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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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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