South Africa is one of the world’s leading emitters of energy-related carbon dioxide (CO2), ranking fifteenth globally in 2015 and accounting for more than any other country in Africa. In an effort to reduce CO2 emissions, South Africa is planning to diversify its energy portfolio, replacing coal with lower CO2-emitting fuels such as natural gas and renewable sources. The country’s Intended National Determined Contribution, submitted as part of the Paris Agreement, plans for CO2 emissions to peak by 2025, remain flat for a decade, and begin to decline around 2035.
South Africa relies primarily on coal for electricity generation, and coal accounted for about 70% of the country’s primary energy consumption in 2016. However, aging coal-fired power plants and insufficient investment in power infrastructure have led to recurring power outages. Scheduled power cuts for certain customers during peak electricity demand periods occurred frequently between 2013 and 2015, which, according to the International Monetary Fund, negatively affected the country’s industrial and economic growth.
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Market Watch
Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
Upstream
Midstream & Downstream
Natural Gas/LNG
Forecast Highlights
Global liquid fuels
Natural gas
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
1. ExxonMobil:
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
2. Shell:
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
3. Chevron:
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
4. BP:
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
5. Total:
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)