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Last Updated: May 25, 2017
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Last week in the world oil:

Prices

  • As confidence grows that the world’s top oil exporters will agree to extend the OPEC supply cuts, crude oil prices have hit their highest point in a month. Brent started the week at nearly US$54/b, while WTI managed to break past the US$50/b level to settled at almost US$51/b.

Upstream & Midstream

  • First oil has begun to flow at Quad 204’s, BP’s new upstream project in the west of Shetland region in the UK. The Schiehallion and Loyal fields in the area were originally developed in the mid-1990s and are now part of the Quad 204 redevelopment project led by BP with co-venturers Shell and Siccar Point Energy. Some additional 450 million barrels of resources are expected to be unlocked, with production lasting to 2035, and highlights the potential of the UK to develop its Atlantic energy resources.
  • Even as crude prices see-saw, US oil production as proxied by rig activity shows no sign of stopping. Sixteen new oil and gas rigs started up last week – 8 apiece – including 2 offshore rigs to bring the US active rig count above 900 for the first time in almost two years.

Downstream

  • In the footsteps of BP and Glencore, ExxonMobil is now the latest firm to target Mexico’s downstream market. The US supermajor announced that it would be investing US$300 million to established a network of Mobil fuel station in the recently opened Mexican sector. BP was the first to stake a claim in Mexico, and has reported that its plan to open some 1,500 service stations has been more promising than expected, leading to an increase in investment. Trader Glencore has established a deal with Mexico’s Corporacion G500 SAPI to establish some 1,400 G500 Network-branded sites, creating even more competition.

Natural Gas and LNG

  • As upstream action in the eastern Mediterranean heats up, Greece is making another attempt to strike gas. With Israel’s Leviathan and Egypt’s Zohar giant gas discoveries establishing the Levant Basin as a natural gas powerhouse, Greece has invited ExxonMobil and Total to test for natural gas in areas south of Crete island and western Greece. Previous attempts to elicit interest in the blocks failed, but the recent gas discoveries have changed the upstream outlook for the area.
  • South Africa will be looking to issue its first shale gas exploration licences this September, with Shell, Falcon Oil and Gas and Bundu Gas & Oil likely to receive permission to drill for shale in the onshore Karoo basin. South Africa has historically dependent on offshore production for its gas, but is now turning to onshore opportunities as production dwindles and the country attempts to wean itself off coal as a power plant fuel.

Corporate

  • Saudi Aramco will be setting up a petrochemicals subsidiary, putting it in direct competition with Saudi chemicals giant SABIC. The potential change comes as Saudi Aramco attempts to diversify and strengthen its downstream operations ahead of its planned IPO, to create more broad-based operations to be palatable to investors. Aramco has plans to triple its current chemicals production to 34 million tons by 2030.

Last week in Asian oil

Downstream

  • Fresh off its tie-ups in Malaysia and India, Saudi Aramco has announced another mega refining project, this time in China. The joint venture between Aramco and state-owned China North Industries Group (Norinco) will see the world’s largest crude seller and world’s largest crude importer build a 300 kb/d oil refinery with a 1 million ton/year ethylene cracker in Liaoning. The move will deepen the ties between the two nations, as Saudi Aramco looks to lock up long-term supply for its crude through strategic downstream investments. The project is unusual, as Norinco is primarily a defence manufacturer, and could be a signal that China is serious about opening up competition in its energy industry.
  • To the surprise of no one, Vietnam’s second refinery has been delayed. The US$7.5 billion Nghi Son site has been delayed to 2018 from 3Q17, as the refinery faced some mechanical troubles in test runs. The delay means that Vietnam will remain heavily dependent on oil product imports, which Nghi Son was expected to ease.
  • China’s section of the East Siberia Pacific Ocean (ESPO) pipeline will be completed by 2018. As China expands its crude import options, the pipeline connecting the city of Mohe at the Russian border to the city of Daqing will pump some 15 million tons/year of Russian crude to China.

Natural Gas & LNG

  • Italy’s Eni has started gas production at Indonesia’s Jangkrik ahead of schedule. Ten offshore deepwater subsea wells have been connected to the new Jangkrik Floating Production Unit (FPU), with production expected to scale up to 450 million cubic feet per day. Processed gas will be delivered onshore via a 79km pipeline, connecting to the Kalimantan Transportation System to the Bontang LNG plant.
  • Malaysia’s Petronas has signed a MoU with Gas4Sea to collaborate and promote LNG as a cleaner maritime fuel. The move is in line with Petronas’ aim of diversifying its LNG business, with the deal signed through its shipping affiliate MISC. Gas4Sea comprises French natural gas company Engie, and Japanese shippers Mitsubishi and Nippon Yusen Kabushiki Kaisha. Bunker fuels have traditionally been heavy fuel oil, but efforts to promote cleaner fuels have led the shipping industry to consider gasoil and LNG as alternate fuels.
  • Another month and another shutdown at Chevron’s Gorgon LNG plant. The eighth outage since the project began in early 2016, Train 1 has been shut down for at least a month to replace to a faulty flow-measurement device. Outages have plagued the project but Gorgon is slowly finding its footing, starting up Train 3 in March 2017. Chevron will also be boosting capacity on Train 2 of its other Australian project, Wheatstone, as partner Woodside targets production growth of 15% per year through 2020.
  • China has successfully extracted natural gas from methane hydrate deposits mined deepwater. Trapped in ice-like chunks, gas is extracted and processed in a floating platform unit platform in the Shenhu area of the South China Sea. The successful extraction paves the way for a new revolution in energy that would help boost Chinese domestic gas production over the long run. Commercial development of the resource is still far away, with 2030 named as a target date.

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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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