A report by Nicholas Newman

Many of Indonesia’s oil and gas fields, both on and offshore, are coming to the end of their commercially viable operational lifespan. More than 60% of Indonesia’s oil and more than 30% of gas production comes from late-life-cycle resources spread across the world's largest island country. Despite investment and use of enhanced oil field recovery measures, as well as increasing automation to extend the economic lifespan of these assets, decommissioning will soon become necessary.

However Indonesia, like many countries new to the prospect of decommissioning energy infrastructure, face many key technological, fiscal, environmental, regulatory and industrial capacity issues, which need to be addressed by both government and industry decision makers.

This report, commissioned by the consulting and advisory arm of London and Aberdeen based Precision Media & Communications aims to takes a look at many of the issues Indonesia and other South East Asian oil producing nations are likely to face with the prospect of decommissioning the region's oil and gas aging energy infrastructure both onshore and offshore... To find out more Click here

Market Watch  

Headline crude prices for the week beginning 2 December 2019 – Brent: US$61/b; WTI: US$55/b

• As the posturing begins ahead of the OPEC meeting in Vienna, crude oil prices mounted gains as several OPEC members signalled that the club was prepared to deepen cuts to the existing supply deal
• Data showing that the Chinese manufacturing sector growth jumped unexpectedly in November, although the see-saw messages regarding a potential US-China trade deal continue to cloud the market… especially given recent US legislation to sanction China for its policies in Hong Kong and against its own Uighur community
• The discussion in Vienna by the OPEC nations and the wider OPEC+ club revolved around adherence and implementation of the current supply deal, focusing on cajoling errant members – ie. Russia – into meeting their quotas, in exchange for a deeper cut to prop up prices
• This resulted in a decision to cut output by a further 500,000 b/d in Q1 2020 – formalising the supply reductions already in place and subject to all members of OPEC+ implementing all of their pledged curbs; further details on the new plan are expected to be released
• OPEC’s outlook on the crude market in 2020 has changed slightly, as it expects that the US shale revolution will slow down considerably in the next two years; however, it also warns of additional output coming from non-OPEC members, including Norway and Brazil, the latter being a possible new OPEC member
• Meanwhile, in the US, the chronic decline in the active rig count continues, with the Baker Hughes index falling by a net 1 last week – the loss of 3 gas rigs offset by the gain of two gas rigs – the 13th decrease in the past 15 weeks, with the active count down 274 y-o-y
• The decision spinning out of OPEC’s Vienna meeting is broadly positive – not a great shot in the arm, but not detrimental to the current market; as such we see crude prices trading in their current range of US$62-64/b for Brent and US$57-60/b for WTI

Headlines of the week

Upstream

• Norway’s Equinor has announced that it will scale back exploration activities in frontier areas in the Barents Sea, shedding risk to focus on drilling near existing discoveries such as Johan Castberg and Wisting, and therefore decreasing the chance of discovering a new Arctic oil region
• Cairn Energy will be exiting Norway as it sells its entire stake in Capricorn Norge AS to Solveig Gas Norway AS for US$100 million
• Libya’s El Feel – a key field operated by Eni and Libya’s National Oil Corp near the giant Sharara field – has restarted production at 74,000 b/d after clashing between rival fighting factions forced it to shut down
• Woodside’s development plan for Phase 1 of the offshore Sangomar field in Senegal – targeting production of 100,000 b/d via FPSO – has been submitted to the Senegalese government, paving the way for FID
• Spurred on by success, ExxonMobil is adding a fifth drillship in Guyana as it probes a new ultra-deepwater prospect just north of the Stabroek block
• Equatorial Guinea’s latest licensing round was a boon to Lukoil, which walked away with the prime EG-27 block containing the Fortuna gas discovery, while US player Vaalco Energy won 4 blocks in the onshore Rio Muni basin

Midstream/Downstream

• Pertamina has purchased US crude for the first time in a long while, inking a shipment for 950,000 barrels of US WTI crude with Total to be delivered over 1H 2020 to the Cilacap refinery, pivoting away from Middle East grades
• Trafigura is looking to sell off its fuel station network in Australia – operated through its retail arm Puma Energy – as continued losses in the space since it entered the market in 2013 for US$850 million pile up
• Construction on BASF’s giant US$10 billion integrated petrochemicals project in Zhanjiang, Guangdong has begun, with the first phase to be launched in 2022 as the first wholly foreign-owned chemicals complex in China
• Equatorial Guinea has announced plans to build two new oil refineries – each with a processing capacity of 30-40,000 b/d using local Zafiro crude – along with other projects including a methanol-to-gasoline plant and LNG expansion
• Bosnia’s sole refinery – the 25,000 b/d Brod site – should be operational by mid-2020, following a major overhaul that began in January 2019

Natural Gas/LNG

• Algerian piped natural gas exports to Europe have been squeezed out by boosted supply of LNG from Australia and the US, as well as piped gas from Russia, which has forced Sonatrach to turn more of its gas into LNG sold by spot
• Gunvor has agreed to market LNG from the Commonwealth LNG project in Louisiana internationally, as well as double its own purchases from the project to as much as 3 million tpa once the project begins operations in 2024
• Norway’s BW Offshore insist that its Kudu natural gas project in Namibia is ‘alive and well’, with talks ongoing with the government two years after the FPSO specialist acquired a 56% stake in the license from NAMCOR
• ExxonMobil is reportedly looking to sell its 50% stake in the Neptun Deep gas project in the Black Sea offshore Romania – the location of its major Domino discovery – for some US$250 million as it continues on a major asset sale
• Petronas is sending its second FLNG unit – the PFLNG Dua – to the Rotan gas field in Sabah, beginning liquefaction operations there by February

The Global Small-Scale LNG Market is projected to grow from 30.8 MTPA in 2016 to 48.3 MTPA by 2022, at a CAGR of 6.7% between 2017 and 2022. The small-scale LNG market across the globe is driven by their increasing LNG demand from remote locations by applications, such as industrial & power, and the ability to transport LNG over long distances without the need for heavy investment such as pipelines. By terminal type, regasification terminal is expected to grow at a highest CAGR between 2017 and 2022. The increasing demand for LNG from the remote locations and global commoditization of LNG are some of the major factors that are driving the demand for small-scale LNG in this segment.

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The Linde Group (Germany), Wärtsilä (Finland), Honeywell International Inc. (U.S.), General Electric (U.S.), and Engie (France), among others are the leading companies operating in the small-scale LNG market. These companies are expected to account for significant shares of the small-scale LNG market in the near future.  

Critical questions the report answers:

Growth Drivers are : 

• Energy cost advantage of LNG over alternate energy sources for end users
• Environmental benefits
• Fiscal regime and subsidies

Energy cost advantage of LNG over alternate energy sources for end-users

Heavy duty transport companies save approximately 30% on fuel costs on LNG-fueled trucks, compared to diesel fueled trucks, and produce 30% lower emissions. Air pollution from diesel engines is one of the biggest concerns, especially in areas that struggle to meet air-quality standards. On the other hand, natural gas causes complete combustion and fewer emissions than diesel. It is estimated that increasing environmental concerns from the utilization of diesel vehicles is likely to increase the adoption of green fuel technologies such as natural gas. In the case of electric power generation, natural gas engines below 150 KW are more cost effective than oil fueled engines. Fuel cost is one of the major cost for road transportation, which is strongly subject to excise taxation. Typically, an LNG-fueled Volvo FM truck can travel up to 600 km with LNG. With an additional 150 litres of diesel, it can travel up to 1,000 km without refuelling. Thus, reducing the cost of travel. With additional LNG liquefaction capacity expected to come online in the next few years, an oversupply of LNG is expected, which will drive the price of LNG further lower. Considering all these factors, both developed and developing countries are undertaking feasibility studies to recognize the techno-economics of shifting their economies from diesel to natural gas. Therefore, the cheap price of small-scla LNG over others alterantive fuels will drive the growth during the forecast period. 

Small-scale LNG terminals are regarded as facilities, including liquefaction and regasification terminals, with a capacity of less than 1 million tons per annum (MTPA) within the scope of this study. It includes the LNG produced from small-scale liquefaction terminals and regasified at small-scale regasification terminals for catering to applications such as LNG-fueled heavy-duty transport, LNG-fueled ships, and industrial & power generation. 

North America small-scale LNG market is projected to grow at the highest CAGR during the forecast period.

The North America small-scale LNG market is projected to grow at the highest CAGR during the forecast period. In North America, most of the small-scale LNG demand in industrial & power applications is met through peak shaving facilities. The peak shaving facilities are used to meet adequate supply of LNG to address the peak demand. In 2015, there were more than 100 peak shaving facilities in the U.S., among which one-half of the peak shaving facilities were located in the Northeast, while a quarter of them were located in the Midwest. Currently, the U.S. has among the highest number of peak shaving plants. However, less than 10% of them are available for any other use due to the current electricity demand. The commissioning of small-scale liquefaction plants can expand the peak shaving capacities in the region.

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Major Market Developments: 

• In December 2016, SkanGas AS signed an agreement with Statoil ASA, an oil and gas company in Norway for the reloading of small-scale LNG at Klaipeda LNG Terminal in Lithuania
• In November 2016, Wärtsilä signed a Memorandum of Understanding (MoU) with ENGIE, a French multinational company to develop services and solutions in the small-scale LNG sector. The agreement includes LNG distribution in remote areas and islands, LNG for ships, small-scale LNG and bio-liquefaction, and LNG to power stations
• In October 2016, GAZPROM announced to develop a program for a small-scale LNG production, which includes a list of gas distribution stations and liquefaction technologies for LNG production. The program involves the construction of mobile LNG filling stations and cryogenic filling facilities.
• In June 2014, The Linde Group developed a small-scale LNG technology namely StarLNG™ for the integration into natural gas liquids (NGL) plants. Some of the benefits of this technology includes zero impact on the reliability of the NGL plant production and monetizing the stream of the residue gas through small-scale LNG.

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