HOUSTON/LONDON (Reuters) - U.S. shale oil output is set to surge over the next five years, stealing market share from OPEC producers and moving the United States, once the world’s top oil importer, closer to self sufficiency, the International Energy Agency said on Monday.
A landmark deal in 2017 between OPEC and rivals including Russia to curb output to reduce global oversupply improved the outlook for other producers as prices rose sharply throughout the year, the IEA said in Oil 2018, an annual report looking at the next five years.
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The Suez Canal and the SUMED Pipeline are strategic routes for Persian Gulf crude oil, petroleum products, and liquefied natural gas (LNG) shipments to Europe and North America. Located in Egypt, the Suez Canal connects the Red Sea with the Mediterranean Sea, and it is a critical chokepoint because of the large volumes of energy commodities that flow through it.
Chokepoints are narrow channels along widely used global sea routes that are critical to global energy security. Total oil flows through the Suez Canal and the SUMED pipeline accounted for about 9% of total seaborne traded petroleum (crude oil and refined petroleum products) in 2017, and LNG flows through the Suez Canal and the SUMED pipeline accounted for about 8% of global LNG trade.
Since 2016, growth in northbound total petroleum flows through the Suez Canal and the SUMED pipeline has slowed, and southbound flows through the canal have risen substantially. In particular, the Suez Canal is gaining importance as a southbound route for U.S. and Russian crude oil and petroleum products to destinations in Asia and the Middle East.
Source: U.S. Energy Information Administration, based on Lloyd’s List Intelligence, Clipper Data, and Suez Canal Authority (with EIA conversions)
Slightly more than half of total petroleum transiting the Suez Canal in 2018 was sent northbound to destinations in Europe and North America. Petroleum exports from Persian Gulf countries, such as Saudi Arabia, Iraq, and Iran, accounted for 85% of Suez Canal northbound traffic. Northbound flows of petroleum products have risen in recent years, particularly as more ultra-low sulfur diesel fuel has been shipped from Saudi Arabia to European countries.
Source: U.S. Energy Information Administration, based on Suez Canal Authority
Northbound crude oil flows decreased in 2018 for several reasons:
Southbound crude oil shipments, mainly to Asian markets such as Singapore, China, and India, have more than doubled in the past two years. Petroleum exports from Russia accounted for the largest share (24%) of Suez southbound petroleum traffic. Increases in Libya’s crude oil production and exports in 2018 also contributed to a rise in southbound shipments. In the past two years, increased production and exports of U.S. crude oil and petroleum products—especially liquefied petroleum gas—have also increased southbound traffic through the canal.
Source: U.S. Energy Information Administration, based on Suez Canal Authority
Overall LNG flows through the Suez Canal have declined in recent years. Nearly all (98%) of the northbound LNG transit is from Qatar and mainly destined for European markets. Although Qatar remains a key exporter of LNG through the canal, it has been diverting more cargoes to Asia in recent years.
Changes in LNG traffic through the Suez Canal also reflect the growth in U.S. shale gas production and LNG exports, falling LNG demand in some European countries, and competition for LNG in the global market, especially in Asia.
The 200-mile long SUMED Pipeline transports crude oil northbound through Egypt from the Red Sea to the Mediterranean Sea. Crude oil flows through two parallel pipelines that have a total capacity of 2.8 million barrels per day. The SUMED Pipeline is the only alternative route to transport crude oil from the Red Sea to the Mediterranean Sea if ships cannot navigate through the Suez Canal. Crude oil flows through the SUMED Pipeline have declined since 2016 as a result of the shifting oil trade patterns and a widening of the Suez Canal.
Source: U.S. Energy Information Administration, based on Lloyd’s List Intelligence and Clipper Data
Now that Occidental Petroleum has beaten Chevron to the acquisition of Anadarko Petroleum – and the strategic assets it holds in the prolific Permian Basin – one would think that the deal is cut-and-dry. Not so. The fallout of the massive US$57 billion deal has begun, and it pits one legendary billionaire against another legendary billionaire.
The Occidental purchase of Anadarko had all the signs of a classic takeover battle, swooping in after Chevron and Anadarko’s boards had approved their own US$48 billion deal. It was made only possible by Oxy CEO Vicki Hollub making a quick private plane trip that resulted in a last-minute US$10 billion capital injection from Warren Buffet’s Berkshire Hathaway that was contingent on the Anadarko purchase working. It did. And with the US Federal Trade Commission approving the deal, Anadarko will become part of Occidental by the end of 2019.
But not everyone is happy about the situation. Some investors and shareholders of Occidental believe that it badly overpaid for Anadarko, and were rankled by the deal bypassing a shareholder vote on the matter. The chief critic of this is activist Carl Icahn, who owns a US$1.6 billion stake in Occidental, who slammed it as ‘misguided’ with the CEO and Board ‘betting the company to serve their own agendas’. Icahn has already filed a lawsuit demanding access to Occidental’s books and records, and has just take the fight to a new level.
Last week, Icahn filed regulatory paperwork to call for a special shareholder meeting where he hopes to oust four of Occidental directors and modify the company’s charter through stockholder consent from ever engineering a similar takeover. Icahn wants Spencer Abraham, Eugene Batchelder, Margaret Foran and Avedick Poladian out from the Board, holding them responsible for the ‘fiasco’. He has, of course, nominated his own preferred replacements, including one of his portfolio manager’s Nicholas Graziano, his general counsel Andrew Langham, former Jarden finance chief Alan LeFevre and former president of Shell John Hofmeister. While Icahn has publicly acknowledge that the Anadarko takeover will probably go ahead, his aim is for the new Board to oversee ‘future extraordinary transactions to ensure that they are not consummated without shareholder approval where approval.’
Will it work? Before the proxy fight can go ahead, Icahn must get at least 20% of shareholders to agree to a meeting. That’s a tall order, given that the current crop of directors and Boards were re-elected at the May annual meeting, although with lower support. But there is certainly some appetite, given that Occidental’s stock has dropped nearly 17% since the initial April hostile takeover, reflecting market mood that it had bitten off more than it could chew.
All of this is playing out against a backdrop of pessimism in the Permian. Although the shale revolution had brought American crude production to record highs and sent its crude exports to a new record of 3.3 mmb/d in June, there are now cracks showing. With limited infrastructure, low prices and over-exploitation, the Permian boom is slowing down. Once an investor’s darling, financing has now become far tougher for Permian players, as the high production fall off rate means that companies have to spend more and more money to just maintain production. It’s a situation that is particularly negative for the small, nimble players that powered the initial shale revolution who lack the deep pockets to optimise shale assets over a longer production period. All across the Permian, independent players have lost between 50-100% of their market value, making them ripe for acquisition by majors and supermajors. Deals like the Anadarko one make sense in this context, but with the financial risk increasing, these blockbuster deals may never lead to blockbuster returns. Carl Icahn may not be able win his battle for the Occidental board, but he is certainly making a serious – and very valid - point.
The Occidental-Anadarko deal:
According to the Nigeria National Petroleum Corporation (NNPC), Nigeria has the world’s 9th largest natural gas reserves (192 TCF of gas reserves). As at 2018, Nigeria exported over 1tcf of gas as Liquefied Natural Gas (LNG) to several countries. However domestically, we produce less than 4,000MW of power for over 180million people.
Think about this – imagine every Nigerian holding a 20W light bulb, that’s how much power we generate in Nigeria. In comparison, South Africa generates 42,000MW of power for a population of 57 million. We have the capacity to produce over 2 million Metric Tonnes of fertilizer (primarily urea) per year but we still import fertilizer. The Federal Government’s initiative to rejuvenate the agriculture sector is definitely the right thing to do for our economy, but fertilizer must be readily available to support the industry. Why do we import fertilizer when we have so much gas?
I could go on and on with these statistics, but you can see where I’m going with this so I won’t belabor the point. I will leave you with this mental image: imagine a man that lives with his family on the banks of a river that has fresh, clean water. Rather than collect and use this water directly from the river, he treks over 20km each day to buy bottled water from a company that collects the same water, bottles it and sells to him at a profit. This is the tragedy on Nigeria and it should make us all very sad.
Several indigenous companies like Nestoil were born and grown by the opportunities created by the local and international oil majors – NNPC and its subsidiaries – NGC, NAPIMS, Shell, Mobil, Agip, NDPHC. Nestoil’s main focus is the Engineering Procurement Construction and Commissioning of oil and gas pipelines and flowstations, essentially, infrastructure that supports upstream companies to produce and transport oil and natural gas, as well as and downstream companies to store and move their product. In our 28 years of doing business, we have built over 300km of pipelines of various sizes through the harshest terrain, ranging from dry land to seasonal swamp, to pure swamps, as well as some of the toughest and most volatile and hostile communities in Nigeria. I would be remiss if I do not use this opportunity to say a big thank you to those companies that gave us the opportunity to serve you. The over 2,000 direct staff and over 50,000 indirect staff we employ thank you. We are very grateful for the past opportunities given to us, and look forward to future opportunities that we can get.