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Last week in the world oil:

Prices

  • As it turns out, an extension of the OPEC and non-OPEC supply cuts wasn’t enough, even if it ‘gave clarity until March 2018’ according to French major Total. Traders and investors were expecting deeper cuts to quotas, and when those failed to materialise, sent oil prices down by almost 5% to US$51/b for Brent and US$49/b for WTI.

Upstream & Midstream

  • Norway’s Statoil will start up its Gina Krog oil and gas field in June, after receiving consent from the Norwegian Petroleum Directorate. Originally expected to start up in April, Gina Krog is estimated to hold some 106 million barrels of oil, 11.8 bcm of natural gas and 3.2 million tons of NGLs. Operator Statoil owns 58.7% of the field, while Total’s 15% stake has been sold to Norwegian startup Okea for US$350 million. With new output expected, Norway has declined to enforce a cut in its output, despite being approached by Saudi Arabia to join in the OPEC-led freeze.
  • The worst disruption in Nigeria’s oil-producing Delta are over, with output expected to climb back to 2.2 mmb/d entering the second half of 2017 and Forcados expected back by end June. This would add pressure on global oil prices, as Nigeria is currently exempt from the OPEC supply freeze. This could be further exarcebated by the passing of the country’s Petroleum Industry Governance Bill, part of the Petroleum Industry Bill that will overhaul Nigeria’s upstream sector to boost investment.
  • With the OPEC cuts extended for another nine months, US drillers are sensing opportunity to sell more volumes, adding another seven new sites to bring the total up to 908. Last week, however, added only two new oilrigs, the slowest expansion rate in three months – perhaps a sign that US onshore shale drilling is reaching a ceiling.

Downstream

  • Saudi Aramco has been making major downstream steps recently, strengthening up its portfolio ahead of its planned IPO. Fresh from ending its partnership with Shell over its US refining subsidiary Motiva, Saudi Aramco has announced plans to spend some US$18 billion through 2022, investing in expanding Port Arthur – the largest refinery in America – adding new petrochemical capacity and expanding marketing operations.
  • Uganda and Tanzania have agreed to move ahead with the proposed US$3.55 billion crude pipeline that will bring landlocked Ugandan crude in the country’s west to Tanzania’s port of Tanga by 2020. Fiscal terms, timelines, routing and mechanical details of the pipeline have been agreed, with the 1,445km, 24inch pipeline being the longest electrically-heated crude pipeline in the world when operational.

Natural Gas and LNG

  • Another first for Cheniere, as the Netherlands received its first ever LNG cargo from the US, expanding Sabine Pass’ LNG footprint in Europe. Cheniere is currently the only company exporting large LNG cargoes from the US Gulf, and its increasing volumes sent to Europe proves the case for international viability of US LNG exports; and a boon to European countries keen to reduce their reliance on cunning Russia.

Last week in Asian oil

Upstream

  • Shell has been given the green light by Petronas to sell its 50% stake in the 2011 North Sabah Enhanced Oil Recovery PSC to Malaysian player Hibiscus Petroleum. The clears the way for the stake to exchange hands for US$25 million, with Petronas Carigali waiving it pre-emption rights. The PSC includes the Labuan Crude Oil Terminal and the offshore fields of St. Joseph, South Furious, SF30 and Barton, lumped together to eke additional production out of the aging fields. Petronas has 50% of the PSC, with Shell holding the remainder through two subsidiaries – split evenly between Sabah Shell Petroleum and Shell Sabah Selatan.

Downstream

  • China has signalled that private companies will eventually be allowed to invest in Chinese oil and gas storage sector, part of a larger plan to streamline the country’s complex and lumbering state players and stimulate competition. Foreign participation in upstream is also on the cards, filtering down to pipeline and other midstream distribution.
  • Vietnam’s sole operational refinery in Dung Quat will sell off 5-6% of its shares in late 2017 via an IPO aimed that reducing government ownership in state-run enterprises. An additional 36% is also earmarked to be sold to ‘strategic partners’ – which reportedly include Gazprom, PTT and Kuwait Petroleum – after flotation, as the refinery struggles to maintain consistent operations.

Natural Gas & LNG

  • The Philippine National Oil Company (PNOC) has established talks with Shell to build a grassroots LNG import plant in Batangas. It is the latest in a series of planned LNG import projects in the area, including one by Shell on its own, with Batangas being the main transmission point to Metro Manila. PNOC has been trying to establish an LNG terminal for almost a decade to cope with increasing power demands, but cannot handle the project alone, hence the need to seek out experienced partners.
  • The state government of Sarawak is negotiating with Petronas to acquire a 10% stake in the LNG Train 9 at the Petronas LNG complex in Bintulu. With a capacity of 3.6 million tons of LNG, Train 9 is the latest liquefaction facility in Bintulu, which began operations in January and raised total capacity at the site to 30 million tons per year. Petronas is the operator and main shareholder in Train 9, with Japan’s JX Nippon Oil & Energy also a significant stakeholder. The state government has been pushing to derive more direct revenues from Sarawak’s vast natural gas industry, and is also asking for a larger equity share in the operational Malaysian Liquefied Natural Gas (MLNG) Dua plant.

Corporate

  • China’s Sinochem and ChemChina are on the verge of merging. The deal would create the world’s largest industrial chemicals firm, dwarfing BASF, in the world’s largest chemicals market. Sinochem chief Ning Gaoning is earmarked to be the head of the new firm, which Beijing sees as a blueprint for streamlining its vast and complex state entreprises holdings, creating international champions in the process.

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The United States installed more wind turbine capacity in 2020 than in any other year

U.S. wind turbine electricity generating capacity additions

Source: U.S. Energy Information Administration, Preliminary Monthly Electric Generator Inventory

In both 2019 and 2020, project developers in the United States installed more wind power capacity than any other generating technology. According to data recently published by the U.S. Energy Information Administration (EIA) in its Preliminary Monthly Electric Generator Inventory, annual wind turbine capacity additions in the United States set a record in 2020, totaling 14.2 gigawatts (GW) and surpassing the previous record of 13.2 GW added in 2012. After this record year for wind turbine capacity additions, total wind turbine capacity in the United States is now 118 GW.

The impending phaseout of the full value of the U.S. production tax credit (PTC) at the end of 2020 primarily drove investments in wind turbine capacity that year, just as previous tax credit reductions led to significant wind capacity additions in 2012 and 2019. In December 2020, Congress extended the PTC for another year.

net electricity generation from wind and other sources in selected states

Source: U.S. Energy Information Administration, Electric Power Monthly

Texas has the most wind turbine capacity among states: 30.2 GW were installed as of December 2020. In 2020, Texas generated more electricity from wind than the next three highest states (Iowa, Oklahoma, and Kansas) combined. However, Texas generates and consumes more total electricity than any other state, and wind remains slightly less than 20% of the state’s electricity generation mix.

In two other states—Iowa and Kansas—wind is the most prevalent source of in-state electricity generation. In both states, wind surpassed coal as the state’s top electricity generation source in 2019.

wind's share of in-state utility-scale electricity generation

Source: U.S. Energy Information Administration, Electric Power Monthly

Nationally, 8.4% of utility-scale electricity generation in 2020 came from wind turbines. Many of the turbines added in late 2020 will contribute to increases in wind-powered electricity generation in 2021. EIA expects wind’s share of electricity generation to increase to 10% in 2021, according to forecasts in EIA’s most recent Short-Term Energy Outlook.

March, 05 2021
Myanmar’s Coup and Repercussions to Its Oil Industry

It was a good run while it lasted. Almost exactly a decade ago, the military junta in Myanmar was dissolved, following civilian elections. The country’s figurehead, Aung San Suu Kyi, was released from house arrest to lead, following in the footsteps of her father. Although her reputation has since been tarnished with the Rohingya crisis, she remains beloved by most of her countrymen, and her installation as Myanmar’s de facto leader lead to a golden economic age. Sanctions were eased, trade links were restored, and investment flowed in, not least in the energy sector. Yet the military still remained a powerful force, lurking in the background. In early February, they bared their fangs. Following an election in November 2020 in which Aung San Suu Kyi’s National League for Democracy (NLD) won an outright majority in both houses of Parliament. A coup d’etat was instigated, with the Tatmadaw – the Burmese military – decrying fraud in the election. Key politicians were arrested, and rule returned to the military.

For many Burmese, this was a return to a dark past that many thought was firmly behind them. Widespread protests erupted, quickly turning violent. The Tatmadaw still has an iron grip, but it has created some bizarre situations – ordinary Burmese citizens calling on Facebook and foreign governments to impose sanctions on their country, while the Myanmar ambassador to the United Nations was fired for making an anti-army speech at the UN General Assembly.

The path forward for Myanmar from this point is unclear. The Tatmadaw has declared a state of emergency lasting up to a year, promising new elections by the end of 2021. There is little doubt that the NLD will win yet another supermajority in the election, IF they are fair and free. But that is a big if. Meanwhile, the coup threatens to return Myanmar to the pariah state that it was pre-2010. And threatens to abort all the grand economic progress made since.

In the decade since military rule was abolished, development in Myanmar has been rapid. In the capital city Yangon, glittering new malls have been developed. The Ministry of Energy in 2009 was housed in a crumbling former high school; today, it occupies a sprawling complex in the new administrative capital of Naypyidaw. While not exactly up to the level of the Department of Energy in Washington DC, it is certainly no longer than ministry that was once reputed to take up to three years to process exploration licences for offshore oil and gas blocks.

And it is that very future that is now at stake. Energy has been a great focus for investment in Myanmar, drawn by the rich offshore deposits in the Andaman Sea and the country’s location as a possible pipeline route between the Middle East and inland China. Estimates suggest that – based on pre-coup trends – Myanmar was likely to attract over US$1.1 billion in upstream investment in 2023, more than four times projected for 2021 and almost 20 times higher than 2011. The funds would not only be directed at maintaining production at the current Yadana, Yetagun, Zawtika and Shwe gas fields – where offshore production is mainly exported to Thailand, but also upcoming megaprojects such as Woodside and Total’s A-6 deepwater natural gas and PTTEP’s Aung Sinka Block M3 developments.

The coup now presents foreign investors in Myanmar’s upstream energy sector with a conundrum and reputational risk. Stay, and risk being seen as abetting an undemocratic government? Or leave, and risk being flushing away years of hard work? The home governments of foreign investors such as Total, Chevron, PTTEP, Woodside, Petronas, ONGC, Nippon Oil, Kogas, POSCO, Sumitomo, Mitsui and others have already condemned the coup. For now these companies are hoping that foreign pressure will resolve the situation in a short enough timeframe to allow business to resume. Australia’s Woodside Petroleum has already called the coup a ‘transitionary issue’ claiming that it will not affect its exploration plans, while other operators such as Total and Petronas have focused on the safety of their employees as they ‘monitor the evolving situation’.

But the longer the coup lasts without a resolution satisfactory to the international community and the longer the protests last (and the more deaths that result from that), the more untenable the position of the foreign upstream players will be. Asian investors, especially the Chinese, mainly through CNPC/PetroChina, and the Thais, through PTTEP - will be relatively insulated, but American and European majors face bigger risks. This could jeopardise key projects such as the Myanmar-to-China crude oil and natural gas pipeline project (a 771km connection to Yunnan), two LNG-to-power projects (Thaketa and Thilawa, meant to deal with the country’s chronic blackouts) and the massive Block A-6 gas development in the Shwe Yee Htun field by Woodside which just kicked off a fourth drilling campaign in December.

It is a big unknown. The Tatmadaw has proven to be impervious to foreign criticism in the past, ignoring even the most stringent sanctions thrown their way. In fact, it was a huge surprise that the army even relinquished power back in 2010. But the situation has changed. The Myanmar population is now more connected and more aware, while the army has profited off the opening of the economy. The economic consequences of returning to its darker days might be enough to trigger a resolution. But that’s not a guarantee. What is certain is that the coup will have a lasting effect on energy investment and plans in Myanmar. How long and how deep is a question that only the Tatmadaw can answer. 

Market Outlook:

  • Crude price trading range: Brent – US$63-65/b, WTI – US$60-63/b
  • The slow-but-sure recovery in Texan energy infrastructure following the big freeze has caused crude oil benchmarks to retreat somewhat, with all eyes now focusing on OPEC+ as it meets to decide its supply quotas for April and beyond
  • Some form of supply easing is expected, given that the market is showing signs of tight supply, but OPEC+ is still split on how aggressive it can be; Saudi Arabia is advocating caution while most others, led by Russia, favour a bolder easing given current prices
  • While OPEC+ supply will be keenly watched as an indicator of future crude trends, supply elsewhere is picking up, with the Baker Hughes survey of active oil and gas rigs in the USA crossing the 400-site level for the first time in over a year, with gains mainly from onshore shale drillers tempted back after being wiped up last year

Get timely updates about latest developments in oil & gas delivered to your inbox. Join our email list and get your targeted content regularly for free. 

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March, 03 2021
The Competition For The LNG Crown

The year 2020 was exceptional in many ways, to say the least. All of which, lockdowns and meltdowns, managed to overshadow a changing of the guard in the LNG world. After leapfrogging Indonesia as the world’s largest LNG producer in 2006, Qatar was surpassed by Australia in 2020 when the final figures for 2019 came in. That this happened was no surprise; it was always a foregone conclusion given Australia’s massive LNG projects developed over the last decade. Were it not for the severe delays in completion, Australia would have taken the crown much earlier; in fact, by capacity, Australia already sailed past Qatar in 2018.

But Australia should not rest on its laurels. The last of the LNG mega-projects in Western Australia, Shell’s giant floating Prelude and Inpex’s sprawling Ichthys onshore complex, have been completed. Additional phases will provide incremental new capacity, but no new mega-projects are on the horizon, for now. Meanwhile, after several years of carefully managing its vast capacity, Qatar is now embarking on its own LNG infrastructure investment spree that should see it reclaim its LNG exporter crown in 2030.

Key to this is the vast North Field, the single largest non-associated gas field in the world. Straddling the maritime border between tiny Qatar and its giant neighbour Iran to the north, Qatar Petroleum has taken the final investment decision to develop the North Field East Project (NFE) this month. With a total price tag of US$28.75 billion, development will kick off in 2021 and is expected to start production in late 2025. Completion of the NFE will raise Qatar’s LNG production capacity from a current 77 million tons per annum to 110 mmtpa. This is easily higher than Australia’s current installed capacity of 88 mmtpa, but the difficulty in anticipating future utilisation rates means that Qatar might not retake pole position immediately. But it certainly will by 2030, when the second phase of the project – the North Field South (NFS) – is slated to start production. This would raise Qatar’s installed capacity to 126 mmtpa, cementing its lead further still, with Qatar Petroleum also stating that it is ‘evaluating further LNG capacity expansions’ beyond that ceiling. If it does, then it should be more big leaps, since this tiny country tends to do things in giant steps, rather than small jumps.

Will there be enough buyers for LNG at the time, though? With all the conversation about sustainability and carbon neutrality, does natural gas still have a role to play? Predicting the future is always difficult, but the short answer, based on current trends, it is a simple yes. 

Supermajors such as Shell, BP and Total have set carbon neutral targets for their operations by 2050. Under the Paris Agreement, many countries are also aiming to reduce their carbon emissions significantly as well; even the USA, under the new Biden administration, has rejoined the accord. But carbon neutral does not mean zero carbon. It means that the net carbon emissions of a company or of a country is zero. Emissions from one part of the pie can be offset by other parts of the pie, with the challenge being to excise the most polluting portions to make the overall goal of balancing emissions around the target easier. That, in energy terms, means moving away from dirtier power sources such as coal and oil, towards renewables such as solar and wind, as well as offsets such as carbon capture technology or carbon trading/pricing. Natural gas and LNG sit right in the middle of that spectrum: cleaner than conventional coal and oil, but still ubiquitous enough to be commercially viable.

So even in a carbon neutral world, there is a role for LNG to play. And crucially, demand is expected to continue rising. If ‘peak oil’ is now expected to be somewhere in the 2020s, then ‘peak gas’ is much further, post-2040s. In 2010, only 23 countries had access to LNG import facilities, led by Japan. In 2019, 43 countries now import LNG and that number will continue to rise as increased supply liquidity, cheaper pricing and infrastructural improvements take place. China will overtake Japan as the world’s largest LNG importer soon, while India just installed another 5 mmtpa import terminal in Hazira. More densely populated countries are hopping on the LNG bandwagon soon, the Philippines (108 million people), Vietnam (96 million people), to ensure a growing demand base for the fuel. Qatar’s central position in the world, sitting just between Europe and Asia, is a perfect base to service this growing demand.

There is competition, of course. Russia is increasingly moving to LNG as well, alongside its dominant position in piped natural gas. And there is the USA. By 2025, the USA should have 107 mmtpa of LNG capacity from currently sanctioned projects. That will be enough to make the USA the second-largest LNG exporter in the world, overtaking Australia. With a higher potential ceiling, the USA could also overtake Qatar eventually, since its capacity is driven by private enterprise rather than the controlled, centralised approach by Qatar Petroleum. The appearance of US LNG on the market has been a gamechanger; with lower costs, American LNG is highly competitive, having gone as far as Poland and China in a few short years. But while the average US LNG breakeven cost is estimated at around US$6.50-7.50/mmBtu, Qatar’s is even lower at US$4/mmBtu. Advantage: Qatar.

But there is still room for everyone in this growing LNG market. By 2030, global LNG demand is expected to grow to 580 million tons per annum, from a current 360 mmtpa. More LNG from Qatar is not just an opportunity, it is a necessity. Traditional LNG producers such as Malaysia and Indonesia are seeing waning volumes due to field maturity, but there is plenty of new capacity planned: in the USA, in Canada, in Egypt, in Israel, in Mozambique, and, of course, in Qatar. In that sense, it really doesn’t matter which country holds the crown of the world’s largest exporter, because LNG demand is a rising tide, and a rising tide lifts all 😊

Market Outlook:

  • Crude price trading range: Brent – US$64-66/b, WTI – US$60-63/b
  • Despite the thaw after Texas saw a devastating big freeze, the slow ramp-up in restoring US Gulf Coast oil production and refining has supported crude oil prices, with Brent moving above the US$65/b level and WTI now in the low US$60/b level
  • Some Wall Street analysts, including Goldman Sachs, are predicting that oil prices could climb above US$70/b level based on current fundamentals, as the short-term spike gives ways to accelerating consumption trends
  • However, much will depend on OPEC+’s approach to managing supply in Q2, with a meeting set for early March; Saudi Arabia is once again urging caution, but there are many other members of the club champing at the bit to increase output and capitalise on the rising price environment


March, 01 2021