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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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Nigeria’s Energy Focus Must Change From Crude Oil to Gas – Dr Chukwueloka Umeh

According to the Nigeria National Petroleum Corporation (NNPC), Nigeria has the world’s 9th largest natural gas reserves (192 TCF of gas reserves). As at 2018, Nigeria exported over 1tcf of gas as Liquefied Natural Gas (LNG) to several countries. However domestically, we produce less than 4,000MW of power for over 180million people.

Think about this – imagine every Nigerian holding a 20W light bulb, that’s how much power we generate in Nigeria. In comparison, South Africa generates 42,000MW of power for a population of 57 million. We have the capacity to produce over 2 million Metric Tonnes of fertilizer (primarily urea) per year but we still import fertilizer. The Federal Government’s initiative to rejuvenate the agriculture sector is definitely the right thing to do for our economy, but fertilizer must be readily available to support the industry. Why do we import fertilizer when we have so much gas?

I could go on and on with these statistics, but you can see where I’m going with this so I won’t belabor the point. I will leave you with this mental image: imagine a man that lives with his family on the banks of a river that has fresh, clean water. Rather than collect and use this water directly from the river, he treks over 20km each day to buy bottled water from a company that collects the same water, bottles it and sells to him at a profit. This is the tragedy on Nigeria and it should make us all very sad.

Several indigenous companies like Nestoil were born and grown by the opportunities created by the local and international oil majors – NNPC and its subsidiaries – NGC, NAPIMS, Shell, Mobil, Agip, NDPHC. Nestoil’s main focus is the Engineering Procurement Construction and Commissioning of oil and gas pipelines and flowstations, essentially, infrastructure that supports upstream companies to produce and transport oil and natural gas, as well as and downstream companies to store and move their product. In our 28 years of doing business, we have built over 300km of pipelines of various sizes through the harshest terrain, ranging from dry land to seasonal swamp, to pure swamps, as well as some of the toughest and most volatile and hostile communities in Nigeria. I would be remiss if I do not use this opportunity to say a big thank you to those companies that gave us the opportunity to serve you. The over 2,000 direct staff and over 50,000 indirect staff we employ thank you. We are very grateful for the past opportunities given to us, and look forward to future opportunities that we can get.

CLICK HERE TO READ MORE

July, 19 2019
Your Weekly Update: 15 - 19 July 2019

Market Watch 

Headline crude prices for the week beginning 15 July 2019 – Brent: US$66/b; WTI: US$59/b

  • Global oil prices gained as US crude inventories shrank more than expected and a hurricane in the Gulf of Mexico threatened American offshore production
  • Tropical Storm Barry – which became a hurricane on landfall in Louisiana – was in the path of up to a third of Gulf of Mexico crude output, prompting producers to shut down most of their operations; resumption of normal service has begun
  • At the same time, US crude oil stockpiles fell by almost 10 million barrels, far more than expected, with US refineries ramping up production ahead of summer demand to add some bullishness to the market
  • The ongoing tensions between the US and Iran have not escalated further yet, but Iran has vowed to continue retaliating against the British seizure of its crude tanker in the Mediterranean off Gibraltar
  • These factors have been enough to keep current crude prices trending higher, but oil producing club OPEC warns that the market will swing back into surplus next year, estimating that it is currently producing 560,000 b/d more than will be needed without even factoring in rising US shale production
  • In Venezuela, where oil production has been crippled by sanctions, Chevron is reportedly seeking a waiver to continue operating in the country after the current waiver expires in July 27
  • The US active oil and gas rig count fell once again, shedding a net five rigs (including 4 oil rigs) as merely stable prices reduced the appetite for investment; the total active rig count is now 958, 96 sites lower than this period last year
  • As the threat of Tropical Storm Barry abated, crude prices fell back in line. Without any further disruptions on the horizon, Brent should trend in the US$62-64/b range and WTI in the US$55-57 range


Headlines of the week

Upstream

  • Norway’s Equinor has bought a 16% stake in Swedish upstream firm Lundin Petroleum for US$650 million, which gains it an additional 2.6% interest in the giant Johan Sverdrup oil field bringing Equinor’s total stake up to 42.6%
  • Inpex has picked up the exploration permit for Block AC/P66 in Australia’s Northwest Shelf, which lies in the vicinity of existing promising oil fields
  • US independent Callon Petroleum Company has acquired Carrizo Oil & Gas for US$3.2 billion, deepening its holdings in the Permian and Eagle Ford shale basins, including 90,000 net acres in the prolific Delaware Basin
  • Total has agreed to divest several of its non-core assets in the UK – covering the Balloch, Dumbarton, Lochranza, Drumtochty, Flyndre, Affleck, Cawdow, GoldenEagle, Scott and Telford fields – to Petrogas NEO for US$635 million
  • CNOOC and Sinopec has signed a new agreement to collaborate on exploration activities in the Bohai Basin, Beibu Gulf, North Jiangsu and South Yellow Sea
  • Murphy Oil has completed the sale of its Malaysian upstream assets to a unit of Thailand’s PTTEP for US$2.035 billion for five offshore projects in Sabah
  • Seven upstream discoveries were made in Colombia in 2Q19, making it the market with the most discoveries during the period, leading India, Russia and Pakistan which each made three new oil and gas finds
  • Turkey has vowed to continue drilling offshore Cyprus unless a cooperation proposal between Turkish and Greek Cypriots is accepted
  • Encana is reportedly selling off its assets in eastern Oklahoma’s Arkoma Basin for US$165 million in cash to an undisclosed buyer
  • Sinopec is hunting for partners or buyers for its Buck Lake assets in Alberta’s Duvernay shale basin in Canada, to reduce its current full ownership

Midstream/Downstream

  • The Governor of Pennsylvania Tom Wolf has ruled out using state funds to save the Philadelphia Energy Solutions refinery after it was shuttered following a massive fire that took out the entire site last month
  • Blackouts hit Venezuela’s Amuay and Cardon refineries, bringing the 955,000 b/d Paraguana refining Center to a complete halt on total lack of power
  • Chevron Phillips Chemical (CP Chem) and Qatar Petroleum have agreed to develop a new 2 mtpa petrochemical complex on the US Gulf Coast, with the US Gulf Coast II Petrochemical Project drawing on NGLs from the Permian
  • Marathon Petroleum will shut down the gasoline FCCU unit at its 585,000 b/d Galveston Bay Refinery in Texas for up to 8 weeks for repairs

Natural Gas/LNG

  • Total has agreed to buy NG from Tellurian’s Driftwood LNG facility in Lake Charles, Louisiana in two separate deals – 1 million tons per annum for Total Gas & Power North America and 1.5 mtpa for Total Gas & Power – as well as invest US$500 million in Driftwood Holdings LP
  • Mozambique has put on hold plans to raise funds for its stake in the Anadarko-led Mozambique LNG project, citing current bad market conditions
  • ExxonMobil and Lucid Energy Group have agreed to collaborate on a long-term natural gas gathering and processing project, bringing natural gas from New Mexico’s Delaware Basin to the South Carlsbad gas processing system before being delivered to ExxonMobil’s downstream facilities in the US Gulf Coast
July, 19 2019
Iran drives unplanned OPEC crude oil production outage to highest levels since late 2015

Unplanned crude oil production outages for the Organization of the Petroleum Exporting Countries (OPEC) averaged 2.5 million barrels per day (b/d) in the first half of 2019, the highest six-month average since the end of 2015. EIA estimates that in June, Iran alone accounted for more than 60% (1.7 million b/d) of all OPEC unplanned outages.

EIA differentiates among declines in production resulting from unplanned production outages, permanent losses of production capacity, and voluntary production cutbacks for OPEC members. Only the first of those categories is included in the historical unplanned production outage estimates that EIA publishes in its monthly Short-Term Energy Outlook (STEO).

Unplanned production outages include, but are not limited to, sanctions, armed conflicts, political disputes, labor actions, natural disasters, and unplanned maintenance. Unplanned outages can be short-lived or last for a number of years, but as long as the production capacity is not lost, EIA tracks these disruptions as outages rather than lost capacity.

Loss of production capacity includes natural capacity declines and declines resulting from irreparable damage that are unlikely to return within one year. This lost capacity cannot contribute to global supply without significant investment and lead time.

Voluntary cutbacks are associated with OPEC production agreements and only apply to OPEC members. Voluntary cutbacks count toward the country’s spare capacity but are not counted as unplanned production outages.

EIA defines spare crude oil production capacity—which only applies to OPEC members adhering to OPEC production agreements—as potential oil production that could be brought online within 30 days and sustained for at least 90 days, consistent with sound business practices. EIA does not include unplanned crude oil production outages in its assessment of spare production capacity.

As an example, EIA considers Iranian production declines that result from U.S. sanctions to be unplanned production outages, making Iran a significant contributor to the total OPEC unplanned crude oil production outages. During the fourth quarter of 2015, before the Joint Comprehensive Plan of Action became effective in January 2016, EIA estimated that an average 800,000 b/d of Iranian production was disrupted. In the first quarter of 2019, the first full quarter since U.S. sanctions on Iran were re-imposed in November 2018, Iranian disruptions averaged 1.2 million b/d.

Another long-term contributor to EIA’s estimate of OPEC unplanned crude oil production outages is the Partitioned Neutral Zone (PNZ) between Kuwait and Saudi Arabia. Production halted there in 2014 because of a political dispute between the two countries. EIA attributes half of the PNZ’s estimated 500,000 b/d production capacity to each country.

In the July 2019 STEO, EIA only considered about 100,000 b/d of Venezuela’s 130,000 b/d production decline from January to February as an unplanned crude oil production outage. After a series of ongoing nationwide power outages in Venezuela that began on March 7 and cut electricity to the country's oil-producing areas, EIA estimates that PdVSA, Venezuela’s national oil company, could not restart the disrupted production because of deteriorating infrastructure, and the previously disrupted 100,000 b/d became lost capacity.

July, 18 2019