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Last week in the world oil:


Prices

- 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.


Upstream

- 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.


Corporate

- 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


Upstream

- 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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Latest issue of GEO ExPro magazine covers Europe and Frontier Exploration, Modelling and Mapping, and Geochemistry.

GEO ExPro Vol. 16, No. 6 was published on 9th December 2019 bringing light to the latest science and technology activity in the global geoscience community within the oil, gas and energy sector.

This issue focusses on oil and gas exploration in frontier regions within Europe, with stories and articles discussing new modelling and mapping technologies available to the industry. This issue also presents several articles discussing the discipline of geochemistry and how it can be used to further enhance hydrocarbon exploration.

You can download the PDF of GEO ExPro magazine for FREE and sign up to GEO ExPro’s weekly updates and online exclusives to receive the latest articles direct to your inbox.

Download GEO ExPro Vol. 16, No. 6

January, 20 2020
Your Weekly Update: 13 - 17 January 2020

Market Watch   

Headline crude prices for the week beginning 13 January 2020 – Brent: US$64/b; WTI: US$59/b

  • Tensions in the Persian Gulf have abated, but not disappeared, as both the US and Iran stepped back from going to war; the buck, so far, has stopped with Tehran’s retaliation to the US assassination of its top general with a barrage of missile strikes at US bases in Iraq
  • The underlying situation is still fragile, with the Iranian population swinging from supporting the government to protesting its accidental downing of a commercial Ukraine Airlines plane; with the risk of war easing, crude prices have fallen back to their pre-crisis levels
  • However, American and foreign oil companies have pulled their staff from crude fields in northern Iraq and Kurdistan, including Chevron, as the oil industry in Iraq monitors the risk – and consequences – of military action
  • In precaution, oil tankers have begun boosting their rates once again to haul crude through the Persian Gulf, with quoted rates now at their highest level since the 2019 attacks on ships passing through the narrow straight
  • Although political tensions remain fresh, Saudi Arabia said that OPEC and the OPEC+ club were instead focused on using their window of production cuts to reduce excess oil stockpiles to levels ‘within the contours of 2010-2014’
  • In the US, not only is shale output staying strong, but production in the US Gulf of Mexico also made history, exceeding 2 mmb/d for the first time ever in 2019, beating the previous high recorded in 2018
  • Worries about the health of global oil demand persist… although the US and China signed a Phase 1 trade deal, the agreement is more about halting escalation of the trade war than repairing inflicted damage; a slowdown in Chinese economic growth could lead to oil demand growth halving in 2020 in China according to CNPC
  • The US active rig count fell for a second consecutive week, losing 15 rigs – 11 oil and 4 gas – for the 17th weekly decline of the past 20 weeks; losses in the Permian were once again high, shedding a total of 6 rigs
  • Crude oil prices should remain rangebound with Brent at US$63-65/b and WTI at US$57-59/b, as the market retreats back to its ever-present worries about demand while geopolitical risk premiums scale back


Headlines of the week

Upstream

  • Guyana’s success is now extending to its neighbours, with Total and Apache announcing a ‘significant’ oil discovery at their Maka Central-1 well in Suriname’s Block 58, which lies adjacent to the prolific Stabroek Block
  • BP has agreed to sell its operating interest in the UK North Sea’s Andrew assets – including the Andrew platform as well as the Andrew, Arundel, Cyrus, Farragon, and Kinnoull fields – along with its 27.5% non-operating interest in the Shearwater field to Premier Oil for some US$625 million
  • Liberia will kick start its next offshore licensing round in April 2020, offering nine blocks in the Harper basin, one of the few offshore regions in West Africa that remains unexplored and undrilled
  • Equinor has extended the life of its Statfjord assets beyond 2030, with plans to commission up to 100 new wells over the next decade, deferring decommissioning with a goal of maintaining current output levels beyond 2025
  • After Murphy Oil, Petrofac and ExxonMobil, Repsol is the latest major considering an upstream exit from Malaysia, covering assets that include six development blocks and the major Kinabalu oilfield in Sabah
  • Senegal’s government has approved Woodside’s offshore Sangomar Field Development, which will involve the drilling of 23 subsea wells and a FPSO with the capacity to process up to 100,000 b/d of crude
  • Equinor has announced plans to reduce greenhouse gas emissions from its offshore fields and onshore plants in Norway by 40% by 2030, 70% by 2040 and to near zero by 2050 from 2019 levels

Midstream/Downstream

  • Shell is reportedly seeking buyers for its 144 kb/d Anacortes refinery in Washington state, which would be its third North American sale in two years after divesting its Martinez refinery in California and Sarnia refinery in Ontario
  • Shell has announced plans to increase its share of the Mexican fuel market to 15%, which would require considerable growth in its network of 200 fuel stations in 12 states that currently represent 1% of the market
  • Occidental Petroleum plans to reduce its holdings in Western Midstream Partners – acquired as part of its controversial takeover of Anadarko – to less than 50%, potentially removing up to US$7.8 billion of debt

Natural Gas/LNG

  • Sempra Energy and Saudi Aramco have signed an agreement that will see the Saudi giant play a bigger part in the planned 22 million tpa Port Arthurt LNG project, following an existing agreement to purchase 5 mtpa signed in May 2019
  • Kuwait Petroleum Corp has agreed to purchase 3 million tpa of LNG from Qatar Petroleum for 15 years beginning 2022, with Kuwait remaining one of the few countries in the Middle East that remain neutral to the Saudi-Qatar standoff
  • ExxonMobil has signed an agreement with midstream company Outrigger Energy II to build a 250 mmscf/d cryogenic gas processing, gathering and pipeline system in the Bakken’s Williston Basin in North Dakota
  • The Larak gas field in Sarawak has achieved first gas, operated by SapuraOMV Upstream as part of the SK408 PSC that includes the Gorek and Bakong fields, with output planned to be processed into LNG at Petronas’ Bintulu complex
  • Russia’s TurkStream natural gas pipeline – connecting Russia, Turkey, Bulgaria and eventually Serbia and Hungary - has officially begun operations, delivering up to 13 bcm of Russian gas that can be rerouted from the Ukraine route
January, 17 2020
EIA forecasts slower growth in natural gas-fired generation while renewable energy rises

annual U.S. electric power sector generation by energy source

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2020

In its latest Short-Term Energy Outlook (STEO), released on January 14, the U.S. Energy Information Administration (EIA) forecasts that generation from natural gas-fired power plants in the electric power sector will grow by 1.3% in 2020. This growth rate would be the slowest growth rate in natural gas generation since 2017. EIA forecasts that generation from nonhydropower renewable energy sources, such as solar and wind, will grow by 15% in 2020—the fastest rate in four years. Forecast generation from coal-fired power plants declines by 13% in 2020.

During the past decade, the electric power sector has been retiring coal-fired generation plants while adding more natural gas generating capacity. In 2019, EIA estimates that 12.7 gigawatts (GW) of coal-fired capacity in the United States was retired, equivalent to 5% of the total existing coal-fired capacity at the beginning of the year. An additional 5.8 GW of U.S. coal capacity is scheduled to retire in 2020, contributing to a forecast 13% decline in coal-fired generation this year. In contrast, EIA estimates that the electric power sector has added or plans to add 11.4 GW of capacity at natural gas combined-cycle power plants in 2019 and 2020.

Generating capacity fueled by renewable energy sources, especially solar and wind, has increased steadily in recent years. EIA expects the U.S. electric power sector will add 19.3 GW of new utility-scale solar capacity in 2019 and 2020, a 65% increase from 2018 capacity levels. EIA expects a 32% increase of new wind capacity—or nearly 30 GW—to be installed in 2019 and 2020. Much of this new renewables capacity comes online at the end of the year, which affects generation trends in the following year.

Forecast generation mix varies in each of the 11 STEO electricity supply regions. A large proportion of the retired coal-fired capacity is located in the mid-Atlantic area, where PJM manages the dispatch of electricity. EIA forecasts that coal generation in the mid-Atlantic will decline by 37 billion kilowatthours (kWh) in 2020. Some of this decline is offset by more generation from mid-Atlantic natural gas-fired power plants; EIA expects generation from these plants to grow by 23 billion kWh.

forecast annual change in electric power sector generation by fuel

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2020

In the Midwest, where the Midcontinent ISO (MISO) manages electricity, EIA expects coal generation to fall in 2020 by 33 billion kWh. This decline is offset by an increase in natural gas electricity generation (12 billion kWh) and by nonhydropower renewable energy sources (13 billion kWh). The regional increase in renewables is primarily a result of new wind generating capacity.

The electric power sector in the area of Texas managed by the Electric Reliability Council of Texas (ERCOT) is planning to see large increases in generating capacity from both wind and solar. EIA expects this new capacity will increase generation from nonhydropower renewable energy sources by 24 billion kWh this year. EIA expects the increased ERCOT renewable generation will lead to a regional decline of natural gas-fired generation and coal generation of 14 billion kWh for each fuel source in 2020.

EIA expects these trends to continue into 2021. EIA forecasts U.S. generation from nonhydropower renewable energy sources will grow by 17% next year as the electric power sector continues expanding solar and wind capacity. This increase in renewables, along with forecast increases in natural gas fuel costs, contributes to EIA’s forecast of a 2.3% decline in natural gas-fired generation in 2021. U.S. coal generation in 2021 is forecast to fall by 3.2%.

January, 17 2020