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Last Updated: October 6, 2017
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Last week in World oil:

Prices

  • With OPEC production rising in September as supplies from Nigeria and Libya recover, and US drilling numbers also show improvement, crude oil prices fell slightly from their recent highs – with Brent trading at about US$56/b and WTI at US$50/b.

Upstream

  • Chevron is committing some US$4 billion to ramp up crude production in the Permian Basin, aiming to grow its production there from 90,000 b/d in 2016 to over 400,000 b/d over the next five years. With a report calling the Permian a ‘super basin’ with some 60-70 billion barrels yet unpumped, Chevron expects production across all producers in the Permian to rise to 3.8 mmb/d in 2020, from a present 2.4 mmb/d.
  • Brazil’s latest round of oil block auctions revealed one very big winner – ExxonMobil – and one very big loser – the Santos basin. ExxonMobil bet big on the offshore pre-salt Campos basin, taking its first Brazilian blocks in five years. A total of eight blocks were handed to ExxonMobil, six in partnership with Petrobras, with changes in Brazilian regulations allowing private players to operate blocks on their own now. This could make ExxonMobil the pre-eminent pre-salt crude producer in Brazil. Meanwhile, of the 76 blocks offered in the prized offshore Santos basin, only one received a bid – by Australia’s Karoon Gas – a sign that in a persistent low oil price environment, upstream companies are still wary.
  • American drillers added oil rigs for the first time in seven weeks, as six new sites (mostly in Utah) brought the total oil rig count to 750 and the total rig count to 940.

Downstream & Midstream

  • Pemex’s largest Mexican refinery– the 330 kb/d Salina Cruz site – will remain offline until the third week of October, as a series of natural disasters including flooding, storms and two earthquakes devastated its refining production, causing product shortages across Mexico.

Natural Gas and LNG

  • The Ruby well in the Dutch North Sea cold hold more gas than previously anticipated, which would be a shot in the arm for waning gas production in the Netherlands. Flows from the well 20km offshore have been encouraging; with estimates suggesting it could contain some 2 trillion cubic feet of gas, more than the country’s current annual production. The partners on the Ruby well as Oranje-Nassau Energie, Energie Beheer Nederland, Hansa Hydrocarbons and Avista Capital Partners.
  • Trader Glencore has agreed to purchase Angola LNG in a multi-year deal that represents a new foray for the country. Angolan LNG has mainly been sold on the spot market – as the shale boom curtailed Angola’s initial plan of shipping LNG to the US – but the Glencore deal joins similar longer-term contracts signed by Angola with Vitol and Germany’s RWE, as jitters about Angola LNG’s reliability as a supplier fade. Russia major Gazprom has also signed a recent long-term deal, with Ghana National Petroleum Corp, to purchase LNG over a 12 year period beginning 2019. Details on volumes, however, were not released.

Last week in Asian oil

Downstream & Midstream

  • Petronas Chemicals has agreed to sell a 50% stake in its PRPC Polymers subsidiary to Saudi Aramco for some US$900 million. The sale will be completed by 15 March, 2018, when the new shareholding structure for the previously wholly-owned company takes effect. Devoted to developing, constructing and operating polymers and glycol plants in Malaysia, but having yet started operations, the tie-up with Saudi Aramco bring in a deep-pocketed partner for Petronas, while being part of Aamco’s diversification plan. Aramco and Petronas are already partners in the massive US$27 billion RAPID project in the southern state of Johor.

Natural Gas & LNG

  • Australia has let Shell, ConocoPhillips, Origin and Santos off the hook for the current gas shortage in the eastern states for now. The government had threatened to impose export curbs on the four producers if they did not redirect supplies meant for LNG export to the domestic market. There are three LNG export plants currently on Australia’s east coast, and the deal with the government will see the plants act on their promise to provide supplies to meet the government’s projected shortfall of up to 17% of domestic demand in 2018.
  • Woodside is partnering with Chevron to pick up three new exploration blocks off the north-west coast of Australia. With equal stakes in the permits, both companies are eyeing gas from the WA-528-P, WA-529-P and WA-530-P permits in the Carnarvon Basin to supply their respective – and competing – LNG plants in Western Australia. Operated by Chevron, the gas blocks are ideally placed some 250km north-west of the existing Pluto, Gorgon and Wheatstone plants, increasingly important as an LNG supply point to East Asia.
  • Thailand has decided to delay its auctions for the Erawan and Bongkot gas concessions for at least another month, expecting to only announce the winners in the middle of 2018. Chevron currently operates Erawan and state firm PTTEP operates Bongkot, with licenses set to expire in 2022 and 2023. Combined, both fields account for some 76% of Gulf of Thailand output, with the delay stemming from a government review of the new PSC terms to be used for the new licences. Chevron and PTTEP are bidding to keep the fields, while local firms Bangchak and Palang Sophon, along with Abu Dhabi’s Mubadala Petroleum and Japan’snMitsui Oil Exploration, are also in the running.
  • South Korea’s KOGAS is planning to build the country’s fifth LNG import terminal, targeting operational usage by 2025. The plant – which is planned to have ten 200,000 cbm storage tanks and associated infrastructure at the port of Dangjin near Incheon - will join the existing terminals at Incheon, Pyengtaek, Tongyeong and Samcheok.
  • India’s Reliance has outbid its rivals in a competitive auction for coal-bed methane produced from its own blocks in central India until at least March 2021. Reliance will purchase up to 3 million cbm/d of coal seam gas from its blocks in Sohagpur East and Sohagpur West in Madhya Pradesh, to be used as petrochemical feedstock.

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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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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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