Government attempts to reduce air pollution by cutting consumption of coal in favour of natural gas are likely to be the biggest drivers of Asia-Pacific LNG demand in the near term, potentially helping absorb supplies from new liquefaction projects that are scheduled to hit the market in 2018. Three of the world's four largest LNG importers — China, India and South Korea — are aiming to boost gas consumption as part of efforts to cut reliance on coal and nuclear power for environmental and safety reasons. The three countries collectively accounted for around 30% of 2016's global LNG imports, behind the largest importer Japan. China is pushing strongly to cut coal use under its 13th five-year plan. The government is targeting a 10% reduction in coal consumption in 2020 from 2015. South Korea is calling for a move away from coal and nuclear in favour of renewables by 2030 in a new plan for the power sector. The government wants LNG to have a 27.3% share of power generation capacity by 2030, up from a targeted 14.5% in its previous power plan but down from the current level of 31.9%. India is seeking to increase the share of gas in its energy mix to 15% from around 6%, while also doubling LNG regasification capacity to 56mn t/yr in the next three years. State-run aggregator Petronet forecasts domestic LNG demand will grow by 8-10%/yr over the next few years from 18-19 million tonnes in 2016. India wants to add pipeline gas connections to 10 million households by 2019. State-controlled gas distributor Gail plans to double the existing pipeline network infrastructure by 2020, with it already having begun construction in the northeastern states.
Japan's JX Nippon Oil & Gas Exploration says Malaysian state oil firm Petronas has awarded it oil and gas rights for the Beryl gas field off the coast of Malaysia. The company says Beryl is scheduled to produce its first gas in November, 2018, with peak production seen at around 23,000 barrels per day of oil equivalent. That gas will be sold as LNG to customers, including buyers in Japan, according to the firm.
The World Bank Group Tuesday said it will stop financing upstream oil and gas after 2019, as part of a wider commitment to global efforts to halt climate change. "As a global multilateral development institution, the World Bank Group is continuing to transform its own operations in recognition of a rapidly changing world," the bank said in a statement. "The World Bank Group will no longer finance upstream oil and gas, after 2019," it said.
· The impact is likely to be largely symbolic as the World Bank is not a major financier of upstream projects. It is unlikely that local banks will follow suit. However, this development highlights the general perception that the gas industry is lumped together with the oil industry, and is viewed as a polluting industry.
In the next five years, Petronas projected that the average daily oil output would be 1.7 million barrels. It said the potential projects to be developed will be concentrated in new growth areas or new projects and maximize exploration of existing projects. The expected development portfolio between 2018-2020 for the new project is 20 projects.
· Of the new projects to be developed between 2018 to 2020, all involve the development of new facilities, of which 70 percent are gas projects This good news will ensure the sustainability of the gas industry in Malaysia.
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Headline crude prices for the week beginning 10 June 2019 – Brent: US$62/b; WTI: US$53/b
Headlines of the week
Midstream & Downstream
A month ago, crude oil prices were riding a wave, comfortably trading in the mid-US$70/b range and trending towards the US$80 mark as the oil world fretted about the expiration of US waivers on Iranian crude exports. Talk among OPEC members ahead of the crucial June 25 meeting of OPEC and its OPEC+ allies in Vienna turned to winding down its own supply deal.
That narrative has now changed. With Russian Finance Minister Anton Siluanov suggesting that there was a risk that oil prices could fall as low as US$30/b and the Saudi Arabia-Russia alliance preparing for a US$40/b oil scenario, it looks more and more likely that the production deal will be extended to the end of 2019. This was already discussed in a pre-conference meeting in April where Saudi Arabia appeared to have swayed a recalcitrant Russia into provisionally extending the deal, even if Russia itself wasn’t in adherence.
That the suggestion that oil prices were heading for a drastic drop was coming from Russia is an eye-opener. The major oil producer has been dragging its feet over meeting its commitments on the current supply deal; it was seen as capitalising on Saudi Arabia and its close allies’ pullback over February and March. That Russia eventually reached adherence in May was not through intention but accident – contamination of crude at the major Druzhba pipeline which caused a high ripple effect across European refineries surrounding the Baltic. Russia also is shielded from low crude prices due its diversified economy – the Russian budget uses US$40/b oil prices as a baseline, while Saudi Arabia needs a far higher US$85/b to balance its books. It is quite evident why Saudi Arabia has already seemingly whipped OPEC into extending the production deal beyond June. Russia has been far more reserved – perhaps worried about US crude encroaching on its market share – but Energy Minister Alexander Novak and the government is now seemingly onboard.
Part of this has to do with the macroeconomic environment. With the US extending its trade fracas with China and opening up several new fronts (with Mexico, India and Turkey, even if the Mexican tariff standoff blew over), the global economy is jittery. A recession or at least, a slowdown seems likely. And when the world economy slows down, the demand for oil slows down too. With the US pumping as much oil as it can, a return to wanton production risks oil prices crashing once again as they have done twice in the last decade. All the bluster Russia can muster fades if demand collapses – which is a zero sum game that benefits no one.
Also on the menu in Vienna is the thorny issue of Iran. Besieged by American sanctions and at odds with fellow OPEC members, Iran is crucial to any decision that will be made at the bi-annual meeting. Iranian Oil Minister Bijan Zanganeh, has stated that Iran has no intention of departing the group despite ‘being treated like an enemy (by some members)’. No names were mentioned, but the targets were evident – Iran’s bitter rival Saudi Arabia, and its sidekicks the UAE and Kuwait. Saudi King Salman bin Abulaziz has recently accused Iran of being the ‘greatest threat’ to global oil supplies after suspected Iranian-backed attacks in infrastructure in the Persian Gulf. With such tensions in the air, the Iranian issue is one that cannot be avoided in Vienna and could scupper any potential deal if politics trumps economics within the group. In the meantime, global crude prices continue to fall; OPEC and OPEC+ have to capability to change this trend, but the question is: will it happen on June 25?
Expectations at the 176th OPEC Conference
Global liquid fuels
Electricity, coal, renewables, and emissions