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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.

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Your Weekly Update: 11 - 15 March 2019

Market Watch

Headline crude prices for the week beginning 11 March 2019 – Brent: US$66/b; WTI: US$56/b

  • Global crude oil prices continue to remain rangebound despite bearish factors emerging
  • News that Libya was restarting its 300,000 b/d Sharara field could weaken the ability of OPEC to control supply, while a report from the US EIA hints that the market was moving into a glut
  • The EIA report showed that commercial crude inventories in the US rose by 7.1 million barrels, far higher than the 1.6 million barrel increase predicted, with a 873,000 barrel increase at Cushing and a 12% y-o-y drop in crude imports
  • By the end of 2019, with American output surging and Saudi Arabia curtailing production, the US could export more oil and liquids than the world’s largest exporter
  • Meanwhile in OPEC, PDVSA has received some aid from Russia with Rosneft agreeing to send heavy naphtha to Venezuela – a product necessary to thin heavy Venezuela crude to move by pipeline to the coast that have been affected by the American sanctions
  • On the demand side, Morgan Stanley has predicted that China’s oil consumption will peak in 2025, some 5-8 years earlier than most expectations, driven by a shift in cars towards electric vehicles and high-speed rail
  • The US active rig count fell for a third consecutive week, following a 9 rig fall with an 11 rig drop last week, with nine oil sites and two gas sites scrapped
  • Despite the bearish factors, it looks like crude has found a new comfortable range with Brent at US$65-67/b and WTI at US$56-58/b for the week


Headlines of the week

Upstream

  • Despite security concerns, Libya has restarted its largest oil field, with output at 300,000 b/d Sharara expected to reach 80,000 b/d initially, throwing a new spanner in the OPEC goal of controlling supply
  • A one-year delay to Enbridge’s Line 3 conduit in Canada due to regulatory issues has thrown new troubles onto Alberta’s beleaguered crude industry
  • ExxonMobil is planning a major acceleration of its Permian assets, aiming to produce more than 1 mmboe/d by 2024, an increase of nearly 80%
  • China has announced plans to form a national oil and pipeline company, part of a natural energy industry overhaul that will give the new firm control over at least 112,000 km of oil, gas and fuel pipelines currently held by other state firms
  • Equinor, with Petoro, ConocoPhillips and Repsol, have announced a new oil discovery in the North Sea, with the Telesto well on the Visund A platform potentially yielding 12-28 million barrels of recoverable oil
  • Aker Energy has reported a new oil discovery at the Pecan South-1A well offshore Ghana, with the Pecan field expected to hold 450-550 mboe of oil
  • Production declines at Kazakhstan’s three main oil fields will see the country slash crude exports by 2% to 71 million tons this year, with cuts mostly to China

Midstream & Downstream

  • Canadian Natural Resources is looking to ease pressure on the Alberta crude complex by bringing its 80 kb/d North West Redwater refinery online this year
  • Work has begun on the upgrade and expansion of Egypt’s Middle East Oil Refinery near Alexandria, with the project expected to boost capacity to 160 kb/d and quality to Euro V through the installation of a new CDU and VDU
  • Bahrain’s BAPCO has announced plans to expand its Sitra oil refinery by early 2023, growing capacity from 267 kb/d to 360 kb/d

Natural Gas/LNG

  • India has started up its first LNG regasification facility on the east coast, with the Ennore terminal expected to service the major cities of Chennai and Madurai
  • Total has signed an agreement with Russia’s Novatek for the formal acquisition of a 10% stake in the Arctic LNG 2 project, bringing its total economic interest in the 19.8 mtpa project in the Yamal and Gydan peninsuals to 21.6%
  • Thailand’s PTTEP has announced a new offshore gas find in Australia’s portion of the Timor Sea, with the Orchid-1 well striking gas and expected to be incorporated into the Cash-Maple field with 3.5 tcf of resources
  • Crescent Petroleum and Dana Gas’s joint venture Pearl Petroleum Company is aiming to boost gas production at Khor Mor block in Iraq’s Kurdistan region by 63% with an additional 250 mmscf/d of output
  • Petronas’ 1.2 mtpa PFLNG Satu – the world’s first floating LNG vessel – has completed its stint at the Kanowit field and will now head to its second destination, the Kebabangan gas field offshore Sabah
  • Chevron is looking to revisit its Ubon wet gas project in Thailand after a period of hiatus as the supermajor recalibrated its development costs
  • Nigeria’s NLNG Train 7 LNG project is expected to reach FID in the third quarter of the year after multiple delays
  • ExxonMobil and BP have agreed to collaborate with the Alaska Gasline Development Corporation to advance the Alaska LNG project
  • Energean Oil and Gas has started its 2019 drilling programme in Israel, focusing on four wells, including one in Karish North near the Karish discovery
March, 15 2019
Latest issue of GEO ExPro magazine covers New Technologies and Training Geoscientists, with a geographical focus on Australasia and South East Asia

GEO ExPro Vol. 16, No. 1 was published on 4th March 2019 bringing light to the latest science and technology activity in the global geoscience community within the oil, gas and energy sector.

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March, 14 2019
Norway’s Retreat in Oil Investments – Politics or Economics?

In 2017, Norway’s Government Pension Fund Global – also known as the Oil Fund – proposed a complete divestment of oil and gas shares from its massive portfolio. Last week, the Norwegian government partially approved that request, allowing the Fund to exclude 134 upstream companies from the wealth fund. Players like Anadarko Petroleum, Chesapeake Energy, CNOOC, Premier Oil, Soco International and Tullow Oil will now no longer receive any investment from the Fund. That might seem like an inconsequential move, but it isn’t. With over US$1 trillion in assets – the Fund is the largest sovereign wealth fund in the world – it is a major market-shifting move.

Estimates suggest that the government directive will require the Oil Fund to sell some US$7.5 billion in stocks over an undefined period. Shares in the affected companies plunged after the announcement. The reaction is understandable. The Oil Fund holds over 1.3% of all global stocks and shares, including 2.3% of all European stocks. It holds stakes as large as of 2.4% of Royal Dutch Shell and 2.3% of BP, and has long been seen as a major investor and stabilising force in the energy sector.

It is this impression that the Fund is trying to change. Established in 1990 to invest surplus revenues of the booming Norwegian petroleum sector, prudent management has seen its value grow to some US$200,000 per Norwegian citizen today. Its value exceeds all other sovereign wealth funds, including those of China and Singapore. Energy shares – specifically oil and gas firms – have long been a major target for investment due to high returns and bumper dividends. But in 2017, the Fund recommended phasing out oil exploration from its ‘investment universe’. At the time, this was interpreted as yielding to pressure from environmental lobbies, but the Fund has made it clear that the move is for economic reasons.

Put simply, the Fund wants to move away from ‘putting all its eggs in one basket’. Income from Norway’s vast upstream industry – it is the largest producing country in Western Europe – funds the country’s welfare state and pays into the Fund. It has ethical standards – avoiding, for example, investment in tobacco firms – but has concluded that devoting a significant amount of its assets to oil and gas savings presents a double risk. During the good times, when crude prices are high and energy stocks booming, it is a boon. But during a downturn or a crash, it is a major risk. With typical Scandinavian restraint and prudence, the Fund has decided that it is best to minimise that risk by pouring its money into areas that run counter-cyclical to the energy industry.

However, the retreat is just partial. Exempt from the divestment will be oil and gas firms with significant renewable energy divisions – which include supermajors like Shell, BP and Total. This is touted as allowing the Fund to ride the crest of the renewable energy wave, but also manages to neatly fit into the image that Norway wants to project: balancing a major industry with being a responsible environmental steward. It’s the same reason why Equinor – in which the Fund holds a 67% stake – changed its name from Statoil, to project a broader spectrum of business away from oil into emerging energies like wind and solar. Because, as the Fund’s objective states, one day the oil will run out. But its value will carry on for future generations.

The Norway Oil Fund in a Nutshell

  • Valued at NOK8.866 trillion/US$1.024 trillion (February 2019)
  • Invested in 9,138 companies in over 73 countries
  • Holds 1.3% of all global stocks
  • Holds 2.3% of all European stocks
  • Holds 2.4% of Shell, 2.3% of BP
March, 13 2019