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Last Updated: August 7, 2017
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Last Week in World Oil:

Prices

  • Oil prices are showing some health, as US crude supplies seem to be moderating and the threat of renewed sanctions against Venezuela looms after a chaotic election there. Brent and WTI are clustering around the US$50/b mark, which seems to be the new support level, as signs are showing that US production may be shedding some optimism.

Upstream & Midstream

  • Shell has set out a schedule for eight upstream projects due for FID over the next 18 months, as it ramps up upstream investment that has been relatively stagnant since 2015. On the cards are the Bonga South West deepwater FPSO project in Nigeria and the Vito deepwater development in the US. The Val d’Agri onshore oilfield in Italy, Penguins FPSO in the UK and Libra FPSO in Brazil’s pre-salt Santos basin are also listed as potential oil projects. On the gas side, China’s Changbei 2 tight gas project and two LNG projects – Lake Charles in Louisiana and Canada LNG in Kitimat – are also being considered. Shell is looking to spend US$25 billion in 2017 on upstream capex, and a range of US$25-30 billion per year through 2020.
  • Pre-salt offshore production in Brazil has surpassed combined upstream output from all other fields for the first time. Output from Brazil’s pre-salt areas grew by 6.4% to 1.353 mmbpd in June, underpinning a 0.8% jump in production. The Lula field is the main pre-salt production area, at 763,000 bpd on average, with Petrobras remaining Brazil’s largest producer, ahead of Shell and Repsol Sinopec. Expect this trend to continue as Brazil attempts to stimulate investment in pre-salt basins by allowing more in more foreign competition to aid debt-stricken Petrobras.
  • Moderation in US drilling activity continues, with active oil rigs climbing only 2 to 766 last week. Six additional gas rigs were added, bringing the US total to 958, with signs pointing to active rig numbers plateauing as crude oil prices fail to break out from the stubborn US$50/b range.

Natural Gas and LNG

  • Output at Cheniere’s Sabine Pass LNG facility keeps marching upwards, with the company beginning liquefaction at a fourth plant ahead of the schedule. Sabine Pass’ fourth plant was scheduled to begin full service by end-2017, but appears to be starting up early in response to growing demand for Cheniere’s LNG, which is opening up new markets in Europe, Latin America and Asia. Officially commissioning for the fourth plant has yet to be completed, with output aimed at fulfilling a 20-year supply contract with GAIL India. The first three trains at Sabine Pass are contracted to Shell, Spain’s Gas Natural SDG and Korea Gas.
  • France’s highest court has repealed the country’s law on regulated gas, claiming that it flouted EU regulations. This might mean the end of regulated gas pricing in France, which would affect about half of French residential users and 11% of commercial users, weakening the entrenched position of energy group Engie and open up the market to smaller players like Direct Energy and foreign supplier like Italy’s Eni.

Last week in Asian oil

Upstream

  • Petronas has confirmed that it will be exiting Blocks 01 and 02 in Vietnam’s Cuu Long basin once the current PSC ends in early September 2017. Likely linked to declining output at the blocks, which began production in September 1991 as one of the first international ventures in Vietnam, Petronas stresses that the exit does not mean that it is quitting Vietnam, and will remain the operator of Blocks 102 and 106 in the Song Hong basin under Petronas Carigali.
  • China’s CNPC, together with partners Total, Petronas Carigali and Iraq’s South Oil Company, have sanctioned the Phase 3 Halfaya oilfield project in southern Iraq after approving FID. The project will boost production at the Maysan province field from a current 200,000 bpd to 400,000 bpd.
  • After backing joint drilling operations in areas claimed by both China and the Philippines, China is now calling for Vietnam to halt oil drilling in a section of the South China Sea claimed by both Vietnam and China. Drilling at Block 136/3, licensed to Repsol and Mubadala, began in mid-June, with China calling for an immediate halt to activities as it infringes on its territory. This may be posturing by the Chinese government to bring Vietnam to the table for joint oil exploration operations as in the Philippines, but Vietnam is unlikely to acquiesce the way Duterte has, which may lead to inflamed tensions in the South China Sea at a time when US foreign policy under President Trump is unclear.
  • Abu Dhabi’s Adnoc will make a decision on renewing the oil concessions held by Japanese companies in its oilfield by early next year, particularly Inpex’s 12% stake in the massive offshore ADMA block that is set to expire in March 2018. Japanese companies are keen to extend the contracts – key to securing strategic supplies for its refineries – while Abu Dhabi is leaning towards roping in new partners from China and South Korea, as well as expanding the role of majors BP and Total.

Downstream

  • The UAE has bought its first oil cargo from the USA, as it seeks to replace Qatari condensate affected by the current diplomatic row in the Middle East. Qatari supplies to the UAE – used in petrochemical production in the UAE – were halted in June after a Saudi Arabia-led campaign to politically isolate Qatar. Adnoc must now compete with condensate clients in South Korea and Japan to supplies of the ultra-light crude, with condensate from Eagle Ford being the most immediate source.

Natural Gas & LNG

  • Indonesia is aiming to begin constructing on an LNG pipeline system to establish a comprehensive gas distribution network across its vast archipelago. To be undertaken by state firms Pertamina, PGS and PLN, Indonesia will also need to attract international investment for a project that may cost as much as US$48 billion, part of a national plan to boost power generation and energy security in Indonesia.

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Wood pellet mills turn raw materials such as sawdust, straw, or wood into highly efficient biomass fuel. Concurrently, the entire process of converting these materials in a more dense energy form facilitates storage, transport, and make use of on the remainder of any value chain. Later on, you will find plans for biomass fuel to replace traditional fuels. Moreover, wood pellet machines supply the chances to start many different types of businesses.

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Wood pellet machines are kinds of pellet machines to process raw materials including peanut shells, sawdust, leaves, straw, wood, plus more. Today the pellet mills can be purchased in different types. Both the main types include the ring die pellet mills as well as the flat die pellet mills. Wood pellet mills are designed for processing many different types of raw materials irrespective of size. The pellet size is very simple to customize with the use of a hammer mill.

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June, 12 2022
OPEC And The Current State of Oil Fundamentals

It was shaping up to yet another dull OPEC+ meeting. Cut and dry. Copy and paste. Rubber-stamping yet another monthly increase in production quotas by 432,000 b/d. Month after month of resisting pressure from the largest economies in the world to accelerate supply easing had inured markets to expectations of swift action by OPEC and its wider brethren in OPEC+.

And then, just two days before the meeting, chatter began that suggested something big was brewing. Whispers that Russia could be suspended made the rounds, an about-face for a group that has steadfastly avoided reference to the war in Ukraine, calling it a matter of politics not markets. If Russia was indeed removed from the production quotas, that would allow other OPEC+ producers to fill in the gap in volumes constrained internationally due to sanctions.

That didn’t happen. In fact, OPEC+ Joint Technical Committee commented that suspension of Russia’s quota was not discussed at all and not on the table. Instead, the JTC reduced its global oil demand forecast for 2022 by 200,000 b/d, expecting global oil demand to grow by 3.4 mmb/d this year instead with the downside being volatility linked to ‘geopolitical situations and Covid developments.’ Ordinarily, that would be a sign for OPEC+ to hold to its usual supply easing schedule. After all, the group has been claiming that oil markets have ‘been in balance’ for much of the first five months of 2022. Instead, the group surprised traders by announcing an increase in its monthly oil supply hike for July and August, adding 648,000 b/d each month for a 50% rise from the previous baseline.

The increase will be divided proportionally across OPEC+, as has been since the landmark supply deal in spring 2020. Crucially this includes Russia, where the new quota will be a paper one, since Western sanctions means that any additional Russian crude is unlikely to make it to the market. And that too goes for other members that haven’t even met their previous lower quotas, including Iraq, Angola and Nigeria. The oil ministers know this and the market knows this. Which is why the surprise announcement didn’t budge crude prices by very much at all.

In fact, there are only two countries within OPEC+ that have enough spare capacity to be ramped up quickly. The United Arab Emirates, which was responsible for recent turmoil within the group by arguing for higher quotas should be happy. But it will be a measure of backtracking for the only other country in that position, Saudi Arabia. After publicly stating that it had ‘done all it can for the oil market’ and blaming a lack of refining capacity for high fuel prices, the Kingdom’s change of heart seems to be linked to some external pressure. But it could seemingly resist no more. But that spotlight on the UAE and Saudi Arabia will allow both to wrench some market share, as both countries have been long preparing to increase their production. Abu Dhabi recently made three sizable onshore oil discoveries at Bu Hasa, Onshore Block 3 and the Al Dhafra Petroleum Concession, that adds some 650 million barrels to its reserves, which would help lift the ceiling for oil production from 4 to 5 mmb/d by 2030. Meanwhile, Saudi Aramco is expected to contract over 30 offshore rigs in 2022 alone, targeting the Marjan and Zuluf fields to increase production from 12 to 13 mmb/d by 2027.

The UAE wants to ramp up, certainly. But does Saudi Arabia too? As the dominant power of OPEC, what Saudi Arabia wants it usually gets. The signals all along were that the Kingdom wanted to remain prudent. It is not that it cannot, there is about a million barrels per day of extra production capacity that Saudi Arabia can open up immediately but that it does not want to. Bringing those extra volume on means that spare capacity drops down to critical levels, eliminating options if extra crises emerge. One is already starting up again in Libya, where internal political discord for years has led to an on-off, stop-start rhythm in Libyan crude. If Saudi Arabia uses up all its spare capacity, oil prices could jump even higher if new emergencies emerge with no avenue to tackle them. That the Saudis have given in (slightly) must mean that political pressure is heating up. That the announcement was made at the OPEC+ meeting and not a summit between US and Saudi leaders must mean that a façade of independence must be maintained around the crucial decisions to raise supply quotas.

But that increase is not going to be enough, especially with Russia’s absence. Markets largely shrugged off the announcement, keeping Brent crude at US$120/b levels. Consumption is booming, as the world rushes to enjoy its first summer with a high degree of freedom since Covid-19 hit. Which is why global leaders are looking at other ways to tackle high energy prices and mitigate soaring inflation. In Germany, low-priced monthly public transport are intended to wean drivers off cars. In the UK, a windfall tax on energy companies should yield US$6 billion to be used for insulating consumers. And in the US, Joe Biden has been busy.

With the Permian Basin focusing on fiscal prudence instead of wanton drilling, US shale output has not responded to lucrative oil prices that way it used to. American rig counts are only inching up, with some shale basins even losing rigs. So the White House is trying more creative ways. Though the suggestion of an ‘oil consumer cartel’ as an analogue to OPEC by Italian Prime Minister Mario Draghi is likely dead on arrival, the US is looking to unlock supply and tame fuel prices through other ways. Regular releases from the US Strategic Petroleum Reserve has so far done little to bring prices down, but easing sanctions on Venezuelan crude that could be exported to the US and Europe, as well as working with the refining industry to restart recently idled refineries could. Inflation levels above 8% and gasoline prices at all-time highs could lead to a bloody outcome in this year’s midterm elections, and Joe Biden knows that.

But oil (and natural gas) supply/demand dynamics cannot truly start returning to normal as long as the war in Ukraine rages on. And the far-ranging sanctions impacting Russian energy exports will take even longer to be lifted depending on how the war goes. Yes, some Russian crude is making it to the market. China, for example, has been quietly refilling its petroleum reserves with Russian crude (at a discount, of course). India continues to buy from Moscow, as are smaller nations like Sri Lanka where an economic crisis limits options. Selling the crude is one thing, transporting it is another. With most international insurers blacklisting Russian shippers, Russian oil producers can still turn to local insurance and tankers from the once-derided state tanker firm Sovcomflot PJSC to deliver crude to the few customers they still have.

A 50% hike in OPEC’s monthly supply easing targets might seem like a lot. But it isn’t enough. Especially since actual production will fall short of that quota. The entire OPEC system, and the illusion of control it provides has broken down. Russian oil is still trickling out to global buyers but even if it returned in full, there is still not enough refining capacity to absorb those volumes. Doctors speak of long Covid symptoms in patients, and the world energy complex is experiencing long Covid, now with a touch with geopolitical germs as well. It’ll take a long time to recover, so brace yourselves.

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June, 12 2022