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Last Updated: May 3, 2017
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Last week in world oil:

Prices

  • Rebounding Libyan production has caused crude oil prices to tumble over the past week. The new support level seems to be US$50/b with Brent and WTI trading at about US$2 either side of that level.

Upstream & Midstream

  • Mexican crude is finding new homes, as crude shipments to the US fall to the lowest level since 2010. Shipments have been falling consistently as the shale revolution and Canadian volumes reduce the US Gulf’s dependence on Mexico. Production in Mexico itself is declining and more of its crude is demanded by Pemex’s refineries; excess crude that used to be shipped to the US are now finding its way to Europe and Asia.
  • While international players are exiting Canadian oil sand due to high costs, domestic player Suncor is evaluating opportunities in the region. Hoping to pick up some assets that will provide good returns over the longer term when it sees crude prices recovering, Suncor is also in a unique position, being the main producer of Syncrude, the light crude oil that must be mixed with oil sands to allow flow through pipelines.
  • The active US rig count continues to march upwards, gaining another 13 sites last week to move up to 870, the pace of additions not slowing down.

Downstream

  • South Africa’s anti-trust body has ordered that LPG producers cap supply agreements with distributors at 10 years, ruling that existing deals were deterring competition, leading to four suppliers – Afrox, Easigas, Totalgas and Oryx Energies – cornering 90% of the market.

Natural Gas and LNG

  • Gazprom’s Nord Stream 2 pipeline took a big step last week, with the European partners of the €9.5 billion project agreeing to provide half of the financing. Uniper, Wintershall, Shell, OMV and Engie have each agreed to provide 10% of the venture, with Gazprom shouldering the remaining 50%. However, equity will not be exchanged; Gazprom will remain the sole shareholder of the 55 bcm pipeline, adding fodder to the political fire.
  • The dependence on Russia gas has unsettled many European countries, particularly in the Baltics and Scandinavia. While countries like Germany hunger for gas, Poland is looking further afield. With an LNG import terminal already in place and another planned, Poland is scheduled to receive a spot LNG cargo from Cheniere’s Sabine Pass. It won’t be the last either, as the glut of LNG swirling around globally opens up new markets.
  • Total will begin construction of its Cote d’Ivoire LNG terminal by mid-2017. The project aims to make the former French colony a natural gas regional hub for Western Africa, with initial capacity planned for 36 mmBtu, scaling up to 100 mmBtu. Completion is expected by end 2018.

Corporate

  • Earnings across the board have risen in the first quarter of 2017, with ExxonMobil, Total and Chevron beating analyst expectations and BP tripling its profit y-o-y to US$1.51 billion. ExxonMobil reported quarterly profit of US$4.1 billion, while Chevron bounced back from a loss to being US$2.68 billion in the black. Rising crude prices have underpinned the financial recovery, with sizable asset sales also contributing.

Last week in Asian oil:

Upstream & Midstream

  • China has set a deadline of May 5 for private oil refiners to submit permits to use (or continue using) imported crude oil. China’s decision to allow 22 independent refiners to import crude oil on their own since 2015 has been behind the country’s record imports last year, but concerns about overcapacity leading to high exports has caused the state to clamp down on such permits. After curbing quotas earlier this year to an outcry, the state planner has instead issued a short deadline to cap private imports at about 2 mmb/d, still almost 25% higher than last year’s figure.
  • Petronas is seeking help to develop the high carbon dioxide oil and gas fields identified offshore Sarawak. The Malaysian state player lacks sufficient expertise in the arena and has invited close partners to assist it in developing the resources. Petronas is already developing high CO2 fields offshore Peninsula Malaysia, launching the Terengganu Gas Terminal in Kertih last week, utilising the company’s carbon dioxide removal technology that it expects will boost it domestic production.

Downstream

  • BP’s profits for the first quarter of 2017 have been boosted by its decision to sell its 50% stake in the Shanghai SECCO Petrochemical Company to Sinopec for US$1.68 billion. The first major divestment of the year for BP will lead a charge to sell assets worth between US$4.5-5.5 billion this year, as it seeks to pare down debt accumulating from the Deepwater Horizon accident.
  • India has set an ambitious target to reduce its oil product imports to zero, hoping to replace them with alternative fuels. A specific timeline for the goal was not set out by Transport Minister Nitin Gadkari, leaving this a mere hope that the country would ‘no need to import any fuel from any country and that we will be self-sufficient’. Crude imports, of course, will still be a reality but India is directing state refiners to boost capacity to meet the goal, as well as move to alternative fuels like methanol and LNG to curb imports of LPG currently used by auto-rickshaws and cooking, as well as boost bio-ethanol refining from biomass, bamboo and cotton straw. A push by the government to introduce gas cylinders in rural areas has made India the second-largest LPG importer in the world, overtaking Japan, which has decreased coal usage but hiked up the import bill.  

Natural Gas & LNG

  • The Ichthys LNG export plant has been delayed. Again. Japan’s Inpex confirmed that it would delay the start of the project by several months from the previously projected start date of Q317, as delays in the offshore production facilities being manufactured in Korea hampered the timeline. The new timeline for production of LNG and LPG is end-March, 2018.
  • Australia’s Jemena, a joint venture between the State Grid Corp of China and Singapore Power, could boost the capacity of its planned eastern Australia pipeline to ease the growing natural gas shortage in the region. Jemena has stated that it is open to extend the pipeline, currently running from Tennat Creek in northern Australia to Mount Isa in Queensland, further east if the ban of fracking in the north is lifted. The pipeline is already under construction, but allowing fracking will unlock more supplies in central and northern Australia through which the pipeline flows, which will help ease the current gas crisis on the east coast.

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[Media Partner Content] Recognising innovation in transforming the world’s oil and gas industry

The 9th edition of the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) Awards, hosted by the Abu Dhabi National Oil Company (ADNOC), is now open for submissions.

In this fourth industrial age it is technology, innovation, environmental leadership and talented workforces that are shaping the companies of the future.

Oil and gas is set to play a pivotal role in driving technology forward, and at this year’s ADIPEC Awards emphasis is placed on digitalisation, research, transformation, diversity, youth and social contribution, paving the way towards a brighter tomorrow for our industry.

Hosting the ADIPEC Awards is one of the world’s leading energy producers, ADNOC, a company exploring new, agile and flexible ways to build its people, technology, environmental leadership and partnerships, while enhancing the role of the United Arab Emirates as a global energy provider.

Factors which will have a prominent influence on the eventual decisions of the distinguished panel of jury members include industry impact, sustainability, innovation and value creation. Jury members have been carefully selected according to their expertise and knowledge, and include senior representatives from Baker Hughes, a GE Company, BP UAE, CEPSA Middle East, ENI Spa, Mubadala Petroleum, Shell, Total and Weatherford.

Chairperson of the awards is Fatema Al Nuaimi, Acting CEO of ADNOC LNG, who says: “At a time when the industry is looking towards an extremely exciting future and preparing for Oil &Gas 4.0, the awards will recognise excellence across all its sectors and reward those who are paving the way towards a successful and sustainable future.”

Ms Al Nuaimi, continues: “we call upon our partners across the globe to submit their achievements in projects and partnerships which are at the helm of technical and digital breakthroughs, as well as to nominate the next generation of oil and gas technical professionals, who will spearhead the ongoing transformation of the industry.

These awards are recognising the successes of those companies and individuals who are responding in the most innovative and creative manner to the global economic and technological trends. Their contribution is pivotal to the development of our industry and to addressing the continuous growth of the global energy demand. “

Christopher Hudson, President of the Energy Division, dmg events, organisers of ADIPEC, says: “With ADNOC as the host and ADIPEC as the platform for the programme, the awards are at the heart of the worldwide oil and gas community. With its audience of government ministers, international and national oil companies, CEOs and other top global industry influencers, the ADIPEC Awards provide the global oil and gas community the perfect opportunity to engage, inspire and influence the workforce of the future.”

Entries can be submitted until Monday 29th July for the following categories:

Breakthrough Technological Project of the Year

Breakthrough Research of the Year

Digital Transformation Project of the Year

Social Contribution and Local Content Project of the Year

Oil and Gas Inclusion and Diversity Company of the Year

Young ADIPEC Technical Professional of the Year

A shortlist of entries will be announced in October and winners will be revealed on the first day of ADIPEC 2019, Monday 11th November, St. Regis Saadiyat Island, Abu Dhabi.


ABOUT ADIPEC

Held under the patronage of the President of the United Arab Emirates, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, and organised by the Global Energy Division of dmg events, the Abu Dhabi Petroleum International Petroleum Exhibition and Conference (ADIPEC) is the global meeting point for oil and gas professionals. Standing as one of the world’s leading oil and gas events.  ADIPEC is a knowledge-sharing platform that enables industry experts to exchange ideas and information that shape the future of the energy sector. The 22nd edition of ADIPEC will take place from 11th-14th November 2019, at the Abu Dhabi National Exhibition Centre (ADNEC). ADIPEC 2019 will be hosted by the Abu Dhabi National Oil Company (ADNOC) and supported by the UAE Ministry of Energy & Industry, Department of Transport in Abu Dhabi, the Abu Dhabi Chamber of Commerce and Industry, Masdar, the Abu Dhabi Future Energy Company, Department of Culture and Tourism - Abu Dhabi, the Abu Dhabi Department of Education and Knowledge (ADEK). dmg events is committed to helping the growing international energy community.

June, 24 2019
TODAY IN ENERGY: Energy products are key inputs to global chemicals industry

chemicals industry inputs

Source: U.S. Energy Information Administration, based on World Input-Output Database
Note: Dollar values are expressed in 2010 U.S. dollars, converted based on purchasing power parity.

The industrial sector of the worldwide economy consumed more than half (55%) of all delivered energy in 2018, according to the International Energy Agency. Within the industrial sector, the chemicals industry is one of the largest energy users, accounting for 12% of global industrial energy use. Energy—whether purchased or produced onsite at plants—is very important to the chemicals industry, and it links the chemical industry to many parts of the energy supply chain including utilities, mines, and other energy product manufacturers.

The chemicals industry is often divided into two major categories: basic chemicals and other chemicals. Basic chemicals are chemicals that are the essential building blocks for other products. These include raw material gases, pigments, fertilizers, plastics, and rubber. Basic chemicals are sometimes called bulk chemicals or commodity chemicals because they are produced in large amounts and have relatively low prices. Other chemicals—sometimes called fine or specialty chemicals—require less energy to produce and sell for much higher prices. The category of other chemicals includes medicines, soaps, and paints.

The chemicals industry uses energy products such as natural gas for both heat and feedstock. Basic chemicals are often made in large factories that use a variety of energy sources to produce heat, much of which is for steam, and for equipment, such as pumps. The largest feedstock use is for producing petrochemicals, which can use oil-based or natural-gas-based feedstocks.

In terms of value, households are the largest users of chemicals because they use higher value chemicals, which are often chemicals that help to improve standards of living, such as medicines or sanitation products. Chemicals are also often intermediate goods—materials used in the production of other products, such as rubber and plastic products manufacturing, agricultural production, construction, and textiles and apparel making.

basic chemicals industry energy intensity in select regions

Source: U.S. Energy Information Administration, WEPS+, August 2018
Note: Dollar values are expressed in 2010 U.S. dollars, converted based on purchasing power parity.

The energy intensity of the basic chemicals industry, or energy consumed per unit of output, is relatively high compared with other industries. However, the energy intensity of the basic chemicals industry varies widely by region, largely based on the chemicals a region produces. According to EIA’s International Energy Outlook 2018, Russia had the most energy-intensive basic chemicals industry in 2015, with an average energy intensity of approximately 98,000 British thermal units (Btu) per dollar, followed by Canada with an average intensity of 68,000 Btu/dollar.

The Russian and Canadian basic chemicals industries are led by fertilizers and petrochemicals. Petrochemicals and fertilizers are the most energy intensive basic chemicals, all of which rely on energy for breaking chemical bonds and affecting the recombination of molecules to create the intended chemical output. These countries produce these specific basic chemicals in part because they also produce the natural resources needed as inputs, such as potash, oil, and natural gas.

By comparison, the energy intensity of the U.S. basic chemical industry in 2015 was much lower, at 22,000 Btu/dollar, because the industry in the United States has a more diverse production mix of other basic chemicals, such as gases and synthetic fibers. However, EIA expects that increasing petrochemical development in the United States will increase the energy intensity of the U.S. basic chemicals industry.

The United States exports chemicals worldwide, with the largest flows to Mexico, Canada, and China. According to the World Input-Output Database, U.S. exports of all chemicals in 2014 were valued at $118 billion—about 6% of total U.S. exports—the highest level in decades.

June, 24 2019
The Winds of War and Oil Markets

The threat of military action in the Middle East has gotten more intense this week. After several attacks on tankers that could be plausibly denied, Iran has made its first direct attack on a US asset, shooting down an unmanned US drone. The Americans say the drone was in international waters, while Iran claims that it had entered Iranian air space. Reports emerging out of the White House state the US President Donald Trump had authorised a military strike in response, but pulled back at the last minute. The simmering tensions between the two countries are now reaching boiling point, with Iran declaring that it is ‘ready for war’.

Predictably, crude oil prices spiked on the news. Brent and WTI prices rose by almost US$4/b over worries that a full-blown war will threaten global supplies. That this is happening just ahead of the OPEC meeting in Vienna – which was delayed by a week over internal squabbling over dates – places a lot of volatile cards on the table. Far more than more than surging US production, this stand-off will colour the direction of the crude market for the rest of 2019.

It started with an economic war, as the Trump administration placed increasingly tight sanctions on Iran. Financial sanctions came first, then sanctions on crude oil exports from Iran. But the situation was diffused when the US introduced waivers for 8 major importers of Iranian crude in November 2018, calming the markets. Even when the waivers were not renewed in April, the oil markets were still relatively calm, banking on the fact that Iran’s fellow OPEC countries would step in to the fill the gap. Most of Iran’s main clients – like South Korea, Japan and China – had already begun winding down their purchases in March, reportedly causing Iran’s crude exports to fall from 2 mmb/d to 400 kb/d. And just recently, the US also begun targeting Iranian petrochemical exports. Between a rock and a hard place, Iran looks seems forced to make good on its threats to go to war in the strategic Straits of Hormuz.

As the waivers ended, four tankers were attacked off the coast of Fujairah in the UAE in May. The immediate assumption was that these attacks were backed by Iran. Then, just a week ago, another two tankers were attacked, with the Americans showing video evidence reportedly show Iranian agents removing mines. But still, there was no direct connection to Iran for the attacks, even as the US and Iran traded diplomatic barbs. But the downing of the drone is unequivocally the work of the Iranian military. With President Donald Trump reportedly ‘bored’ of attempting regime change in Venezuela and his ultra-hawkish staff Mike Pompeo and John Bolton in the driver’s seat, military confrontation now seems inevitable.

This, predictably, has the oil world very nervous. Not just because the extension of the current OPEC+ deal could be scuppered, but because war will impact more than just Iranian oil. The safety of the Straits of Hormuz is in jeopardy, a key node in global oil supply through which almost 20 mmb/d of oil from Iraq, Saudi Arabia, Kuwait and the UAE flows along with LNG exports from the current world’s largest producer, Qatar. At its narrowest, the chokepoint in the Straits is just 50km from Iranian land. Crude exports could be routed south to Red Sea and the Gulf of Aden, but there is risk there too; the mouth of the Red Sea is where Iranian-backed Yemeni rebels are active, who have already started attacking Saudi land facilities.

This will add a considerable war risk premium to global crude prices, just as it did during the 1990 Gulf War and the 2003 invasion of Iraq. But more than just prices, the destabilising effects of a war could consume more than just the price of a barrel. If things are heading the way the current war-like signs are heading, then the oil world is in for a very major change very soon.

Historical crude price responses to wars in the Middle East

  • 1973: Yim Kippur War – oil prices quadrupled from US$3/b to US$12/b
  • 1990: Iraq invasion of Kuwait/Gulf War – oil prices doubled from US$17/b to US$36/b
  • 2003: US invasion of Iraq – oil prices rose from US$30/b to US$40/b
June, 21 2019