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Market Watch

Headline crude prices for the week beginning 27 November 2018 – Brent: US$63/b; WTI: US$58/b

  • All eyes on OPEC as its convenes in Vienna on November 30; an extension of the supply cuts is expected, but there could be surprises
  • Iran claims a ‘majority of OPEC members’ support extending the current production freeze
  • Saudi Arabia has signalled that it prefers oil to trade at US$60/b, while an OPEC working panel has concluded that oil markets will only begin rebalancing in June 2018 at the earliest
  • However, internal squabbles over exact metrics used to measure and monitor production continue within OPEC; Iraq will be important to watch here as its monthly production has swung widely over the last six months as it moved from clashes in Kirkuk to bumper output
  • TransCanada admits spill from the Keystone pipeline were more ‘severe than expected’ but has restarted pumping at reduced pressure
  • US crude inventories fell, particularly in Cushing as the closure of the Keystone pipeline reduced inward shipments. Gasoline and distillate stockpiles rose slightly.
  • Active US rig count up by 8, with 9 new oil sites offsetting loss of a single gas rig. Gains mainly focused in the Permian
  • Crude price outlook: Crude prices to maintain holding pattern until OPEC meeting. Extension of supply freeze expected, but unlikely to be enough to satisfy aggressive expectations. Prices likely to move into December at US$61/b (Brent) and US$56/b (WTI)


Headlines of the week

Upstream

  • Iraq announced a new exploration bidding round, targeting international participation. Nine blocks are on offer; five near border areas with Iran, three near Iraq’s Kuwaiti border and a single offshore block.
  • Despite a spill that may take ‘several weeks’ to fully clean up, TransCanada has restarted the Keystone pipeline at reduced pressure.
  • BP continues its gradual pullout from the UK North Sea, selling its stakes in the Bruce, Keith and Rhum fields to Serica UK for £300 million.
  • As Shell departs Iraq’s giant Majnoon field, the competition to be its replacement heats up with BP and Eni being the latest to express interest.
  • Australia E&P player FAR announced that its offshore blocks A2 and A5 in West Africa’s Gambia potentially hold up to 1.1 billion recoverable barrels. Drilling at the blocks begins in late 2018.
  • Colombia’s Ecopetrol announced a US$3.5-4 billion investment plan for 2018, focusing on maintaining domestic production at 715-725,000 b/d.
  • India’s ONGC Videsh has acquired a 15% stake in Block 20212A offshore Namibia from Tullow Oil, after buying a 30% stake in Block PEL0037 (also from Tullow Oil Namibia) last month.
  • Shell Canada and Syncrude have both issued warnings that their synthetic crude output will see drops over November and December. Little impact is expected as it comes during a quiet period for Canadian oil sands.
  • Changes in the UK’s taxation scheme have been welcomed by the North Sea oil industry, particularly the sharp drop in North Sea corporate tax rate and adjustments to encourage redevelopment of older assets.

Downstream

  • South Africa has issued a request to its fellow BRICS nations to assist in building a new US$10 billion 400 kb/d refinery, as net imports rise.
  • As PDVSA manages its (missed) debt payments to ONGC Videsh, IndianOil Corp is considering a plan to buy Venezulean crude for the first time in six years, fitting into the recent upgrade at IOC’s 300 kb/d Paradip refinery.
  • Rosneft has inked a supply deal with Greece’s Motor Oil Hellas Corinth Refineries, supplying up to 150 kb/d of crude and fuels over five years.

Natural Gas/LNG

  • As the Gas Exporting Countries Form (GECF) gathers in Bolivia, Qatar issued a warning that it expects the current LNG glut to grow significantly over the next 2-3 years, tightening only after 2025.
  • After purchasing spot US LNG cargos, Poland has signed its first mid-term US LNG deal. State-run PGNIG has signed up with Centrica for nine LNG shipments across five years, working out to roughly two cargos a year.
  • UK fund Ancala Partners has acquired Apache’s interest in the North Sea SAGE System and Beryl gas pipelines for an undisclosed amount.
  • The Hoegh LNG project in Pakistan has collapsed, after international partners ExxonMobil, Total and Mitsubishi pulled out of the plan to build and operate an FSRU over disagreements with Turkey’s GEI

Corporate

  • Gulf of Mexico-focused E&P Players Talos Energy and Stone Energy are planning a US$2.5 billion merger. To be named Talos Energy, the new company will be created from 1-for-1 exchange of Stone to Talos shares
  • Thailand achieved its largest corporate IPO in over a decade, as Gulf Energy Development raised some US$733 million from its public sale
  • Despite investment uncertainty over Saudi Arabia’s recent political crackdown, Adnoc is moving ahead with the planned IPO for its fuels distribution unit, seeking up to US$14 billion for a 20% share sale


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LG XBOOM GO PL2 Review


The LG XBOOM Go PL2 is the smallest and least expensive offering in LG's latest speaker trio including larger PL7 and PL5 models. All three models share the same design language and all have Meridian-tuned audio.

LG XBOOM PL2 is portable, small and light enough to be transported easily and offers 10 hours of battery life so it can run almost for a full day without being plugged in.


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+ Meridian tuned sound

- No integrated voice assistant

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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