NrgEdge Editor

Sharing content and articles for users
Last Updated: May 31, 2017
1 view
Business Trends
image

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.

3
1 0

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

Latest NrgBuzz

Your Weekly Update: 20 -24 May 2019

Market Watch

Headline crude prices for the week beginning 20 May 2019 – Brent: US$73/b; WTI: US$63/b

  • As the OPEC+ group signals its intentions to continue its supply deal through to the end of 2019 and US President Donald Trump increases pressure on Iran, crude prices have kept their strength
  • The OPEC+ group met in Jeddah last weekend to lay the groundwork for the upcoming OPEC meeting in Vienna on June 25, with Saudi Arabia and Russia committing to keep oil supplies constrained over the rest of the year but avoiding any ‘genuine shortage’
  • There appears to be some reticence on the part of Russia to sign up to extending the supply deal, with Energy Minister Alexander Novak recently dropping hints about relaxing curbs and the country barely fulfilling its current pledge
  • But more worrisome than Russian reluctance is the issue of Iran; the risk of full-blown military conflict has escalated with America offering barbed words after attacks on a key Saudi pipeline spooked the market while the UAE said it is committed to ‘de-escalation’ after attacks on ships in the Persian Gulf
  • While these geopolitical issues have been driving prices up, the ever-present issue of surging American production remains – with US shale set oil for a 16% growth in 2019, and 470 million barrels of US crude finding home in 38 countries over the six-month period between October 2018 and March 2019, up from 359 million barrels across 31 countries in the previous period
  • While US crude production continues to rise, the active US rig count continues to moderate; three oil rigs were dropped and two gas rigs were gained in the last week, leading to a net decline of one rig – the third consecutive week of losses
  • OPEC+’s definitive statement on their strategy for the remainder of 2019 will calm the markets, but the boiling US-China trade conflict now threatens global growth, as the US fired a major salvo by introducing harsh restrictions on Chinese telecommunication giant Huawei; crude prices will trend downwards, with Brent at US$68-70/b and WTI at US$59-61/b


Headlines of the week

Upstream

  • Eni has struck oil at Block 15/06 offshore Angola in the Ndungu exploration prospect, estimated to contain up to 250 million barrels of light oil in place
  • Norway’s Equinor has exercised preferential rights to acquire an additional 22.45% in the Caesar Tonga oil field in the US Gulf of Mexico from Shell for US$965 million, increasing its stake in the field to 46%
  • The main cross-country pipeline network in Saudi Arabia, which connects the Persian Gulf and the Red Sea, has been restarted after a drone attack on two pumping stations by Iranian-backed rebels halted operations for a week
  • Uganda has launched its second licensing round, with the Avivi, Omuka, Kasuruban, Turaco and Ngaji blocks in the oil-rich Albertine Graben on offer
  • Kuwait’s Kufpec has signed a deal to explore and potentially develop the onshore Block 3371-19 in Pakistan
  • Eni has begun drilling and exploration activities at Block 114 in the Song Hong basin offshore central Vietnam
  • Eni and Total picked up a joint 4 offshore blocks at Cote d’Ivoire’s latest block sale, with the state aiming to generate US$275 million from the sale

Midstream & Downstream

  • China has issued a second batch of fuel export quotas for 2019 that was 30% higher than the first batch in January, allowing 23.79 million tons of products to be shipped overseas just as Hengli’s 400 kb/d Dalian refinery starts up
  • The UAE’s Brooge Petroleum and Gas Investment Co has announced plans for a 250 kb/d refinery in Fujairah to produce clean IMO-compliant bunker fuels
  • The fallout from tainted Russian crude exports through the Druzhba pipeline and Ust-Luga port continues as Russia admits that clean-up will take longer than expected, as Kazakhstan seeks damages for its tainted crude and Total halts operations at its 230 kb/d Leuna refinery in Germany over contamination
  • Sinopec’s 200 kb/d Qingdao refinery is set to shut down for an extended period for a planned major overhaul to upgrade fuel quality
  • PDVSA’s 310 kb/d Cardon refinery in Venezuela has been shut down due to damages at some units, exacerbating the country’s ongoing fuel crisis

Natural Gas/LNG

  • Santos has struck a deal to acquire a 14.3% stake in the PRL3 licence in Papua New Guinea, which includes the 4.4 tcf P’nyang natural gas field, which will underpin the planned expansion of PNG LNG with the a new 2.7 mtpa train
  • First LNG has been produced at the Cameron LNG project in Louisiana as Train 1 begins output, the first of three 4.5 mtpa trains to start up in Phase 1
  • The US state of New York has denied a permit for the US$1 billion Williams Co shale gas pipeline, scuppering plans to deliver shale gas from Pennsylvania, Ohio and West Virginia to New York City and the US Northeast
  • Saudi Aramco’s march into the LNG space continues as it is set to take a ‘sizeable’ stake in Sempra Energy’s proposed Port Arthur LNG export project
  • Petronas’ PFLNG Satu has started first LNG production within three days of being relocated to the Kebabangan Cluster gas field offshore Sabah
  • Freeport LNG has now received federal approval to add a fourth train to its Texas LNG export terminal, bringing total capacity to over 20 mtpa
May, 24 2019
The Battle for Anadarko

At first, it seemed like a done deal. Chevron made a US$33 billion offer to take over US-based upstream independent Anadarko Petroleum. It was a 39% premium to Anadarko’s last traded price at the time and would have been the largest industry deal since Shell’s US$61 billion takeover of the BG Group in 2015. The deal would have given Chevron significant and synergistic acreage in the Permian Basin along with new potential in US midstream, as well as Anadarko’s high potential projects in Africa. Then Occidental Petroleum swooped in at the eleventh hour, making the delicious new bid and pulling the carpet out from under Chevron.

We can thank Warren Buffet for this. Occidental Petroleum, or Oxy, had previously made several quiet approaches to purchase Anadarko. These were rebuffed in favour of Chevron’s. Then Oxy’s CEO Vicki Hollub took the company jet to meet with Buffet. Playing to his reported desire to buy into shale, Hollub returned with a US$10 billion cash infusion from Buffet’s Berkshire Hathaway – which was contingent on Oxy’s successful purchase of Anadarko. Hollub also secured a US$8.8 billion commitment from France’s Total to sell off Anadarko’s African assets. With these aces, she then re-approached Anadarko with a new deal – for US$38 billion.

This could have sparked off a price war. After all, the Chevron-Anadarko deal made a lot of sense – securing premium spots in the prolific Permian, creating a 120 sq.km corridor in the sweet spot of the shale basin, the Delaware. But the risk-adverse appetite of Chevron’s CEO Michael Wirth returned, and Chevron declined to increase its offer. By bowing out of the bid, Wirth said ‘Cost and capital discipline always matters…. winning in any environment doesn’t mean winning at any cost… for the sake for doing a deal.” Chevron walks away with a termination fee of US$1 billion and the scuppered dreams of matching ExxonMobil in size.

And so Oxy was victorious, capping off a two-year pursuit by Hollub for Anadarko – which only went public after the Chevron bid. This new ‘global energy leader’ has a combined 1.3 mmb/d boe production, but instead of leveraging Anadarko’s more international spread of operations, Oxy is looking for a future that is significantly more domestic.

The Oxy-Anadarko marriage will make Occidental the undisputed top producer in the Permian Basin, the hottest of all current oil and gas hotspots. Oxy was once a more international player, under former CEO Armand Hammer, who took Occidental to Libya, Peru, Venezuela, Bolivia, the Congo and other developing markets. A downturn in the 1990s led to a refocusing of operations on the US, with Oxy being one of the first companies to research extracting shale oil. And so, as the deal was done, Anadarko’s promising projects in Africa – Area 1 and the Mozambique LNG project, as well as interest in Ghana, Algeria and South Africa – go to Total, which has plenty of synergies to exploit. The retreat back to the US makes sense; Anadarko’s 600,000 acres in the Permian are reportedly the most ‘potentially profitable’ and it also has a major presence in Gulf of Mexico deepwater. Occidental has already identified 10,000 drilling locations in Anadarko areas that are near existing Oxy operations.

While Chevron licks its wounds, it can comfort itself with the fact that it is still the largest current supermajor presence in the Permian, with output there surging 70% in 2018 y-o-y. There could be other targets for acquisitions – Pioneer Natural Resources, Concho Resources or Diamondback Energy – but Chevron’s hunger for takeover seems to have diminished. And with it, the promises of an M&A bonanza in the Permian over 2019.

The Occidental-Anadarko deal:

  • US$38 billion cash-and-stock
  • Oxy will received a US$10 billion injection from Berkshire Hathaway
  • Oxy will sell US$8.8 billion of assets in Africa to Total
  • Chevron receives a US$1 billion break-up fee
May, 23 2019
Venezuelan crude oil production falls to lowest level since January 2003

monthly venezueal crude oil production

Source: U.S. Energy Information Administration, Short-Term Energy Outlook

In April 2019, Venezuela's crude oil production averaged 830,000 barrels per day (b/d), down from 1.2 million b/d at the beginning of the year, according to EIA’s May 2019 Short-Term Energy Outlook. This average is the lowest level since January 2003, when a nationwide strike and civil unrest largely brought the operations of Venezuela's state oil company, Petróleos de Venezuela, S.A. (PdVSA), to a halt. Widespread power outages, mismanagement of the country's oil industry, and U.S. sanctions directed at Venezuela's energy sector and PdVSA have all contributed to the recent declines.

monthly venezuela crude oil rig count

Source: U.S. Energy Information Administration, based on Baker Hughes

Venezuela’s oil production has decreased significantly over the last three years. Production declines accelerated in 2018, decreasing by an average of 33,000 b/d each month in 2018, and the rate of decline increased to an average of over 135,000 b/d per month in the first quarter of 2019. The number of active oil rigs—an indicator of future oil production—also fell from nearly 70 rigs in the first quarter of 2016 to 24 rigs in the first quarter of 2019. The declines in Venezuelan crude oil production will have limited effects on the United States, as U.S. imports of Venezuelan crude oil have decreased over the last several years. EIA estimates that U.S. crude oil imports from Venezuela in 2018 averaged 505,000 b/d and were the lowest since 1989.

EIA expects Venezuela's crude oil production to continue decreasing in 2019, and declines may accelerate as sanctions-related deadlines pass. These deadlines include provisions that third-party entities using the U.S. financial system stop transactions with PdVSA by April 28 and that U.S. companies, including oil service companies, involved in the oil sector must cease operations in Venezuela by July 27. Venezuela's chronic shortage of workers across the industry and the departure of U.S. oilfield service companies, among other factors, will contribute to a further decrease in production.

Additionally, U.S. sanctions, as outlined in the January 25, 2019 Executive Order 13857, immediately banned U.S. exports of petroleum products—including unfinished oils that are blended with Venezuela's heavy crude oil for processing—to Venezuela. The Executive Order also required payments for PdVSA-owned petroleum and petroleum products to be placed into an escrow account inaccessible by the company. Preliminary weekly estimates indicate a significant decline in U.S. crude oil imports from Venezuela in February and March, as without direct access to cash payments, PdVSA had little reason to export crude oil to the United States.

India, China, and some European countries continued to receive Venezuela's crude oil, according to data published by ClipperData Inc. Venezuela is likely keeping some crude oil cargoes intended for exports in floating storageuntil it finds buyers for the cargoes.

monthly venezuela crude oil exports by destinatoin

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, and Clipper Data Inc.

A series of ongoing nationwide power outages in Venezuela that began on March 7 cut electricity to the country's oil-producing areas, likely damaging the reservoirs and associated infrastructure. In the Orinoco Oil Belt area, Venezuela produces extra-heavy crude oil that requires dilution with condensate or other light oils before the oil is sent by pipeline to domestic refineries or export terminals. Venezuela’s upgraders, complex processing units that upgrade the extra-heavy crude oil to help facilitate transport, were shut down in March during the power outages.

If Venezuelan crude or upgraded oil cannot flow as a result of a lack of power to the pumping infrastructure, heavier molecules sink and form a tar-like layer in the pipelines that can hinder the flow from resuming even after the power outages are resolved. However, according to tanker tracking data, Venezuela's main export terminal at Puerto José was apparently able to load crude oil onto vessels between power outages, possibly indicating that the loaded crude oil was taken from onshore storage. For this reason, EIA estimates that Venezuela's production fell at a faster rate than its exports.

EIA forecasts that Venezuela's crude oil production will continue to fall through at least the end of 2020, reflecting further declines in crude oil production capacity. Although EIA does not publish forecasts for individual OPEC countries, it does publish total OPEC crude oil and other liquids production. Further disruptions to Venezuela's production beyond what EIA currently assumes would change this forecast.

May, 21 2019