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Venezuela's crude oil production is declining amid economic instability


Venezuela's crude oil production has been on a downward trend for two decades, but has experienced significant decreases over the past two years. Crude oil production in Venezuela fell from an annual average of 3.2 million barrels per day (b/d) in 1997 to an average of 2.4 million b/d in 2015 (Figure 1). More recently, Venezuela's crude production fell from a monthly average of 2.3 million b/d in January 2016 to 1.6 million b/d in January 2018. A combination of relatively low global crude oil prices and mismanagement of Venezuela’s oil industry has led to the accelerated decline in production. Venezuela's economy is extremely dependent on oil revenue, so the production declines are having a negative impact on the country's finances as well.

Figure 1. Venezuela average annual crude oil production


Several indicators suggest that Venezuela's crude oil production will likely continue to decline in the near future. The number of active rigs has fallen from about 70 in the first quarter of 2016 to an average of 43 in the fourth quarter of 2017 (Figure 2). In addition, recent reports indicate that financial difficulties, such as missed payments to oil service companies, a lack of working upgraders, a lack of knowledgeable managers and workers, and declines in oil industry capital expenditures, have also contributed to production declines.

Figure 2. Venezuela monthly rig count


The United States is the largest importer of Venezuela's crude oil, receiving an average of 618,000 b/d in 2017, or about 41% of total Venezuelan exports. China and India received approximately 386,000 b/d and 332,000 b/d, respectively, in 2017. The remaining 186,000 b/d of exports during the year went to countries including Sweden, the United Kingdom, Germany, Cuba, Singapore, and others (Figure 3).

Figure 3. Venezuela monthly crude oil exports


Venezuela produces extra-heavy crude oil in the Orincoco Oil Belt area and relies extensively on imports of lighter liquids (diluents) to blend with this crude oil to make it marketable. Financial difficulties have recently prevented the state-owned oil company, Petroleos de Venezuela SA (PdVSA), from importing the necessary volumes of diluent on several occasions to sustain production and exports.


In 2017, refiners in the United States and Asia reported crude oil quality issueswith imported crude oil from Venezuela, resulting in requests for discounts or discontinuation of purchases. Venezuela's crude oil exports to the United States fell from 840,000 b/d in December 2015 to 437,000 b/d in December 2017 (the latest month for which EIA import data are available). As recently as September 2017, Venezuela was the third-largest supplier of U.S. crude oil imports after Canada and Saudi Arabia, occupying a top-three spot since 2015. In December 2017, Venezuela fell behind Canada, Saudi Arabia, Mexico, and Iraq based on average imported volumes of crude oil during the month.


The fall in exports to the United States is especially harmful to Venezuela's economy because U.S. refiners are among the few customers that still remit cash payments to Venezuela. Some volumes shipped to China, for example, are sent as loan repayments. In January 2018, Venezuela exported about 360,000 b/d of crude oil to China, based on tanker tracking data. Venezuela's exports to India—also a cash remitting customer—have fallen to the lowest levels in about five years. In January, only about 220,000 b/d of Venezuelan crude oil was destined for India, about 20% lower than the level in January 2017, according to crude oil shipping data. This level includes volumes sent to Essar’s Vadinar refinery in India to service debt that Venezuela owes to Russian oil company Rosneft (Rosneft co-owns the Vadinar refinery).


Although the Venezuelan government has not published any economic data in more than two years, Venezuela's National Assembly reported in mid-March that inflation was more than 6,000% between February 2017 and February 2018. The International Monetary Fund projects that inflation will reach 13,000% in 2018 and that Venezuela's economy will contract 15%, resulting in a cumulative GDP decline of nearly 50% from 2013 through the end of 2018.


Venezuela also has high levels of debt with a variety of creditors. During the last quarter of 2017, when Venezuela was late making some bond payments, the main rating agencies declared the country in selective default . Venezuela has more than $8 billion in bond payments coming due in 2018. Given the country's precarious financial situation, a general default is possible. In addition to about $64 billion worth of debt in traded bonds, Venezuela owes $26 billion to creditors and $24 billion in commercial loans, according to Torino Capital, although some estimates place Venezuelan debt as high as $150 billion.


Venezuela's crude oil production is projected to continue to fall through at least the end of 2019, reflecting that crude oil production losses are increasingly widespread and affecting joint ventures. These projections reflect that crude oil production losses are increasingly widespread and affecting joint ventures. With the reduced capital expenditures, foreign partners are limiting activities in the Venezuelan oil sector. Venezuela's economy is heavily dependent on the oil industry, and production declines result in reduced oil export revenues. Venezuela's economy contracted by nearly 9% in 2017, based on estimates from Oxford Economics.


U.S. average regular gasoline and diesel prices increase


The U.S. average regular gasoline retail price rose 5 cents from the previous week to $2.65 per gallon on March 26, 2018, up 33 cents from the same time last year. Rocky Mountain prices increased nearly nine cents to $2.53 per gallon, Gulf Coast prices increased nearly eight cents to $2.38 per gallon, West Coast and East Coast prices each increased nearly six cents to $3.27 per gallon and $2.59 per gallon, respectively, and Midwest prices increased two cents to $2.52 per gallon.


The U.S. average diesel fuel price rose nearly 4 cents to $3.01 per gallon on March 26, 2018, 48 cents higher than a year ago. Rocky Mountain prices rose nearly seven cents to $2.99 per gallon, West Coast prices increased over five cents to $3.44 per gallon, Gulf Coast and Midwest prices each increased nearly four cents to $2.82 per gallon and $2.93 per gallon, respectively, and East Coast prices increased nearly three cents to $3.04 per gallon.

Propane/propylene inventories decline

U.S. propane/propylene stocks decreased by 1.2 million barrels last week to 35.6 million barrels as of March 23, 2018, 9.7 million barrels (21.4%) lower than the five-year average inventory level for this same time of year. East Coast and Midwest inventories each decreased by 0.5 million barrels, while Gulf Coast inventories decreased by 0.2 million barrels. Rocky Mountain/West Coast inventories rose slightly, remaining virtually unchanged. Propylene non-fuel-use inventories represented 8.2% of total propane/propylene inventories.


Residential heating oil prices increase, propane prices decrease


As of March 26, 2018, residential heating oil prices averaged almost $3.10 per gallon, nearly 4 cents per gallon higher than last week and 51 cents per gallon higher than last year's price at this time. The average wholesale heating oil price for this week averaged almost $2.12 per gallon, nearly 11 cents per gallon higher than last week and 52 cents per gallon higher than a year ago.


Residential propane prices averaged $2.48 per gallon, almost one cent per gallon lower than last week but nine cents per gallon higher than a year ago. Wholesale propane prices averaged $0.88 per gallon, 1 cent per gallon higher than last week and nearly 21 cents per gallon higher than last year's price. This is the last data collection for the 2017-2018 State Heating Oil and Propane Program (SHOPP) heating season. Data collection will resume on October 1, 2018 for publication on Wednesday, October 3, 2018.


For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

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The U.S. placed near-record volumes of natural gas in storage this injection season

The amount of natural gas held in storage in 2019 went from a relatively low value of 1,155 billion cubic feet (Bcf) at the beginning of April to 3,724 Bcf at the end of October because of near-record injection activity during the natural gas injection, or refill, season (April 1–October 31). Inventories as of October 31 were 37 Bcf higher than the previous five-year end-of-October average, according to interpolated values in the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report.

Although the end of the natural gas storage injection season is traditionally defined as October 31, injections often occur in November. Working natural gas stocks ended the previous heating season at 1,155 Bcf on March 31, 2019—the second-lowest level for that time of year since 2004. The 2019 injection season included several weeks with relatively high injections: weekly changes exceeded 100 Bcf nine times in 2019. Certain weeks in April, June, and September were the highest weekly net injections in those months since at least 2010.

weekly net changes in natural gas storage

Source: U.S. Energy Information Administration, Weekly Natural Gas Storage Report

From April 1 through October 31, 2019, more than 2,569 Bcf of natural gas was placed into storage in the Lower 48 states. This volume was the second-highest net injected volume for the injection season, falling short of the record 2,727 Bcf injected during the 2014 injection season. In 2014, a particularly cold winter left natural gas inventories in the Lower 48 states at 837 Bcf—the lowest level for that time of year since 2003.

November, 11 2019
Your Weekly Update: 4 - 8 November 2019

Market Watch  

Headline crude prices for the week beginning 4 November 2019 – Brent: US$62/b; WTI: US$56/b

  • Good broader economic data helped push crude prices up, as better-than-expected US job numbers and a big uptick in Chinese manufacturing orders allayed some fears over the health of the global economy
  • Those worries still persist, but the upbeat data does show that the slowdown might not be prolonged, especially if the US and China manage to hammer out a comprehensive trade deal that White House officials have hinted is in the works
  • The USA, under Trump, has formally withdrawn from the Paris climate accord, placing the USA as one of only 3 countries not to be a party to the comprehensive collection of emission reductions by country
  • OPEC production rebounded to 29.7 mmb/d in October, recovering from the 1.23 mmb/d drop in September caused by the attacks on Saudi crude facilities
  • Having recently lost Qatar and Ecuador, OPEC – via Saudi Arabia – has reportedly informally reached out to Brazil to join the oil club, highlighting the growing importance of Brazilian output; President Jair Bolsonaro has indicated that he would be ‘eager to accept’ the offer
  • Ahead of the OPEC meeting in Vienna on 5-7 December, Saudi Aramco is now scheduled for public listing on the Saudi stock exchange on December 11; this might lead to a push for a deeper or longer tenure for the current supply deal at the Vienna meeting, as Aramco seeks to bolster its valuation
  • The massacre in onshore drilling countries in the US, as the Baker Hughes index indicates that five oil and three gas rigs were dropped last week for a net loss of 8 and a total of 822, as bankruptcies increase in major shale areas
  • There isn’t much room for crude prices to grow in the current environment; indeed, prices are likely to trade with a downward bias at US$58-60/b for Brent and US$53-55/bd for WTI

Headlines of the week

Upstream

  • Total has chosen to sell off its 86.95% stake in Brunei’s offshore Block CA1 to Shell for some US$300 million in line with its global non-core asset divestment
  • Myanmar’s delayed upstream licensing round has now been set for early 2020, with the government aiming to pass a draft oil and gas bill before moving ahead
  • Apache expects to bring two ‘high volume’ wells in the North Sea online over the next two months, with Storr operating by November and Garten by the end of the year, which could double its current 54,000 b/d North Sea output
  • A new offshore oil discovery has been announced in Equatorial Guinea by Kosmos Energy, with the S-5 well in the Rio Muni Basin yielding crude flows

Midstream/Downstream

  • ExxonMobil has put its refinery in Billings, Montana up for sale once again, looking to fetch US$500 million for the 60 kb/d plant, with interested buyers including Valero and Marathon
  • Russia is moving ahead with settling the cases of contaminated crude oil transported via its Druzhba pipeline; Lukoil and Hungary’s MOL have signed a settlement deal, while Total has opted to sell its 720,000-barrel cargo on the open market at a discount of over US$25/b
  • Saudi Aramco may be gaining a bigger foothold in Africa, as NNPC announced plans to collaborate with the Saudi oil firm to revamp Nigeria’s four ailing state refineries that are buckling from age
  • Marathon has folded under pressure from activist investors, announcing that it will be spinning off its fuel retail business while also reviewing a future possibility to spin off its pipeline business as well
  • ALFA Mexico’s petchems subsidiary Alpek has agreed to acquire PET manufacturer Lotte Chemical UK from South Korea’s Lotte Chemical
  • Kuwait Petroleum has started up the 2,264 b/d LPG processing plant at its Mina al-Ahmedi refinery, focusing on delivering LPG for petchems usage

Natural Gas/LNG

  • Kosmos Energy has announced a ‘major’ gas discovery in Mauritania at its Orca-1 well; combined with the Marsouin-1 discovery in the BirAllah, Orca-1 is the largest deepwater oil and gas discovery so far in 2019 and could underpin standalone LNG development in the West African nation
  • BP has announced it is on track to start production from the deepwater Raven field in Egypt by end-2019 – the third stage of its West Nile Delta project that also encompasses the producing Giza and Fayoum developments
  • Denmark’s state energy regulator has given permission for the controversial Nord Stream 2 pipeline to be built in its waters to connect Russia to Germany
  • Plans to expand the Sakhalin-2 LNG plant in Russia’s far east have been put on hold, reportedly due to a lack of gas resources and international sanctions in place, with Gazprom also looking to pipe gas to China instead of liquefying
  • Cheniere expects its Corpus Christi LNG Train 3 in Texas to start-up ahead of its previous timeline of 2H2021, while also expecting to begin operations at the Sabine Pass LNG Train 6 in Louisiana by 1H2023
  • Turkey’s state energy firm Botas is accepting tenders for up to 70 cargoes of LNG for delivery over 2020-2023, as it aims to diversify its gas sources
  • Sempra Energy and Japan’s Mitsui & Co have signed a new MoU to collaborate on more LNG projects, including the Cameron LNG Phase 2 and the future expansion of the Energia Costa Azul project in Baja California
November, 08 2019
SUDAN AND SOUTH SUDAN: EXECUTIVE SUMMARY

Overview

South Sudan was officially recognized as an independent nation state in July 2011 following a referendum held in January 2011. The South Sudanese voted overwhelmingly in favor of secession, which led to Sudan losing 75% of its oil reserves to South Sudan. Although South Sudan now controls a substantial number of the oil–producing fields, it is dependent on Sudan for transporting oil through its pipelines for processing and export. The transit and processing fees South Sudan must pay to Sudan to transport its crude oil are an important revenue stream for Sudan.[1]

After an agreement was reached on the transit dispute that led to a temporary shutdown of crude oil production, the governments of Sudan and South Sudan shifted their focus from border conflicts to the mitigation of their respective domestic opposition factions. The domestic political dynamics and the security situations in both countries will continue to be a potential risk for disrupting the countries’ oil supplies and exports.

In Sudan, the economic shock of the secession has had a significant effect on the economy, which has been hurt by economic mismanagement, corruption, and unsustainably high levels of spending on the military. The partial lifting of U.S. sanctions on Sudan in October 2017 has allowed for increased foreign investment, but Sudan has made little progress toward developing the upstream sector.[2] In August 2019, Sudan’s military and civilian leaders signed a power-sharing deal that paved the way for a transitional government led by Abdalla Hamdok, an economist, to take power in the hope this government would address the country’s problems. However, Sudan remains on the U.S. government’s list of state sponsors of terrorism, which prevents the country from receiving debt relief through the World Bank-International Monetary Fund’s Heavily Indebted Poor Countries Initiative (HIPC).[3]

In South Sudan, President Salva Kiir and the leader of the main opposition faction, Riek Machar, reached a peace agreement in September 2018, which led to reduced violence from the civil war in South Sudan. Although the peace agreement indicates progress, whether the agreement will bring prolonged stability and an inclusive and stable form of governance is unclear. The current agreement is similar to the previous one, which was signed in 2016 and collapsed after two months, and the current iteration does not address crucial elements such as power sharing between the factions and security arrangements that would allow Machar to safely return from exile.[4] Without significant progress in improving the security and political environment, South Sudan’s ability to attract investors and restart production at its fields to increase production will be limited.

Sector organization

  • Asian national oil companies (NOCs) dominate the oil sectors in both countries. The China National Petroleum Corporation (CNPC), India’s Oil and Natural Gas Corporation (ONGC), and Malaysia’s Petronas hold large stakes in the leading consortia operating in both countries: the Greater Nile Petroleum Operating Company, the Dar Petroleum Operating Company, and the Sudd Petroleum Operating Company.
  • The state–owned Sudanese Petroleum Corporation (SPC) was dissolved in March 2019, by order of Prime Minister Mohamed Tahir Ayala, and all assets and employees were transferred to the Ministry of Petroleum. The SPC was responsible for the exploration, production, and distribution of crude oil and petroleum products. The reason for the dissolution of the SPC has not yet been released.[5]


Petroleum and other liquids

Exploration and production

  • The lifting of U.S. sanctions imposed on Sudan has led to a renewed push by the Sudanese government to attract foreign investment in the upstream sector during the past few years, but Sudan has not made any substantial progress toward developing new fields that would lead to increased production.
  • In March 2019, an offer of 10 oil and natural gas exploration blocks in the Red Sea’s Halayeb triangle sparked a dispute between Egypt and Sudan. Egypt controls the territory, but Sudan has claimed the territory as Sudanese since the 1950s.[6]
  • South Sudan has restarted production at some of its previously shut-in fields in the Toma South and Unity fields in September 2018 and January 2019, providing a marginal increase to its total production. South Sudan seeks to increase total production to more than 200,000 b/d by the end of 2019. However, uncertainty remains on whether Sudan can do so under the export licensing restrictions the U.S. Department of State imposed on South Sudan’s Ministry of Energy, Nilepet (the National Oil and Gas Corporation of South Sudan), and the three major oil field operators in the country: DPOC, GPOC, and SPOC.[7] The licensing restrictions hinder the operators’ ability to secure the equipment and services required to develop or re-start production at its fields.[8]
  • In 2018, the government withdrew from negotiations to explore and develop blocks B1 and B2, and it is reportedly in talks with CNPC to acquire the blocks.[9]

Midstream infrastructure

  • Plans for the construction of a separate pipeline have been reported that would allow South Sudan to export crude oil through neighboring Kenya or Djibouti through Ethiopia to avoid transit fees.[10] However, the pipeline is not likely to be built in the near future because of the overall weak security environment and resulting supply disruptions to crude oil production in South Sudan.

Refining and refined oil products

  • Discussions between Sudanese and Chinese officials on a proposed second expansion to the refinery in Khartoum that could double the refinery’s capacity have been reported, but no significant progress has been made.[11]
  • Petronas signed a contract with the Ministry of Energy and Mining to expand the inactive Port Sudan refinery through a 50/50 joint venture and to add 100,000 b/d to its capacity, but development has been postponed as a result of rising costs.[12]
  • In South Sudan, two refineries were under construction: a 3,000-b/d refinery at Bentiu in the Unity State and a 10,000–b/d refinery at Thiangrial in the Upper Nile region. Plans to expand the Bentiu refinery to increase its capacity to 5,000 b/d have been reported. However, security issues have delayed completion, and unclear when or if the refineries will be operational is unclear.[13]

Petroleum and other liquids exports

  • According to ClipperData, Sudan and South Sudan exported about 114,000 b/d of crude oil in 2018. Although this level is higher than the 65,000 b/d exported in 2012 during the production shutdown, it is lower than the 182,000 b/d exported in 2014.
  • China is the largest export destination for Sudan’s and South Sudan’s crude oil. China received almost 60% of both countries’ total exports in 2018, although the total volume of exports has declined during the past few years. India and the United Arab Emirates have also imported relatively small volumes of Sudan and South Sudan’s crude oil.



Natural gas

  • Natural gas associated with oil fields is mostly flared or reinjected. Despite proved reserves of 3 trillion cubic feet, natural gas development has been limited. According to the latest estimates provided by the National Oceanic and Atmospheric Administration (NOAA), Sudan flared about 13.5 billion cubic feet of natural gas in 2017.[14]



Energy consumption

  • Petroleum consumption in Sudan and South Sudan peaked at 140,000 b/d in 2016 and has remained steady since then.[15]
  • In 2016, total primary energy consumption in Sudan was 0.357 quadrillion British thermal units (Btu) and in South Sudan was 0.017 quadrillion Btu, according to latest estimates. About 80% of total primary energy consumption in Sudan is derived from petroleum and other liquid fuels, and the remainder comes from renewables such as biomass. In South Sudan, nearly all of the primary energy consumption was from petroleum and other liquid fuels.[16]


Electricity

Sudan

  • Total electricity generation in Sudan was 14 billion kilowatthours (kWh) in 2016, of which 57% was generated by hydropower.[17]
  • Although power generation has continued to grow in the post-independence era, only 39% of the population had access to electricity in 2016, according to latest estimates from the World Bank.[18] Urban populations benefit from a substantially higher level of access than rural populations, according to the most recent estimates from the African Development Bank (AfDB). People who are not connected to a grid rely on biomass or diesel-fired generators for electricity.[19]
  • Given its heavy reliance on hydropower to meet its electricity needs, the government of Sudan has sought to diversify its power portfolio mix with thermal and even nuclear power sources. However, it is uncertain whether there will be significant progress towards constructing power plants utilizing these fuel types.[20]

South Sudan

  • Total electricity generation in South Sudan was 0.4 billion kWh in 2016, nearly all of which was generated by crude oil.[21]
  • South Sudan has one of the lowest electrification rates in the world; only 9% of its population had access to electricity in 2016, according to the latest estimates from the World Bank.[22]
  • In 2018, the government of South Sudan commissioned a 100 megawatt (MW) thermal power plant in Juba, which could potentially meet a substantial portion of the country’s electricity needs. The plant is expected to reduce consumption of heavy fuel, upon which generators, the primary source of electricity in the country, rely.[23]
  • The government of South Sudan signed an agreement with the government of Uganda in October 2017 to construct an interconnection line between the two countries. The line will connect the electricity grid in Kampala, the Ugandan capital, and supply electricity to Kaya and Nimule, two of South Sudan’s border towns. The agreement is reportedly in line with the East African Power Pool agreement and should address the serious lack of access to electricity in the remote and rural areas of South Sudan.[24]


Renewable Energy Sources

Hydroelectricity

  • Development of the Kajbar dam, located further north in the Nile Valley, has stalled. The dam was strongly opposed by local communities because of its potentially significant environmental impact, and there has been no sign of progress on its construction. The Kajbar dam, along with two other proposed hydropower projects, the Dal and El-Shireig dams, are heavily financed by the Saudi government.[25]
  • According to BMI Research, five hydropower projects have been identified as potential opportunities for development: Fula Rapids (42 MW), Grand Fula (890 MW), Shukkoli (230 MW), Lakki (410 MW), and Bedden (570 MW). However, construction has been delayed because of a lack of funding.[26]


November, 08 2019