in what could eventually become the Asian crude oil benchmark. 
  • China’s CNOOC will be offering 22 open blocks covering an area of 47,270 square kilometres as the state upstream players attempts to attract foreign investments through relaxed terms and rules. All 22 blocks are offshore, concentrated southeast in the waters off Guangdong and Hainan. 
  • After rhetorical belligerence during his campaign period, Donald Trump’s administration admitted that Iran was complying with the nuclear deal struck by his predecessor. Some sanctions were reapplied in January, but the US is not yet ready to lift them, but placing them under ‘review’.

Natural Gas & LNG

  • Australia’s LNG boom has not benefitted its major population centres in the southeast, with most of the natural gas produced earmarked for exports. Now, the country’s competition regulator is ordering a review over the ability of LNG projects to export gas that should be earmarked for domestic consumption in Victoria and New South Wales. The recent purchase by Santos of 20% of natural gas available for consumption in the east coast to fuel LNG production for export at the Gladstone plant over internal gas shortages sparked the ordered review. This has caused a domestic dichotomy, with Australia’s internal spot LNG prices soaring while it exports record amounts of gas overseas. As an attempt to ease the problem, ConocoPhillips has said it is open to diverting gas from its northern Australian fields to the planned transcontinental Trans-Australia gas pipeline, linking production in the north to the major domestic markets in the southeast. 
  • ConocoPhillips and its partners are mulling over an expansion of the Darwin LNG plant in Australia’s Northern Territory. Supply from its current gas source, the Bayu-Undan field, is expected to run out in 2022 and ConocoPhillips is looking beyond developing its own fields for US$10 billion to incorporate output from other currently undeveloped gas resources in the area. There are currently five joint ventures with undeveloped resources in the Northern Territory backing ConocoPhillips’ study, including Shell, Petronas, Eni, Santos and Origin. 
  • Pakistan has approved construction of a new US$1 billion gas pipeline to transport LNG volumes from the port of Karachi inland to Lahore. The project by Sui Northern Gas Pipelines is part of the government’s plans to add 1.2 bcf per day of LNG volumes, and will be constructed in two phases – a 780km pipeline from Sawan to Lahore, and a 130km tie-in to the existing transmission  network. 

3
1 0

Something interesting to share?
Join NrgEdge and create your own NrgBuzz today

Latest NrgBuzz

The Strait of Hormuz and Oil Prices

The UK has just designated the Persian Gulf as a level 3 risk for its ships – the highest level possible threat for British vessel traffic – as the confrontation between Iran with the US and its allies escalated. The strategically-important bit of water - and in particular the narrow Strait of Hormuz – is boiling over, and it seems as if full-blown military confrontation is inevitable.

The risk assessment comes as the British warship HMS Montrose had to escort the BP oil tanker British Heritage out of the Persian Gulf into the Indian Ocean from being blocked by Iranian vessels. The risk is particularly acute as Iran is spoiling for a fight after the Royal Marines seized the Iranian crude supertanker Grace-1 in Gibraltar on suspicions that it was violating sanctions by sending crude to war-torn Syria. Tensions over the Gibraltar seizure kept the British Heritage tanker in ‘safe’ Saudi Arabian waters for almost a week after making a U-turn from the Basrah oil terminal in Iraq on fears of Iranian reprisals, until the HMW Montrose came to its rescue. Iran’s Revolutionary Guard Corps have warned of further ‘reciprocation’ even as it denied the British Heritage incident ever occurred.

This is just the latest in a series of events around Iran that is rattling the oil world. Since the waivers on exports of Iranian crude by the USA expired in early May, there were four sabotage attacks on oil tankers in the region and two additional attacks in June, all near the major bunkering hub of Fujairah. Increased US military presence resulted in Iran downing an American drone, which almost led to a full-blown conflict were it not for a last-minute U-turn by President Donald Trump. Reports suggest that Iran’s Revolutionary Guard Corps have moved military equipment to its southern coast surrounding the narrow Strait of Hormuz, which is 39km at its narrowest. Up to a third of all seaborne petroleum trade passes through this chokepoint and while Iran would most likely overrun by US-led forces eventually if war breaks out, it could cause a major amount of damage in a little amount of time.

The risk has already driven up oil prices. While a risk premium has already been applied to current oil prices, some analysts are suggesting that further major spikes in crude oil prices could be incoming if Iran manages to close the Strait of Hormuz for an extended period of time. While international crude oil stocks will buffer any short-term impediment, if the Strait is closed for more than two weeks, crude oil prices could jump above US$100/b. If the Strait is closed for an extended period of time – and if the world has run down on its spare crude capacity – then prices could jump as high as US$325/b, according to a study conducted by the King Abdullah Petroleum Studies and Research Centre in Riyadh. This hasn’t happened yet, but the impact is already being felt beyond crude prices: insurance premiums for ships sailing to and fro the Persian Gulf rose tenfold in June, while the insurance-advice group Joint War Committee has designated the waters as a ‘Listed Area’, the highest risk classification on the scale. VLCC rates for trips in the Persian Gulf have also slipped, with traders cagey about sending ships into the potential conflict zone.

This will continue, as there is no end-game in sight for the Iranian issue. With the USA vague on what its eventual goals are and Iran in an aggressive mood at perceived injustice, the situation could explode in war or stay on steady heat for a longer while. Either way, this will have a major impact on the global crude markets. The boiling point has not been reached yet, but the waters of the Strait of Hormuz are certainly simmering.

The Strait of Hormuz:

  • Connects the Persian Gulf to the Gulf of Oman/Indian Ocean
  • Length: 167km
  • Width: 96km (widest) to 39km (narrowest)
  • Controlled by Iran, the UAE and Musandam (Oman)
  • The conduit for 33% of all LNG trade and 20% of total crude oil demand
July, 16 2019
Your Weekly Update: 8 - 12 July 2019

Market Watch 

Headline crude prices for the week beginning 8 July 2019 – Brent: US$64/b; WTI: US$57/b

  • Bolstered by the renewed OPEC+ supply pact but rattled by increasing tensions between Iran and the US, oil prices started the week steady after gaining over the previous week
  • With the OPEC+ supply deal extended to March 2020, focus will now shift to adherence and in particular, Russian commitments to the agreement that previously wavered over 1H19
  • More critical to the market is the escalating standoff between the US and Iran around the Straits of Hormuz and even beyond; British forces seized an oil tanker off Gibraltar that was suspected to carrying Iranian crude to Syria, drawing share criticism from Iran
  • Iran itself confirmed that it was raising its level of nuclear enrichment above levels agreed to in the 2015 deal that ended sanctions, and accused European signatories to the deal of ‘not doing enough’
  • Iranian forces also confronted a British tanker escorted by a warship in the Persian Gulf, with the narrow channel now a flashpoint for action
  • As a recipient of Middle Eastern crude, China has also raised security levels for its vessel passing through the Straits of Malacca after doing the same for the Straits of Hormuz, raising some eyebrows
  • While the confrontation – or lack of – between the US and Iran will be the main driver behind oil prices movement in the second half of 2019, the trade policies of the Trump administration that may now hit secondary Asian manufacturing nations such as Vietnam is also leaving the global economy increasingly fragile
  • Against this backdrop, the US active oil and gas rig count fell again, dropping five oil sites and gaining one gas site for a net loss of four rigs
  • As the Iranian situation deteriorates, the market will be pricing more risk premiums into traded prices, which should inch up towards the US$65-67/b range for Brent and US$59-61/b for WTI

Headlines of the week

Upstream

  • Marathon Oil has completed the sale of its UK businesses to RockRose Energy, handing over the Brae and Foinaven area fields for US$345 million
  • Despite pulling out from the UK North Sea, ConocoPhillips is still active in Norway, recently submitting a new plan to re-develop the Tor field in Great Ekofisk, which was shut down in 2015 despite only 20% of resources extracted
  • In a bit to boost national production, Nigerian independent Aiteo Eastern E&P has announced plans to spend up to US$15 billion over the next five years to drill new wells and re-visit existing assets
  • Eni and Vitol have been awarded rights to Block WB03 in the offshore Tano basin in Ghana, with Eni holding 70% and expanding its presence in the country
  • Total has approved Phase 3 development at the onshore Dunga field in Kazakhstan that will increase capacity by 10% to some 20,000 b/d by 2022
  • Eni has launched production from the Mizton field in Mexico’s Bay of Campeche Area 1 – the first new offshore new field development by an international firm since reforms in 2008
  • Halliburton and Kuwait Oil have signed an agreement to explore for oil offshore Kuwait which makes Kuwait’s first foray in offshore upstream services
  • Energean Oil & Gas has purchased Electricite de France’s Italian unit for US$850 million, gaining assets in Egypt, Italy, Algeria, Croatia and the North Sea to complement its existing fields in Israel and Greece

Midstream/Downstream

  • China will be launching a new low-sulfur bunker fuel oil contract on the Shanghai Futures Exchange by the end of 2019, just as new IMO regulations on marine fuel oil sulfur content caps kick into effect in 2020
  • Just as American crude production hits new highs, American refining capacity has also reached a new record high of 18.8 million b/d
  • China has issued a new round of crude oil import quotas for private oil refiners, allowing them to bring in an additional 56.85 million tonnes (~1 mmb/d) over the remainder of 2019
  • In the fallout over the contaminated crude scandal at the Druzhba pipeline, Russian pipeline operator Transneft has capped volumes of Rosneft crude that can be transported to Germany and Poland on the pipeline
  • The US Environmental Protection Agency (EPA) has proposed an increased biodiesel mandate to 20.04 billion gallons in 2020 up from 19.92 billion gallons in 2019, but may not extend the hardship waiver program which drew criticism
  • Iraq and Oman have signed a new MoU to cooperate in the oil and gas sector which includes plans for a shared Omani refinery processing Iraqi crude

Natural Gas/LNG

  • Kosmos Energy has struck new gas at the Greater Tortue Ahmeyim-1 well in the Albian reservoir offshore Mauritania and Senegal, which will support the Greater Tortue Ahmeyim LNG project that is on track for a 2022 start
  • Kenya and Tanzania have entered into talks to explore cross-border natural gas trading, aimed at delivering Tanzanian natural gas to Kenya to bypass requiring and building facilities for LNG imports
  • Energean Oil & Gas is reportedly looking to sell its stake in the major Glengorn gas discovery in the UK once its acquisition of Edison E&P is completed
  • Saudi Aramco has started work on the Jafurah gas terminal that will take unconventional gas from the Ghawar oil field to the coast for processing
July, 12 2019
TODAY IN ENERGY: U.S. utility-scale battery storage power capacity to grow substantially by 2023

Utility-scale battery storage units (units of one megawatt (MW) or greater power capacity) are a newer electric power resource, and their use has been growing in recent years. Operating utility-scale battery storage power capacity has more than quadrupled from the end of 2014 (214 MW) through March 2019 (899 MW). Assuming currently planned additions are completed and no current operating capacity is retired, utility-scale battery storage power capacity could exceed 2,500 MW by 2023.

U.S. utility-scale battery storage capacity

Source: U.S. Energy Information Administration, Annual Electric Generator Report and the Preliminary Monthly Electric Generator Inventory

EIA's Annual Electric Generator Report (Form EIA-860) collects data on the status of existing utility-scale battery storage units in the United States, along with proposed utility-scale battery storage projects scheduled for initial commercial operation within the next five years. The monthly version of this survey, the Preliminary Monthly Electric Generator Inventory (Form EIA-860M), collects the updated status of any projects scheduled to come online within the next 12 months.

Growth in utility-scale battery installations is the result of supportive state-level energy storage policies and the Federal Energy Regulatory Commission’s Order 841 that directs power system operators to allow utility-scale battery systems to engage in their wholesale energy, capacity, and ancillary services markets. In addition, pairing utility-scale battery storage with intermittent renewable resources, such as wind and solar, has become increasingly competitive compared with traditional generation options.

The two largest operating utility-scale battery storage sites in the United States as of March 2019 provide 40 MW of power capacity each: the Golden Valley Electric Association’s battery energy storage system in Alaska and the Vista Energy storage system in California. In the United States, 16 operating battery storage sites have an installed power capacity of 20 MW or greater. Of the 899 MW of installed operating battery storage reported by states as of March 2019, California, Illinois, and Texas account for a little less than half of that storage capacity.

U.S. operating utlity-scale battery storage by state

Source: U.S. Energy Information Administration, Annual Electric Generator Report and the Preliminary Monthly Electric Generator Inventory

In the first quarter of 2019, 60 MW of utility-scale battery storage power capacity came online, and an additional 108 MW of installed capacity will likely become operational by the end of the year. Of these planned 2019 installations, the largest is the Top Gun Energy Storage facility in California with 30 MW of installed capacity.

As of March 2019, the total utility-scale battery storage power capacity planned to come online through 2023 is 1,623 MW. If these planned facilities come online as scheduled, total U.S. utility-scale battery storage power capacity would nearly triple by the end of 2023. Additional capacity beyond what has already been reported may also be added as future operational dates approach.

Of all planned battery storage projects reported on Form EIA-860M, the largest two sites account for 725 MW and are planned to start commercial operation in 2021. The largest of these planned sites is the Manatee Solar Energy Center in Parrish, Florida. With a capacity of 409 MW, this project will be the largest solar-powered battery system in the world and will store energy from a nearby Florida Power and Light solar plant in Manatee County.

The second-largest planned utility-scale battery storage facility is the Helix Ravenswood facility located in Queens, New York. The site is planned to be developed in three stages and will have a total capacity of 316 MW.

July, 11 2019