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Last Updated: August 3, 2018
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Market Watch

Headline crude prices for the week beginning 30 July 2018 – Brent: US$75/b; WTI: US$70/b

  • Supply concerns continue to weigh on global crude oil prices, but there is immediate relief on the horizon as production within OPEC rose by 70,000 b/d in July according to a Reuters survey – a high for 2018.
  • The WTI discount to Brent tightened as news filters out that the Syncrude facility outage in Canada may not be solved as quickly as hoped, which will translate to reduced oil flows in the Cushing, OK hub.
  • American numbers appear particularly tight, with US inventories near three-year lows last week and crude stocks at Cushing dropping to 23.7 million barrels, the lowest level since November 2014.
  • While supply continues to be a concern for 2018, the long-term supply outlook by analysts at Rystad Energy reveal that global discovered resources increased by 30% in 1H18, led by discoveries in Guyana, while oil majors are on pace to approve US$37 billion in upstream projects for the year.
  • Nevertheless, there is still the risk of disruption, with Total workers in the North Sea going on a 12-hour strike on July 30, while Saudi Arabia halted oil shipments in the Bab el-Mandeb Strait in the Red Sea as two of its tankers were attacked by Houthi militants from Yemen.
  • Wider concerns continue to hover too, as the US vacillates over its trade position, moving from negotiations to thaw relations with China over trade to threatening to up its tariffs from 10% to 25% on US$200 billion worth of Chinese imports currently under consideration by the administration.
  • US drillers, however, reversed three weeks of decline as three new oil rigs were started, offsetting a loss of one gas rig for a net gain of two.
  • Crude price outlook: Immediate supply concerns are ebbing as increased supply comes from OPEC+ countries, including Saudi Arabia, Russia and Iraq, but threat of disruptions and impending Iranian sanctions will keep prices in the US$72-75 range for Brent and the US$67-69 range for WTI.

Headlines of the week

Upstream

  • ExxonMobil has increased its estimate of recoverable resources from the Stabroek block offshore Guyana to more than 4 billion barrels of oil equivalent, up from 3.2 Bboe, while project costs are also expected to rise by a quarter given that the project might require up to 5 FPSOs.
  • The Kaombo offshore project, the largest in Angola, has started production, with Total’s Kaombo Norte FPSO unit brought onstream with a 115,000 b/d capacity, while the second FPSO Kaombo Sui is due next year.
  • BP has emerged as the winner of BHP Billiton’s onshore American assets, purchasing the latter’s interests in the Eagle Ford, Haynesville, Permian and Fayetteville oil and gas assets for US$10.8 billion.
  • Iran has become the second-largest supplier of oil to Indian state refiners in Q218, attracted by steep discounts as it stocks up before the sanctions kick in.
  • Total’s attempt to develop two oil blocks in South Sudan since 2013 has now been called off by the government, paving the way for other bidders to come in for the B1 and B2 blocks.
  • Mexican President-elect Andres Manuel Lopez Obrador has pledged to increase the country’s crude output from the current 1.9 mmb/d to 2.5 mmb/d, as well as revamp its existing six refineries and build a new one in Dos Bocas.
  • Russia is preparing the most sweeping shakeup of its oil tax system since 1999, which will allow producers to export crude and oil products duty free while raising wellhead costs in an attempt to revitalise the Russian economy.

Downstream

  • Not content with aiming for a B30 biodiesel mandate by 2019, Indonesia is now planning to implement its B20 across all gasoil sectors – including mining, marine, rail and non-subsidised diesel – as well as trialling a unique B100 palm oil-based ‘green diesel’ which could hit the market by 2022.
  • With PDVSA increasingly seen as unreliable, the Isla refinery in Curacao is speaking to at least 15 companies to temporarily operate the 335,000 bd Caribbean refinery, hoping to have one in place by September.
  • Algeria’s Sonatrach is reportedly looking to start up a trading joint venture, speaking with oil majors as it looks to purchase its first overseas refinery.
  • ExxonMobil has officially started production at its new ethane cracker in Baytown, Texas, part of its comprehensive ‘Growing the Gulf’ initiative.

Natural Gas/LNG

  • The US Energy Department has implemented faster approval of small-scale LNG and natural gas exports with an upper limit of 51.75 bcf/y of natural gas, targeting markets in the Caribbean, Central and South America.
  • Venice Energy, set up by former BHP Billiton executives, has joined two other proposed LNG import projects in East Australia, looking to fill a growing supply gap through an FSRU project in Port Adelaide by 2020.
  • Egypt is proving to be a hotbed of discoveries in 2018, with SDX Energy reporting a new gas discovery at the onshore SD-3X well in South Disouq.

Corporate

  • Russian petchems giant Sibur is preparing for an IPO that could potentially value the company at US$2-3 billion across bourses in Moscow and London.
  • Rosneft and ExxonMobil are heading for a legal clash, as the Russian behemoth is claiming US$1.41 billion in ‘unjust enrichment’ in Sakhalin-1.

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[Media Partner Content] Recognising innovation in transforming the world’s oil and gas industry

The 9th edition of the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) Awards, hosted by the Abu Dhabi National Oil Company (ADNOC), is now open for submissions.

In this fourth industrial age it is technology, innovation, environmental leadership and talented workforces that are shaping the companies of the future.

Oil and gas is set to play a pivotal role in driving technology forward, and at this year’s ADIPEC Awards emphasis is placed on digitalisation, research, transformation, diversity, youth and social contribution, paving the way towards a brighter tomorrow for our industry.

Hosting the ADIPEC Awards is one of the world’s leading energy producers, ADNOC, a company exploring new, agile and flexible ways to build its people, technology, environmental leadership and partnerships, while enhancing the role of the United Arab Emirates as a global energy provider.

Factors which will have a prominent influence on the eventual decisions of the distinguished panel of jury members include industry impact, sustainability, innovation and value creation. Jury members have been carefully selected according to their expertise and knowledge, and include senior representatives from Baker Hughes, a GE Company, BP UAE, CEPSA Middle East, ENI Spa, Mubadala Petroleum, Shell, Total and Weatherford.

Chairperson of the awards is Fatema Al Nuaimi, Acting CEO of ADNOC LNG, who says: “At a time when the industry is looking towards an extremely exciting future and preparing for Oil &Gas 4.0, the awards will recognise excellence across all its sectors and reward those who are paving the way towards a successful and sustainable future.”

Ms Al Nuaimi, continues: “we call upon our partners across the globe to submit their achievements in projects and partnerships which are at the helm of technical and digital breakthroughs, as well as to nominate the next generation of oil and gas technical professionals, who will spearhead the ongoing transformation of the industry.

These awards are recognising the successes of those companies and individuals who are responding in the most innovative and creative manner to the global economic and technological trends. Their contribution is pivotal to the development of our industry and to addressing the continuous growth of the global energy demand. “

Christopher Hudson, President of the Energy Division, dmg events, organisers of ADIPEC, says: “With ADNOC as the host and ADIPEC as the platform for the programme, the awards are at the heart of the worldwide oil and gas community. With its audience of government ministers, international and national oil companies, CEOs and other top global industry influencers, the ADIPEC Awards provide the global oil and gas community the perfect opportunity to engage, inspire and influence the workforce of the future.”

Entries can be submitted until Monday 29th July for the following categories:

Breakthrough Technological Project of the Year

Breakthrough Research of the Year

Digital Transformation Project of the Year

Social Contribution and Local Content Project of the Year

Oil and Gas Inclusion and Diversity Company of the Year

Young ADIPEC Technical Professional of the Year

A shortlist of entries will be announced in October and winners will be revealed on the first day of ADIPEC 2019, Monday 11th November, St. Regis Saadiyat Island, Abu Dhabi.


ABOUT ADIPEC

Held under the patronage of the President of the United Arab Emirates, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, and organised by the Global Energy Division of dmg events, the Abu Dhabi Petroleum International Petroleum Exhibition and Conference (ADIPEC) is the global meeting point for oil and gas professionals. Standing as one of the world’s leading oil and gas events.  ADIPEC is a knowledge-sharing platform that enables industry experts to exchange ideas and information that shape the future of the energy sector. The 22nd edition of ADIPEC will take place from 11th-14th November 2019, at the Abu Dhabi National Exhibition Centre (ADNEC). ADIPEC 2019 will be hosted by the Abu Dhabi National Oil Company (ADNOC) and supported by the UAE Ministry of Energy & Industry, Department of Transport in Abu Dhabi, the Abu Dhabi Chamber of Commerce and Industry, Masdar, the Abu Dhabi Future Energy Company, Department of Culture and Tourism - Abu Dhabi, the Abu Dhabi Department of Education and Knowledge (ADEK). dmg events is committed to helping the growing international energy community.

June, 24 2019
TODAY IN ENERGY: Energy products are key inputs to global chemicals industry

chemicals industry inputs

Source: U.S. Energy Information Administration, based on World Input-Output Database
Note: Dollar values are expressed in 2010 U.S. dollars, converted based on purchasing power parity.

The industrial sector of the worldwide economy consumed more than half (55%) of all delivered energy in 2018, according to the International Energy Agency. Within the industrial sector, the chemicals industry is one of the largest energy users, accounting for 12% of global industrial energy use. Energy—whether purchased or produced onsite at plants—is very important to the chemicals industry, and it links the chemical industry to many parts of the energy supply chain including utilities, mines, and other energy product manufacturers.

The chemicals industry is often divided into two major categories: basic chemicals and other chemicals. Basic chemicals are chemicals that are the essential building blocks for other products. These include raw material gases, pigments, fertilizers, plastics, and rubber. Basic chemicals are sometimes called bulk chemicals or commodity chemicals because they are produced in large amounts and have relatively low prices. Other chemicals—sometimes called fine or specialty chemicals—require less energy to produce and sell for much higher prices. The category of other chemicals includes medicines, soaps, and paints.

The chemicals industry uses energy products such as natural gas for both heat and feedstock. Basic chemicals are often made in large factories that use a variety of energy sources to produce heat, much of which is for steam, and for equipment, such as pumps. The largest feedstock use is for producing petrochemicals, which can use oil-based or natural-gas-based feedstocks.

In terms of value, households are the largest users of chemicals because they use higher value chemicals, which are often chemicals that help to improve standards of living, such as medicines or sanitation products. Chemicals are also often intermediate goods—materials used in the production of other products, such as rubber and plastic products manufacturing, agricultural production, construction, and textiles and apparel making.

basic chemicals industry energy intensity in select regions

Source: U.S. Energy Information Administration, WEPS+, August 2018
Note: Dollar values are expressed in 2010 U.S. dollars, converted based on purchasing power parity.

The energy intensity of the basic chemicals industry, or energy consumed per unit of output, is relatively high compared with other industries. However, the energy intensity of the basic chemicals industry varies widely by region, largely based on the chemicals a region produces. According to EIA’s International Energy Outlook 2018, Russia had the most energy-intensive basic chemicals industry in 2015, with an average energy intensity of approximately 98,000 British thermal units (Btu) per dollar, followed by Canada with an average intensity of 68,000 Btu/dollar.

The Russian and Canadian basic chemicals industries are led by fertilizers and petrochemicals. Petrochemicals and fertilizers are the most energy intensive basic chemicals, all of which rely on energy for breaking chemical bonds and affecting the recombination of molecules to create the intended chemical output. These countries produce these specific basic chemicals in part because they also produce the natural resources needed as inputs, such as potash, oil, and natural gas.

By comparison, the energy intensity of the U.S. basic chemical industry in 2015 was much lower, at 22,000 Btu/dollar, because the industry in the United States has a more diverse production mix of other basic chemicals, such as gases and synthetic fibers. However, EIA expects that increasing petrochemical development in the United States will increase the energy intensity of the U.S. basic chemicals industry.

The United States exports chemicals worldwide, with the largest flows to Mexico, Canada, and China. According to the World Input-Output Database, U.S. exports of all chemicals in 2014 were valued at $118 billion—about 6% of total U.S. exports—the highest level in decades.

June, 24 2019
The Winds of War and Oil Markets

The threat of military action in the Middle East has gotten more intense this week. After several attacks on tankers that could be plausibly denied, Iran has made its first direct attack on a US asset, shooting down an unmanned US drone. The Americans say the drone was in international waters, while Iran claims that it had entered Iranian air space. Reports emerging out of the White House state the US President Donald Trump had authorised a military strike in response, but pulled back at the last minute. The simmering tensions between the two countries are now reaching boiling point, with Iran declaring that it is ‘ready for war’.

Predictably, crude oil prices spiked on the news. Brent and WTI prices rose by almost US$4/b over worries that a full-blown war will threaten global supplies. That this is happening just ahead of the OPEC meeting in Vienna – which was delayed by a week over internal squabbling over dates – places a lot of volatile cards on the table. Far more than more than surging US production, this stand-off will colour the direction of the crude market for the rest of 2019.

It started with an economic war, as the Trump administration placed increasingly tight sanctions on Iran. Financial sanctions came first, then sanctions on crude oil exports from Iran. But the situation was diffused when the US introduced waivers for 8 major importers of Iranian crude in November 2018, calming the markets. Even when the waivers were not renewed in April, the oil markets were still relatively calm, banking on the fact that Iran’s fellow OPEC countries would step in to the fill the gap. Most of Iran’s main clients – like South Korea, Japan and China – had already begun winding down their purchases in March, reportedly causing Iran’s crude exports to fall from 2 mmb/d to 400 kb/d. And just recently, the US also begun targeting Iranian petrochemical exports. Between a rock and a hard place, Iran looks seems forced to make good on its threats to go to war in the strategic Straits of Hormuz.

As the waivers ended, four tankers were attacked off the coast of Fujairah in the UAE in May. The immediate assumption was that these attacks were backed by Iran. Then, just a week ago, another two tankers were attacked, with the Americans showing video evidence reportedly show Iranian agents removing mines. But still, there was no direct connection to Iran for the attacks, even as the US and Iran traded diplomatic barbs. But the downing of the drone is unequivocally the work of the Iranian military. With President Donald Trump reportedly ‘bored’ of attempting regime change in Venezuela and his ultra-hawkish staff Mike Pompeo and John Bolton in the driver’s seat, military confrontation now seems inevitable.

This, predictably, has the oil world very nervous. Not just because the extension of the current OPEC+ deal could be scuppered, but because war will impact more than just Iranian oil. The safety of the Straits of Hormuz is in jeopardy, a key node in global oil supply through which almost 20 mmb/d of oil from Iraq, Saudi Arabia, Kuwait and the UAE flows along with LNG exports from the current world’s largest producer, Qatar. At its narrowest, the chokepoint in the Straits is just 50km from Iranian land. Crude exports could be routed south to Red Sea and the Gulf of Aden, but there is risk there too; the mouth of the Red Sea is where Iranian-backed Yemeni rebels are active, who have already started attacking Saudi land facilities.

This will add a considerable war risk premium to global crude prices, just as it did during the 1990 Gulf War and the 2003 invasion of Iraq. But more than just prices, the destabilising effects of a war could consume more than just the price of a barrel. If things are heading the way the current war-like signs are heading, then the oil world is in for a very major change very soon.

Historical crude price responses to wars in the Middle East

  • 1973: Yim Kippur War – oil prices quadrupled from US$3/b to US$12/b
  • 1990: Iraq invasion of Kuwait/Gulf War – oil prices doubled from US$17/b to US$36/b
  • 2003: US invasion of Iraq – oil prices rose from US$30/b to US$40/b
June, 21 2019