Last week in the world oil:
- There are no clear trends in crude prices, with Brent and WTI stuck in
their respective ranges of US$57/b and US$52/b. Reductions in US
drilling rates were offset by Iraqi supply disruptions, while OPEC’s hints
that the supply freeze will persist did little to move the market.
- Mexico is planning a third auction in 2018, hiking up the pace as the
country seeks to exploit new-found private interest in its hydrocarbons in
a election year. The auction will focus on conventional onshore oil and gas
blocks, with terms to be announced early 2018 and awarded by mid-
2018. This joins the planned deepwater Gulf auction scheduled by
January 2018 and a shallow water auction in March 2018.
- BP and SOCAR will sign a new production-sharing agreement for a new
block, D-230, in the North Absheron basin of the Caspian Sea. With equal
stakes, this cements BP as the main international player in Azerbaijan,
with existing stakes in the Azer-Chirag- Guneshli and Shah Deniz fields.
- Thailand’s PTTEP is delaying the FID for the Mariana Oil Sands project in
Canada, the latest holdup in the region’s once booming oil sands sector.
There is a high likelihood that the project, 100% owned by PTTEP, may be
dropped, given the company’s recent focus on midstream and gas.
- The US active rig count dropped by 15 last week – 7 oil and 8 gas – as
drilling activity retreats against stagnant oil prices. All rig losses were
onshore, with the most declines in the Haynesville and Permian basins.
Downstream & Midstream
- Nigeria has announced that the planned 650 kb/d Dangote refinery, being
built by Africa’s richest man Aliko Dangote, will come onstream by end-
2019, which would help ease the country’s growing dependence on
imports. Envisioned as Nigeria’s own Jamnagar refinery, an operational
Dangote refinery will also ease the pressure on NNPC, which has been
struggling to find partners to help revamp its three existing refineries.
Natural Gas and LNG
- Natural gas action in the Eastern Mediterranean is heating up. With Egypt,
Israel, Greece and Cyprus already exploiting resources, Energean Oil &
Gas is backing a new player: Montenegro. Two blocks explored by the
Greek company hold an estimated 1.8 trillion cubic feet of recoverable gas
reserves, with Energean CEO Mathios Rigas saying that Montenegro is
sitting in the ‘sweet spot of untapped potential in the eastern Adriatic.’
Energean was awarded a 30-year licence for the blocks in March 2017.
- Russia’s Novatek is planning to expand the Yamal LNG by one more train.
With an additional capacity of 1 mtpa, the smaller fourth train is planned
for end-2019, with Yamal Trains 2 & 3 tracking ahead of schedule.
- BP’s Chariman Carl-Henric Svanberg has announced his retirement after
steering the supermajor through the Deepwater Horizon disaster just
months after he assumed his position. Svanberg will remain in his
position until a successor is identified.
Last week in Asian oil
- China will continue to be more and more dependent on imported crude,
as domestic production fell by 2.9% y-o- y to 3.78 mmb/d in September.
Low oil prices have made some marginal and ageing fields uneconomic,
exacerbating the country’s declining trend. Domestic natural gas output,
however, was up 10.7% y-o- y to 11.15 bcm, bringing YTD gas production
up by 9.1% y-o- y. With China’s private sector shying away from
developing the country’s ast shale oil and gas reserves after yeas of
limited success, the outlook is poor. Which makes recent deals like CEFC
China Energy’s US$9.1 billion investment in Rosneft more important, as it
gives China access to up to 260,000 bpd of Russian oil. China has also
apparently offered to purchase outright 5% of Saudi Aramco, potentially
circumventing the Saudi Arabian firm’s IPO ambitions.
- As Iraq’s strife with its rebel Kurdish province wanes following the
capture of Kirkuk, the country has wasted no time in making plans to
exploit the region’s large oil reserves. Iraqi Oil Minister announced plans
to collaborate with international investors to double oil production at the
northern Kirkuk fields to exceed one mmb/d. However, Iraq is unlikely to
work with Rosneft – as the Russia producer announced a deal with Iraqi
Kurdistan authorities to operate an oil export pipeline and purchase
stakes in five oil blocks for up to US$400 million. It may have lost Kirkuk,
but Iraqi Kurdistan still controls three northern provinces, and its only
outlet to export its crude is through a pipeline through Turkey, which is
under jeopardy from the recent independence referendum. The Rosneft
pipeline project, together with current Kurdish pipeline operator Kar
Group, would provide an alternative supply route… but continue to stoke
domestic tensions with the central Iraqi government.
- As Shell finalises its exit from the Iraqi upstream oil sector, Total is
gunning to fill the void left by the supermajor, which is focusing on
natural gas production in Basra. Total is reportedly aiming for the
Majnoon oilfield as well as the Nassiriya oil and gas project, both in the
south, signalling its interest to the Iraqi Oil Minister.
- Indonesia will be launching its second oil and gas licenceround for 2017
in November, despite the first auction’s deadline having been pushed
back twice. Acreage to be offered in the second round will comprise both
conventional and unconventional blocks. Delays are expected, given that
the government is still fine-tuning new upstream regulations that will
govern the gross split mechanism applicable to new E&P contracts – the
cause of the first 2017 round’s repeated postponements.
Natural Gas & LNG
- Indonesia has agreed to extend Inpex’s contract to operate the Masela
natural gas field by up to 27 years once the current contract expires in
2028. This comes after Inpex lobbied for the extension, given that
President Joko Widodo’s decision to reject a planned US$15 billion FLNG
facility in favour of an onshore facility had pushed anticipated start of
production by several years to the late 2020s. The extension – a standard
20-year extension and an additional seven years as compensation for
changing the LNG refinery development plan – was necessary assurance
for Inpex and its partner Shell to proceed with the project.
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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.
Headline crude prices for the week beginning 15 July 2019 – Brent: US$66/b; WTI: US$59/b
Headlines of the week
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.