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Last Updated: April 19, 2018
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Market Watch

Headline crude prices for the week beginning 16 April 2017 – Brent: US$71/b; WTI: US$66/b

  • Military action is Syria boosted crude oil prices last week, as the industry fretted that the US-led strikes on Syrian chemical weapons targets could spill over in a long-lasting conflict between the US and Russia.
  • Brent jumped as high as US$73/b and WTI to US$68/b as American, British and French missiles struck Syrian targets; but by the end of the week, it was clear that the strikes had stopped, leading to a more muted start to the week.
  • The US-China trade spat also continues, with China targeting American sorghum exports with a 141.7% duty in response to the US banning sales of equipment to a Chinese telco company. Though smaller in scale than previous threats, this also shows that the risk of a trade war is there.
  • As prices abated from last week’s high at the start of this week, Iran’s Oil Minister Bijan Zangeneh stated that US$60/b is a ‘good price’ for oil, adding that the market should focus on stability and not volatility. He believes US$70/b Brent is ‘too high’, given that it encourages additional American shale drilling.
  • Previously confined to Saudi Arabia and Russia, other OPEC members like the UAE are speaking up about the benefits of a long-term alliance between OPEC and the 24-country NOPEC block led by the Russia.
  • Kuwait kept open the possibility of extending the current supply agreements – which expires December 2018 -  depending on ‘the strength of market conditions’.
  • American output continues to rise, with the EIA predicting a 125,000 barrel climb in May, while US crude inventories came in lower.
  • Seven new oil rigs entered service in the US last week, bringing the total active rig count up to 1008, as drillers continued to respond to strong price signals.
  • Crude price outlook: Prices should ease given that military tensions are abating, with Brent likely to move down to US$70/b and WTI/Shanghai to US$64/b.


Headlines of the week

Upstream

  • Fresh off selling stakes in key oilfields to international partners to revitalise its upstream, ADNOC will be launching its first ever oil and gas auction, offering six blocks – two offshore, four onshore.
  • Kenya’s National Oil Corporation has tapped Schlumberger to create a development plan for oil reserves discovered in the Lokichar basin in 2012, to be used to evaluate work by Tullow and Maersk in the area.
  • Kinder Morgan Canada has suspended almost all work on the US$5.8 billion expansion of the Trans Mountain pipeline, connecting Alberta to British Columbia, as the resource transport industry complains about challenges to building new infrastructure in Canada.
  • Repsol has struck oil in Gabon, reporting encouraging assessments from the Ivela-1 well in the Luna Muetse block, part of the Lower Congo Basin.
  • Canada will be offering 16 new offshore blocks in an upcoming auction round, include the first ever licence from Newfoundland & Labrador.

Downstream

  • Just after its joint venture with Petronas in Malaysia’s RAPID refinery has been confirmed, Saudi Aramco is now looking to take a stake in a massive oil refinery in India’s western coast. Aramco could take some 50% of the 1.2 mmb/d joint venture project between India’s three state oil firms .
  • Uganda has enlisted a consortium, which includes General Electric, to build and operate a US$3-4 billion 60 kb/d oil refinery in western Uganda, that could make use of crude reserves discovered in the Albertine basin.

Natural Gas/LNG

  • BP is moving ahead with the second phase of the giant Khazzan natural gas field in Oman, with Ghazeer planned to produce some 1 bcf/d of gas and around 35,000 b/d of condensate by 2021.
  • The US LNG export industry is heating up. With Cheniere’s Sabine Pass and Dominion Energy’s Cove Point now operational, Texas LNG aims to be next, having signed 8 non-binding sales deals with potential buyers – 5 in China, 2 in Southeast Asia and 1 in Europe – for its Brownsville project.
  • China is cutting the revenue tax for its shale gas sector by 30% in a bid to increase development of unconventional resources.
  • Egypt remains a hotbed of new discoveries, as SDX Energy announced its struck gas at the Ibn Yunus-1X well in the onshore South Disouq block.
  • India’s GAIL will be purchasing an additional 500,000 tons or 8 LNG cargos from Russia’s Gazprom in the 2018/19 period, beginning May.
  • Although Germany is still pushing for the Nord Stream 2 gas pipeline to go ahead, Angela Merkel has now stated that the project will not pass unless clarity is given on ‘Ukraine’s role as a transit route for gas.’
  • ExxonMobil is reportedly in talks with Qatar in a deal that could see the latter investing ExxonMobil’s American shale resources, which would be the first time a Middle Eastern country invested significantly in US shale.
  • PTTEP has officially been handed the SK410B and SK316 shallow water blocks in Sarawak, as the Thai first pushes further into international upstream, having already taken a 10% stake in MLNG Train 9.
  • Chevron is proceeded with its planned second stage of the Gorgon LNG project in Australia, beginning to drill new subsea wells to expand supply.

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Royal Dutch Shell Poised To Become Just Shell

On 10 December 2021, if all goes to plan Royal Dutch Shell will become just Shell. The energy supermajor will move its headquarters from The Hague in The Netherlands to London, UK. At least three-quarters of the company’s shareholders must vote in favour of the change at the upcoming general meeting, which has been sold by Shell as a means of simplifying its corporate structure and better return value to shareholders, as well as be ‘better positioned to seize opportunities and play a leading role in the energy transition’. In doing so, it will no longer meet Dutch conditions for ‘royal’ designation, dropping a moniker that has defined the company through decades of evolution since 1907.

But why this and why now?

There is a complex web of reasons why, some internal and some external but the ultimate reason boils down to improving growth sustainability. Royal Dutch Shell was born through the merger of Shell Transport and Trading Company (based in the UK) and Royal Dutch (based in The Netherlands) in 1907, with both companies engaging in exploration activities ranging from seashells to crude oil. Unified across international borders, Royal Dutch Shell emerged as Europe’s answer to John D Rockefeller’s Standard Oil empire, as the race to exploit oil (and later natural gas) reserves spilled out over the world. Along the way, Royal Dutch Shell chalked up a number of achievements including establishing the iconic Brent field in the North Sea to striking the first commercial oil in Nigeria. Unlike Standard Oil which was dissolved into 34 smaller companies in 1911, Royal Dutch Shell remained intact, operating as two entities until 2005, when they were finally combined in a dual-nationality structure: incorporated in the UK, but residing in the Netherlands. This managed to satisfy the national claims both countries make on the supermajor, second only to ExxonMobil in revenue and profits but proved to be costly to maintain. In 2020, fellow Anglo-Dutch conglomerate Unilever also ditched its dual structure, opting to be based fully out of the City of London. In that sense, Shell is following the direction of the wind, as forces in its (soon to be former) home country turn sour.

There is a specific grievance that Royal Dutch Shell has with the Dutch government, the 15% dividend tax collected for Dutch-domiciled companies. It is the reason why Unilever abandoned Rotterdam and is now the reason why Shell is abandoning The Hague. And this point is particularly existentialist for Shell, since its share prices has been battered in recent years following the industry downturn since 2015, the global pandemic and being in the crosshairs of climate change activists as an emblem of why the world’s average temperatures are going haywire. The latter has already caused the largest Dutch state pension fund ABP to stop investing in fossil fuels, thereby divesting itself of Royal Dutch Shell. This was largely a symbolic move, but as religious figures will know, symbols themselves carry much power. To combat this, Shell has done two things. First, it has positioned itself to be at the forefront of energy transition, announcing ambitious emissions reductions plans in line with its European counterparts to become carbon neutral by 2050. Second, it is looking to bump up its dividend payouts after slashing them through the depths of the Covid-19 pandemic and accelerating share buybacks to remain the bluest of blue-chip stocks. But then, earlier this year, a Dutch court ruled that Shell’s emissions targets were ‘not ambitious enough’, ordering a stricter aim within a tighter timeframe. And the 15% dividend tax remains – even though Prime Minister Mark Rutte’s coalition government has been attempting to scrap it, with (it is presumed) some lobbying from Royal Dutch Shell and Unilever.

As simplistic it is to think that Shell is leaving for London believes the citizens of the Netherlands has turned its back on the company, the ultimate reason was the dividend tax. Reportedly, CEO Ben van Buerden called up Mark Rutte on Sunday informing him of the planned move. Rutte’s reaction, it is said was of dismay. And he embarked on a last-ditch effort to persuade Royal Dutch Shell to change its mind, by immediately lobbying his government’s coalition partners to back an abolition of the dividend tax. The reaction was perhaps not what he expected, with left-wing and green parties calling Shell’s threat ‘blackmail’. With democracy drawing a line, Shell decided to walk; or at least present an exit plan endorsed by its Board to be voted by shareholders. Many in the Netherlands see Shell’s exit and the loss of the moniker Royal Dutch – as a blow to national pride, especially since the country has been basking in the glow of expanded reputation as a result of post-Brexit migration of financial activities to Amsterdam from London. The UK, on the other hand, sees Shell’s decision and Unilever’s – as an endorsement of the country’s post-Brexit potential.

The move, if passed and in its initial stages, will be mainly structural, transferring the tax residence of Shell to London. Just ten top executives including van Buerden and CFO Jessica Uhl will be making the move to London. Three major arms – Projects and Technology, Global Upstream and Integrated Gas and Renewable Energies – will remain in The Hague. As will Shell’s massive physical reach on Dutch soil: the huge integrated refinery in Pernis, the biofuels hub in Rotterdam, the country’s first offshore wind farm and the mammoth Porthos carbon capture project that will funnel emissions from Rotterdam to be stored in empty North Sea gas fields. And Shell’s troubles with activists will still continue. British climate change activists are as, if not more aggressive as their Dutch counterpart, this being the country where Extinction Rebellion was born. Perhaps more of a threat is activist investor Third Point, which recently acquired a chunk of Shell shares and has been advocating splitting the company into two – a legacy business for fossil fuels and a futures-focused business for renewables.

So Shell’s business remains, even though its address has changed. In the grand scheme of things, never mind the small matter of Dutch national pride – Royal Dutch Shell’s roadmap to remain an investment icon and a major driver of energy transition will continue in its current form. This is a quibble about money or rather, tax – that will have little to no impact on Shell’s operations or on its ambitions. Royal Dutch Shell is poised to become just Shell. Different name and a different house, but the same contents. Unless, of course, Queen Elizabeth II decides to provide royal assent, in which case, Shell might one day become Royal British Shell.

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