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Last Updated: September 29, 2017
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Last week in World oil:

Prices

  • Oil prices got a boost, within striking distance of US$60/b, as major producers say that the global supply glut is shrinking as strong demand creates a rebalancing, as well as threats by Turkey to cut off Kurdistan’s only pipeline outlet for its crude oil over its independence referendum.

Upstream

  • As Lebanon seeks to join Cyprus, Egypt and Israel in exploiting potential offshore oil and gas resources, its Parliament has approved a law outlining tax revenue structure for oil companies, as Lebanon prepares for its first offshore auction. Five offshore areas will be offered on October 12, to be taxed at 20% income tax under the new law; 46 companies have signed up for the auctions, including ExxonMobil, Shell, Eni and Total.
  • A third consecutive week of decline for US drillers, as the loss of five oil rigs was only partially offset by the gain of four gas rigs. Losses were mainly in Eagle Ford, while restarts begin in the Permian.

Downstream & Midstream

  • Phillips 66 Partners LP – the master limited partnership that operates pipelines in the Bakken basin – will buy midstream assets from its parent Phillips 66 in a US$2.4 billion deal. Under the deal, Phillips 66 Partners will acquire a 25% interest in the Dakota Access and Energy Transfer Crude Oil Company LLCs – totalling 530 kb/d of crude oil pipeline capacity. With both companies listed separately, this leaves Phillips 66 free to concentrate on refining operations, and the MLP on distribution.
  • After Harvey and Irma – and with Maria on its way – the resulting gap in Gulf refining production is proving to be a boon for European diesel exports to Latin America. Trade sources indicate that some 600,000 tons of diesel and heating oil will be heading to Brazil and Argentina from Europe, as the fuel hungry region finds volumes from its traditional sources in the US Gulf and Caribbean withdrawn. This is some three times the usual trade, and is expected to continue until end October.

Natural Gas and LNG

  • Cheniere has officially requested permission from the US Federal Energy Regulatory Commission to place the fourth train at its Sabine Pass LNG export facility in Louisiana into service. First LNG was achieved at Train 4 in July, checking off all environmental and safety requirements. Cargo commissioning has already begun, bringing Cheniere close to its ambition of six trains at Sabine Pass, each with 4.5 mtpa capacity.
  • Algeria’s Sonatrach is aiming to boost gas output at its Hassi Messaoud field by 10 mcm/d and at its Rhourde el Baguel oil field by 6 mcm/d. This attempt to up output comes as Sonatrach seeks buffer against fluctuating oil prices to stabilise government revenues. The additional volumes will come on by next year, targeted as exports to Europe.
  • Canada’s Veresen is trying once again to gain US federal approval for its Jordan Cove LNG export plant in Oregon. The project has been rejected twice under the Obama administration, but the Trump presidency might be friendlier to the US$10 billion, 7.8 mtpa project targeting Asia. Meanwhile, the Eagle LNG Maxvillesmall-scale LNG facility in Florida has been approved, with capacity for some 21 mtpa of exports.

Last week in Asian oil

Upstream

  • Saudi Aramco is moving ahead with the development of its Safaniyah, Marjan, Zuluf and Berri oilfields, handing out more than US$1.5 billion in three major offshore contracts as it continues on a US$300 billion investment plan through 2027. The technical contracts precede major development plans for the fields, which include the sixth phase of the giant Safaniyah field (with 37 billion barrels of heavy oil), a US$3 billion expansion of Marjan and a boost in production at Berri by 200 kb/d.
  • India’s ONGC has announced a ‘good’ offshore find near its Mumbai High offshore fields that could hold some 20 million tons of oil equivalent. Though small by international standards, it is a large discovery in India terms, with the WO 24-3 well in a different play than neighbouring Mumbai High fields, potentially opening up a new area of exploration.

Downstream & Midstream

  • Sri Lanka is in talks with the two Chinese companies to build a US$3 billion oil refinery in the new Chinese-build port of Hambantota. The proposed 115 kb/d is the second of two planned refineries in Sri Lanka, to ease pressure on the aging CPC refinery. The first, a 100 kb/d site planned with Indian Oil in Trincomalee is export-oriented, while the new Chinese site will serve both domestic needs and produce some exports.
  • A jet fuel crisis continues to brew in New Zealand, as over 200 flights have been cancelled from Auckland – the country’s largest city – as the sole, private-owned pipeline delivering jet fuel to the airport from NZ’s sole refinery was damaged for months without being fixed.

Natural Gas & LNG

  • The government of Papua New Guinea will be selling off its stake in Oil Search, as it seeks to pay off some US$1 billion in debt. With stakes in PNG’s massive Elk and Antelope gas fields, Australia’s Oil Search has a major presence in PNG, though it was beaten out by ExxonMobil to acquire InterOil earlier this year. The PNG government holds a 9.8% stake in the company, which will be sold by UBS and JP Morgan at a floor price of A$6.55 per share.
  • Bangladesh signed its fourth and fifth natural gas import deals last week, with Indonesia and Gunvor. Under the preliminary long-term agreement with Indonesia’s Pertamina, Petrobangla will take in at least 1 million mtpa of LNG from Indonesia, while the contract with Gunvor is for a mixture of spot, short-term and medium-term volumes, beginning in 2018. Bangladesh has also signed a contract with Qatar to import some 2.5 mtpa of LNG from RasGas over a 15 year period for cooking fuel.
  • China’s CNOOC is reviving a plan to build an LNG import terminal in Binhai, Jiangsu. Initially proposed in 2010, the US$1.7 billion project has been endorsed by CNOOC’s investment committee as China’s appetite for LNG continues to grow. The project has an initial capacity of 3 mtpa of LNG, with a potential phase doubling capacity to 6 mtpa. Associated power generation facility will be included in the project as well.
  • Japan’s Mitsui OSK Lines is aiming to buy a stake of at least 26% in the Swan Energy FSRU off the coast of Jafrabad in Gujarat, Insia. With capacity for 5 mtpa and startup expected in 2020, the FSRU is being built by Hyundai Heavy Industries and chartered to Swan Energy by Mitsui OSK. The Japanese company will also be taking an 11% stake in Swan LNG, the Swan Energy subsidiary that will manage terminal and port facilities.

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September, 16 2021
The New Wave of Renewable Fuels

In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.

Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.

Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.

This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.

But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.

In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.

But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.

Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.

Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.

End of Article

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Market Outlook:

  • Crude price trading range: Brent – US$71-73/b, WTI – US$68-70/b
  • Global crude benchmarks have stayed steady, even as OPEC+ sticks to its plans to ease supply quotas against the uncertainty of rising Covid-19 cases worldwide
  • However, the success of vaccination drives has kindled hope that the effect of lockdowns – if any – will be mild, with pockets of demand resurgence in Europe; in China, where there has been a zero-tolerance drive to stamp out Covid outbreaks, fuel consumption is strengthening again, possibly tightening fuel balances in Q4
  • Meanwhile, much of the US Gulf of Mexico crude production remains hampered by the effects of Hurricane Ida, providing a counter-balance on the supply side

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