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Market Watch

Headline crude prices for the week beginning 24 September 2018 – Brent: US$80/b; WTI: US$72/b

  • International crude oil prices are now at their highest levels in four years, as the market fret over tight supply following a declaration by OPEC that it was approaching the issue of raising output cautiously ahead of a meeting of OPEC oil ministers in Algeria this weekend
  • Despite President Trump’s demand that the group steps in to control oil prices, OPEC is taking a wait-and-see approach; Saudi Arabia signalled that it was comfortable with US$80/b oil and was in no rush to bring prices down from current levels
  • OPEC also is not guaranteeing that its members (and its NOPEC partners) will automatically replace lost Iranian barrels due to upcoming American sanctions; coupled with still-strong energy demand, this is leading traders to predict a very tight oil market over the next few months
  • Most financial institutions are maintaining that oil prices will stay at US$80/b, but some bullish traders, including Mercuria and Trafigura, are predicting a return to US$100/b oil by early 2019
  • Saudi Arabia’s new best (oil) friend Russia reported a surge in its crude production to a new post-Soviet record of 11.3 mmb/d, but the US has leapfrogged that to become the largest crude oil producer in the world
  • Caught in an American web of sanctions, Iran warned that it would veto any decision by OPEC that ‘harms the Islamic Republic’, setting the tone for a testy meeting in Algiers this Sunday and in Vienna this December
  • Iran also issued veiled threats about jeopardising international peace as the US and Iran butted heads at the annual International Atomic Energy Agency meeting in Vienna
  • As the noose closes on Iran, even neighbouring India is cutting down on purchases; Chennai Petroleum (partly owned by the National Iranian Oil Co’s trading arm) announced it would stop processing Iranian crude from October onwards to maintain its insurance coverage
  • Meanwhile, the imbroglio between China and the US has reached LNG, with China slapping a 10% tariff on US LNG imports in response to a new tranche of duties imposed on US$200 billion of Chinese imports by the US, threatening to upend the accelerating LNG terminal development in the US Gulf Coast
  • Despite prices tending upwards, the US active oil rig count fell by one last week as ongoing infrastructure bottlenecks in onshore shale basins, particularly the Permian, hamper the marketability of liquids
  • Crude price outlook: Prices sustaining at high levels seem inevitable for the moment, as sanctions against Iran kick in in six weeks and the full scale of its impact remains uncertain. With OPEC content to let prices rise, we see Brent trading towards US$82/b and WTI towards US$73/b this week.


Headlines of the week

Upstream

  • Shell is reportedly looking to sell its 22.5% stake in the Gulf of Mexico Caesar Tonga field to Focus Oil for some US$1.3 billion, as it continues an asset rationalisation process kickstarted by its purchase of the BG Group
  • Canada has decided to restart the approval process for the Trans Mountain oil pipeline, hoping to circumvent or rectify shortcomings that led to a court ruling quashing the project’s permits on insufficient environmental impact studies
  • North Africa-focused SDX Energy is reportedly in discussion with BP to purchase a ‘significant package of assets’, which would add to SDX’s current interests in the South Disouq, Meseda, NW Gemsa and South Ramadan areas
  • Mexico’s Pemex has signed a landmark pre-unitisation deal with the three-way Block 7 Consortium, which will focus on developing the JV’s Zama-1 ‘world class oil discovery’ containing 1.2-1.8 billion barrels of oil
  • CNOOC’s Penglai 19-3 oilfield project in the Bohai Sea has commenced production, with a peak of 58,700 b/d expected to be hit by 2020, which should soften the persistentn decline in Bohai Bay upstream production
  • First oil has been produced at the Tortue field, in the offshore Gabon Dussafu PSC, a major milestone for its operator Panoro Energy

Downstream

  • Eni and Pertamina have signed an MoU meant to deepen cooperation between the two firms, particularly in Indonesian downstream, leveraging Eni’s experience in developing bio-refineries
  • Uganda has delayed its planned 60 kb/d oil refinery startup to a still ambitious 2022 over delays in the design and engineering phase; the refinery is meant to take Ugandan crude from fields co-developed by Total, CNOOC and Tullow, with delays in the upstream output also contributing to the pushback
  • After years of delays, Vietnam’s Nghi Son refinery is finally entering full production mode, offering its first cargo of gasoline for export, although Nghi Son will eventually focus on supplying fuels to the domestic market
  • China is reportedly considering issuing a new tranche of fuel export permits of some 3-4 million tons to prevent state-owned refiners from having to cut runs
  • Russian petrochemical producer Sibur has been sending out feelers on a possible stock market flotation, having spoken to several banks about listing some 15% of its shares in Moscow or international bourses

Natural Gas/LNG

  • With Egypt’s giant Zohr gas field ramping out faster than expected, the country plans to revive its long-dormant Damietta LNG plant to resume LNG exports
  • Vitol has signed a long-term 15-year LNG agreement with Cheniere, with the trader taking in 700,000 tpa of LNG per year beginning end-2018
  • Trader Woodside has signed a mid-term deal with Germany’s Uniper to supply up to 600,000 tpa of LNG over a four-year period beginning 2019
  • Qatar Petroleum will be adding a fourth train to its North Field expansion project, which will expand its total capacity to 110 mtpa by 2024
  • French major Total has clarified that its LNG investment position will be to focus on what it calls the ‘Golden Triangle’ of the LNG market – cost-competitive projects in Qatar, Russia and the USA
  • Nigeria LNG expects to make a final investment decision on its planned US$7 billion, 8 million tpa Train 7 LNG expansion project by end-2018

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Nigeria’s Energy Focus Must Change From Crude Oil to Gas – Dr Chukwueloka Umeh

According to the Nigeria National Petroleum Corporation (NNPC), Nigeria has the world’s 9th largest natural gas reserves (192 TCF of gas reserves). As at 2018, Nigeria exported over 1tcf of gas as Liquefied Natural Gas (LNG) to several countries. However domestically, we produce less than 4,000MW of power for over 180million people.

Think about this – imagine every Nigerian holding a 20W light bulb, that’s how much power we generate in Nigeria. In comparison, South Africa generates 42,000MW of power for a population of 57 million. We have the capacity to produce over 2 million Metric Tonnes of fertilizer (primarily urea) per year but we still import fertilizer. The Federal Government’s initiative to rejuvenate the agriculture sector is definitely the right thing to do for our economy, but fertilizer must be readily available to support the industry. Why do we import fertilizer when we have so much gas?

I could go on and on with these statistics, but you can see where I’m going with this so I won’t belabor the point. I will leave you with this mental image: imagine a man that lives with his family on the banks of a river that has fresh, clean water. Rather than collect and use this water directly from the river, he treks over 20km each day to buy bottled water from a company that collects the same water, bottles it and sells to him at a profit. This is the tragedy on Nigeria and it should make us all very sad.

Several indigenous companies like Nestoil were born and grown by the opportunities created by the local and international oil majors – NNPC and its subsidiaries – NGC, NAPIMS, Shell, Mobil, Agip, NDPHC. Nestoil’s main focus is the Engineering Procurement Construction and Commissioning of oil and gas pipelines and flowstations, essentially, infrastructure that supports upstream companies to produce and transport oil and natural gas, as well as and downstream companies to store and move their product. In our 28 years of doing business, we have built over 300km of pipelines of various sizes through the harshest terrain, ranging from dry land to seasonal swamp, to pure swamps, as well as some of the toughest and most volatile and hostile communities in Nigeria. I would be remiss if I do not use this opportunity to say a big thank you to those companies that gave us the opportunity to serve you. The over 2,000 direct staff and over 50,000 indirect staff we employ thank you. We are very grateful for the past opportunities given to us, and look forward to future opportunities that we can get.

CLICK HERE TO READ MORE

July, 19 2019
Your Weekly Update: 15 - 19 July 2019

Market Watch 

Headline crude prices for the week beginning 15 July 2019 – Brent: US$66/b; WTI: US$59/b

  • Global oil prices gained as US crude inventories shrank more than expected and a hurricane in the Gulf of Mexico threatened American offshore production
  • Tropical Storm Barry – which became a hurricane on landfall in Louisiana – was in the path of up to a third of Gulf of Mexico crude output, prompting producers to shut down most of their operations; resumption of normal service has begun
  • At the same time, US crude oil stockpiles fell by almost 10 million barrels, far more than expected, with US refineries ramping up production ahead of summer demand to add some bullishness to the market
  • The ongoing tensions between the US and Iran have not escalated further yet, but Iran has vowed to continue retaliating against the British seizure of its crude tanker in the Mediterranean off Gibraltar
  • These factors have been enough to keep current crude prices trending higher, but oil producing club OPEC warns that the market will swing back into surplus next year, estimating that it is currently producing 560,000 b/d more than will be needed without even factoring in rising US shale production
  • In Venezuela, where oil production has been crippled by sanctions, Chevron is reportedly seeking a waiver to continue operating in the country after the current waiver expires in July 27
  • The US active oil and gas rig count fell once again, shedding a net five rigs (including 4 oil rigs) as merely stable prices reduced the appetite for investment; the total active rig count is now 958, 96 sites lower than this period last year
  • As the threat of Tropical Storm Barry abated, crude prices fell back in line. Without any further disruptions on the horizon, Brent should trend in the US$62-64/b range and WTI in the US$55-57 range


Headlines of the week

Upstream

  • Norway’s Equinor has bought a 16% stake in Swedish upstream firm Lundin Petroleum for US$650 million, which gains it an additional 2.6% interest in the giant Johan Sverdrup oil field bringing Equinor’s total stake up to 42.6%
  • Inpex has picked up the exploration permit for Block AC/P66 in Australia’s Northwest Shelf, which lies in the vicinity of existing promising oil fields
  • US independent Callon Petroleum Company has acquired Carrizo Oil & Gas for US$3.2 billion, deepening its holdings in the Permian and Eagle Ford shale basins, including 90,000 net acres in the prolific Delaware Basin
  • Total has agreed to divest several of its non-core assets in the UK – covering the Balloch, Dumbarton, Lochranza, Drumtochty, Flyndre, Affleck, Cawdow, GoldenEagle, Scott and Telford fields – to Petrogas NEO for US$635 million
  • CNOOC and Sinopec has signed a new agreement to collaborate on exploration activities in the Bohai Basin, Beibu Gulf, North Jiangsu and South Yellow Sea
  • Murphy Oil has completed the sale of its Malaysian upstream assets to a unit of Thailand’s PTTEP for US$2.035 billion for five offshore projects in Sabah
  • Seven upstream discoveries were made in Colombia in 2Q19, making it the market with the most discoveries during the period, leading India, Russia and Pakistan which each made three new oil and gas finds
  • Turkey has vowed to continue drilling offshore Cyprus unless a cooperation proposal between Turkish and Greek Cypriots is accepted
  • Encana is reportedly selling off its assets in eastern Oklahoma’s Arkoma Basin for US$165 million in cash to an undisclosed buyer
  • Sinopec is hunting for partners or buyers for its Buck Lake assets in Alberta’s Duvernay shale basin in Canada, to reduce its current full ownership

Midstream/Downstream

  • The Governor of Pennsylvania Tom Wolf has ruled out using state funds to save the Philadelphia Energy Solutions refinery after it was shuttered following a massive fire that took out the entire site last month
  • Blackouts hit Venezuela’s Amuay and Cardon refineries, bringing the 955,000 b/d Paraguana refining Center to a complete halt on total lack of power
  • Chevron Phillips Chemical (CP Chem) and Qatar Petroleum have agreed to develop a new 2 mtpa petrochemical complex on the US Gulf Coast, with the US Gulf Coast II Petrochemical Project drawing on NGLs from the Permian
  • Marathon Petroleum will shut down the gasoline FCCU unit at its 585,000 b/d Galveston Bay Refinery in Texas for up to 8 weeks for repairs

Natural Gas/LNG

  • Total has agreed to buy NG from Tellurian’s Driftwood LNG facility in Lake Charles, Louisiana in two separate deals – 1 million tons per annum for Total Gas & Power North America and 1.5 mtpa for Total Gas & Power – as well as invest US$500 million in Driftwood Holdings LP
  • Mozambique has put on hold plans to raise funds for its stake in the Anadarko-led Mozambique LNG project, citing current bad market conditions
  • ExxonMobil and Lucid Energy Group have agreed to collaborate on a long-term natural gas gathering and processing project, bringing natural gas from New Mexico’s Delaware Basin to the South Carlsbad gas processing system before being delivered to ExxonMobil’s downstream facilities in the US Gulf Coast
July, 19 2019
Iran drives unplanned OPEC crude oil production outage to highest levels since late 2015

Unplanned crude oil production outages for the Organization of the Petroleum Exporting Countries (OPEC) averaged 2.5 million barrels per day (b/d) in the first half of 2019, the highest six-month average since the end of 2015. EIA estimates that in June, Iran alone accounted for more than 60% (1.7 million b/d) of all OPEC unplanned outages.

EIA differentiates among declines in production resulting from unplanned production outages, permanent losses of production capacity, and voluntary production cutbacks for OPEC members. Only the first of those categories is included in the historical unplanned production outage estimates that EIA publishes in its monthly Short-Term Energy Outlook (STEO).

Unplanned production outages include, but are not limited to, sanctions, armed conflicts, political disputes, labor actions, natural disasters, and unplanned maintenance. Unplanned outages can be short-lived or last for a number of years, but as long as the production capacity is not lost, EIA tracks these disruptions as outages rather than lost capacity.

Loss of production capacity includes natural capacity declines and declines resulting from irreparable damage that are unlikely to return within one year. This lost capacity cannot contribute to global supply without significant investment and lead time.

Voluntary cutbacks are associated with OPEC production agreements and only apply to OPEC members. Voluntary cutbacks count toward the country’s spare capacity but are not counted as unplanned production outages.

EIA defines spare crude oil production capacity—which only applies to OPEC members adhering to OPEC production agreements—as potential oil production that could be brought online within 30 days and sustained for at least 90 days, consistent with sound business practices. EIA does not include unplanned crude oil production outages in its assessment of spare production capacity.

As an example, EIA considers Iranian production declines that result from U.S. sanctions to be unplanned production outages, making Iran a significant contributor to the total OPEC unplanned crude oil production outages. During the fourth quarter of 2015, before the Joint Comprehensive Plan of Action became effective in January 2016, EIA estimated that an average 800,000 b/d of Iranian production was disrupted. In the first quarter of 2019, the first full quarter since U.S. sanctions on Iran were re-imposed in November 2018, Iranian disruptions averaged 1.2 million b/d.

Another long-term contributor to EIA’s estimate of OPEC unplanned crude oil production outages is the Partitioned Neutral Zone (PNZ) between Kuwait and Saudi Arabia. Production halted there in 2014 because of a political dispute between the two countries. EIA attributes half of the PNZ’s estimated 500,000 b/d production capacity to each country.

In the July 2019 STEO, EIA only considered about 100,000 b/d of Venezuela’s 130,000 b/d production decline from January to February as an unplanned crude oil production outage. After a series of ongoing nationwide power outages in Venezuela that began on March 7 and cut electricity to the country's oil-producing areas, EIA estimates that PdVSA, Venezuela’s national oil company, could not restart the disrupted production because of deteriorating infrastructure, and the previously disrupted 100,000 b/d became lost capacity.

July, 18 2019