EGYPS 2018 Highlights Industry Achievements and Brings Together Global Key Players in North Africa’s largest Oil and Gas Exhibition and Conference
4 February 2018, Cairo - The Egypt Petroleum Show (EGYPS 2018) held under the patronage of H.E. President Abdel Fattah El Sisi, and the auspices of the Ministry of Petroleum and Mineral Resources, is set to take place February 12th – 14th at the Egypt International Exhibition Center. As the primary platform highlighting Egypt’s substantial progress and ambitious development plans in the oil and gas industry, the show brings together key ministers, government officials and representatives of major global oil companies as well as local and regional national oil companies, and leading technology and service providers.
Speaking at the pre-show press conference, highlighting its strategic significance and the goals of its proceedings, H.E. Eng. Tarek El Molla, Minister of Petroleum and Mineral Resources said, “On the back of the tremendous success achieved by the first edition, we are very optimistic about EGYPS 2018. The show’s diverse participants and attendees and its unique features make us very confident that we are on the right track. This year has kicked off with a lot of success stories for the oil and gas sector driven by local and international efforts. Our achievements to date span four mega projects. For the first time in years, we have added a capacity of 1.6 billion cubic feet of natural gas. Last week we celebrated the inauguration of Zohr gas field, and in the past months we have issued the new law regulating the gas market – one of the most important laws that will support the growth of the gas sector across all phases. We look forward to strengthening Egypt’s positioning on the global industry map as a serious contender and a regional energy hub.”
The second edition of EGYPS boasts a number of new and significant features, making it the prime destination for key regional and international investors to work hand in hand with the Egyptian government to expand its capabilities. Mr. Christopher Hudson, President dmg events Global Energy, said of EGYPS 2018, “We are very proud to be the Egyptian government’s partner in success for the second year in a row. With the significant developments in the industry and the country over the past 12 months, we see our role as even more crucial in terms of bringing together industry professionals setting up a show that is a strategic industry pillar in Egypt and the region, and which champions diversity and inclusion.”
H.E Eng. Tarek El Molla continued, “EGYPS 2018 could not have come at a better time, opening further avenues to mutual long term cooperation between the Egyptian government and major global industry players. This year EGYPS is set to witness even bigger participation and will effectively showcase our success to the world as well as our plans to continue to strengthen our achievements.”
EGYPS 2018’s opening ceremony features keynote speakers and ministerial and intergovernmental panels and includes some of the region and the world’s most prominent energy ministers and leaders including H.E. Tarek El Molla, Egypt’s Minister of Petroleum and Mineral Resources, H.E. Mustapha Guitouni, Minister of Energy, People’s Democratic Republic of Algeria, H.E. Dr Saleh Ali Hamed Al Kharabsheh, Minister of Energy and Mineral Resources, The Hashemite Kingdom of Jordan, H.E. Gabriel Obiang Lima, Minister of Mines and Hydrocarbons, Equatorial Guinea and H.E. Jabbar Ali Hussein Al Luaibi, Minister of Oil, Republic of Iraq, H. E. David Mahlobo, Minister of Energy, Republic of South Africa, H.E. Mohamed Barkindo, Secretary General, Organization of the Petroleum Exporting Countries (OPEC), H.E. Abbas Al Naqi, Secretary General, Organization of Arab Petroleum Exporting Countries (OAPEC), H.E. Yury Sentyurin, Secretary General, Gas Exporting Countries Forum (GECF),
Among the show’s highlights is “The Strategic Industry Conference”, bringing together a host of Oil & Gas executives including Claudio Descalzi, CEO, Eni, Bob Dudley, Group Chief Executive, BP, Grigoris Stergioulis, CEO, Hellenic Petroleum, Lorenzo Simonelli, Chairman & CEO, Baker Hughes, a GE Company and Mustafa Sanalla, Board Chairman, NOC Libya to name a few.
While the “CEO Strategic Roundtables” focus on the roles upstream, midstream and downstream sectors play in helping the country achieve its sustainable energy development objectives. Equally of note is the “Finance and Investment Lunch Briefing”, connecting government representatives, NOCs and IOCs with local and international banks, and private equity firms.
Continuing on the show’s other features, Hudson added, “the technical conference will run parallel to EGYPS 2018 exhibition, encompassing 31 sessions that cover more than 11 technical disciplines intended to tackle some of the most eminent matters in the energy sector.” Hudson indicated that the convention also includes the “Women in Energy Conference” - and its newly introduced Awards - and the Security and HSE in Energy conference, he said, “ “The Women in Energy” conference and awards reflect the government and industry’s commitment to inclusion and diversity, saluting and recognising the outstanding achievements and contributions of women in the sector. EGYPS 2018 will also feature the newly introduced “Security and HSE in Energy” conference, which comes at a time when the health, safety and security of human resources and infrastructure is more crucial than ever.”
EGYPS 2018 will host over 400 exhibiting companies, 15,000 attendees, 11 country pavilions from major oil producing countries that include Bahrain, China, France, Germany, Italy, Norway, Russia, Scotland, United Arab Emirates, United Kingdom and the United States of America, more than 1,000 conference delegates, in addition to over 150 expert speakers taking part in over 50 dedicated industry sessions.
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The U.S. Energy Information Administration’s (EIA) latest Petroleum Supply Monthly shows the significant changes in petroleum markets that occurred in April, when most of the United States was under stay-at-home orders to limit the spread of coronavirus. In April, commercial crude oil inventories increased by 46.7 million barrels (10%)—the largest monthly increase in EIA data going back to 1920. U.S. refineries operated at 70% of their capacity, the lowest utilization rate in EIA’s monthly data series dating back to 1985. Demand for finished petroleum products fell to 11.7 million barrels per day (b/d), the lowest level since at least 1981.
April’s crude oil inventory increase is a result of refinery runs falling more quickly than crude oil supply, which is determined by domestic production and imports. U.S. crude oil production in April averaged 12.1 million b/d, a decrease of 669,000 b/d (5%) from March. This decrease represents the largest month-over-month decline since September 2008, when Hurricanes Ike and Gustav hit the U.S. Gulf Coast. U.S. crude oil imports fell by 776,000 b/d (12%) from March to April, further decreasing crude oil supply in the United States.
The combined drop in production and imports was smaller than the decline in gross inputs to refineries, resulting in record increases in crude oil inventories. Based on estimates in EIA’s Weekly Petroleum Status Report, commercial crude oil inventories reached a record high of 541 million barrels in the week ending June 19 and have fallen slightly in the weeks since then.
Source: U.S. Energy Information Administration, Petroleum Supply Monthly
Changes in travel patterns resulted in the lowest levels of U.S. demand for finished petroleum products (as measured by product supplied) in decades. Transportation fuels have been affected differently by changes in travel: demand for jet fuel and motor gasoline fell much more than distillate fuel, which is primarily consumed as diesel. From March to April, product supplied of finished motor gasoline decreased a record 1.9 million b/d (25%) to 5.9 million b/d, the lowest monthly value since the mid-1970s.
In the span of two months, U.S. demand for jet fuel fell by more than half, from 1.6 million b/d in February to 691,000 b/d in April. Before April, U.S. jet fuel demand had not been less than 700,000 b/d since the mid-1970s.
Distillate demand fell by 408,000 b/d, or about 10%, from March to April. Although the change in distillate demand was less drastic than the changes in motor gasoline and jet fuel demand, distillate consumption in April 2020 was the lowest in more than a decade.
Exports of natural gas to Mexico by pipeline are the largest component of U.S. natural gas trade, accounting for 40% of all U.S. gross natural gas exports in 2019. EIA expects these exports to increase with the completion of the southern-most segment of the Wahalajara system, the Villa de Reyes-Aguascalientes-Guadalajara (VAG) pipeline. VAG began operations in June 2020, connecting new demand markets in Mexico to U.S. natural gas pipeline exports.
The Wahalajara system is a group of new pipelines that connects the Waha hub in western Texas, a major supply hub for Permian Basin natural gas producers, to Guadalajara and other population centers in west-central Mexico. The Wahalajara system provides U.S. natural gas to meet growing demand from Mexico’s electric power and industrial sectors. With the 0.89 billion cubic feet per day (Bcf/d) VAG pipeline entering service, EIA expects utilization of the Wahalajara system to quickly ramp up, resulting in increased U.S. natural gas exports to Mexico out of western Texas and additional takeaway capacity out of the Permian Basin.
Since 2016, Mexico has been expanding its natural gas pipeline system, which has supported continual growth in U.S. natural gas exports. Most of this growth has been in U.S. natural gas exports from southern Texas after the existing U.S. pipeline infrastructure was expanded and the Los Ramones Phase II pipeline in central Mexico was completed.
Since the Sur de Texas-Tuxpan pipeline was completed in September 2019, U.S. natural gas exports to Mexico reached a record 5.5 Bcf/d in October 2019. U.S. natural gas exports from the border at Brownsville, Texas, to the southeastern state of Veracruz in Mexico averaged 0.6 Bcf/d during the last quarter of 2019, or about 20% of the pipeline’s capacity.
Overall, U.S. natural gas exports from this region have only increased by 0.2 Bcf/d from 2016 to 2019 because of delays in pipeline construction in Mexico. In particular, two regional pipelines were completed in 2017 but have not been used near their capacity:
Source: U.S. Energy Information Administration, Natural Gas Monthly
The Comanche Trail pipeline has been delivering an average of 0.1 Bcf/d of natural gas to Mexico since the San Isidro-Samalayuca pipeline entered service in June 2017. Pipeline operators do not expect flows to rise until the 0.47 Bcf/d Samalayuca-Sásabe pipeline is completed in either late 2020 or early 2021 in Mexico.
The Trans-Pecos pipeline, the U.S. segment of the Wahalajara system, did not transport significant volumes of natural gas until October 2018; it is currently only operating at 10% to 15% of its total capacity. Most of the demand centers are in southern Mexico, waiting to be connected to the VAG pipeline. Three of the project’s four pipelines in Mexico that are currently in-service include
Before the economic impacts and uncertainty associated with COVID-19 mitigation efforts and declining crude oil prices, S&P Global Platts expected U.S. natural gas exports to Mexico to increase immediately by 0.3 Bcf/d to 0.4 Bcf/d on the Wahalajara system. However, given the decreased demand for natural gas in Mexico in response to the economic impact of COVID-19 mitigation efforts, growth is likely to be slower than expected. Beyond these volumes, additional export volumes will be limited by how quickly customers in Mexico can be connected to the pipeline system.
These connections include new natural gas-fired combined-cycle generators and the scheduled 2020 completion of the 0.89 Bcf/d Tula-Villa de Reyes pipeline, which will deliver natural gas to central Mexico. Deliveries from the Wahalajara network are likely to partially displace higher-cost liquefied natural gas (LNG) imports into Mexico’s Manzanillo terminal, which serves markets in Guadalajara and Mexico City.
As U.S. natural gas exports on the Wahalajara system rise and crude oil prices remain low, EIA expects the price at the Waha hub in the Permian Basin, which had been steeply discounted to the Henry Hub national benchmark, to continue to strengthen.
Officially, we are past the half point of 2020 and with that the end of the second quarter. And what a quarter it has been. WTI prices plunged into negative territory (as low as -US$37/b) then recovered to US$40/b as OPEC+ moved from infighting to coordinating the largest crude production cut in history. In between, the Covid-19 pandemic wreaked havoc with the global economy, setting off a chain reaction within the oil world whose full impact is still unknown.
Opinions on a post-Covid oil world are divided. Some voices, the more optimistic ones, think that oil demand could recover to pre-Covid levels within a year or two. The more pessimistic ones think that this will never happen, that Covid-19 has hastened the trend away from fossil fuels to sustainable energy against the backdrop of climate change. Either way, this has thrown a spanner in the works of the giant, multi-billion oil and gas projects that were announced over the past two years as the energy world began to wake up from its post-2015 price crash investment hibernation. Those projects were made at a time when oil prices were at US$50-60/b. Since oil prices are now only at US$40/b, the current value and the future worth of these assets have now declined. Energy companies account for this by adjusting the value of their portfolios in accordance to the projected value of crude: an upward adjustment is known as a revaluation, and a negative one is known as an impairment.
This is a term that will crop up many times over 2020, as energy companies close their quarterly financial books and report their results to shareholders. The plunge in crude oil prices and the uncertain outlook for oil demand means that publicly-traded companies must account for this to their shareholders. Chevron was the first supermajor to book an impairment, in late 2019 when it took a US$10 billion hit to its oil and gas assets. It wasn’t the only one: firms all across the oil chain also reduced the value of their assets, from Repsol to Equinor.
Further impairments were made in April 2020 when the Q1 financial results were announced, mainly in response to the triggering of the OPEC+ price war (which saw crude prices halve from US$60/b to US$30/b) and the Covid-19 pandemic accelerating to a point where over half of the world’s population went into lockdown. But the major impact will come in Q2 2020, when the roil in the oil markets truly began to boil uncontrollably. BP has announced that it may take up to a US$17.5 billion impairment in its Q2 2020 financial results, while Shell has just admitted that it may have to shave US$22 billion from its asset value.
This has roots not just in the depressed demand for energy due to Covid-19, but also the ongoing conversation on climate change. Almost all supermajors have announced intentions to become carbon neutral by the 2050 timeframe. That may be good news for the planet, but it is bad news for the companies’ portfolio. Put simply, it means that some of the assets that they have invested billions in are now not only worth a lot less (due to Covid-19) but they may in fact be worth nothing at all, because climate change considerations mean that they will never be exploited. Challenging projects such as Total’s deepwater Brulpadda discovery in turbulent South African waters or Pertamina/ExxonMobil/Total/PTTEP’s beleaguered and complicated East Natuna sour gas asset in Indonesia may never be commercialised, either because of uneconomic prices or because they run counter to the goal of becoming carbon neutral. The Financial Times estimates that the amount of unviable or stranded hydrocarbon assets could reach as much as US$900 billion; that figure is pre-Covid, and could now become even higher.
There is one supermajor bucking the trend though. The biggest supermajor of all, in fact. Unlike its peers, ExxonMobil has not yet succumbed to impairments. If fact, it has not announced any negative revaluations at all over the past decade, even during the 2015 oil price crash. ExxonMobil claims that this is because it books the value of new assets ‘very conservatively’ and does not ‘adjust values to short-term price trends’, but critics say that it has an ongoing history of vastly overestimating its assets’ value. Along with Chevron, ExxonMobil does not disclose price assumptions in its financials. But unlike Chevron, ExxonMobil has not yielded to climate change through an official emissions target or asset revaluations.
On paper, that will make ExxonMobil look better than its supermajor brothers. But behind the scenes, this reluctance to admit that the future is less rosy than expected could be trouble waiting to be unleashed. Impairments are a necessary reality check: an admission by a company that things have changed and it is starting to adapt. Most have accepted that reality. ExxonMobil seems to be resisting. But even it is not immune. In pre-Q2 2020 results guidance that was just announced, ExxonMobil admitted that it expects to take a hit of some US$3.1 billion and slump to a second straight quarterly loss. In terms of Covid-19 impairments, that’s small. But it is, at least, a start.
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