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Last Updated: August 30, 2018
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Market Watch

Headline crude prices for the week beginning 27 August 2018 – Brent: US$76/b; WTI: US$68/b

  • Having risen progressively over last week over a larger-than-expected fall in US crude stockpiles and signs that the sanctions on Iranian crude are beginning to bite, crude prices started the week off on even trends.
  • While the Trump administration has been starting fires over trade with allies and foes alike, news that the US and Mexico may have come to agreement over a new bilateral trade agreement to replace NAFTA has calmed markets, with Canada also reportedly mulling over concessions to secure a new trade deal.
  • Strong demand in Asia, particularly from China, and modest gains in OPEC output have also been helpful for prices, with OPEC reporting that its member nations had cut output in July by 9% more than was called for.
  • News that OPEC’s compliance level over the (previous) supply reduction agreement was 120% in June and 147% in May stoked some fears that the market balance could tighten increasingly over the rest of the year.
  • The Iranian question is still hanging like the Sword of Damocles over the market, and OPEC looks like it will be kicking the ball further down the road, announcing that it will only discuss if its members can compensate for a sudden drop in Iranian oil supply at its next bi-annual meeting in December.
  • The awkward introduction of the new sovereign bolivar in Venezuela – linked to its new petro-cryptocurrency and crude prices – raises worries that the implosion in Venezuelan could derail OPEC’s careful plans.
  • There is conflicting news over Saudi Aramco’s planned IPO – news has filtered out that the IPO is being shelved temporarily to concentrate on an acquisition in SABIC, but the government has just granted Aramco an official 40 year concession for exploration rights to bolster the company’s value.
  • With crude prices in flux, the active rig count in the US has also been very fluid, moving from a huge gain two weeks ago, to being flat last week, to dropping by 13 this week – the biggest drop in two years – as 9 oil rigs and 4 gas rigs stopped work.
  • Crude price outlook: Signs that the market is tightening will see crude prices on a rising tide this week. We expect Brent to trade in the US$76-78/b range, while WTI will inch up towards the US$70/b mark.


Headlines of the week

Upstream

  • ConocoPhillips and PDVSA have settled their long-running dispute over the nationalisation of the Venezuelan oil industry, with PDVSA agreeing to pay some US$2 billion in recovery fees to COP.
  • Angola has created a new regulator for its upstream industry, seeking to break Sonangol’s grip on the energy industry by transferring its role as the national concessionaire to the new National Agency of Petroleum and Gasin (NOGA) by 2020, with the goal on reviving flailing upstream output.

Downstream

  • Abu Dhabi’s Adnoc is looking to sell minority stakes in its US$20 billion refining business, with Eni and Austria’s OMV – already its existing partners with Adnoc on the upstream side – reportedly being the front-runners.
  • CNPC has completed the planned upgrade of its Shymkent refinery in Kazakhstan, installing a new catalytic cracker unit to boost fuel quality from Euro II to Euro IV/V.
  • Petronas is on the hunt for specialty chemicals acquisitions, for both ‘technology and market penetration’, as it prepares to capitalise on its upcoming jump in petrochemicals production through the RAPID project.
  • Indonesia has allowed nine new companies to sell biodiesel, including the local outfits of ExxonMobil and Shell, as it moves to implement a hard B20 biodiesel mandate across the country to reduce costly gasoil imports.
  • China has sold diesel to South Africa for the first time through Sinopec, a sign that Chinese refiners are struggling to deal with a domestic supply glut.
  • Glencore has been given the go-ahead by South Africa’s competition watchdog to purchase Chevron’s downstream assets in SA and Botswana for US$900 million, potentially scuppering an earlier sale to Sinopec.
  • Despite chaos at home over the introduction of a new cryptocurrency, PDVSA has reached an agreement with NuStar Energy to resume usage of the St. Eustatius storage facility in the Caribbean after settling outstanding fees.

Natural Gas/LNG

  • Total has sold off its 26% stake in India’s Hazira LNG project to Shell, boosting Shell’s share of the import project in Gujarat to 74%; as part of the same deal, Shell has also agreed to buy some 500,000 tpa of LNG over five years beginning in 2019 from Total, to be delivered into India and South Asia.
  • Carnavron Petroleum and Quadrant Energy have completed their initial assessment of the North West Shelf Dorado discovery, estimating that it has some 1.1 tcf of natural gas resources in place.
  • Sinopec and Zhejiang Energy Group are building a new 3 million tpa LNG plant in Wenzhou, Zhejiang, with the first phase of the project planned to be operational by 2021 as Sinopec’s fourth LNG receiving terminal.
  • Thailand’s state-run Electricity Generating Authority (EGAT) is looking to import LNG directly for the first time, as the country plans to boost competition in the power sector, breaking a monopoly held by PTT.

Corporate

  • Saudi Aramco is reportedly putting plans for a giant IPO on hold so that it can focus on a more immediate goal of purchasing a strategic stake in SABIC, a transaction that could cost as much as US$70 billion.
  • Santos has agreed to entirely purchase West Australian specialist Quadrant Energy – partner in the giant Dorado discovery – for US$2.15 billion.

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December, 01 2021
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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