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Last Updated: September 15, 2017
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Last week in World oil:

Prices

  • Oil prices remained mixed at the start of this week, with Brent at US$53/b and WTI at US$48/b. The aftermath of Hurricane Irma hitting the Caribbean and Florida has stoked fears over demand, while there has been some delay in Texas refineries restarting post-Hurricane Harvey. Rumblings that Saudi Arabia and the UAE were pushing for a new extension in the OPEC supply cut agreement did provide some lift.

Upstream

  • Azerbaijan’s Socar is playing hardball as it negotiates new production sharing agreements with BP and the consortium for the Azeri-Ciraq-Gunashli oil fields. Originally signed in 1994, all parties want to extend it beyond expiration in 2024, but Azerbaijan is reported demanding its share to be increased to 20% from 11.6%. BP would be the major loser under this proposition, having its share reduced from 35.8% to 30%.
  • After gaining approval to move ahead with the Karish-Tanin natural field gas in Israel last week, Greece’s Energean Oil and Gas has also gained approval for Kataloko oil field in Western Greece. This will be Energean’s third project in the eastern Mediterranean, with a target of producing 11 million barrels of oil by 2020 and FID expected in 2018.
  • The rebalancing in Canadian heavy oil sector continues, as Canadian Natural Resources purchased Cenovus Energy’s Pelican Lake project in northern Alberta for US$788 million. Cenovus has been selling off assets acquired from ConocoPhillips in March to optimise its portfolio, allowing Canadian Natural to pick up its second major purchase this year, having bought Shell and Marathon Oil’s oil sands production for US$10.3 billion.
  • The US lost 3 oil rigs last week – the third fall in the past four weeks – although this was offset by a gain of 4 gas rigs, leading to a net gain of one.

Downstream & Midstream

  • Shell has joined the race for Mexico’s fuel retail sector, opening its first gas station last week as Pemex’s monopoly ends. The inaugural station is located in Mexico City, with Shell reporting that more will come as investments of up to US$1 billion are planned over the next decade.
  • Magellan Midstream Partners will be expanding its refined products pipeline system to handle emerging demand for gasoline, gasoil and jet fuel in Central and North Texas. A new 216-km pipeline will be build from Magellan’s terminal to Hearne, in partnership with Valero Energy, while an existing pipeline will be reversed and linked to the new segment.

Natural Gas and LNG

  • Angola will be selling LNG from its sole export facility to Vitol in its first long-term deal. Prior to this, Angolan LNG had been sold entirely via competitive tenders on the spot market, as concerns over plant reliability and consistent supply failed to create multi-year deals. Details of the agreement are confidential, but are part of a growing trend of traders securing long-term deals with producers to create a global LNG portfolio.

Corporate

  • Chinese conglomerate CEFC will buy a 14.16% stake in Russia’s Rosneft from Glencore and the Qatar Investment Authority for US$9.1 billion, boosting energy partnership between China and its largest supplier.

Last week in Asian oil

Upstream

  • The latest revisions to Indonesia’s new oil and gas production sharing contracts are seen as positive steps to attract investors. The latest tweaks keeps the government’s share at 52% for gas and 57% of oil production, but increase other components such as contractors’ share of output in the second and third stages of production or where assets have higher sulphur content. The Indonesian Petroleum Association described the revisions as ‘encouraging’, also praising the new tax incentives being drafted to make new energy contracts more attractive.

Natural Gas & LNG

  • India’s Reliance and BP have revived investment plans for the gas-rich NEC-OSN-97/2 block in the Bay of Bengal, within the offshore Mahanadi basin. Plans to develop the block were originally hindered by objections from the Defence Ministry due to its proximity to the Chandipur missile test base. These objections appeared to have been assuaged, and Reliance is now proceeding with development. This would be the second major project for Reliance and BP, which recently signed off on a US$6 billion plan to develop the Krishna-Godavari offshore basin, part of the India government’s plan to revive and boost domestic natural gas production.
  • BP has begun drilling its first shale gas well in the Neijiang-Dazhu block in China’s Sichuan basin, under a PSC with CNPC. This will be the first shale gas well to be drilled by a foreign major in China in several years, although CNPC is technically the block’s operator under the PSC terms. The block is one of two PSCs signed by BP with CNPC in the Sichuan basin, the other being Rongchangbei. Both blocks are understood to contain shale gas and conventional natural gas, but recent disappointments by Shell, Chevron and Hess in Sichuan and Guizhou may mean that the assets may not be commercially viable.
  • Australia’s Senex Energy will be developing a new gas field in the Surat Basin in Queensland, aiming to offer first gas to a tight local market by 2019. Senex gained the acreage for free on the condition that it be used to supply the Australian east coast market, and is next to Shell’s QGC acreage and close to existing gas pipeline infrastructure.
  • India’s Petronet LNG has announced a joint venture with Japanese and Sri Lankan partners to build an LNG terminal in Colombo. The plant is aimed at supplying gas to Sri Lanka’s power and transport sector, with initial design and capacity still under discussion. Completion is expected within two years of FID.
  • Western Australia has temporarily banned onshore hydraulic fracturing as it assesses environment risks associated. The state joins Victoria in banning fracking, with other Australian state also having moratoriums.

Corporate

  • Fresh of China’s acquisition of a stake in Rosneft by CEFC, Japan has also expressed interest in investing in energy companies, specifically citing Rosneft. The expressions of interest are by the Japan Oil, Gas and Metals National Corporation (JOGMEC), and can be seen as an attempt to not be left behind by China’s drive to acquire strategic stakes in key producers.

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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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How To Maintain A Wood Pellet 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