NrgEdge Editor

Sharing content and articles for users
Last Updated: August 7, 2017
1 view
Business Trends
image

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.

3
2 0

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

Latest NrgBuzz

Your Weekly Update: 11 - 15 February 2019

Market Watch

Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b

  • Oil prices remains entrenched in their trading ranges, with OPEC’s attempt to control global crude supplies mitigated by increasing concerns over the health of the global economy
  • Warnings, including from The Bank of England, point to a global economic slowdown that could be ‘worse and longer-lasting than first thought’; one of the main variables in this forecast are the trade tensions between the US and China, which show no sign of being solved with President Trump saying he is open to delaying the current deadline of March 1 for trade talks
  • This poorer forecast for global oil demand has offset supply issues flaring up within OPEC, with Libya reporting ongoing fighting at the country’s largest oilfield while the current political crisis in Venezuela could see its crude output drop to 700,000 b/d by 2020
  • The looming new American sanctions on Venezuelan crude has already had concrete results, with US refiner Marathon Petroleum moving to replace Venezuelan crude with similar grades from the Middle East and Latin America
  • While Nicolas Maduro holds on to power, Venezuela’s opposition leader Juan Guaido has promised to scrap requirements that PDVSA keep a controlling stake in domestic oil joint ventures and boost oil production through an open economy when his government-in-power takes over
  • Despite OPEC’s attempts to stabilise crude prices, the US House has advanced the so-called NOPEC bill – which could subject the cartel to antitrust action – to a vote, with a similar bill currently being debated in the US Senate
  • The see-saw pattern in the US active rig count continues; after a net loss of 14 rigs last week, the Baker Hughes rig survey reported a gain of 7 new oil rigs and a loss of 3 gas rigs for a net gain of 4 rigs
  • While demand is a concern, global crude supply remains delicate enough to edge prices up, especially with Saudi Arabia going for deeper-than-expected cuts; this should push Brent up towards US$64/b and WTI towards US$55/b in trading this week


Headlines of the week

Upstream

  • Egypt is looking to introduce a new type of oil and gas contract to attract greater upstream investment into the country, aiming to be ‘less bureaucratic and more efficient’ with faster cost-recovery, ahead of a planned Red Sea bid round encompassing over a dozen concession sites
  • Lukoil has commenced on a new phase at the West Qurna-2 field in Iraq, with 57 production wells planned at the Mishrif and Yamama formation that could boost output by 80,000 boe/d to 480,000 boe/d in 2020
  • Aker BP has hit oil and natural gas flows at well 24/9-14 in the Froskelår Main prospect in the Alvheim area of the Norwergian Continental Shelf
  • Things continue to be rocky for crude producers in Canada’s Alberta province; production limits were increased last week after being previously slashed to curb a growing glut on news that crude storage levels dropped, but now face trouble being transported south as pipelines remain at capacity and crude-by-rail shipments face challenging economics

Midstream & Downstream

  • The Caribbean island of Curacao is now speaking with two new candidates to operate the 335 kb/d Isla refinery after its preferred bidder – said to be Saudi Aramco’s American arm Motiva Enterprises – withdrew from consideration to replace the current operatorship under PDVSA
  • America’s Delta Air Lines is now reportedly looking to sell its oil refinery in Pennsylvania outright, after attempts to sell a partial stake in the 185 kb/d plant failed to attract interest, largely due to its limited geographical position

Natural Gas/LNG

  • Total reports that it has made a new ‘significant’ gas condensate discovery offshore South Africa at the Brulpadda prospect in Block 11B/12B in the Outeniqua Basin, with the Brulpadda-deep well also reporting ‘successful’ flows of natural gas condensate
  • Italy’s Eni and Saudi Arabia’s SABIC have signed a new Joint Development Agreement to collaborate on developing technologies for gas-to-liquids and gas-to-chemicals applications
  • The Rovuma LNG project in Mozambique is charging ahead with development, with Eni looking to contract out subsea operations for the Mamba gas project by mid-March and ExxonMobil choosing its contractor for building the complex’s LNG trains by April
February, 15 2019
SHORT-TERM ENERGY OUTLOOK

Forecast Highlights

Global liquid fuels

  • Brent crude oil spot prices averaged $59 per barrel (b) in January, up $2/b from December 2018 but $10/b lower than the average in January of last year. EIA forecasts Brent spot prices will average $61/b in 2019 and $62/b in 2020, compared with an average of $71/b in 2018. EIA expects that West Texas Intermediate (WTI) crude oil prices will average $8/b lower than Brent prices in the first quarter of 2019 before the discount gradually falls to $4/b in the fourth quarter of 2019 and through 2020.
  • EIA estimates that U.S. crude oil production averaged 12.0 million barrels per day (b/d) in January, up 90,000 b/d from December. EIA forecasts U.S. crude oil production to average 12.4 million b/d in 2019 and 13.2 million b/d in 2020, with most of the growth coming from the Permian region of Texas and New Mexico.
  • Global liquid fuels inventories grew by an estimated 0.5 million b/d in 2018, and EIA expects they will grow by 0.4 million b/d in 2019 and by 0.6 million b/d in 2020.
  • U.S. crude oil and petroleum product net imports are estimated to have fallen from an average of 3.8 million b/d in 2017 to an average of 2.4 million b/d in 2018. EIA forecasts that net imports will continue to fall to an average of 0.9 million b/d in 2019 and to an average net export level of 0.3 million b/d in 2020. In the fourth quarter of 2020, EIA forecasts the United States will be a net exporter of crude oil and petroleum products by about 1.1 million b/d.

Natural gas

  • The Henry Hub natural gas spot price averaged $3.13/million British thermal units (MMBtu) in January, down 91 cents/MMBtu from December. Despite a cold snap in late January, average temperatures for the month were milder than normal in much of the country, which contributed to lower prices. EIA expects strong growth in U.S. natural gas production to put downward pressure on prices in 2019. EIA expects Henry Hub natural gas spot prices to average $2.83/MMBtu in 2019, down 32 cents/MMBtu from the 2018 average. NYMEX futures and options contract values for May 2019 delivery traded during the five-day period ending February 7, 2019, suggest a range of $2.15/MMBtu to $3.30/MMBtu encompasses the market expectation for May 2019 Henry Hub natural gas prices at the 95% confidence level.
  • EIA forecasts that dry natural gas production will average 90.2 billion cubic feet per day (Bcf/d) in 2019, up 6.9 Bcf/d from 2018. EIA expects natural gas production will continue to rise in 2020 to an average of 92.1 Bcf/d.

Electricity, coal, renewables, and emissions

  • EIA expects the share of U.S. total utility-scale electricity generation from natural gas-fired power plants to rise from 35% in 2018 to 36% in 2019 and to 37% in 2020. EIA forecasts that the electricity generation share from coal will average 26% in 2019 and 24% in 2020, down from 28% in 2018. The nuclear share of generation was 19% in 2018 and EIA forecasts that it will stay near that level in 2019 and in 2020. The generation share of hydropower is forecast to average slightly less than 7% of total generation in 2019 and 2020, similar to last year. Wind, solar, and other nonhydropower renewables together provided about 10% of electricity generation in 2018. EIA expects them to provide 11% in 2019 and 13% in 2020.
  • EIA expects average U.S. solar generation will rise from 265,000 megawatthours per day (MWh/d) in 2018 to 301,000 MWh/d in 2019 (an increase of 14%) and to 358,000 MWh/d in 2020 (an increase of 19%). These forecasts of solar generation include large-scale facilities as well as small-scale distributed solar generators, primarily on residential and commercial buildings.
  • In 2019, EIA expects wind’s annual share of generation will exceed hydropower’s share for the first time. EIA forecasts that wind generation will rise from 756 MWh/d in 2018 to 859 MWh/d in 2019 (a share of 8%). Wind generation is further projected to rise to 964 MWh/d (a share of 9%) by 2020.
  • EIA estimates that U.S. coal production declined by 21 million short tons (MMst) (3%) in 2018, totaling 754 MMst. EIA expects further declines in coal production of 4% in 2019 and 6% in 2020 because of falling power sector consumption and declines in coal exports. Coal consumed for electricity generation declined by an estimated 4% (27 MMst) in 2018. EIA expects that lower electricity demand, lower natural gas prices, and further retirements of coal-fired capacity will reduce coal consumed for electricity generation by 8% in 2019 and by a further 6% in 2020. Coal exports, which increased by 20% (19 MMst) in 2018, decline by 13% and 8% in 2019 and 2020, respectively, in the forecast.
  • After rising by 2.8% in 2018, EIA forecasts that U.S. energy-related carbon dioxide (CO2) emissions will decline by 1.3% in 2019 and by 0.5% in 2020. The 2018 increase largely reflects increased weather-related natural gas consumption because of additional heating needs during a colder winter and for additional electric generation to support more cooling during a warmer summer than in 2017. EIA expects emissions to decline in 2019 and 2020 because of forecasted temperatures that will return to near normal. Energy-related CO2 emissions are sensitive to changes in weather, economic growth, energy prices, and fuel mix.

U.S. residential electricity price

  • West Texas Intermediate (WTI) crude oil price
  • World liquid fuels production and consumption balance
  • U.S. natural gas prices
  • U.S. residential electricity price
  • West Texas Intermediate (WTI) crude oil price
February, 13 2019
The State of the Industry: A Brightened 2018

2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?

Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.

ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.

But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.

Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.

So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.

Supermajor Net  Profits for 4Q18 and 2018

1. ExxonMobil:

- 4Q18 – Net profit US$6 billion (-28%);

- 2018 – Net profit US$20.8 (+5.7%)

2. Shell:

- 4Q18 – Net profit US$5.69 billion (+32.3%);

- 2018 – Net profit US$21.4 billion (+36%)

3. Chevron:

- 4Q18 – Net profit US$3.73 billion (+19.9%);

- 2018 – Net profit US$14.8 billion (+60.8%)

4. BP:

- 4Q18 – Net profit US$3.48 billion (+65%);

- 2018 - Net profit US$12.7 billion (+105%)

5. Total: 

- 4Q18 – Net profit US$3.88 billion (+16%);

- 2018 - Net profit US$13.6 billion (+28%)

February, 12 2019