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Last Updated: December 14, 2017
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Market Watch

Headline crude prices for the week beginning 11 December 2017 – Brent: US$63/b; WTI: US$57/b

  • The shutdown of the Forties pipeline system in the UK North Sea has been a shock to the market, pulling Brent and WTI prices up. Repairs to the important oil conduit will take at least two weeks to complete.
  • The hairline crack at Forties – connecting North Sea oilfields to the Hound Point export terminal in Scotland – is less severe than expected, cutting off a rally that was beginning to gain steam.
  • The UAE announced that OPEC and NOPEC will outline an exit strategy for the extended supply freeze deal at the next meeting in June; Kuwait suggested that if oil market tightens by then, the deal could be ended before the current planned 31 December 2018 deadline.
  • Threats of a strike by one of Nigeria’s two main oil unions over a mass sacking of workers could disrupt production in Africa’s largest oil producer, but tensions seem on the lid for now.
  • US crude oil stockpiles fell more than expected by 2.89 million barrels as refineries hiked output, supporting prices, but gasoline and distillate inventories also posted surprisingly large stockpile gains.
  • JP Morgan believes that the new tipping point for American shale is US$60/b, with the investment bank believing that only a sustained run above that level will lead to shale drillers rethinking their spending plans for 2018, which were based on a US$45-55/b WTI range.
  • Active US rig count gains slowed down; only 2 new sites entering operation last week – both oil – but the small net gain masks a flurry of activity within the main shale basins.
  • Crude price outlook: With threats of a prolonged Forties shutdown subsiding and the strike risk in Nigeria abating, there does not appear to be much driving crude prices up this week. Prices should drift down to US$62/b for Brent and US$56/b for WTI.


Headlines of the week

Upstream

  • A leak at the Forties Pipeline System in the North Sea has triggered a shutdown at the UK’s most important site, causing jumps in global prices.
  • After slashing costs by almost half to KR49 billion, Statoil has sanctioned the Castberg offshore Arctic oil project, with production due in 2022.
  • Hungary’s MOL is reportedly seeking to exit the UK North Sea, as the prolonged slump in oil prices placed its margins under pressure.
  • Enterprise will be converting one its Permian-Texas Gulf Gas pipelines from NGLs to crude oil, upping its oil pipeline capacity to 650 kb/d.
  • Total and Sonangol have signed several agreements covering upstream and downstream in Angola, paving the way for a spat of new projects.
  • PetroChina has conducted a major internal transfer of 16 E&P blocks between its subsidiaries that will allow those with mature fields in the east to explore for new discoveries in the west and central regions.
  • Eni has restarted production at the Goliat oil field in Norway’s Barents Sea, after problems at the platform caused a 2-month shutdown.
  • China is offering five oil and gas blocks in the remote Tarim basin in Xinjian to domestic investors in an auction that excludes the state oil giants to promote private sector participation in its upstream industry.

Downstream

  • ExxonMobil has sent its first fuel cargo – 120,000 barrels of diesel and gasoline – to Mexico as the drive to supply the country turns into a race.  
  • MMEX Resources had doubled the capacity of its planned refinery in West Texas, from 50 kb/d to 100 kb/d, capitalising on the Permian Basin boom.
  • Nigeria plans to break ground on Petrolex Oil & Gas’ new 250 kb/d refinery in Ibefun, Ogun state this month.
  • BP is building a third lubricants blending plant – which will be its largest ever - in China; the 200 mtpa plant serving as a strategic hub for BP and Castrol when complete in 2021.
  • Petronas’ South African unit Engen and retail specialist Vivo Energy have struck a US$256 million deal to combine their African fuel network assets.
  • Vietnam’s PVOil and Binh Son Refining, which runs Dung Quat, has struck two large crude purchase deals with Azerbaijan’s Socar and Glencore.

Natural Gas/LNG

  • Production at Novatek’s Yamal LNG 5.5 mtpa Train 1 has officially began, with the first cargo leaving the port of Sabetta last week to China.
  • Cheniere has chartered 7 additional LNG tankers bringing its total fleet up to 22 as it attempts to supply Northeast Asia’s furious winter demand.
  • Italy, Greece, Cyprus and Israel have collectively agreed to building the €3 billion East Med gas pipeline to link new discoveries in the Levantine Basin to western Europe via Greece and Italy.
  • Steelhead LNG has pulled the plug on its proposed FLNG project in Canada’s Malahat over land squabbles with the Malahat First Nation.
  • Arrow Energy has signed a deal to supply some 5 tcf of coalbed methane gas from the Surat Basin over a contract life of 27 yeas to Shell’s Queensland Curtis LNG project starting in 2021.
  • The Asian Development Bank has stepped in to provide some US$583 billion in financing to development the Reliance Bangladesh LNG project.

Corporate

  • Pertamina will be taking over state gas utility PGN by 1Q18 as Indonesia forms a new national energy holding company and prevent ‘asset duplication’, with PGN absorbing Pertagas to act as the state gas arm.
  • Thailand’s Gulf Energy Development made its debut on the Stock Exchange of Thailand, with the natural gas-power producer trading at 27.8% higher than the IPO price.
  • Adnoc has set a target of raising US$902 million by floating its fuel-retail unit, reducing the stake on sale from 20% to 10%.

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Your Weekly Update: 12 - 16 August 2019

Market Watch 

Headline crude prices for the week beginning 12 August 2019 – Brent: US$58/b; WTI: US$54/b

  • Saudi Arabia’s overtures to further stabilise prices was met with a largely positive response by the market, allowing crude prices to claw back some ground after being hammered by demand concerns
  • Saudi officials reportedly called other members in the OPEC and OPEC+ producer clubs to discuss options on how to stem the recent rout in prices, with an anonymous official quoted as saying that it ‘would not tolerate continued price weakness’
  • Reports suggest that Saudi Arabia plans to keep its oil exports at below 7 mmb/d in September according to sales allocations, which was seen as a stabilising factor in crude price trends
  • This came after crude prices fell as the US-China trade war entered a new front, causing weakness in the Chinese Yuan, although President Trump has floated the idea of delaying the new round of tariffs beyond the current implementation timeline of September 1
  • Crude had also fallen in response to a slide in American crude oil stockpiles and a receding level of tensions in the Persian Gulf
  • In a new report, the International Energy Agency said that the outlook for global oil demand is ‘fragile’ on signs of an economic slowdown; there is also concern that China will target US crude if the US moves ahead with its tariff plan
  • The US active rig count lost another 8 rigs – 6 oil and 2 gas – the sixth consecutive weekly loss that brought the total number of active rigs to 934
  • Demand fears will continue to haunt the market, which will not be offset so easily of Saudi-led efforts to limit production; as a result, crude prices will trade rangebound with a negative slant in the US$56-58/b range for Brent and US$52-54/b for WTI


Headlines of the week

Upstream

  • Nearly all Anadarko shareholders have approved the Occidental Petroleum deal, completing the controversial takeover bid despite investor Carl Icahn’s attempts to derail the purchase
  • Crude oil inventories in Western Canada have fallen by 2.75 million barrels m-o-m to its lowest level since November 2017, as the production limits in Alberta appear to be doing their job in limiting a supply glut while output curbs are slowly being loosened on the arrival of more rail and pipeline capacity
  • Mid-sized Colorado players PDC Energy and SRC Energy – both active in the Denver-Julesburg Basin – are reportedly in discussion to merge their operations
  • Pemex has been granted approval by the National Hydrocarbon Commission to invest US$10 billion over 25 years to develop onshore and offshore exploration opportunities in Mexico
  • Qatar Investment Authority has acquired a ‘significant stake’ in major Permian player Oryx Midstream Services from Stonepeak Infrastructure Partners for some US$550 million, as foreign investment in the basin increases
  • PDVSA and CNPC’s Venezuelan joint venture Sinovensa has announced plans to expand blending capacity – lightening up extra-heavy Orinoco crude to medium-grade Merey – from a current 110,000 b/d to 165,000 b/d
  • BHP has approved an additional US$283 million in funding for the Ruby oil and gas project in Trinidad and Tobago, with first production expected in 2021
  • CNPC, ONGC Videsh and Petronas have reportedly walked away from their onshore acreage in Sudan, blaming unpaid oil dues on production from onshore Blocks 2A and 4 that have already reached more than US$500 million

Midstream/Downstream

  • Expected completion of Nigeria’s huge planned 650 kb/d Dangote refinery has been delayed to the end of 2020, with issues importing steel and equipment cited
  • Saudi Aramco’s US refining arm Motiva announced plans to shut several key units at its 607 kb/d Port Arthur facility in Texas for a 2-month planned maintenance, affecting its 325 kb/d CDU and the naphtha processing plant
  • ADNOC has purchased a 10% stake in global terminal operator VTTI, expanding its terminalling capacity in Asia, Africa and Europe
  • A little-known Chinese contractor Wison Engineering Services has reportedly agreed to refurbish Venezuela’s main refineries in a barter deal for oil produced, in a bid for Venezuela to evade the current US sanctions on its crude exports
  • Swiss downstream player Varo Energy will increase its stake in the 229 kb/d Bayernoil complex in Germany to 55% after purchasing BP’s 10% stake
  • India has raised the projected cost estimate of its giant planned refinery in Maharashtra – a joint venture between Indian state oil firms with Saudi Aramco and ADNOC – to US$60 billion, after farmer protests forced a relocation

Natural Gas/LNG

  • The government of Australia’s New South Wales has given its backing to South Korea’s Epik and its plan to build a new LNG import terminal in Newcastle
  • Kosmos Energy is proposing to build two new LNG facilities to tap into deepwater gas resources offshore Mauritania and Senegal under development
  • In the middle of the Pacific, the French territory of New Caledonia has started work on its Centrale Pays Project, a floating LNG terminal with an accompanying 200-megawatt power plant, with Nouvelle-Caledonia Energie seeking a 15-year LNG sales contract for roughly 200,000 tons per year
August, 16 2019
The State of the Industry: Q2 2019

The momentum for crude prices abated in the second quarter of 2019, providing less cushion for the financial results of the world’s oil companies. But while still profitable, the less-than-ideal crude prices led to mixed results across the boards – exposing gaps and pressure points for individual firms masked by stronger prices in Q119.

In a preview of general performance in the industry, Total – traditionally the first of the supermajors to release its earnings – announced results that fell short of expectations. Net profits for the French firm fell to US$2.89 billion from US$3.55 billion, below analyst predictions. This was despite a 9% increase in oil and gas production – in particularly increases in LNG sales – and a softer 2.5% drop in revenue. Total also announced that it would be selling off US$5 billion in assets through 2020 to keep a lid on debt after agreeing to purchase Anadarko Petroleum’s African assets for US$8.8 billion through Occidental.

As with Total, weaker crude prices were the common factor in Q219 results in the industry, though the exact extent differed. Russia’s Gazprom posted higher revenue and higher net profits, while Norway’s Equinor reported falls in both revenue and net profits – leading it to slash investment plans for the year. American producer ConocoPhillips’ quarterly profits and revenue were flat year-on-year, while Italy’s Eni – which has seen major success in Africa – reported flat revenue but lower profits.

 After several quarters of disappointing analysts, ExxonMobil managed to beat expectations in Q219 – recording better-than-expected net profits of US$3.1 billion. In comparison, Shell – which has outperformed ExxonMobil over the past few reporting periods – disappointed the market with net profits halving to US$3 billion from US$6 billion in Q218. The weak performance was attributed (once again) to lower crude prices, as well as lower refining margins. BP, however, managed to beat expectations with net profits of US$2.8 billion, on par with its performance in Q218. But the supermajor king of the quarter was Chevron, with net profits of US$4.3 billion from gains in Permian production, as well as the termination fee from Anadarko after the latter walked away from a buyout deal in favour of Occidental.

And then, there was a surprise. In a rare move, Saudi Aramco – long reputed to be the world’s largest and most profitable energy firm – published its earnings report for 1H19, which is its first ever. The results confirmed what the industry had long accepted as fact: net profit was US$46.9 billion. If split evenly, Aramco’s net profits would be more than the five supermajors combined in Q219. Interestingly, Aramco also divulged that it had paid out US$46.4 billion in dividends, or 99% of its net profit. US$20 billion of that dividend was paid to its principle shareholder – the government of Saudi Arabia – up from US$6 billion in 1H18, which makes for interesting reading to potential investors as Aramco makes a second push for an IPO. With Saudi Aramco CFO Khalid al-Dabbagh announcing that the company was ‘ready for the IPO’ during its first ever earnings call, this reporting paves the way to the behemoth opening up its shares to the public. But all the deep reservoirs in the world did not shield Aramco from market forces. As it led the way in adhering to the OPEC+ club’s current supply restrictions, weaker crude prices saw net profit fall by 11.5% from US$53 billion a year earlier.

So, it’s been a mixed bunch of results this quarter – which perhaps showcases the differences in operational strategies of the world’s oil and gas companies. There is no danger of financials heading into the red any time soon, but without a rising tide of crude prices, Q219 simply shows that though the challenges facing the industry are the same, their approaches to the solutions still differ.

Supermajor Financials: Q2 2019

  • ExxonMobil – Revenue (US$69.1 billion, down 6% y-o-y), Net profit (US$3.1 billion, down 22.5% y-o-y)
  • Shell - Revenue (US$90.5 billion, down 6.5% y-o-y), Net profit (US$3 billion, down 50% y-o-y)
  • Chevron – Revenue (US$36.3 billion, down 10.4% y-o-y), Net profit (US$4.3 billion, up 26% y-o-y)
  • BP - Revenue (US$73.7 billion, down 4.11% y-o-y), Net profit (US$2.8 billion, flat y-o-y)
  • Total - Revenue (US$51.2 billion, down 2.5% y-o-y), Net profit (US$2.89 billion, down 18.6% y-o-y)
August, 14 2019
TODAY IN ENERGY: Australia is on track to become world’s largest LNG exporter

LNG exports from selected countries

Source: U.S. Energy Information Administration, CEDIGAZ, Global Trade Tracker

Australia is on track to surpass Qatar as the world’s largest liquefied natural gas (LNG) exporter, according to Australia’s Department of Industry, Innovation, and Science (DIIS). Australia already surpasses Qatar in LNG export capacity and exported more LNG than Qatar in November 2018 and April 2019. Within the next year, as Australia’s newly commissioned projects ramp up and operate at full capacity, EIA expects Australia to consistently export more LNG than Qatar.

Australia’s LNG export capacity increased from 2.6 billion cubic feet per day (Bcf/d) in 2011 to more than 11.4 Bcf/d in 2019. Australia’s DIIS forecasts that Australian LNG exports will grow to 10.8 Bcf/d by 2020–21 once the recently commissioned Wheatstone, Ichthys, and Prelude floating LNG (FLNG) projects ramp up to full production. Prelude FLNG, a barge located offshore in northwestern Australia, was the last of the eight new LNG export projects that came online in Australia in 2012 through 2018 as part of a major LNG capacity buildout.

Australia LNG export capacity

Source: U.S. Energy Information Administration, based on International Group of Liquefied Natural Gas Importers (GIIGNL), trade press
Note: Project’s online date reflects shipment of the first LNG cargo. North West Shelf Trains 1–2 have been in operation since 1989, Train 3 since 1992, Train 4 since 2004, and Train 5 since 2008.

Starting in 2012, five LNG export projects were developed in northwestern Australia: onshore projects Pluto, Gorgon, Wheatstone, and Ichthys, and the offshore Prelude FLNG. The total LNG export capacity in northwestern Australia is now 8.1 Bcf/d. In eastern Australia, three LNG export projects were completed in 2015 and 2016 on Curtis Island in Queensland—Queensland Curtis, Gladstone, and Australia Pacific—with a combined nameplate capacity of 3.4 Bcf/d. All three projects in eastern Australia use natural gas from coalbed methane as a feedstock to produce LNG.

Australia LNG projects

Source: U.S. Energy Information Administration

Most of Australia’s LNG is exported under long-term contracts to three countries: Japan, China, and South Korea. An increasing share of Australia’s LNG exports in recent years has been sent to China to serve its growing natural gas demand. The remaining volumes were almost entirely exported to other countries in Asia, with occasional small volumes exported to destinations outside of Asia.

Australia LNG exports by destination country

Source: U.S. Energy Information Administration, based on International Group of Liquefied Natural Gas Importers (GIIGNL)

For several years, Australia’s natural gas markets in eastern states have been experiencing natural gas shortages and increasing prices because coal-bed methane production at some LNG export facilities in Queensland has not been meeting LNG export commitments. During these shortfalls, project developers have been supplementing their own production with natural gas purchased from the domestic market. The Australian government implemented several initiatives to address domestic natural gas production shortages in eastern states.

Several private companies proposed to develop LNG import terminals in southeastern Australia. Of the five proposed LNG import projects, Port Kembla LNG (proposed import capacity of 0.3 Bcf/d) is in the most advanced stage, having secured the necessary siting permits and an offtake contract with Australian customers. If built, the Port Kembla project will use the floating storage and regasification unit (FSRU) Höegh Galleon starting in January 2021.

August, 14 2019