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Last Updated: October 20, 2017
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Last week in World oil:

Prices

  • Crude prices remain stuck in their range – Brent at US$57/b and WTI at US$51/b – as swings in US inventories outweigh Middle Eastern geopolitical concerns, with little on to horizon to move the market. 

Upstream

  • Chinese major Sinopec is planning to exit Argentina, after losses and labour woes prompted it to put its oil assets on sale. Acquired in 2010 from Occidental Petroleum for US$2.45 billion, the acquisition was part of Sinopec’s drive to establish a portfolio of international upstream assets. However, a shaky political and economic situation in Argentina caused losses, and the oil and gas assets – mainly in the southern province of Santa Cruz – now have a price estimate of US$750 million-1 billion.
  • Uganda is quickly becoming a potential new African upstream bright spot, with Nigeria’s Oranto Petroleum recently signing two PSCs to explore around the Lake Albert basin. The Ngassa Shallow Play and Ngassa Deep Play are located within the Albertine rift basin where Uganda first struck oil in 2006; Uganda’s first domestic oil is expected in 2020.
  • Cote d’Ivoire has concluded four PSCs with Tullow Oil in a bid to jumpstart its fledgling upstream industry. Producing a mere 8 kb/d of oil and 200 mcf/d of gas, Cote d’Ivoire lags behind Senegal and Ghana, but is hoping that recent big finds in its neighbours hint at potential within its waters. State oil firm Petroci will hold 10% of each PSC.
  • US drillers cut active rig counts for the fourth time in five weeks, as price realities impact production plans. Eight rigs were removed from service last week – five oil and three gas – leaving the total active count at 928.

Downstream & Midstream

  • Another international joins the queue to exploit Mexico’s recently deregulated fuel retail industry, joining Shell, BP, ExxonMobil and Glencore. France’s Total is expanding its downstream presence in Mexico from specialty products to a full service station network, rebranding some 250 Mexico City-area GASORED group sites to the Total brand. The first site will be opened in late 2017, rolling out over 2018 and 2019. 

Natural Gas and LNG

  • More LNG this way comes. A week after Chevron began operations at Wheatstone, Russia’s Yamal LNG project in the Arctic confirmed that it will ship its first LNG cargo in November. Operated by Russia’s Novatek with France’s Total, China’s CNPC and the Silk Road Fund, Yamal will begin with two shipments in November, four in December, then ramp up to ten in 2018. The first cargoes were reportedly sold on the spot market.

Corporate

  • Indications are the Saudi Aramco’s planned IPO has hit some snags. Recent reports indicate that some delays are expected, with a two-stage IPO likely – floating in Riyadh by the end of 2018 and delaying the planned international portion until 2019. Some chatter on the market even suggests that Aramco may scrap the international portion altogether, replacing with a private share sale to select world sovereign funds and institutional investors.

Last week in Asian oil

Upstream

  • Malaysia’s Petronas has outlined its plans for the Bukit Tua field in Indonesia. Phase one of Bukit Tua came on stream in May 2015; phase two is currently underway and Petronas wants to expand into a phase three that will exploit the field’s Kujung horizon. Expansions will continue through July 2022, lifting production from its current peak rate of 20 kb/d of oil and 50 mmscf/d of gas. Petronas holds 80% of the PSC, with the remainder held by Pertamina.

Downstream & Midstream

  • CNOOC’s 200 kb/d refinery in Huizhou is ready for commissioning. Crude trial runs have been completed at the site in Guangdong, which is part of CNOOC’s Huizhou refining and petrochemical complex that represents the firm’s move downstream to compete with Sinopec and PetroChina. The focus of the complex is for both fuels and chemicals, with a 1.2 mtpa ethylene plant (a joint venture with Shell) due to be completed in Q12018.
  • From a loose and scrappy group, China’s independent refiners – the teapots – are increasing becoming more structured and united, as they face increasing criticism from Sinopec and PetroChina. After forming a crude buying alliance last year, six influential teapots – including Dongming, the country’s largest independent refiner – set up the Shandong Refining & Chemical Group last month, and has now bolstered it with a CNY33 billion (US$5 billion) fund. The joint fund will go to joint production, operation and investment plans, as well as lobbying efforts, to support the group’s refining capacity of 660 kb/d.
  • Once dismissed as a pipe dream, the private Pulau Muara Besar refinery planned by Hengyi Petrochemical in Brunei actually appears to be progressing to reality. The Chinese group has started up a trading office in Singapore, which will buy crude and trade fuel products produced at the 175 kb/d, US$3.4 billion project. Primarily a petrochemical play to support Hengyi’s fabric and industrial arms, the refinery will also produce a significant amount of gasoline, gasoil and jet fuel, which Hengyi has no internal use for. The company has also announced a US$12 billion second phase that will include expanding capacity to 280 kb/d and secondary units to produce some 1.5 mtpa of ethylene and 2 mtpa of PX.

Natural Gas & LNG

  • Bangladesh is striving ahead in its LNG ambitions, signing up for a third floating LNG project with Malaysia’s Petronas and China’s Hong Kong Manjala Power. Planned to be located at Kutubdia in Cox’s Bazaar, the 3.5 mtpa import terminal is planned for a 2019 start, just in time to replace Bangladesh’s dwindling natural gas production. The country’s first FSRU – a 3.75 mtpa facility off Moheshkhali in the Bay of Bengal – is expected to start up in 2018.
  • CNPC has started up its third natural gas pipeline servicing Shanghai, aiming to meet the growing demand for clean power generation fuel in the city. The new 88km pipeline connects the Rudong LNG receiving terminal in Jiangshu with Shanghai’s Chongming island, with a capacity of some 1.84 billion cbm per year.

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China’s Strategic Petroleum Reserves

After the OPEC+ club met on September 1st,  and confirmed that it would be sticking to its plan of increasing its crude supply by 400,000 b/d a month through December, China made a rather unusual announcement. It announced that it was going to release some crude oil from its strategic petroleum reserves, selling it to domestic refiners that were grappling with crude’s heady price rise over 2021. The release of strategic oil reserves isn’t news in itself. What is news is that the usually secretive China did it and did it publicly.

And it did it to send a message to OPEC+: attempts to create artificial scarcity to maintain crude prices will not be tolerated. China has a right to feel that way. Even though great strides have been made to ease the effects of the Covid-19 pandemic worldwide, the virus is still exerting major effects on the global economy. Not least a massive ripple through the health of global supply chains that has seen the price of almost everything – plastics, semiconductors, agricultural commodity, lumber, steel – spike due to supply issues. In some cases, the prices of raw materials are at historic highs. Crude oil is still nowhere near its peak of above US$100/b, but it is high enough to be concerning, especially since it is happening within a major inflationary environment. And for a manufacturing-heavy economy like China, that matters. That matters a lot. So China’s National Food and Strategic Reserves announced that it would be releasing some of the country’s crude stocks to ‘better stabilise domestic market supply and demand, and effectively guarantee the country’s energy security’, a month after the country’s producer price inflation – ie. the cost of manufacturing – hit a 13-year high.

China made good on that promise, releasing 7.38 million barrels from its stockpile to domestic bidders on September 24 with more tranches expected. This was the first ever recorded release from China’s Strategic Petroleum Reserves (SPR), which began back in 2009 in serendipitous response to crude oil prices exceeding the US$100/b mark for the first time in 2008. But curiously, it may not have been the first ever release. So secretive is the SPR that China does not reveal the size of the reserve, although analysts have estimated it at some 300-400 million barrels with total capacity of 500 million barrels using satellite imaging. It has been speculated that batches of crude from the SPR have been released before on the quiet. But this is the first time China has gone public. Compared to the country’s overall oil consumption, 7.38 million barrels is small, almost tiny. And even if additional supplies are released, it will not make a major impact on China’s oil balances. But the message is what is important.

It is a message that China is not alone in sending. US President Joe Biden has already called on OPEC+ to accelerate its supply easing plans, given indications that the crude glut built up over 2020 has been all but erased. It is a notion that would be supported by some OPEC+ members – Russia, Mexico, the UAE – but so far, the discipline advocated by Saudi Arabia has held. The US too has attempted to release of its own crude reserve stocks – the largest in the world with a capacity of 727 million barrels – but this was also in response to the devastating impact of Hurricane Ida. India, China’s closest analogue to size and stage, has been complaining too. As a major oil importer and with a shakier economic situation, India is particularly sensitive to oil price swings. US$70/b is way above what New Delhi is comfortable with. But since India’s appeals to OPEC+ have fallen on deaf ears, it is attempting domestic directives instead. India’s state refiners have been ordered to reduce crude purchases from the Middle East, but with supply tight, there aren’t many other people to buy from. India has also been selling oil from its strategic reserve – officially stated to be for clearing space to lease storage capacity to refiners – although since India is more transparent about these announcements, the announcement isn’t as surprising.

Will it work? At least immediately, no. Crude prices did come under pressure in the wake of China’s announcement, but then recovered with Brent hitting US$75/b. But the fact that China timed the announcement of the September 24 auction to coincide with peak global trading time and with a lot of details (again an unusual move) shows that Beijing is serious about wielding its strategic reserves as weapons. If not to moderate crude prices, then to at least stabilise it. But this is a war of attrition. China may very well have a planned schedule to release more crude reserves over 2021 and 2022 if prices remain high, but its supplies are finite. And they will have to eventually be replenished, possibly at an even higher cost if the attempt to quell crude price inflation fails. Thus far, the details of the SPR release hint that this is a tentative dip in the pool: the volume of 7.38 million barrels was far lower than the 35-70 million barrels predicted by some market participants. And because successful bidders can lift the oil up to December 10, it seems unlikely that a second auction for 2021 is in concrete plans at this point.

But, at the very least, the message has been sent. Beijing has a tool that it can wield if crude prices get out of hand, and it is not afraid to use it. The first step might have been small, and it is a giant leap in what mechanics are available to influence crude prices. And as history has proven, China can be very quick to scale up and very single-minded in its approach. Over to you, OPEC+.

End of Article

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Market Outlook:

  • Crude price trading range: Brent – US$73-76/b, WTI – US$71-74/b
  • Global crude benchmarks retain their strength, with Brent zipping past US$75/b, as supply-side issues and healthy demand continue to reverberate
  • After Hurricane Ida, US upstream players have gradually brought back some 70% of Gulf of Mexico production, easing some supply concerns, but a standoff between Libya’s Ministry of Oil and National Oil Corp could disrupt Libyan output

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September, 23 2021
Chicago Cubs Shirts: Wear Style with Ultimate Comfort!

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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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September, 16 2021