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Last Updated: November 9, 2017
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Last week in the world oil:

Prices

  • Brent crude surged to US$64/b and WTI to US$57/b as instability in Saudi Arabia – ranging from royal arrests of 11 princes, missiles launched from Yemen and a Saudi prince killed as his helicopter crashed – rattled the market. Also supporting stronger prices is Nigeria’s pledge to limit its output, despite being exempt from OPEC’s freeze due to insurgent attacks.

Upstream

  • The hits keep coming in Mexico. State oil firm Pemex announced the country’s largest onshore oil discovery in 15 years, with the Ixachi well in Veracruz estimated to have some 350 million barrels of proven, probable and possible reserves. Exploiting the light crude resource should prove straightforward, given that it is located near existing onshore drilling infrastructure.
  • Papua New Guinea’s Oil Search is expanding into (very) different territory that the equatorial island. The company has bought stakes in Alaska’s North Slope for some US$400 million, acquiring Nanushuk and surrounding fields that are estimated to contain up to 500 million barrels.
  • The acquisition of the Forties Pipeline System (FPS) by INEOS from BP has been completed, with INEOS now having complete ownership and operation of the FPS, Kinneil gas processing plant, Kinneil oil terminal, Dalmeny storage and export facility, infrastructure sites in Aberdeen and the Forties Unity Platform - a key part of the British North Sea industry.
  • Greenland will hold an oil and gas concession auction in offshore west coast areas in Davis Strait and Baffin Bay next year in a bit to get its moribund upstream exploration programme back on track. Estimates have suggested Greenland holds some 17 billion barrels of oil equivalent off its west coast, and 32 billion boe off its east coast, but accessing those reserves has been hampered by weak crude prices over the past 3 years.
  • Insurgent sabotage could be returning to Nigeria as the Niger Delta Avengers issued a ‘bloody and brutal’ warning to energy firms operating in the region, with a specific mention of Total’s Engina FPSO system.
  • The US lost another eight oil rigs last week, the largest drop since May 2016, causing the overall active American oil and gas rig count to slip below 900. Languishing in the face of recent crude price stagnation, the recent rally in WTI prices may tempt some drillers to restart sites soon.

Downstream & Midstream

  • Much like US LNG, American crude is starting to pop up in new places. PKN Orlen – Poland’s largest refiner – received its first American crude shipment last week. It adds another dimension to eastern Europe’s desire to wean itself off Russian oil and gas, as a vast majority of crude oil refined in Poland currently comes from Russia.

Natural Gas and LNG

  • Greece’s Energean has signed three new deals to sell natural gas from Israel’s offshore Karish and Tanin fields to Israeli energy firms Dorad Energy, Ashdod Energy and Ramat Negev Energy. Expected to start production in 2020, gas from the Karish and Tanin fields will be piped onshore to the customers – amounting to 6.75 bcm over 14 years for Dorad, and 2.65 bcm for Ashdod and Ramat Negev over the same period.

Last week in Asian oil

Upstream

  • As pipeline shipments from Iraq’s Kurdish region resume to Turkey, Baghdad is moving to impose federal will on Kurdistan’s oil assets. Iraq state-oil marketer SOMO is attempting to convince Turkey to see SOMO as the sole seller of Kurdish crude that arrives at Ceyhan. Currently, Turkey recognises independent exports by the Kurdish Regional Government (KRG) as well as SOMO volumes that piggyback on the pipeline.
  • As Pertamina takes over the Mahakam block from Total and Inpex on January 1, 2018, the Indonesian state oil firm announced plans to spend US$700 million to maintain production levels at the block. Production at Mahakam has been dipping recently, projected to fall to 53,000 bpd of oil and 1.43 bcf/d of gas in 2017, and even maintaining current output levels will require significant investment on Pertamina’s part.
  • SOCO International has picked up two new offshore blocks in Vietnam. The PSCs for the blocks, located in moderate-to-deepwater in the Phu Khanh Basin, north of the prodigious Cuu Long Basin, are with PetroVietnam and SOVICO Holdings, with SOCO holding 70%.

Downstream

  • South Korea’s SK Energy will be building a new US$900 million 40 kb/d desulfurisation unit at its 840 kb/d Ulsan refinery, in an attempt to boost its production of low-sulphur fuels. International sanctions on sulphur emissions in the marine section are scheduled to take effect in 2020, pushing refiners to invest in upgrade units. The new unit at Ulsan will also boost production of gasoil and naphtha through reprocessing of fuel oil.
  • It appears that Saudi Aramco’s involvement in Petronas’ RAPID refinery project is not yet set in stone. Some technical issues are holding up final agreements, which will see Aramco pump in US$7 billion into the refinery in Johor, but the Malaysian government expects things to be smoothed over soon. It is likely to, given that Aramco just bought a US$900 million stake in RAPID-associated petrochemical projects last month.
  • India’s BPCL has completed the expansion of its Kochi refinery, bringing its capacity up from 190 kb/d to 310 kb/d. A new CDU and coking unit was installed as part of the expansion, delayed from its original projected date of late-2016, with BPCL now ramping up production. The Kochi refinery is currently running at some 84% utilisation, and BPCL intends to move to full capacity over the next two years.

Natural Gas & LNG

  • As Petronas announced that it will no longer include resale destination clauses in its new Japanese LNG contracts as required by the Japan Fair Trade Commission, Osaka Gas announced plans to raise its LNG resale volumes significantly by 2020. One of the few buyers with some looser clauses, Osaka Gas has been reselling LNG since 2006 – hitting 1.1 mtpa in resales last year – and is pushing to increase that. It targets annual trading volumes of 10 mtpa, of which 3 mtpa would be from resales.

Chevron has exported its first LNG cargo from its Wheatstone project in Australia. Production at the mega-LNG facility started up in early October, with shipments targeted at markets in northeast Asia. The inaugural cargo goes to Japan’s JERA, the world’s largest buyer of LNG.

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LG XBOOM GO PL2 Review


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The PL2 is based on version 5.0 of the Bluetooth standard and the range is quite similar to that of other speakers in the same price range. It can remain connected to more than 25 feet indoors from the audio source.

January, 26 2021
The Growing Divergence In Energy

Two acquisitions in the energy sector were announced in the last week that illustrate the growing divergence in approaching the future of oil and gas between Europe and the USA. In France, Total announced that it had bought Fonroche Biogaz, the market leader in the production of renewable gas in France. In North America, ConocoPhillips completed its acquisition of Concho Resources, deepening the upstream major’s foothold into the lucrative Permian Basin and its shale riches. One is heading towards renewables, and the other is doubling down on conventional oil and gas.

What does this say about the direction of the energy industry?

Total’s move is unsurprising. Like almost all of its European peers operating in the oil and gas sector, Total has announced ambitious targets to become carbon-neutral by 2050. It is an ambition supported by the European population and pushed for by European governments, so in that sense, Total is following the wishes of its investors and stakeholders – just like BP, Shell, Repsol, Eni and others are doing. Fonroche Biogaz is therefore a canny acquisition. The company designs, builds and operates anaerobic digestion units that convert organic waste such as farming manure into biomethane to serve a gas feedstock for power generation. Fonroche Biogaz already has close to 500 GWh of installed capacity through seven power generation units with four in the pipeline. This feeds into Total’s recent moves to expand its renewable power generation capacity, with the stated intention of increasing the group’s biomethane capacity to 1.5 terawatts per hour (TWh) by 2025. Through this, Total vaults into a leading position within the renewable gas market in Europe, which is already active through affiliates such as Méthanergy, PitPoint and Clean Energy.

In parallel to this move, Total also announced that it has decided not to renew its membership in the American Petroleum Institute for 2021. Citing that it is only ‘partially aligned’ with the API on climate change issues in the past, Total has now decided that those positions have now ‘diverged’ particularly on rolling back methane emission regulations, carbon pricing and decarbonising transport. The French supermajor is not alone in its stance. BP, which has ditched the supermajor moniker in favour of turning itself into a clean energy giant, has also expressed reservations over the API’s stance over climate issues, and may very well choose to resign from the trade group as well. Other European upstream players might follow suit.

However, the core of the API will remain American energy firms. And the stance among these companies remains pro-oil and gas, despite shareholder pressure to bring climate issues and clean energy to the forefront. While the likes of ExxonMobil and Chevron have balanced significant investments into prolific shale patches in North America with public overtures to embrace renewables, no major US firm has made a public commitment to a carbon-neutral future as their European counterparts have. And so ConocoPhillips acquisition of Concho Resources, which boosts its value to some US$60 billion is not an outlier, but a preview of the ongoing consolidation happening in US shale as the free-for-all days give way to big boy acquisitions following the price-upheaval there since 2019.

That could change. In fact, it will change. The incoming Biden administration marks a significant break from the Trump administration’s embrace of oil and gas. Instead of opening of protected federal lands to exploration, especially in Alaska and sensitive coastal areas and loosening environmental regulations, the US will now pivot to putting climate change at the top of the agenda. Although political realities may water it down, the progressive faction of the Democrats are pushing for a Green New Deal embracing sustainability as the future for the US. Biden has already hinted that he may cancel the controversial and long-running Keystone XL pipeline via executive order on his first day in the office. His nominees for key positions including the Department of the Interior, Department of Energy, Environmental Protection Agency and Council on Environmental Quality suggest that there will be a major push on low-carbon and renewable initiatives, at least for the next 4 years. A pledge to reach net zero fossil fuel emissions from the power sector by 2035 has been mooted. More will come.

The landscape is changing. But the two approaches still apply, the aggressive acceleration adopted by European majors, and the slower movement favoured by US firms. Political changes in the USA might hasten the change, but it is unlikely that convergence will happen anytime soon. There is room in the world for both approaches for now, but the future seems inevitable. It just depends on how energy companies want to get there.

Market Outlook:

  • Crude price trading range: Brent – US$54-56/b, WTI – US$51-53/b
  • Global crude oil benchmarks retreated slightly, as concerns of rising supplies and coronavirus spread impact consumption anticipations; in particular, new Covid-19 outbreaks in key countries such as Japan and China are menacing demand
  • Mapped against the new OPEC+ supply quotas, there is a risk that demand will retreat more than anticipated, weakening prices; however, a leaking pipeline in Libya has reduced oil output there by about 200,000 b/d, which could provide some price support
  • However, the longer-term prognosis remains healthier for oil prices factoring out these short-term concerns; the US EIA has raised its predicted average prices for Brent and WTI to US$52.70 and US$49.70 for the whole of 2021

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January, 22 2021
EIA expects crude oil prices to average near $50 per barrel through 2022

In its January Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) expects global demand for petroleum liquids will be greater than global supply in 2021, especially during the first quarter, leading to inventory draws. As a result, EIA expects the price of Brent crude oil to increase from its December 2020 average of $50 per barrel (b) to an average of $56/b in the first quarter of 2021. The Brent price is then expected to average between $51/b and $54/b on a quarterly basis through 2022.

EIA expects that growth in crude oil production from members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) will be limited because of a multilateral agreement to limit production. Saudi Arabia announced that it would voluntarily cut production by an additional 1.0 million b/d during February and March. Even with this cut, EIA expects OPEC to produce more oil than it did last year, forecasting that crude oil production from OPEC will average 27.2 million b/d in 2021, up from an estimated 25.6 million b/d in 2020.

EIA forecasts that U.S. crude oil production in the Lower 48 states—excluding the Gulf of Mexico—will decline in the first quarter of 2021 before increasing through the end of 2022. In 2021, EIA expects crude oil production in this region will average 8.9 million b/d and total U.S. crude oil production will average 11.1 million b/d, which is less than 2020 production.

EIA expects that responses to the recent rise in COVID-19 cases will continue to limit global oil demand in the first half of 2021. Based on global macroeconomic forecasts from Oxford Economics, however, EIA forecasts that global gross domestic product will grow by 5.4% in 2021 and by 4.3% in 2022, leading to energy consumption growth. EIA forecasts that global consumption of liquid fuels will average 97.8 million barrels per day (b/d) in 2021 and 101.1 million b/d in 2022, only slightly less than the 2019 average of 101.2 million b/d.

EIA expects global inventory draws will contribute to forecast rising crude oil prices in the first quarter of 2021. Despite rising forecast crude oil prices in early 2021, EIA expects upward price pressure will be limited through the forecast period because of high global oil inventory, surplus crude oil production capacity, and stock draws decreasing after the first quarter of 2021. EIA forecasts Brent crude oil prices will average $53/b in both 2021 and 2022.

quarterly global liquid fuels production and consumption

Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO)

You can find more information on EIA’s expectations for changes in global petroleum liquids production, consumption, and crude oil prices in EIA’s latest This Week in Petroleum article and its January STEO.

January, 22 2021