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Last Updated: May 31, 2017
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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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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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