Brent crude is once again flirting with the US$80/b level. By the time October begins, it is likely that Brent prices will be comfortably over the mark, pulling WTI prices up towards the same level. The last time crude prices surged (and sustained) above this level, US$80/b was identified as the level where demand destruction began, as countries and companies scaled back on oil usage. Since the price crash in 2015, demand has managed to pick up tremendously, in no small part due to cheap prices. Where do prices go from here? Can they return to the US$100/b level? That would be cheery news for oil firms, who are finally emerging from a tough slump, but it could also return us to the excesses of the previous cycle, repeating the same problems.
The direction for oil prices – at least for the foreseeable futures – is definitely up. The main thrust for this is Iran. Or rather, renewed American sanctions on Iran. Though the Trump administration’s aim to reduce Iranian crude exports to zero is probably a pipe dream – in no small part due to pushback from India and China – the sanctions will still manage to remove at least 1 million b/d from the market. At a time when Venezuela production is in a downward spiral and disruption continually threatens OPEC’s North African members, this supply risk is constantly pushing prices levels up. OPEC has vowed to turn on the spigots in association with its NOPEC partners, but not to a level that can offset all the losses, to appease members such as Iran and Iraq. This is unlikely to be revised drastically at the upcoming OPEC meeting in December. The US is not happy about the situation – witness President Trump’s flailing tweets – and the American Congress is considering an anti-cartel bill that could open OPEC to lawsuits, all to rectify a situation that it itself created.
Because of this, major oil trading houses and banks are predicting prices to rise even further. Goldman Sachs, which once famously predicted prices could spike to US$200/b during the 2008 boom, is curiously cautious in maintaining its prediction at a floor of US$80/b, as is Citibank. JP Morgan, however, expects Brent to hit US$85/b as early as November, on a path to rise to US$90/b. Trading houses are more bullish. Mercuria and Trafigura are both predicting US$100/b prices by early 2019 – citing the lack of spare capacity in the market to replace lost volumes. Even the shale rush in the US that has made America the world’s largest crude producer will not be enough to replace lost Iranian volumes in the short- and medium-term. Most analysts expect the Iranian losses to be at least 1 mmb/d, with some analysts predicting that Iranian exports would fall to just 700,000 b/d from 2.1 mmb/d last year, shipped mostly to China and to India, with land routes used to circumvent shipping and insurance sanctions.
At prices like this, one would expect oil producers to rush in to fill the gap. But pipeline infrastructure limitations in the Permian are hampering distribution to Gulf Coast export hubs, while promising upstream production in Guyana, Mexico and Australia are still far, far off from commercialisation. Meanwhile, vast new LNG facilities has come onstream, together with major natural gas finds, accelerating oil’s displacement by gas in key sectors such as power and petrochemicals. Meanwhile, oil firms expect the bonanza to continue; service firms, particularly deepwater-focused ones, are seeing enthusiastic signs, as firms push towards riskier projects made economical only at high oil prices. This has happened before, as most would remember, but the oil industry has a short memory. Where will crude prices go from here? Nobody can agree on the exact magnitude, but everyone agrees that the direction is up.
Factors influencing the rise to US$100/b oil:
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It seems to have been a topic that has been discussed for years, but a decision could finally be made. The Philippines has short-listed three different groups who are in the running to build the country’s first LNG import terminal, whittling them down from an initial 18 that submitted project proposals. The final three consist of the Philippines National Oil Company (PNOC), a joint venture between Tokyo Gas and domestic firm First Gen Corp and China’s CNOOC. The Philippines hopes to choose the final group by the end of November – an optimistic decision that belies that many, many complications that have come before.
First of all, the make-up of only one of the groups has been finalised. A local partner is a requirement for this project; CNOOC has yet to officially tie-up, although it has been talking to Manila-based Phoenix Petroleum, while state oil firm PNOC does not have a (deep-pocketed) partner yet. Firms including Chevron, Dubai’s Lloyds Energy Group and Japan’s JERA have reportedly contacted PNOC to express their interest, but a month before the Philippines wants to make a decision, its own home-grown hero hasn’t yet got its ducks lined up in a row.
And time is of essence. The once giant Malampaya gas field is running out of resources. Supplying piped natural gas to three power plants that feeds some 45% of Luzon’s electricity requirements, the Shell-operated field is expected to be completely depleted by 2024. With the country aiming to move away from burning coal or (imported) gasoil for power, gas is needed to replace gas. Even though the Philippines is pushing for a bilateral agreement with China to pave to way for joint exploration activities in disputed areas of the South China Sea – to the consternation of its citizens – any discovery in the Palawan basin or Scarborough Shoal will be years from commercialisation.
So LNG is the answer. And LNG has been the answer since 2008, when the need for an LNG import terminal was first identified. And it is not like no projects have been proposed – Australia’s Energy World Corp (EWC) has been wanting to build an LNG receiving terminal and power station in the Quezon province near Manila for years, but the project has been described as ‘trapped in a bureaucratic quagmire’ due to hurdles from various government agencies, or stymied by groups with competing interests.
PNOC itself has been wanting to build its own terminal in Batangas, within range of existing gas and power transmission facilities currently drawing Malampaya gas. But, just like Pertamina in Indonesia, it is cash-strapped and unable to drive the project on its own, hence the requirement for a partner/s. First Gen Corp and Phoenix Petroleum are both private players, with First Gen already operating four of the country’s five gas-fired plants while Phoenix Petroleum has close ties with CNOOC Gas.
Many announcements have been made and gone, but with this shortlist of three groups, it does finally look like the Philippines will be able to get its LNG ambitions of the ground. And it is thinking even bigger; wanting the terminal to become a LNG trading hub for the region – capitalising on the existing habit of ship-to-ship transfers of LNG cargoes into smaller parcels in the Philippine waters for delivery into southern China – challenging existing ambitions in Japan, South Korea and Singapore. But perhaps that is getting a bit ahead of themselves. Getting a project – any LNG project – off the ground is the first priority. And the rest can come after that.
Other Proposed LNG Projects In The Philippines:
Headline crude prices for the week beginning 5 November 2018 – Brent: US$72/b; WTI: US$62/b
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It is a well-known fact that the oil and gas industry has a lot to offer in terms of opportunities - paycheck, lifestyle, and work-life balance. However, like everything else in life, it has a flip side as well. If you are planning to make a career in oil and gas industry, it is important to know the cons as well. Here is a list of risks associated with working in oil and gas industry that you must know to make an informed decision.
Highly competitive: survival of the fittest
Oil and gas industry is highly competitive and dynamic in nature. The job requires high level of expertise and productivity. With digitization and automation of the industry, the work functions are changing rapidly. The employees who cannot cope up and upskill with changing time and need will be automatically pushed out of the system. The foremost challenge in oil and gas industry is to stay relevant and keep upskilling.
Long work hours
Some job functions in oil industry like offshore rig workers have to work in 12-hours shift, seven days a week and for seven to 28 days in one stretch. Sometimes, overtime is also expected due to emergency or to manage the project deadlines. However, the oil companies do give equal amount of resting period to the rig workers to compensate for the long working hours. Even then, the continuous long hours is strenuous for the workforce.
The accident-prone work environment
Although rigorous safety trainings are provided to the workforce along with numerous safety measures and laws in place; accidents do occur. Sometimes, these accidents can be life-threatening. Here is quick overview of the possible accidents that you might encounter:
Risk of confined space and fall- The line workers in oil and gas industry sometimes work in confined spaces like mud pits, reserve pits, storage tanks, sand storage, and other excavated areas, where they are exposed to potential risk of ignition of inflammable vapors, exposure to harmful chemicals, and asphyxiation. Additionally, these kinds of workplaces involve risk of falls, slips and trips too which can cause severe injuries and can even turn fatal. Though the companies are extremely careful and take all safety precautions, but the risk cannot be ruled out.
Additionally, frequent exposure to chemicals used in refineries and drilling operations can impact long-term health. To offset these dangers, oil and gas companies provide comprehensive training to employees to ensure safety protocols and site-specific features.
Working in remote location
The oil and gas professionals have to work on remote location for exploration, offshore duties, pumping stations, gas plants and more. The workers in remote location often feel isolated and they are on their own to cope up with numerous work-related accidents and health hazards.
Working in oil and gas industry is extremely rewarding in terms of career growth, travelling opportunities and compensation. However, the above points must also be considered before stepping into this industry. It is important to mention here that majority of oil and gas companies are aware of the risks associated and thus have sound safety measures in place to avoid any contingency. Moreover, the government and regulatory bodies also impose strict regulations for safety and security of the workforce. Therefore, in many cases, the risk associated is considerably reduced. So, before you accept any offer from any oil and gas companies, you must carefully verify the safety measures and policies of the company. Once, you are assured, your career in oil and gas will be highly rewarding.
If you are looking for relevant opportunities, check out NrgEdge.com to kickstart your career in oil and gas industry.