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Last Updated: March 22, 2018
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Market Watch

Headline crude prices for the week beginning 19 March 2018 – Brent: US$66/b; WTI: US$62/b

  • While swelling shale output continues to weigh on crude prices, geopolitical trends have taken over to add some volatility to the market.
  • With ex-ExxonMobil chief Rex Tillerson fired as the US Secretary of State and Venezuela’s alarming drop in crude oil, the market injected some risk premiums in crude prices over last week.
  • Tensions between Saudi Arabia and Iran has also heightened, with Saudi Arabia criticising the Iranian nuclear deal in 2015 as ‘flawed’ as President Donald Trump meets with the Saudi King.
  • Coupled with Trump’s pronouncements possibly leading to a trade war – especially with China and the EU – and Saudi Aramco’s planned IPO on shaky ground, macro elements have created a more unpredictable environment for oil to trade in.
  • While this has bounced prices up, continued gains in US crude have capped the rise. US crude production is now at 10.38 mmb/d, and could hit 11 mmb/d by 3Q18. Output from Canada and Brazil has also risen.
  • American oil and gas rigs gained 6 active sites last week, growing to 967. Oil rigs hit 800 again, with 4 additions, helping to contributing to the growth in American crude stock last week, according to the EIA.
  • Crude price outlook: With geopolitical tensions aflame and data pointing to a surprise drop in US crude stocks, the direction for prices this week should be upwards. Brent could end the week at US$69/b, with WTI trailing behind at US$65/b.

Headlines of the week

Upstream

  • Indonesia is reportedly expecting strong interest for its upcoming auction round – which includes blocks that failed to find a buyer over the last three years – as its new revenue split model, which switches from cost-recovery to gross-split, has heightened interest among companies.
  • Egypt’s upstream fortunes continue to grow, as SDX Energy announce a heavy oil discovery at the onshore Rabul 5 well in West Gharib.
  • Iraq is ramping up efforts to expand its crude output, with an ambitious US$4 billion plan to seawater into its fields to dislodge crude and a man-made island in the Persian Gulf to serve as an export facility hub.
  • Production has begun at the Ochigufu deepwater project in Block 15/06, Angola, with Eni and Sonangol expecting production to hit 25,000 b/d. Eni also has the UM8 reservoir, Mpungi field subsea system and the Vandumbu field in development for 2019, adding another 30,000 b/d.
  • PetroVietnam has sold a 5% working interest in the 15-1/05 PSC in the offshore Cuu Long basin to Murphy Oil, who will jointly develop the small field with PetroVietnam and South Korea’s SK Innovation.
  • Colombia will launch a new fiscal framework next month, designed to make its oil and gas contracts more attractive to investors.

Downstream

  • With a stated goal of reducing oil product imports by 25%, Iraq is mulling over several projects to boost domestic refining output, including an NGL-to-liquids plan, a new 70 kb/d refinery in Anbar and boosting crude volumes in stabilised Kirkuk to refineries in the centre and south.
  • Another competitor joins the downstream race in Mexico, as Spain’s Repsol announce it would be opening 200 fuel stations over 2018 with an eventual goal of reaching 10% market share by 2022.
  • Austria’s OMV will be spending €10 billion to focus on gas and refined products, as well as expand its business outside of Europe.

Natural Gas/LNG

  • All major construction milestones have been hit at Shell’s Prelude LNG project, and will join Ichthys as the final two of Australia’s current giant LNG projects when it begins producing gas in the ‘next couple of months.’
  • Golar LNG’s floating LNG production platform in Cameroon has started up, becoming the second in the world after Petronas last year, with Gazprom having purchased the entire 1.2 mtpa output for 8 years.
  • Bangladesh’s Summit Power International and Japan’s Mitsubishi Corp has agreed to develop a US$3 billion LNG-to-power project in Bangladesh.
  • Russia and Serbia has reportedly revived a gas pipeline plan that would allow Gazprom to bypass Ukraine to send piped gas to East Europe.
  • Algeria’s Sonatrach will be spending US$250 million to boost output at its Tinhert gas field, aiming to hit 20 mcm/d, from a current 5 mcm/d.
  • ExxonMobil will be leading a consortium to build Pakistan’s third LNG expect terminal, a US$150 million site in Port Qasim expected in 2019.

Corporate

  • Statoil is proposing to change its name to Equinor, to reflect a move away from hydrocarbons to a broader energy spectrum and low-carbon targets.
  • Saudi Aramco’s planned IPO is hitting more snags, as chatter suggests it could be delayed to 2019 and has received a tepid response in the USA.

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Renewables became the second-most prevalent U.S. electricity source in 2020

In 2020, renewable energy sources (including wind, hydroelectric, solar, biomass, and geothermal energy) generated a record 834 billion kilowatthours (kWh) of electricity, or about 21% of all the electricity generated in the United States. Only natural gas (1,617 billion kWh) produced more electricity than renewables in the United States in 2020. Renewables surpassed both nuclear (790 billion kWh) and coal (774 billion kWh) for the first time on record. This outcome in 2020 was due mostly to significantly less coal use in U.S. electricity generation and steadily increased use of wind and solar.

In 2020, U.S. electricity generation from coal in all sectors declined 20% from 2019, while renewables, including small-scale solar, increased 9%. Wind, currently the most prevalent source of renewable electricity in the United States, grew 14% in 2020 from 2019. Utility-scale solar generation (from projects greater than 1 megawatt) increased 26%, and small-scale solar, such as grid-connected rooftop solar panels, increased 19%.

Coal-fired electricity generation in the United States peaked at 2,016 billion kWh in 2007 and much of that capacity has been replaced by or converted to natural gas-fired generation since then. Coal was the largest source of electricity in the United States until 2016, and 2020 was the first year that more electricity was generated by renewables and by nuclear power than by coal (according to our data series that dates back to 1949). Nuclear electric power declined 2% from 2019 to 2020 because several nuclear power plants retired and other nuclear plants experienced slightly more maintenance-related outages.

We expect coal-fired electricity generation to increase in the United States during 2021 as natural gas prices continue to rise and as coal becomes more economically competitive. Based on forecasts in our Short-Term Energy Outlook (STEO), we expect coal-fired electricity generation in all sectors in 2021 to increase 18% from 2020 levels before falling 2% in 2022. We expect U.S. renewable generation across all sectors to increase 7% in 2021 and 10% in 2022. As a result, we forecast coal will be the second-most prevalent electricity source in 2021, and renewables will be the second-most prevalent source in 2022. We expect nuclear electric power to decline 2% in 2021 and 3% in 2022 as operators retire several generators.

monthly U.S electricity generation from all sectors, selected sources

Source: U.S. Energy Information Administration, Monthly Energy Review and Short-Term Energy Outlook (STEO)
Note: This graph shows electricity net generation in all sectors (electric power, industrial, commercial, and residential) and includes both utility-scale and small-scale (customer-sited, less than 1 megawatt) solar.

July, 29 2021
PRODUCTION DATA ANALYSIS AND NODAL ANALYSIS

Kindly join this webinar on production data and nodal analysis on the 4yh of August 2021 via the link below

https://www.linkedin.com/events/productiondataanalysis-nodalana6810976295401467904/

July, 28 2021
Abu Dhabi Lifts The Tide For OPEC+

The tizzy that OPEC+ threw the world into in early July has been settled, with a confirmed pathway forward to restore production for the rest of 2021 and an extension of the deal further into 2022. The lone holdout from the early July meetings – the UAE – appears to have been satisfied with the concessions offered, paving the way for the crude oil producer group to begin increasing its crude oil production in monthly increments from August onwards. However, this deal comes at another difficult time; where the market had been fretting about a shortage of oil a month ago due to resurgent demand, a new blast of Covid-19 infections driven by the delta variant threatens to upend the equation once again. And so Brent crude futures settled below US$70/b for the first time since late May even as the argument at OPEC+ appeared to be settled.

How the argument settled? Well, on the surface, Riyadh and Moscow capitulated to Abu Dhabi’s demands that its baseline quota be adjusted in order to extend the deal. But since that demand would result in all other members asking for a similar adjustment, Saudi Arabia and Russia worked in a rise for all, and in the process, awarded themselves the largest increases.

The net result of this won’t be that apparent in the short- and mid-term. The original proposal at the early July meetings, backed by OPEC+’s technical committee was to raise crude production collectively by 400,000 b/d per month from August through December. The resulting 2 mmb/d increase in crude oil, it was predicted, would still lag behind expected gains in consumption, but would be sufficient to keep prices steady around the US$70/b range, especially when factoring in production increases from non-OPEC+ countries. The longer term view was that the supply deal needed to be extended from its initial expiration in April 2022, since global recovery was still ‘fragile’ and the bloc needed to exercise some control over supply to prevent ‘wild market fluctuations’. All members agreed to this, but the UAE had a caveat – that the extension must be accompanied by a review of its ‘unfair’ baseline quota.

The fix to this issue that was engineered by OPEC+’s twin giants Saudi Arabia and Russia was to raise quotas for all members from May 2022 through to the new expiration date for the supply deal in September 2022. So the UAE will see its baseline quota, the number by which its output compliance is calculated, rise by 330,000 b/d to 3.5 mmb/d. That’s a 10% increase, which will assuage Abu Dhabi’s itchiness to put the expensive crude output infrastructure it has invested billions in since 2016 to good use. But while the UAE’s hike was greater than some others, Saudi Arabia and Russia took the opportunity to award themselves (at least in terms of absolute numbers) by raising their own quotas by 500,000 b/d to 11.5 mmb/d each.

On the surface, that seems academic. Saudi Arabia has only pumped that much oil on a handful of occasions, while Russia’s true capacity is pegged at some 10.4 mmb/d. But the additional generous headroom offered by these larger numbers means that Riyadh and Moscow will have more leeway to react to market fluctuations in 2022, which at this point remains murky. Because while there is consensus that more crude oil will be needed in 2022, there is no consensus on what that number should be. The US EIA is predicting that OPEC+ should be pumping an additional 4 million barrels collectively from June 2021 levels in order to meet demand in the first half of 2022. However, OPEC itself is looking at a figure of some 3 mmb/d, forecasting a period of relative weakness that could possibly require a brief tightening of quotas if the new delta-driven Covid surge erupts into another series of crippling lockdowns. The IEA forecast is aligned with OPEC’s, with an even more cautious bent.

But at some point with the supply pathway from August to December set in stone, although OPEC+ has been careful to say that it may continue to make adjustments to this as the market develops, the issues of headline quota numbers fades away, while compliance rises to prominence. Because the success of the OPEC+ deal was not just based on its huge scale, but also the willingness of its 23 members to comply to their quotas. And that compliance, which has been the source of major frustrations in the past, has been surprisingly high throughout the pandemic. Even in May 2021, the average OPEC+ compliance was 85%. Only a handful of countries – Malaysia, Bahrain, Mexico and Equatorial Guinea – were estimated to have exceeded their quotas, and even then not by much. But compliance is easier to achieve in an environment where demand is weak. You can’t pump what you can’t sell after all. But as crude balances rapidly shift from glut to gluttony, the imperative to maintain compliance dissipates.

For now, OPEC+ has managed to placate the market with its ability to corral its members together to set some certainty for the immediate future of crude. Brent crude prices have now been restored above US$70/b, with WTI also climbing. The spat between Saudi Arabia and the UAE may have surprised and shocked market observers, but there is still unity in the club. However, that unity is set to be tested. By the end of 2021, the focus of the OPEC+ supply deal will have shifted from theoretical quotas to actual compliance. Abu Dhabi has managed to lift the tide for all OPEC+ members, offering them more room to manoeuvre in a recovering market, but discipline will not be uniform. And that’s when the fireworks will really begin.

End of Article 

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Market Outlook:

  • Crude price trading range: Brent – US$72-74/b, WTI – US$70-72/b
  • Worries about new Covid-19 infections worldwide dragging down demand just as OPEC+ announced that it would be raising production by 400,000 b/d a month from August onward triggered a slide in Brent and WTI crude prices below US$70/b
  • However, that slide was short lived as near-term demand indications showed the consumption remained relatively resilient, which lifted crude prices back to their previous range in the low US$70/b level, although the longer-term effects of the Covid-19 delta variants are still unknown at this moment
  • Clarity over supply and demand will continue to be lacking given the fragility of the situation, which suggests that crude prices will remain broadly rangebound for now

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July, 26 2021