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Last Updated: January 25, 2018
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Market Watch

Headline crude prices for the week beginning 22 January 2017 – Brent: US$69/b; WTI: US$63/b

  • After a correction last week, oil prices have found renewed strength, on hints that OPEC may continue supply management into 2019
  • Saudi Arabia and Russia have jointly signalled that they may have to extend the production cuts in 2019 – as the rising tide of US shale production may derail prices later this year. However, this may be a sign of longer-term cooperation – as the two have been getting cosier.
  • Despite this, Russian Deputy Prime Minister Arkady Dvorkovich said a decision on the OPEC/NOPEC global oil cuts could be made in late spring, ahead of OPEC’s initial timeframe of June, during its next meeting.
  • Kuwait, however, stressed that there is no plan or intention among OPEC members to break from the production freeze agreement, as Iraq claimed that the global market is stabilising with crude inventories falling.
  • Strong global economic data, particularly from the US and Japan, is also supporting the rise in crude prices towards US$70/b.
  • US crude stockpiles are estimated to have fallen by 2.3 million barrels last week, but with refinery maintenance season ongoing in North America until March, this number could start to rise again.
  • After a sizable leap last week, the active US oil and gas rig count by Baker Hughes fell by a net 3 last week. Two gains in gas rigs offset a 5 site drop in oil rigs, with gains in the Permian cancelled out by losses elsewhere.
  • Crude price outlook: OPEC and Russia’s signs of willingness to act should keep prices strong this week. Brent will stay above US$70/b, while WTI should push towards US$66/b.


Headlines of the week

Upstream

  • Shell’s decision to go ahead with the Penguin FID has been hailed as a return to confidence after a period cautious investment in the North Sea. The FPSO redevelopment will be the largest FID since Culzean in 2015.
  • Tullow Oil has snapped up two new oil and gas blocks (CI-520 and CI-524) in the Ivory Coast, bringing its total in the country up to 9.
  • Nigeria’s parliament is moving ahead with passing the new Petroleum Industry Bill, aimed to increasing transparency and stimulating growth. 
  • Total purchased A.P Moeller-Maersk’s shares in three Kenyan blocks. Full production at the Tullow Oil blocks in Turkana is expected in 2021.
  • A consortium of BP and Kosmos Energy has picked up two offshore blocks in Sao Tome and Principe, right in the upstream hotbed of West Africa.
  • Vitol is investing some US$530 million into the OML 30 oilfield owned by Nigeria’s Shoreline in exchange for access to estimated output of 50 kb/d.

Downstream

  • India’s ONGC has secured a US$2.83 billion loan from three banks to fund its US$5.8 billion acquisition of state oil refiner HPCL.
  • Saudi Aramco, CB&I and Chevron Lummus have signed a joint agreement to move ahead with the ‘crude-to-chemical’ plan, integrating the technologies of all three companies as Saudi Arabia pushes downstream.
  • Philadelphia Energy Solutions, which owns the 350 kb/d Philadelphia refinery, is filing for bankruptcy, citing high compliance costs.
  • Nigeria’s NNPC will confirm the investors participating in the revamp of its three ailing refineries, in Port Harcourt, Warri and Kaduna.
  • Statoil has started work on an onshore oil terminal in northern Norway that will handle flows from the Johan Castberg offshore field in the Arctic.

Natural Gas/LNG

  • Iraq has inked a deal with US energy firm Orion, which will process 100-150 mmcf/d of natural gas extracted from the Nahr bin Omar oilfield, as part of a move to cut down the high incidence of gas flaring across Iraq.  
  • Trafigura and US LNG exporter Cheniere have signed a 15-year deal that will deliver 1 mtpa of LNG to Trafigure beginning 2019.
  • India’s GAIL has renegotiated the terms of a long-term LNG contract with Gazprom, the third such successful renegotiation by an Indian company.
  • ExxonMobil has announced a new find in Papua New Guinea, with the onshore P’nyang South-2 well showing hydrocarbon (gas) reservoirs.
  • South Korea’s SK E&S has offered to build a floating LNG import terminal in Sri Lanka for ‘free’, in an unusual loss-leading strategy.
  • A leak in the Sabah-Sarawak gas pipeline has not affected Petronas LNG shipments, with repairs ongoing. Gas flows to the Bintulu LNG complex from Sabah Oil and Gas Terminal have been temporarily halted.
  • No LNG cargoes left Chevron’s Wheatstone project in December 2017 due to scheduled downtime, as Chevron faces an emissions enquiry. Wheatstone Train 2 is on track for mid-2018, with domestic gas production also scheduled for this year.

Corporate

Halliburton and Schlumberger have both reported better-than-expected profits for Q417, a sign that the service industry health may be improving.

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July, 01 2020
U.S. commercial crude oil inventories reach all-time high

weekly U.S. commercial crude oil inventories

Source: U.S. Energy Information Administration, Weekly Petroleum Status Report

Recent declines in demand for petroleum products have led commercial crude oil inventories in the United States to reach an all-time high of 541 million barrels as of the week ending June 19, which is 5 million barrels more than the previous record set in late March 2017, according to data in the U.S. Energy Information Administration’s (EIA) Weekly Petroleum Status Report.

weekly total U.S. crude oil inventories

Source: U.S. Energy Information Administration, Weekly Petroleum Status Report

Commercial crude oil inventories do not include crude oil held in the U.S. Strategic Petroleum Reserve, which totaled 654 million barrels as of June 19. Total commercial crude oil inventories include volumes held at refineries and tank farms, as well as some amount of pipeline fill (crude oil held in pipelines) and stocks in transit by water and rail. When estimating storage capacity utilization, EIA removes the pipeline fill and stocks in transit so that utilization reflects the stocks held at refineries and tank farms as a percentage of working storage capacity.

weekly U.S. net crude oil inventories

Source: U.S. Energy Information Administration, Weekly Petroleum Status Report

To help stakeholders better assess crude oil storage and capacity, EIA provides weekly estimates of U.S. and regional crude oil storage capacity utilization in the Weekly Petroleum Status Report (WPSR). EIA’s most recent Working and Net Available Shell Storage Capacity Report was released on May 29, 2020, with data as of March 31, 2020. In this update, net available shell storage capacity in the United States increased by nearly 19 million barrels from the previous estimate as of the end of September 2019. An increase in Gulf Coast storage capacity offset relatively small changes in other regions.

As of June 19, U.S. net commercial crude oil inventories were at 62% of total available storage capacity. The majority of capacity and inventories are located in the Gulf Coast, a region which is also home to the majority of U.S. refining capacity and a key area for exporting crude oil. Total commercial Gulf Coast crude oil inventories have increased by 64 million barrels since March 13, when a national emergency was declared in the United States, and are now at an all-time record of 308 million barrels.

Crude oil storage capacity utilization in Cushing, Oklahoma, had increased to 83% of capacity as of the week ending May 1, but it declined to 58% on June 19. Storage considerations were among the reasons that West Texas Intermediate (WTI) crude oil prices—which are based on physical delivery of WTI crude oil at Cushing, Oklahoma—briefly dropped below zero on April 20 and April 21.

June, 30 2020
Changing Investment Winds In The Middle East

The sale of a mere 5% stake in the oil world’s crown jewel, Saudi Aramco had captured the attention of the entire investment community last year. Pushing through after years of debate and delays, the sale on the Tadawul stock exchange valued Aramco at a whopping initial US$1.6 trillion. Investors were mainly connected Saudi individuals and wealthy families, with international buy-in limited as a planned parallel listing on the London or New York Stock Exchange fell through. Still, the deal was enough to unleash several thousand pages of speculation and opinion over potential liberalisation of the oil and gas complex in the Middle East, especially the upcoming post-oil and carbon-neutral environment.

Aramco may have captured all the main headlines, especially with its huge acquisition of fellow Saudi jewel SABIC but the true entity pushing the boundaries of privatisation and deregulation in the Middle East is elsewhere. Specifically, just east of Saudi Arabia, in Abu Dhabi – the largest and most influential of the seven emirates that make up the UAE.

The latest headline involving ADNOC, Abu Dhabi’s state oil firm, hasn’t really made the rounds beyond the industry’s eyes but it is crucial to understanding how the Middle East oil sector could adapt to the changing industry over the next few decades. Partnering with a consortium of six investors, ADNOC has sold a 49% stake in its ADNOC Gas Pipeline Assets subsidiary, retaining a 51% majority stake and control. The sale had been bandied around for over a year, seen as a sign of a gradual opening of a tightly controlled oil and gas region, and follows three other significant sales involving ADNOC. The first was in 2017, when ADNOC raised nearly a billion US dollars through an IPO of its fuels distribution unit on the Abu Dhabi Securities Exchange, offering up 10% of its shares. Then late 2019, ADNOC partnered with Italy’s Eni and Austria’s OMV to nearly double oil refining capacity in Abu Dhabi to 1.5 mmb/d – the largest foreign participation in the Middle East downstream industry since the Shell Pearl GTL project in Qatar and Total’s Jubail refining and petrochemicals push over a decade ago. Around the same time, ADNOC also pocketed US$4 billion from US investment giants BlackRock and KKR through the sale of a 40% stake in its ADNOC Oil Pipelines subsidiary. And now it is the turn of ADNOC’s gas pipelines.

The chronology and regional aspect of ADNOC’s moves is interesting. While Aramco looks local, Abu Dhabi went abroad. The refining expansion involved established oil market players, Eni and OMV – and parallels a gradual unbundling of Abu Dhabi’s upstream concessions, where stakes have been offered to Total, PetroChina, Eni, Cepsa and India’s ONGC over the past five years. But the choice of new investors are now not from the industry. After the deep-pocketed BlackRock and KKR, ADNOC has once against turned to institutional investors for its latest, and largest, sale, with the US$20.7 billion gas pipeline and infrastructure deal going to a consortium consisting of Global Infrastructure Partners (GIP), Brookfield Asset Management, Ontario Teacher’s Pension Plan Board, Singapore’s GIC sovereign wealth fund, NH Investment and Securities and Italy’s infrastructure operator SNAM. ADNOC called the deal a ‘landmark investment (that) signals continued strong interest in ADNOC’s low-risk, income-generating assets’. But it also illustrates two other points: institutional interest in strategic Middle East assets and the challenging environment within the industry because of Covid-19 that has led investment interest expanding to new capital that is currently reluctant to make risky bets in an unstable economic environment. So the choice of ADNOC’s safe assets and a captive domestic market is rather attractive.

ADNOC’s strategy differs from Aramco’s fundamentally. Where Aramco sold a stake of itself, ADNOC has parcelled out different parts of itself while keeping control of the main body intact. This is what Malaysia’s Petronas has done to a great degree of success, listing subsidiaries through IPOs and partnering with foreign investors on upstream/downstream projects, using the proceeds to finance a global expansion that now stretches across all continents. Replicating this strategy, as ADNOC looks to be doing, could pay dividends, particularly since ADNOC has a wider domestic base, as well as stronger export markets, than Petronas. Between Saudi Aramco and ADNOC, the OPEC duo seems to have kickstarted a liberalisation drive within the Middle East energy complex. Kuwait Petroleum and Bahrain’s BAPCO are already reported to be considering similar moves. Which model could this second wave follow: Aramco’s or ADNOC’s? Aramco’s is a shock-and-awe move, a potential wow factor at the size of any possible deal. But ADNOC’s more piecemeal approach could actually be far more stable and sustainable over time.

Market Outlook:

  • Crude price trading range: Brent – US$39-42/b, WTI – US$37-40/b
  • Signs that the oil demand recovery has been better-than-expected as economies re-open have been tempered by fears that a resurgence of Covid-19 infections is on the horizon
  • The US recorded its highest single-day case number this week, while Europe recorded its first increase in a month and cases in Latin America and India are accelerating, prompting fears that a second round of lockdowns was necessary
  • Economies will have more time to prepare for a second round of lockdowns, but the disruption will still snuff out any current nascent improvement in demand
  • This will weigh heavily on OPEC, as it now has to consider another extension beyond the end of July, although compliance has improved among the OPEC+ club as Iraq, Kazakhstan, Nigeria, Angola, Gabon and Brunei all submitted new output schedules

End of Article

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June, 26 2020