Nurliza Ibrahim

Marketing Specialist at NrgEdge
Last Updated: September 1, 2017
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Business Trends
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Last week in world oil:

Prices

  • Crude oil prices dipped – to US$46/b for WTI and US$51/b for Brent – as Hurricane Harvey reduced demand for crude by shutting down major refineries in Texas. At a premium of US$5/b, the Brent-WTI spread is the widest in two years, reflecting the impact of the hurricane. Gasoline prices jumped, as supplies are affected by Texan refinery and pipeline closures.

Upstream

  • France’s Total is now the largest upstream producer in the North Sea, overtaking Shell through its acquisition of Maersk Oil for US$7.45 billion. The sale came as part of Danish firm’s attempt to divest all its energy business to focus on its core business of shipping. Maersk Oil’s assets were confined to Norway and the UK North Sea, and it is now looking to sell off its drilling, tanker and supply service units separately. 
  • Petrobras expects oil production to begin at Brazil’s offshore Libra field in late September, delayed from July. Initial production will be 30,000 b/d, from an estimated recoverable volume of between 8 to 12 billion barrels. 
  • Despite recording healthy profits, BHP Billiton will be exiting the US shale oil and gas sector, which has been underperforming with shareholders calling for an exit. BHP Billiton bought into US shale in 2011 for US$20 billion during its ascendance, conceding now that they had paid too much and that it no longer fit ‘strategically’ to the company’s direction. 
  • Malaysia’s Petronas will be exiting the upstream business in Algeria, part of a portfolio rebalancing that has already seen it give up a pair of offshore blocks in Vietnam earlier this year. 
  • There was a net loss of six oil and gas rigs in the US last week, as the rebalancing of active drilling sites was exacerbated by the landing of Hurricane Harvey, which shut down onshore production activity.

Downstream & Midstream

  • PDVSA maintains that its lease to operate the Isla refinery in Curacao is still under negotiation, but has conceded that it is open to partnering with China’s Guangdong Zhenrong Energy to operate the complex. Curacao has signed an agreement with Zhenrong to operate the refinery, which requires substantial investment, with PDVSA’s lease ending in 2019.

Natural Gas and LNG

  • After scrapping its Canadian LNG terminal plans, Petronas is now reportedly mulling investing in a pipeline to monetise its Canadian assets. This would require in shift in focus from sending gas to Asia as LNG, to selling the gas by connecting to pipelines delivering gas to the US Gulf. 
  • As Equatorial Guinea prepares for the anticipated sanctioning of Fortuna floating LNG project off Bioko Island, the government has named Gunvor as preferred offtaker, in a deal covering 2.2 mtpa of LNG. Meanwhile, Ghana has signed an agreement to import LNG from Equatorial Guinea, as it struggles with adequate supplies for power production despite its own Jubilee oil-and-gas field being in production since 2010. 
  • Lithuania has received its first spot LNG cargo from Cheniere, joining a growing list of European nations embracing US LNG to reduce dependence on Russia piped natural gas. 


Last week in Asian oil

Upstream

  • Singapore’s KrisEnergy has inked an agreement to develop Cambodia’s first oil field. Oil was first discovered in Cambodia at Block A in 2004, but then-operator Chevron failed to reach a development agreement with the government. KrisEnergy bought over Chevron’s interest in 2014, and is aiming to produce oil from the Apsara field in 2019. The area is estimated to produce 30 million barrels over a nine-year period, and will be the culmination of a long, arduous and delayed process to produce Cambodia’s first oil. KrisEnergy owns a 95% stake in the Apsara field, with the remainder held by the Cambodian government.

Downstream & Midstream

  • Rosneft’s purchase of Indian refiner Essar Oil has been completed, giving the Russian major a foothold in Asia’s fastest-growing oil market after repeated attempts to invest in Asian downstream – notably in China and Indonesia – failed. The US$12.9 billion deal will see Rosneft and partners Trafigura and Russian fund UCP take a 98.26% stake in Essar Oil, with the remainder held by retail investors. Rosneft will now operate Essar’s 400 b/d refinery in Vadinar, as well as a port, a power plant and a network of 3,500 fuel stations. Rosneft expects to almost double the retail network size to some 6,000 sites, as well as significantly increase refining and petrochemical production capacity at Vadinar. 
  • The Saudi Aramco-PetroChina plan to see the Saudi Arabia state company invest in the latter’s 260 kb/d Anning refinery in Yunnan is expected to be completed by the end of 2017. This is part of a vanguard of Saudi Arabian investments in key downstream markets to ensure continued outlets for its crude, as well as diversify its business as it prepares for the world’s largest IPO. Aramco will be spending some US$1-1.5 billion on the refinery, which will also include access to PetroChina’s retail assets.

Natural Gas & LNG

  • South Korea’s S-Oil, the third largest Korean refinery, has signed a long-term LNG supply contract with Petronas. The 15-year contract will see Petronas deliver 700,000 tons of LNG from March 2018, with S-Oil electing to use the LNG as refinery fuel and petrochemical feedstock. This is part of a wider plan by S-Oil to upgrade the fuel oil that used to power its 669 kb/d refinery in Ulsan to more valuable middle distillates as the market for fuel oil shrinks, particularly in the bunker arena, along with an upgrade to increase polypropylene capacity by 405,000 tons. Long-term supply contracts like this are likely to be less common in the LNG arena as the rise of competition promotes shorter deals, meaning this is a decent coup by Petronas. 
  • PTT Global Chemical will be teaming up by Japan’s Sanyo Chemical Industries and Toyota Tshusho Corporation to build a US$900 million polyols facility. To be located in Thailand’s petrochemicals hub of Rayong, the plant will have an initial capacity of 130,000 tons of polyether polyols and 20,000 tons of polyurethane per year. Completion and operations are expected to begin in 2020. PTTGC will own 82.1% of the venture, with Sanyo Chemical and Toyota Tsusho holding 14.9% and 3%, respectively. 

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U.S. natural gas production, consumption, and exports set new records in 2018

U.S. natural gas dry production, consumption, and exports

Source: U.S. Energy Information Administration, Natural Gas Annual 2018

The U.S. Energy Information Administration’s (EIA) Natural Gas Annual 2018 shows that the United States set new records in natural gas production, consumption, and exports in 2018. In 2018, dry natural gas production increased by 12%, reaching a record-high average of 83.8 billion cubic feet per day (Bcf/d). This increase was the largest percentage increase since 1951 and the largest volumetric increase in the history of the series, which dates back to 1930. U.S. natural gas consumption increased by 11% in 2018, driven by increased natural gas consumption in the electric power sector. Natural gas gross exports totaled 10.0 Bcf/d in 2018, 14% more than the 2017 total of 8.6 Bcf/d. Several new liquefied natural gas (LNG) export facilities came online in 2018, allowing for more exports.

U.S. consumption of natural gas by sector

Source: U.S. Energy Information Administration, Natural Gas Annual 2018

U.S. natural gas consumption grew in each end-use sector. Demand for natural gas as a home heating fuel was greater in 2018 than in 2017 because of slightly colder weather during most of the winter. Similarly, the summer of 2018 saw record-high temperatures that increased demand for air conditioning and, therefore, electricity—much of which was fueled by natural gas. U.S. electric power sector consumption of natural gas grew by 14% in 2017, more than in any other end-use sector. The electric power sector has been shifting toward natural gas in the past decade because of favorable prices and efficiency gains.

dry natural gas production by state for 2017 and 2018

Source: U.S. Energy Information Administration, Natural Gas Annual 2018

U.S. natural gas production growth was concentrated in the Appalachian, Permian, and Haynesville regions. Pennsylvania and Ohio, states that overlay the Appalachian Basin, had the first- and third-largest year-over-year increases for 2018, increasing by 2.0 Bcf/d and 1.7 Bcf/d, respectively. Louisiana had the second-largest volumetric increase in dry production, increasing by 1.8 Bcf/d as a result of increased production from the Haynesville shale formation. Texas remained the top natural gas-producing state, with a production level of 18.7 Bcf/d, as a result of continued drilling activity in the Permian Basin in western Texas and eastern New Mexico.

November, 18 2019
Your Weekly Update: 11 - 15 November 2019

Market Watch  

Headline crude prices for the week beginning 11 November 2019 – Brent: US$62/b; WTI: US$56/b

  • The trade war between the US and China – and its implications on the rest of the global economy – continue to weigh down on crude oil prices, as varying indications from American and Chinese authorities paint a sketchy picture of how, or when, the trade dispute could be resolved
  • Mild improvement in US and China manufacturing and job offered hope for a respite, but the broader picture is still negative, particularly in India where a worsening economy is tampering fuel demand growth and triggering a diesel glut
  • With OPEC and the OPEC+ club preparing to meet in Vienna in three weeks, words from within the group are that the largest and most influential producers are not pushing for deeper cuts but will instead emphasise greater adherence to the current supply deal that is set to expire in March 2020
  • This comes as OPEC predicts that US shale will continue to steal its market share through 2023, making the prospect of further cuts unpalatable to members who are loathed to further sacrifice volumes amid weak prices
  • In Venezuela – where tumbling output has thus far made the OPEC task of curbing output easier – production and exports seem to have steadied, with international shipments exceeding 800,000 b/d for the second month in a row in October; most volumes going to China and Rosneft under barter deals
  • In the Persian Gulf, where the Iran situation is another potential flashpoint, a US-led multinational coalition has begun patrolling the vital shipping lane to prevent attacks and threats in the critical seabourne oil distribution pathway
  • Signs that US crude output is heading for a period of tempered growth after explosive growth seem to be confirmed by the chronic deterioration in the active US rig count; 7 oil rigs stopped operation, bringing the total count to 817 – the lowest number in 31 months
  • Until there is more clarity on the US-China trade situation or the outcome of the December OPEC meeting in Vienna, crude oil prices are likely to stay rangebound at US$60-63/b for Brent and US$56-59/b for WTI – not high enough to please producers, but not low enough to prompt decisive action


Headlines of the week

Upstream

  • Adnoc is aiming to start trading of its new Murban crude futures contract on the Abu Dhabi exchange in Q2 or Q3 2020, aiming to create a new price benchmark for Middle Eastern crudes while lifting destination restrictions on the grade
  • Hungary’s MOL Group has bought out Chevron’s interests in Azerbaijan for US$1.57 billion, acquiring a 9.57% stake in the Azeri-Chirag-Gunashli (ACG) field and an 8.9% stake in the Baku-Tbilisi-Ceyhan (BTC) pipeline
  • Equinor – along with partners ExxonMobil, Idemitsu and Neptune – have announced a new oil find in the North Sea at the Echino South well in the Fram field, with recoverable resources estimated at 38-100 million boe
  • The Ivory Coast has launched a new licensing round, covering five offshore blocks located near existing discoveries and infrastructure
  • The Canadian province of Alberta is loosening its crude oil production limits once again after a severe lack of pipeline capacity strained production last year by exempting new conventional wells from current output caps; Alberta currently allows producers to exceed their limits if shipping the excess by rail
  • Kosmos Energy has announced a new offshore oil discovery in Equatorial Guinea at the S-5 well of the Santonian reservoir in the Rio Muni Basin
  • Equinor is exiting Eagle Ford, selling its 63% interest and operatorship of its onshore shale plays in the area to Spain’s Repsol for US$325 million
  • As Total’s offshore Brulpadda discovery in South Africa moves ahead, the challenging geography of the Paddavissie play may require a fixed platform

Midstream/Downstream

  • South Africa’s Central Energy Fund and Saudi Aramco are collaborating on a new 300 kb/d refinery at Richards Bay that is expected to come onstream by 2028 as the largest oil refinery in the southern Africa region
  • The Chevron-SPC Singapore Refining Co joint venture delivered its first cargo of very low sulfur fuel oil in October in Asia’s key bunkering hub, ahead of the IMO deadline for marine fuel oil sulfur content kicking in in January
  • The refurbishment of the idled St Croix refinery in the US Virgin Islands is on track for completion in early 2020, reducing capacity by a third to 210 kb/d but increasing capacity for cleaner fuels, particular for marine usage
  • Husky Energy has completed the sale of its 12 kb/d Prince George refinery in Canada’s British Columbia to Tidewater for US$215 million

Natural Gas/LNG

  • The Port Kembla LNG import terminal in Australia’s New South Wales is facing delays, as Australian Industrial Energy and Japan’s JERA struggle to lock in customers to make the project commercially viable
  • Having taken over Anadarko’s interest in the Mozambique LNG project, Total is now looking to expand the export terminal with two additional trains, which could double capacity from a current planned 12.9 million tpa
  • The OMV/ETAP Nawara gas field in Tunisia is on track to produce first natural gas by end-2019, with capacity of 2.7 mcm/d boosting the country’s gas output by 50% and slashing gas imports by some 30%
  • After years of delays, the site for Indonesia and Inpex’s 9.5 million tpa Abadi LNG project has been decided as Yamdena island in the Arafura Sea

Corporate

  • Total will be exiting a key American industrial lobby group, following in the footsteps of Shell as it claims a divergent outlook on climate change issues
November, 15 2019
Brazil Needs a “Makeover” For Future Oil Bids

The year’s final upstream auctions were touted as a potential bonanza for Brazil, with pre-auction estimates suggesting that up to US$50 billion could be raised for some deliciously-promising blocks. The Financial Times expected it to be the ‘largest oil bidding round in history’. The previous auction – held in October – was a success, attracting attention from supermajors and new entrants, including Malaysia’s Petronas. Instead, the final two auctions in November were a complete flop, with only three of the nine major blocks awarded.

What happened? What happened to the appetite displayed by international players such as ExxonMobil, Shell, Chevron, Total and BP in October? The fields on offer are certainly tempting, located in the prolific pre-salt basin and including prized assets such as the Buzios, Itapu, Sepia and Atapu fields. Collectively, the fields could contain as much as 15 billion barrels of crude oil. Time-to-market is also shorter; much of the heavy work has already been done by Petrobras during the period where it was the only firm allowed to develop Brazil’s domestic pre-salt fields. But a series of corruption scandals and a new government has necessitated a widening of that ambition, by bringing in foreign expertise and, more crucially, foreign money. But the fields won’t come cheap. In addition to signing bonuses to be paid to the Brazilian state ranging from US$331 million to US$17 billion by field, compensation will need to be paid to Petrobras. The auction isn’t a traditional one,  but a Transfer of Rights sale covering existing in-development and producing fields.

And therein lies the problem. The massive upfront cost of entry comes at a time when crude oil prices are moderating and the future outlook of the market is uncertain, with risks of trade wars, economic downturns and a move towards clean energy. The fact that the compensation to be paid to Petrobras would be negotiated post-auction was another blow, as was the fact that the auction revolved around competing on the level of profit oil offered to the Brazilian government. Prior to the auction itself, this arrangement was criticised as overtly complicated and ‘awful’, with Petrobras still retaining the right of first refusal to operate any pre-salt fields A simple concession model was suggested as a better alternative, and the stunning rebuke by international oil firms at the auction is testament to that. The message is clear. If Brazil wants to open up for business, it needs to leave behind its legacy of nationalisation and protectionism centring around Petrobras. In an ironic twist, the only fields that were awarded went to Petrobras-led consortiums – essentially keeping it in the family.

There were signs that it was going to end up this way. ExxonMobil – so enthusiastic in the October auction – pulled out of partnering with Petrobras for Buzios, balking at the high price tag despite the field currently producing at 400,000 b/d. But the full-scale of the reticence revealed flaws in Brazil’s plans, with state officials admitting to being ‘stunned’ by the lack of participation. Comments seem to suggest that Brazil will now re-assess how it will offer the fields when they go up for sale again next year, promising to take into account the reasons that scared international majors off in the first place. Some US$17 billion was raised through the two days of auction – not an insignificant amount but a far cry from the US$50 billion expected. The oil is there. Enough oil to vault Brazil’s production from 3 mmb/d to 7 mmb/d by 2030. All Brazil needs to do now is create a better offer to tempt the interested parties.

Results of Brazil’s November upstream auctions:

  • 6 November: Four blocks on offer, two awarded (Buzios, 90% Petrobras 5% CNOOC 5% CNODC ; Itapu, 100% Petrobras)
  • 7 November: Five blocks on offer, one awarded (Aram, 80% Petrobras 20% CNOOC)
November, 14 2019