NrgEdge Editor

Sharing content and articles for users
Last Updated: July 5, 2017
1 view
Business Trends
image

Last week in the world oil:

Prices

  • After a week of gains, crude oil started the week on a weaker note ahead of America’s Independence Day. Crude prices have been gaining recently as signs that the relentless rise in US production might be slowing down, with Brent is trading at nearly US$50/b and WTI at the US$47/b level.

Upstream & Midstream

  • Investment in the North Sea appears to be paying off. First oil from EnQuest’s Kraken development has begun to flow, the first in a phased schedule that will bring together 13 wells comprising seven producers and six injectors. Under budget and on schedule, the achievement comes as EnQuest director Dr Philip Nolan stepped down to assume his new role as Chairman of Associated British Ports. Else in the North Sea, Repsol announced that first gas has been delivered from its Cayley field in the major Montrose Area redevelopment project. With an expected peak of 40,000 boe/d, this is the sixth major North Sea development to deliver first production in 2017, extending the life of the field to beyond 2030.
  • Nigeria’s state oil company NNPC has signed a tripartite deal with domestic firm First Exploration and Petroleum Development Company and US oil service firm Schlumberger to develop new oil fields in the southern Niger Delta. The deal targets the Anyala and Madu fields, falling under the Oil Mining Licence 83 and 85, with Schlumberger providing the financial investment necessary to begin work.
  • After 23 consecutive weeks of additions, the US oil rig complex finally snapped gains, cutting two rigs from service to bring the total American active oil rig count to 756. A single gas rig entered service, leaving the net loss in total rig count to one, down to 941. Don’t expect this trend to continue, but the pace of additions should slow down.

Natural Gas and LNG

  • ConocoPhillips is selling its assets in the Texan Barnett shale field to Miller Thomson & Partners for US$305 million, another in a series of natural gas-heavy assets to be sold by the US major. After selling assets in the San Juan basin to Hilcorp for US$3 billion and its Canadian natural gas assets to Cenovus for US$17.7 billion (along with oil sands acreage), ConocoPhillips is attempting to reduce its exposure to this sector of the business. This comes as BHP Billiton admitted that its US$20 billion investment during the height of the US fracking boom was ‘a mistake.’
  • As the European Commission attempts to deal directly with Russia over the Nord Stream 2 gas pipeline project, six European gas transmission operators have sounded alarm. Austria’s Gas Connect, Czech Republic NET4Gas and Germany’s Fluxys, ONTRAS, GAscade and Gasunie – representing the major demand centres– are alarmed by the move, aimed at representing the geopolitical concerns of the countries the pipeline flows through, arguing that it creates legal uncertainty for future projects.
  • While Rosneft and ExxonMobil’s LNG project in Sakhalin-1 LNG project continues, the Russian giant is also considering building its own LNG plant, independent of other partners involved in the vast Sakhalin development. Closer in proximity to the main LNG markets of East Asia, Sakhalin gas will be joining a hugely competitive Pacific rim LNG race.

Last week in Asian oil

Downstream

  • Abu Dhabi’s plans to restart its gasoline-focused RFCC unit at its Ruwais refinery has been delayed a year. Now expected only in early 2019, South Korea’s GS Engineering and Construction has been appointed to work on the secondary unit, which was hit by fire earlier this year. Repairs at the 800 kb/d Ruwais site were planned to be completed by 1Q2018, but the delay means that Abu Dhabi will remain short of gasoline and dependent on imports of the fuel, while producing excess amounts of fuel oil.
  • Construction of a crude pipeline in China’s eastern Shandong province has been completed, providing a boost to the country’s independent teapot refineries. Linking crude facilities operated by Mercuria in Qingdao port to the city of Weifang, where several teapots are located, the 608 kb/d pipeline will ease crude distribution bottlenecks for the increasingly important network of refiners. The pipeline will also be expanded into several other branches connecting the central and southern parts of the province, eventually increasing capacity to 1.2 mmb/d.

Natural Gas & LNG

  • South Korea’s Kogas has inked three separate agreements in participate in LNG projects across three states in the USA. In Alaska, Kogas will cooperate on the development of Alaska Gasline’s Alaska LNG project aimed at moving North Slope gas to LNG-hungry markets in Asia. In Port Arthur, Texas, Kogas is teaming up with Sempra LNG and Australia’s Woodside Energy on a new LNG terminal on the Houston Ship Channel, which is planned to house two LNG trains. In Lousiana, after receiving its first LNG cargo from Cheniere’s Sabine Pass, Kogas will be conducting feasibility studies at Energy Transfer’s Lake Charles LNG project. It marks the growing participation of Asian LNG buyers in American LNG projects.
  • As China’s appetite for LNG grows – Chinese demand could triple by 2030 – China is pouring resources into securing future supply. While supply from US, Canada, Australia and Qatar will remain plentiful, China is aiming to lock in its own captive supply by planning to invest almost US$7 billion into FLNG projects in Africa. There are several reasons for this – investment and exploration has unlocked great volumes of natural gas off both coasts of Africa; with little domestic demand, much of this will have to be exported – and by investing money, China secures supplies. FLNG is a nascent technology as well, and by investing en masse, it hopes it lower the cost of the complex floating plants in time for the energy markets to recover when the FLNGs enter production in the early 2020s.
  • Speaking of FLNG, the world’s first FLNG facility– Shell’s Prelude – has set sail from its shipyard in South Korea, heading on a month-long journey to the Browse basin in northwest Australia, where it will pioneer a new, more versatile future for LNG production. Roughly twice the size of the largest aircraft carrier, Prelude is a joint venture between Shell, Overseas Private Investment Corporation, Kogas and Taiwan’s CPC. Capable of producing, liquefying, storing and transferring LNG at sea, Prelude is versatile enough to travel around, with capacity for 5.3 mtpa of liquids and 3.6 mtpa of LNG. Production is expected to begin in early 2018.

3
4 0

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

Latest NrgBuzz

Financial Review: 2019

Key findings

  • Brent crude oil daily average prices were $64.16 per barrel in 2019—11% lower than 2018 levels
  • The 102 companies analyzed in this study increased their combined liquids and natural gas production 2% from 2018 to 2019
  • Proved reserves additions in 2019 were about the same as the 2010–18 annual average
  • Finding plus lifting costs increased 13% from 2018 to 2019
  • Occidental Petroleum’s acquisition of Anadarko Petroleum contributed to the largest reserve acquisition costs incurred for the group of companies since 2016
  • Refiners’ earnings per barrel declined slightly from 2018 to 2019

See entire annual review

May, 26 2020
From Certain Doom To Cautious Optimism

A month ago, the world witnessed something never thought possible – negative oil prices. A perfect storm of events – the Covid-19 lockdowns, the resulting effect on demand, an ongoing oil supply glut, a worrying shortage of storage space and (crucially) the expiry of the NYMEX WTI benchmark contract for May, resulted in US crude oil prices falling as low as -US$37/b. Dragging other North American crude markers like Louisiana Light and Western Canadian Select along with it, the unique situation meant that crude sellers were paying buyers to take the crude off their hands before the May contract expired, or risk being stuck with crude and nowhere to store it. This was seen as an emblem of the dire circumstances the oil industry was in, and although prices did recover to a more normal US$10-15/b level after the benchmark contract switched over to June, there was immense worry that the situation would repeat itself.

Thankfully, it has not.

On May 19, trade in the NYMEX WTI contract for June delivery was retired and ticked over into a new benchmark for July delivery. Instead of a repeat of the meltdown, the WTI contract rose by US$1.53 to reach US$33.49/b, closing the gap with Brent that traded at US$35.75b. In the space of a month, US crude prices essentially swung up by US$70/b. What happened?

The first reason is that the market has learnt its lesson. The meltdown in April came because of an overleveraged market tempted by low crude oil prices in hope of selling those cargoes on later at a profit. That sort of strategic trading works fine in a normal situation, but against an abnormal situation of rapidly-shrinking storage space saw contract holders hold out until the last minute then frantically dumping their contracts to avoid having to take physical delivery. Bruised by this – and probably embarrassed as well – it seems the market has taken precautions to avoid a recurrence. Settling contracts early was one mechanism. Funds and institutions have also reduced their positions, diminishing the amount of contracts that need to be settled. The structural bottleneck that precipitated the crash was largely eliminated.

The second is that the US oil complex has adjusted itself quickly. Some 2 mmb/d of crude production has been (temporarily) idled, reducing supply. The gradual removal of lockdowns in some US states, despite medical advisories, has also recovered some demand. This week, crude draws in Cushing, Oklahoma rose for the second consecutive week, reaching a record figure of 5.6 million barrels. That increase in demand and the parallel easing of constrained storage space meant that last month’s panic was not repeated. The situation is also similar worldwide. With China now almost at full capacity again and lockdowns gradually removed in other parts of the world, the global crude marker Brent also rose to a 2-month high. The new OPEC+ supply deal seems to be working, especially with Saudi Arabia making an additional voluntary cut of 1 mmb/d. The oil world is now moving rapidly towards a new normal.

How long will this last? Assuming that the Covid-19 pandemic is contained by Q3 2020, then oil prices could conceivably return to their previous support level of US$50/b. That is a big assumption, however. The Covid-19 situation is still fragile, with major risks of additional waves. In China and South Korea, where the pandemic had largely been contained, recent detection of isolated new clusters prompted strict localised lockdowns. There is also worry that the US is jumping the gun in easing restrictions. In Russia and Brazil – countries where the advice to enforce strict lockdowns was ignored as early warning signs crept in – the number of cases and deaths is still rising rapidly. Brazil is a particular worry, as President Jair Bolosnaro is a Covid-19 skeptic and is still encouraging normal behaviour in spite of the accelerating health crisis there. On the flip side, crude output may not respond to the increase in demand as easily, as many clusters of Covid-19 outbreaks have been detected in key crude producing facilities worldwide. Despite this, some US shale producers have already restarted their rigs, spurred on by a need to service their high levels of debt. US pipeline giant Energy Transfer LP has already reported that many drillers in the Permian have resumed production, citing prices in the high-US$20/b level as sufficient to cover its costs.

The recovery is ongoing. But what is likely to happen is an erratic recovery, with intermittent bouts of mini-booms and mini-busts. Consultancy IHS Markit Energy Advisory envisions a choppy recovery with ‘stop-and-go rallies’ over 2020 – particularly in the winter flu season – heading towards a normalisation only in 2021. It predicts that the market will only recover to pre-Covid 19 levels in the second half of 2021, and a smooth path towards that only after a vaccine is developed and made available, which will be late 2020 at the earliest. The oil market has moved from certain doom to cautious optimism in the space of a month. But it will take far longer for the entire industry to regain its verve without any caveats.

Market Outlook:

  • Crude price trading range: Brent – US$33-37/b, WTI – US$30-33/b
  • Demand recovery has underpinned a rally in oil prices, on hopes that the worst of the demand destruction is over
  • Chinese oil demand is back to the 13 mmb/d level, almost on par year-on-year
  • News that development of potential Covid-19 vaccines are reaching testing phase also cheered the market
  • The US active oil and gas rig count lost another 35 rigs to 339, down 648 sites y-o-y

---------------####---------------

In this time of COVID-19, we have had to relook at the way we approach workplace learning. We understand that businesses can’t afford to push the pause button on capability building, as employee safety comes in first and mistakes can be very costly. That’s why we have put together a series of Virtual Instructor Led Training or VILT to ensure that there is no disruption to your workplace learning and progression.

Find courses available for Virtual Instructor Led Training through latest video conferencing technology.

May, 23 2020
EIA expects record liquid fuels inventory builds in early 2020, followed by draws

quarterly global liquid fuels productionand consumption balance

Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO), May 2020

As mitigation efforts to contain the 2019 novel coronavirus disease (COVID-19) pandemic continue to lead to rapid declines in petroleum consumption around the world, the production of liquid fuels globally has changed more slowly, leading to record increases in the amount of crude oil and other petroleum liquids placed into storage in recent months. In its May Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) expects global inventory builds will be largest in the first half of 2020. EIA estimates that inventory builds rose at a rate of 6.6 million barrels per day (b/d) in the first quarter and will increase by 11.5 million b/d in the second quarter because of widespread travel limitations and sharp reductions in economic activity.

After the first half of 2020, EIA expects global liquid fuels consumption to increase, leading to inventory draws for at least six consecutive quarters and ultimately putting upward pressure on crude oil prices that are currently at their lowest levels in 20 years.

As with the March and April STEO, EIA’s forecast reductions in global oil demand arise from three main drivers: lower economic growth, less air travel, and other declines in demand not captured by these two categories, largely related to reductions in travel because of stay-at-home orders. Based on incoming economic data and updated assessments of lockdowns and stay-at-home orders across dozens of countries, EIA has further lowered its forecasts for global oil demand in 2020 in the May STEO. The STEO is based on macroeconomic projections by Oxford Economics (for countries other than the United States) and by IHS Markit (for the United States).

changes in quarterly global petroleum liquids consumption

Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO), May 2020

In the May STEO, EIA forecasts global liquid fuels consumption will average 92.6 million b/d in 2020, down 8.1 million b/d from 2019. EIA forecasts both economic growth and global consumption of liquid fuels to increase in 2021 but remain lower than 2019 levels. Any lasting behavioral changes to patterns in transportation and other forms of oil consumption once COVID-19 mitigation efforts end, however, present considerable uncertainty to the increase in consumption of liquid fuels, even if gross domestic product (GDP) growth increases.

Members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) agreed to new production cuts in early April that will remain in place throughout the STEO forecast period ending in 2021. EIA assumes OPEC members will mostly adhere to announced cuts during the first two months of the agreement (May and June) and that production compliance will relax later in the forecast period as stated production cuts are reduced and global oil demand begins growing.

EIA forecasts OPEC crude oil production will fall to less than 24.1 million b/d in June, a 6.3 million b/d decline from April, when OPEC production increased following an inconclusive meeting in March. If OPEC production declines to less than 24.1 million b/d, it would be the group’s lowest level of production since March 1995. The forecast for June OPEC production does not account for the additional voluntary cuts announced by Saudi Arabia’s Energy Ministry on May 11.

EIA expects OPEC production will begin increasing in July 2020 in response to rising global oil demand and prices. From that point, EIA expects a gradual increase in OPEC crude oil production through the remainder of the forecast and for production to rise to an average of 28.5 million b/d during the second half of 2021.

changes in quarterly global petroleum liquids production

Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO), May 2020

EIA forecasts the supply of non-OPEC petroleum and other liquid fuels will decline by 2.4 million b/d in 2020 compared with 2019. The steep decline reflects lower forecast oil prices in the second quarter as well as the newly implemented production cuts from non-OPEC participants in the OPEC+ agreement. EIA expects the largest non-OPEC production declines in 2020 to occur in Russia, the United States, and Canada.

May, 20 2020