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Last Updated: August 11, 2017
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Last week in world oil:

Prices

  • Oil prices remain stuck – at around US$52/b for Brent and US$50/b for WTI – as BP predicts that crude prices will stay in a range of US$45-55/b over 2018. Although signs are pointing to a slight slowdown, high output from the US is holding prices down, as well as improving production from Libya and Nigeria leading overall OPEC output to hit a record in July.

Upstream & Midstream

  • Nigeria’s NNPC confirmed that it had signed financing agreements with Chevron and Shell worth at least US$780 million to boost crude production and reserves, in the wake of another spate of insurgent activity and kidnappings. The agreement with Chevron will focus on the Sonam project, targeted at achieving 39,000 b/d of liquids and 283 mscf/d of gas levels. The Shell project will focus on 156 development sites across 12 mining licences in the Niger Delta oil hub, called Santolina.
  • Petronas has been awarded a new shallow water block in Mexico’s portion of the Gulf of Mexico, which the Malaysian state player will operate with Colombia’s Ecopetrol on a 50-50 basis. This joins the two existing deepwater blocks held by Petronas after Mexico’s first auction of deepwater blocks last year, proving that Mexico’s drive to restructure its upstream industry is drawing interest from near and wide.
  • The US rig count fell last week, losing one oil rig and three gas rigs, in a sign that analysts are saying is a moderation of drilling activity in response to stagnant prices. Most of the losses, though, are offshore sites in Louisiana waters; major shale players in Texas are still gaining rigs. 

Downstream

  • Shell is reportedly mulling expanding the capacity of its 140 kb/d Wesseling refinery in Germany that would mainly be focused on upgrading secondary units to reduce sulphur content. The move comes as the IMO’s requirement to cap sulphur content at 0.5% (from 3.5%) from 2020 looms, and some 3 mmbpd of HSFO must be eliminated.

Natural Gas and LNG

  • The maligned Keystone XL project in the US is facing its final legal hurdles in a bid to begin construction. Though federal approval has been given by President Donald Trump, state-level approval is still required. Hearings are ongoing in Nebraska, where opponents of the project are highlighting the use of eminent domain and environmental concerns to sway the five-person regulatory panel. The process could last up to a year.
  • The 5.75 mtpa Cove Point LNG export project in Maryland has officially entered commissioning phase, set to become the first LNG export site on the US East Coast when operations begin by the end of 2017.

Corporate

  • Russia is supporting the government of Venezuela after fresh US sanctions following a chaotic election. Rosneft has made an advanced payment of US$1.02 billion for future crude supplies, after a US$1.6 billion loan was put through last year to support Russia’s ally.
  • US E&P firm Kosmos Energy will be listing on the London Stock Exchange at the end of September in a bid to attract more European investment, as it search for gas with BP in Senegal, Mauritania and Suriname.

Last week in Asian oil

Upstream

  • In response to furious pressure from Beijing, Spain’s Repsol has suspended test drills at an oil block off Vietnam that lies within waters that China claims as its own. While Vietnam continues to defend its right to explore in its sovereign areas, drilling was called off at Block 136/3 after a Vietnamese diplomatic delegation visited Beijing.
  • Denmark’s Maersk Oil is estimating potential output for the second phase of Iran’s South Pars field at 120-140 kb/d, revealed as part of the company’s development study. Maersk Oil is in pole position to be named operator of South Pars second phase, after it lost rights to Al Shaheen in Qatar (part of the same geological formation as South Pars) to Total.
  • Regional tensions continue in Iraq as the country’s northern province of Kirkuk is refusing to cooperate with the central government’s plan to ship crude oil from the semi-autonomous province of Kurdistan to Iran. Kirkuk claims that it was not consulted over the agreements, while Baghdad remains steadfast in its plan to build an oil pipeline to Iran.

Downstream

  • Indian Oil Corp has outlined plans to dramatically expand its refining capacity by 89% to 3 mmb/d through 2030, to meet fast-growing domestic demand. On the cards will be a US$2.4 billion expansion of the Gujarat refinery to 360 kb/d (by 2021) – which will require the four of the five crude units at the aging site (built in 1965) to be combined into a single 300kb/d unit. The expansion is targeted at 2022, and IOC also wants to depend less on imported crude. India’s largest downstream player has set a target to supply 10% of its crude requirements from its own oil and gas assets, which has seen it acquire upstream assets in Libya, Gabon, Nigeria, Yemen, Venezuela, Russia, Canada and the USA, though it is facing headwinds in that area as it is largely playing catch-up with China, as well as established East Asian players.

Natural Gas & LNG

  • Indonesia is not ready to give up on monetising East Natuna – the largest remaining natural gas resource in Southeast Asia left unexploited – after ExxonMobil and PTTEP pulled out of Pertamina’s plan to develop the field, citing challenging market conditions under existing PSC requirements. Indonesia has been pitching to project around to other potential investors, reportedly including Japan’s Inpex, to develop the challenging field, where carbon dioxide levels are at 72%. Foreign participation is required, as Pertamina does not have to financial muscle to undertake the US$40 billion project alone, but strict contractual conditions for domestic supply obligations have already deterred other companies, including Petronas and Total.
  • Australia’s Woodside Petroleum has announced a third gas discovery in Myanmar in two years. The Pyi Thit-1 exploration well in Block A-6 confirmed the presence of gas with a potential rate of 50 mscf/d. This adds to Woodside’s Shwe Yee Htun-1 (also in Block A-6) and Thalin-1A (Block AD-7) finds in Myanmar’s Southern Rakhine basin.

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The Role of Floating Storage During An Oil Price War

In any war, there are winners and losers. Sometimes surprising ones. As the price war between friends-turned-foes Saudi Arabia and Russia rumbles on without any sign of a thaw or a possibility of halting without external intervention, oil producers globally are hurting badly as crude oil prices plunged by nearly 50% over less than a month. This will wreak havoc with the economies and budgets of many countries, particularly at a time when demand is extremely soft given the global Covid-19 pandemic. But in any war, there are opportunities for profit, and that has given a boost to a sector of the industry that had previously been suffering.

With the dramatic drop in prices, and a super-contango structure appearing in the crude oil price future curves, crude cargoes are available on cheap. Part of this buying is coming from entrenched buyers such as India (which took in some cargoes that were turned away by China in the early days of the Covid-19 pandemic). Part of this is coming from government purchases, to fill up strategic petroleum reserves in an effort to support domestic producers (although a US plan to do so was scuppered due to lack of federal funding). But most is this is coming from global oil traders, eager to cash in cheap oil by betting that prices will eventually have to rise somehow. Whether that is in a month, three months or longer, the traders are preparing for this.

The problem is storage. Where does one store millions of barrels of crude? Onshore storage is estimated at a practical upper limit of some 1.2 billion barrels of capacity; much of this is already utilised, with not much room to grow. And what room there is is becoming expensive.

Enter floating storage.

In 2008 during the Great Financial Crisis and again in 2015 when crude prices retreated dramatically, the same scenario presented itself. The solution then, as it is now, was to charter ships to serve as floating storage. Millions upon millions of crude oil barrels sat sloshing in the hulls of VLCC and other crude-carrying ships off the coast of Singapore, Fujairah, the US Gulf and Guangzhou in 2009, waiting for traders to assess an opportune moment to seize a trade.

That is repeating itself now. At the start of March, VLCC charter rates hovered at around US$40,000 per day for delivery from the Middle East to China. As charter rates go, that’s not that bad, and certainly far better than rates of less than US$10,000 day in mid-2019 that caused a world of pain to the oil shipping industry. At the dramatic about-face in Vienna when the OPEC+ alliance splintered, VLCC charter rates jumped up to US$190,000 per day as the price for Brent dropped 30% in a single day. Charter rates continued to spike, up to a peak of US$275,000 per day, as it became very apparent that Saudi Arabia and Russia were engaging in more than just a game of brinkmanship. Prices did calm down, after the initial rush of bookings, but have started to rise again as Brent drifts dangerously close to the US$25/b mark.

Reports suggest that since the price war began, more than three dozen supertanker bookings have been made by the world’s largest oil traders, including Vitol, Shell and Litasco. The largest of them all, Glencore has chartered Europe, one of the world’s two ULCCs (Ultra Large Crude Carriers) that can store 3 million barrels of oil for an indefinite period. The traders are also competing with an unlikely party: Saudi Arabia and its allies that sparked a bidding war for supertankers in a bid to flood the market. That this is happening against a backdrop of weak demand is, frankly, ridiculous. But that is what is happening now, and expect it to go on with Russia entering the fray. While all this drama plays out, the real immediate winners are shipowners. While the traders are betting on the possibility of a profitable trade in the future, shipowners are making profits hand over fist now with the bookings, a great change after terrible 2019 when shipowners were gloomily talking about decommissioning tankers.  

How long will this last? It is anyone’s guess. There are two main variables: the length of the oil price war and the length of the Covid-19 pandemic. The most optimistic scenario points to things returning to relative normality by July 2020; the worst could see the depression continuing into 2021. But, as they say, there is no time like the present. And shipowners are now happy to keep their supertanker bellies full of oil and money in the bank, even if those ship remain anchored and that oil is going nowhere soon.

Recent VLCC Freight Rates

  • March 1: US$40,000 per day
  • March 6: US$190,000 per day
  • March 12: US$275,000 per day
  • March 20: US$90,000 per day
  • March 27: US$125,000 per day
  • March 30: US$180,000 per day
April, 05 2020
The Oil Price War – What Are The Options for Trump

As Saudi Arabia and Russia dig in their heels and prepare for extended trench warfare over oil prices, the important questions now are: how long will this last, and what (or who) can bring these friends-turned-foes back to the negotiation table? China is the major buyer of crude from both countries, but with little production of its own, should be relishing in lower oil prices, particularly as it plots a potential recovery from the Covid-19 pandemic. That leaves the USA.

To say the US has a vested interest in where oil prices are is an understatement. The country, after all, has a major oil production industry and has recently become the largest producer in the world. Prices at US$50-60/b were perfect. Anything above that risked higher fuel prices causing demand disappearance; anything lower than that risked putting American drillers – particularly in the prolific shale patch – out of business. Which is why President Donald Trump embarked on a campaign of sanction threats and fiery rhetoric when crude rose above US$70/b last year. And also why the US oil industry is urging an intervention as WTI crashes to nearly US$20/b. At risk is not just the health of the US oil industry, but the very life of the shale patch.

There are various options available to Trump when he intervenes. Trump said that he would only get involved in the price war ‘at the appropriate time’, noting that low gasoline prices were good for US consumers. This suggests that he values the positive effects of low oil prices on the wider economy, perhaps noting that the oil industry will still remain a solid electorate base for him in November 2020 come what may. But with no sign that Russia or Saudi Arabia are open to new talks, Trump has to do something at some point.

Some new policies have been put in place. Instead of selling barrels from the US strategic petroleum reserves, adopted when the global supply/demand dynamics were much, much different – the White House now wants to fill those coffers to the brim, buying as much as US$3 billion from US independents to shore up the industry. But that’s only a temporary balm; if the price war rolls on for too long, those US independents will either go out of business or be forced to continue pumping to pay the bills. Either way, this won’t achieve much.

The next weapon is diplomacy. There is already happening, with the US Senate reaching out to the Saudi Ambassador to seek ‘clarity’. Diplomacy is likely to be taken with Saudi Arabia and its Middle Eastern allies, as a more combative approach could jeopardise geopolitical alliances. However, when cajoling, the US will also have to put something on the table. Saudi Arabia’s ultimate goal is to have steady oil prices at a level acceptable to all (or most); since Russia isn’t cooperating but the US may want to, then it must shoulder some burden as well. Imposing a national quota in the US, however, is pure anathema, although the Texas state oil regulator has already suggested introducing production curbs. President Donald Trump said on Thursday, 2nd of April that he expected Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman to announce a deal to cut production by up to 15 million barrels, and that he had spoken to both countries’ leaders.

The much anticipated virtual meeting between OPEC and its allies scheduled for 6th of April  has been postponed, as reported by CNBC, amid mounting tensions between Saudi Arabia and Russia. The meeting will now “likely” be held on Thursday, 9th April, sources said. "The delay is likely to hit oil prices next week following a record-setting comeback week for crude. U.S. oil surged 25% on Thursday for its best day on record, and gained another 12% on Friday. It finished the week with a 32% surge, breaking a 5-week losing streak and posting its best weekly performance ever, back to the contract’s inception in 1983." 

The other more potent weapon is sanctions. This has worked well, at least from the perspective of the policy’s goal, but certainly not in humanitarian terms in Iran and Venezuela, where the exports of these OPEC members have shrunk dramatically. The US has already imposed sanctions on certain parts of the Russian energy machinery, notably to stop the Nordstream-2 LNG pipeline and is now reportedly considering pursuing a dual-pronged strategy of diplomacy with Saudi Arabia and sanctions on Russia. But what could this do? What would this even achieve? Russia hardly sells much oil to the US; its markets are in Europe, India and China. Imposing sanctions, especially at a time of a global crisis, risks it being completely ignored. Worse, this would make Russia even more determined to get back at the US by destroying the shale patch. With its deep pockets, it could very well do so.

The US is caught in a dilemma. Participating in a coordinated production alliance is unthinkable existentially, although stranger things have happened which leaves Trump with few weapons to participate in this price war. It could go on the offensive, and risk worsening the situation. It could exert diplomatic pressure, and risk that going nowhere. Or it could do what it has always done: prop up the industry but leave survival to the free-market, with the knowledge that in the cyclical world of oil, this bust will one day become a boom again.

Infographic: Top Three Crude Producers

  • Saudi Arabia: 12 mmb/d, 1 producer (Saudi Aramco)
  • Russia: 12.5 mmb/d, 10+ producers (including Rosneft and Lukoil)
  • USA: 13 mmb/d, 100+ producers
April, 05 2020
Is Document Verification effective in managing identity theft?

Technology has indeed changed the way we think, act and react. Every activity we perform is directly or indirectly linked to technology one way or another. Like everything else, technology also has its pros and cons, depending on the way it is used. Since the advancement in cyberspace, scammers and hackers have started using advanced means to conduct fraud and cause damage to individuals as well as businesses online. 

According to the Federal Trade Commission (FTC), 1.4 million cases of fraud were reported in 2018 and in 25% of the cases, people said they lost money. People reported losing $1.48 billion to fraudulent practices in 2018. This has caused considerable loss to individuals and businesses. Global regulatory authorities have introduced KYC and AML compliances that businesses and individuals are encouraged to follow. However, banks and financial institutions have to follow them under all circumstances.

KYC or Know Your Customer refers to the process where a business attains information about its customers to verify their identities. It is a complex, time-taking process and customers nowadays don’t have the time or resources to deal with the government, consulate, and embassy offices for their KYC procedures. However, due to technological advancement, the identity verification process has been automated through the use of artificial intelligence systems. These systems seamlessly increase the accuracy and effectiveness of the identity verification process while reducing time and human efforts.


The following methods are used to digitally authenticate identities nowadays:

  • Face Verification

The use of artificial intelligence systems to detect facial structure and features for verification purposes.

  • Document Verification

The use of artificial intelligence systems to detect the authenticity of various documents to prevent fraud.

  • Address Verification

The use of artificial intelligence technology to verify addresses from documents to minimize the threat of fraudsters.

  • 2-Factor Authentication

The use of multi-step verification to enhance the protection of your accounts by adding another security layer, usually involving your mobile phone.

  • Consent Verification

The use of pre-set handwritten user consent to onboard only legitimate individuals.


Digital Document Verification

Document verification is an important method to conduct KYC or verify the identity of an individual. The process involves the end-user verifying the authenticity of his/her documents. In banks, financial institutions and other formal set-ups, customers are required to verify their personal details through the display of government-issued documents. The artificial intelligence software checks whether the documents are genuine or have been forged. If the documents are real and authentic, the digital documentation verification is completed and vice versa. 

There are four steps that are mainly involved in the digital document verification process. First, the user displays his/her identity documents in front of the device camera. Then the document is critically analyzed by artificial intelligence software to check its authenticity. Forged or edited documents are rejected by the software. The artificial intelligence system then extracts relevant information from the document using OCR technology. The information is sent to the back-office of the verification provider and analyzed by human representatives to further validate the authenticity. Then the results are sent to the business or individual asking for the verification. The whole process takes less than five minutes.

The document authentication process can detect both major and minor faults in the documents. It can detect errors and faults in forged documents, counterfeed documents, stolen documents, camouflage or hidden documents, replica documents and even compromised documents. The verification process can be done on a personal computer or a mobile device using a camera. Although only government-issued documents are used for the authentication process, the following are accepted by most verification providers:

  • Govt ID Cards

  • Passports

  • Driving Licenses

  • Credit/Debit Cards

Illegal and fraudulent transactions have dangerous consequences for both individuals as well as businesses. Losses due to scams and frauds trickle down at every level and ultimately have negative consequences on the whole system. Therefore it is imperative to conduct proper customer verification and due diligence in order to minimize the risks of fraud. Digital documentation verification plays a key role in the KYC process. 



April, 02 2020