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Last Updated: October 13, 2017
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Last week in World oil:

Prices

  • Despite OPEC’s best efforts to insist the ‘supply freeze is working’, crude oil prices continue to dawdle as the market instead focuses on continued oversupply, particularly with US production returning from Hurricane Harvey closures. Brent is trading at US$55/b, and WTI at US$49/b.

Upstream

  • In a potential landmark decision, Brazil’s oil regulator ANP approved Petrobras’ request to source a rig platform from abroad, skirting the country’s obligation to source from domestic producers. Meant to explore the oil-rich pre-salt Libra area, the waiver to strict local content rules was granted due to a lack of domestic capacity, potentially paving the way to opening up the Brazilian services sector to international competition.
  • Total, Eni and Statoil are courting buyers for their stake in the Teesside oil terminal, which receives crude from Norway’s Ekofisk fields. A price of up to US$400 million is expected for the trio’s joint 70.5% stake, with ConocoPhillip intent on remaining as operator through its 29.3% stake.
  • Ties between Venezeula and Russia continue to deepen out of necessity as the former moves to stave off a domestic financial crunch by consorting with Rosneft. The Russian energy firm currently holds 49.9% collateral in PDVSA’s American refining subsidiary Citgo, and Venezuela is negotiating to swap that for shares in its oilfield assets and a fuel supply deal to provide some much need energy products for the cash-strapped nation.
  • US drillers reduced active rigs by 4 – two oil, two gas – with energy firms delaying spending plans as prices remain weak.

Downstream & Midstream

  • TransCanada has given up on the Energy East pipeline, which would have delivered oil sands crude from landlocked Alberta to Canada’s eastern seaboard ports. Facing stiff opposition from environmental groups, the C$15 billion project is less important than it once was, now that the Keystone XL pipeline – which will send Alberta crude down to the US Gulf Coast – is resuming.
  • Shell and Vitol subsidiary Varo Energy have agreed to discontinue talks to sell Shell’s 37.5% stake in the 220 kb/d PCK refinery in Scwedt, Germany to the latter. The deal would have included the Arhem terminal in the Netherlands, then seen as part of Shell’s global divestment drive.

Natural Gas and LNG

  • Statoil and its partners on the Troll gas field, Norway’s largest, are working to increase its output. Work to allow oil and gas to be produced simultaneously from the Troll West reservoir will introduce some much-needed flexibility to a field that represents 40% of Norway’s gas resources. Output is expected to reach a record high of 36 bcm this year.
  • The BRUA natural gas pipeline in Eastern Europe is back on track after an earlier hiccough in summer when Hungary doubted the commercial viability of the pipeline that will connect Bulgaria, Romania, Hungary and Austria. All four countries have now agreed to resume the project, which will deliver an initial 1.75 bcm of gas from Bulgaria and Romania in 2019


Last week in Asian oil

Upstream

  • Reliance is selling a Marcellus shale oil and gas block it acquired in 2010 for US$126 million, almost a third of the price it paid seven years ago. It illustrates how highly competitive the US shale industry has become, and many majors that invested are now backing out due to low oil prices. Reliance sold the asset to BKV Chelsea LLC, with Carrizo Oil & Gas – the operator of the asset – also selling out. This cuts Reliance’s US shale assets to two, acquired in the 2010 US$2 billion spending spree, and Reliance is likely to cut the other two loose as well.

Downstream & Midstream

  • India’s Reliance has purchased US crude for the first time, as the widening differential between US WTI and Brent prompts the owner of the largest refining complex in the world to capitalise on crude spreads. Capable of processing even the most challenging crudes, the Jamnagar refinery bought a million barrels of West Texas Intermediate Midland crude and a smaller cargo of Eagle Ford Crude – a light, sweet mix that is slightly unusual for its configuration. Reliance itself may be giving up on upstream assets in the US, but cheaper American crude has prompted it to join IndianOil, HPCL and BPCL in buying American cargoes, with year-to-date purchases of 7.85 million barrels so far, a record high.

Natural Gas & LNG

  • LNG output has begun at Chevron’s Wheatstone in Australia, with the first cargo expected at the end of October. Operational after six years of construction, Wheatstone has faced less hurdles in achieving operation than Chevron’s larger Gorgon LNG, but also suffered a similar cost blowout. Only the first liquefaction train is operational; the second will join within eight months, with a total capacity of 8.9 mtpa of LNG, most of which is destined for East Asia. Wheatstone is the sixth of Australia’s mammoth LNG projects to start up, with the only two remaining being Shell’s Prelude floating LNG unit and Inpex’s Ichthys project.
  • Kazakhstan will begin exporting natural gas to China by pipeline on October 15, shipping an initial 5 bcm to PetroChina over a year for a reported price of US$1 billion. It is the first such deal between China and Kazakhstan, which has until now shipped its gas to Russia as additional pipelines were required to connected to the main pipeline linking China and the three main Central Asia energy producers.
  • Shell has cancelled its US$900 million deal to sell its Thai gas field stakes to the Kuwait Foreign Petroleum Exploration Company. Originally announced in January this year as part of Shell’s ongoing divestment drive to reduce debt, the collapse of the sale looks to be linked to Shell having reached its US$30 billion divestment target early, which has led it to retain some of the smaller jewels it had put on sale. Through its local subsidiaries, Shell has a 22.22% stake in the Bongkot natural gas field, whose concession is set to expire in 2023.  

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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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- The gearboxes are made of high-quality cast iron materials which provide excellent shock absorption and low noise. The wood pellet mills adopt a gear drive that makes a better efficiency in comparison with worm drive or belt drive. The gear drive setup really helps to prevent belt slippage while extending the lifespan in the belt drive.

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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