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Headline crude prices for the week beginning 9 April 2017 – Brent: US$68/b; WTI: US$63/b

  • Fears that the US-China trade spat would escalate seem to have abated, as the equity markets recovered ground and lifted crude prices as well.
  • Despite a new threat by Donald Trump to impose tariffs on an additional US$100 billion of Chinese imports, the US has said that the two countries could ‘negotiate’, while Premier Xi Jinping has offered some concessions.
  • This could be crucial, as China’s proposed counter-tariffs included petrochemicals and liquefied propane, two export areas that US Gulf producers are hoping will grow with China’s thirst for PDH.
  • Saudi Aramco’s decision to hike the official selling prices of its May crude has also supported prices, a sign that the firm believes demand is bullish.
  • However, Saudi Arabia has signalled that it believes ‘supply cooperation’ could be extended in 2019, as Russia signals that it expects its cooperation with OPEC to become ‘indefinite’ after the current production freeze deal expired at the end of 2018.
  • While prices have been lifted by easing trade tensions, military issues are pulling prices even higher. A suspected chemical gas attack in Syria by pro-Assad forces has triggered an attack on a Syrian air base. With President Trump tweeting that more missile attacks were coming, the prospect of military escalation in Syria could drive prices even higher.
  • After a minor dip, the American active rig count roared back into activity last week. Eleven new oil rigs entered service – all onshore shale sites – bringing the oil rig count to 808 and the total count to 1003.
  • Crude price outlook: Easing trade tensions and an escalating situation in Syria will drive prices higher over this week. We see Brent moving up to US$72/b and WTI/Shanghai to US$66/b.


Headlines of the week

Upstream

  • Bahrain announced a massive new offshore oil field discovery, said to ‘dwarf current reserves’, containing at least 80 million barrels of tight oil.
  • New Zealand is stepping back from upstream, deciding that it will no longer issue offshore exploration permits, while limiting new onshore permits to the Taranaki area in the North Island.
  • OMV and Faroe Petroleum have announced two ‘significant’ discoveries offshore Norway, in the Hades and Iris wells in licence PL 644B.
  • Eni is reportedly in talks to sell a 20-35% stake in its giant Campeche Bay oil field in Mexico to Qatar Petroleum, with production expected in 2019.
  • Adnoc continues its partner diversification plans to gain access to new technology, selling a 20% stake in the Satah al Razboot and Umm Lulu offshore oilfields to Austria’s OMW for US$1.5 billion.
  • Oil production has resumed at Oil Search’s Kutubu fields after a major earthquake, with the PNG LNG complex expected to restart in May.
  • Chevron wants to extend its PSC in Indonesia’s Rokan oil block beyond 2021, a sign that the supermajor could be rekindling its interest in Indonesian upstream, after stating that was divesting the block in 2016.


Downstream

  • Saudi Aramco and France’s Total has agreed to expand their joint venture 400 kb/d SATORP refinery in Jubail, extending the petrochemical complex by some 10% and possibly adding a new cracker unit.
  • In a sale that illustrates the refined product surplus swirling in China, CNPC sold a 35,000 ton cargo of gasoline to the America – the first such sale for a Chinese company – heading to the Bahamas.
  • After its divorce from Shell, Saudi Aramco moving ahead with its plans to add a new petrochemical complex to its Motiva refinery in the US.


Natural Gas/LNG

  • While it continues to face political headwinds elsewhere in the EU, Finland has approved the construction of Gazprom’s Nord Stream 2 gas pipeline through its territory, with Germany pushing for approval.
  • Japan’s JAPEX has started up the Soma LNG terminal in Shinchi, Fukushima, the first large-scale LNG terminal in the region.
  • The Shell-led Lake Charles LNG export project has requested the state of Louisiana to extend the deadline for starting construction by 18 months.
  • Japan’s Inpex has moved the 9.5 mtpa Abadi LNG project to the pre-FEED stage, paving the way for an FID within 2-3 years. 
  • Argentina’s Transportadora de Gas del Sur (TGS) will be expanding pipeline capacity in the Vaca Muerta shale fields with a 92km gathering pipeline with 1.3 bcf/d of capacity, together with a conditioning plant.
  • Petronas has delivered its first LNG cargo to Japan’s Hokuriku Electric Power Company from the Bintulu MLNG plant, part of a 10-year deal where Petronas will ship up to 6 cargoes of LNG per year to Hokuriku.
  • India will be aiming to set up a natural gas trading exchange by October 2018, aimed at harmonising domestic and international gas prices.
  • The Palestine Investment Fund is looking for a buyer for 45% of the Gaza Marine natural gas field off the Gaza coast, after Shell pulled out of the field citing ‘political disputes and economic factors’.

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The United States now exports crude oil to more destinations than it imports from

As U.S. crude oil export volumes have increased to an average of 2.8 million barrels per day (b/d) in the first seven months of 2019, the number of destinations (which includes countries, territories, autonomous regions, and other administrative regions) that receive U.S. exports has also increased. Earlier this year, the number of U.S. crude oil export destinations surpassed the number of sources of U.S. crude oil imports that EIA tracks.

In 2009, the United States imported crude oil from as many as of 37 sources per month. In the first seven months of 2019, the largest number of sources in any month fell to 27. As the number of sources fell, the number of destinations for U.S. crude oil exports rose. In the first seven months of 2019, the United States exported crude oil to as many as 31 destinations per month.

This rise in U.S. export destinations coincides with the late 2015 lifting of restrictions on exporting domestic crude oil. Before the restrictions were lifted, U.S. crude oil exports almost exclusively went to Canada. Between January 2016 (the first full month of unrestricted U.S. crude oil exports) and July 2019, U.S. crude oil production increased by 2.6 million b/d, and export volumes increased by 2.2 million b/d.

monthly U.S. crude oil production and exports

Source: U.S. Energy Information Administration, Petroleum Supply Monthly

The United States has also been importing crude oil from fewer of these sources largely because of the increase in domestic crude oil production. Most of this increase has been relatively light-sweet crude oil, but most U.S. refineries are configured to process medium- to heavy-sour crude oil. U.S. refineries have accommodated this increase in production by displacing imports of light and medium crude oils from countries other than Canada and by increasing refinery utilization rates.

Conversely, the United States has exported crude oil to more destinations because of growing demand for light-sweet crude oil abroad. Several infrastructure changes have allowed the United States to export this crude oil. New, expanded, or reversed pipelines have been delivering crude oil from production centers to export terminals. Export terminals have been expanded to accommodate greater crude oil tanker traffic, larger crude oil tankers, and larger cargo sizes.

More stringent national and international regulations limiting the sulfur content of transportation fuels are also affecting demand for light-sweet crude oil. Many of the less complex refineries outside of the United States cannot process and remove sulfur from heavy-sour crude oils and are better suited to process light-sweet crude oil into transportation fuels with lower sulfur content.

The U.S. Energy Information Administration’s monthly export data for crude oil and petroleum products come from the U.S. Census Bureau. For export values, Census trade data records the destinations of trade volumes, which may not be the ultimate destinations of the shipments.

October, 23 2019
Recalibrating Singapore’s Offshore Marine Industry

The state investment firm Temasek Holdings has made an offer to purchase control of Singaporean conglomerate Keppel Corp for S$4.1 billion. News of this has reverberated around the island, sparking speculation about what the new ownership structure could bring – particularly in the Singaporean rig-building sector.

Temasek already owns 20.5% of Keppel Corp. Its offer to increase its stake to 51% for S$4.1 billion would see it gain majority shareholding, allowing a huge amount of strategic flexibility. The deal would be through Temasek’s wholly-owned subsidiary Kyanite Investment Holdings, offering S$7.35 per share of Keppel Corp, a 26% premium of the traded price at that point. The financial analyst community have remarked that the bid is ‘fair’ and ‘reasonable’, and there appears to be no political headwinds against the deal being carried out with the exception of foreign and domestic regulatory approval.

The implications of the deal are far-ranging. Keppel Corp’s business ranges from property to infrastructure to telecommunications, including Keppel Land and a partial stake in major Singapore telco M1. Temasek has already said that it does not intend to delist and privatise Keppel Corp, and has a long-standing history of not interfering or getting involved in the operations or decisions of its portfolio companies.

This might be different. Speculation is that this move, if successful could lead to a restructuring of the Singapore offshore and marine industry. Since 2015, Singapore’s rig-building industry has been in the doldrums as global oil prices tumbled. Although prices have recovered, cost-cutting and investment reticence have provided a slower recovery for the industry. In Singapore, this has affected the two major rigbuilders – Keppel O&M and its rival Sembcorp Marine. In 2018, Keppel O&M reported a loss of over SS$100 million (although much improved from its previous loss of over SS$800 million); Sembcorp Marine, too, faces a challenging market, with a net loss of nearly 50 million. Temasek itself is already a majority shareholder in Sembcorp Marine.

Once Keppel Corp is under Temasek’s control, this could lead to consolidation in the industry. There are many pros to this, mainly the merging of rig-building operations and shipyards will put Singapore is a stronger position against giant shipyards of China and South Korea, which have been on an asset buying spree. With the overhang of the Sete Brasil scandal over as both Keppel O&M and Sembcorp Marine have settled corruption allegations over drillship and rig contracts, a merger is now increasingly likely. It would sort of backtrack from Temasek’s recent direction in steering away from fossil fuel investments (it had decided to not participate in the upcoming Saudi Aramco IPO for environmental concerns) but strengthening the Singaporeans O&M industry has national interest implications. As a representative of Temasek said of its portfolio – ‘(we are trying to) re-purpose some businesses to try and grasp the demands of tomorrow.’ So, if there is to be a tomorrow, then Singapore’s two largest offshore players need to start preparing for that now in the face of tremendous competition. And once again it will fall on the Singaporean government, through Temasek, to facilitate an arranged marriage for the greater good.

Keppel and Sembcorp O&M at a glance:

Keppel Offshore & Marine, 2018

  • Revenue: S$1.88 billion (up from S$1.80 billion)
  • Net Profit: -S$109 million (up from -S$826 million)
  • Contracts secured: S$1.7 billion

Sembcorp Marine, 2018

  • Turnover: S$4.88 billion (up from S$3.03 billion)
  • Net Profit: -S$48 million (down from S$157 million)
  • Contracts secured: S$1.2 billion
October, 22 2019
Global energy consumption driven by more electricity in residential, commercial buildings

Energy used in the buildings sector—which includes residential and commercial structures—accounted for 20% of global delivered energy consumption in 2018. In its International Energy Outlook 2019 (IEO2019) Reference case, the U.S. Energy Information Administration (EIA) projects that global energy consumption in buildings will grow by 1.3% per year on average from 2018 to 2050. In countries that are not part of the Organization for Economic Cooperation and Development (non-OECD countries), EIA projects that energy consumed in buildings will grow by more than 2% per year, or about five times the rate of OECD countries.

building sector energy consumption

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case

Electricity—the main energy source for lighting, space cooling, appliances, and equipment—is the fastest-growing energy source in residential and commercial buildings. EIA expects that rising population and standards of living in non-OECD countries will lead to an increase in the demand for electricity-consuming appliances and personal equipment.

EIA expects that in the early 2020s, total electricity use in buildings in non-OECD countries will surpass electricity use in OECD countries. By 2050, buildings in non-OECD countries will collectively use about twice as much electricity as buildings in OECD countries.

average annual change in buildings sector electricity consumption

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case
Note: OECD is the Organization for Economic Cooperation and Development.

In the IEO2019 Reference case, electricity use by buildings in China is projected to increase more than any other country in absolute terms, but India will experience the fastest growth rate in buildings electricity use from 2018 to 2050. EIA expects that use of electricity by buildings in China will surpass that of the United States by 2030. By 2050, EIA expects China’s buildings will account for more than one-fifth of the electricity consumption in buildings worldwide.

As the quality of life in emerging economies improves with urbanization, rising income, and access to electricity, EIA projects that electricity’s share of the total use of energy in buildings will nearly double in non-OECD countries, from 21% in 2018 to 38% in 2050. By contrast, electricity’s share of delivered energy consumption in OECD countries’ buildings will decrease from 24% to 21%.

building sector electricity consumption per capita by region

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case
Note: OECD is the Organization for Economic Cooperation and Development.

The per capita use of electricity in buildings in OECD countries will increase 0.6% per year between 2018 and 2050. The relatively slow growth is affected by improvements in building codes and improvements in the efficiency of appliances and equipment. Despite a slower rate of growth than non-OECD countries, OECD per capita electricity use in buildings will remain higher than in non-OECD countries because of more demand for energy-intensive services such as space cooling.

In non-OECD countries, the IEO2019 Reference case projects that per capita electricity use in buildings will grow by 2.5% per year, as access to energy expands and living standards rise, leading to increased use of electric-intensive appliances and equipment. This trend is particularly evident in India and China, where EIA projects that per capita electricity use in buildings will increase by 5.3% per year in India and 3.6% per year in China from 2018 to 2050.

October, 22 2019