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Last Updated: October 5, 2018
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Market Watch

Headline crude prices for the week beginning 1 October 2018 – Brent: US$85/b; WTI: US$75/b

  • Both international crude markers have hit key levels this week, with Brent at US$85/b and WTI at US$75/b – the highest level for crude prices since 2014, as traders fret about a fragile supply situation due to ongoing and impending supply losses from Iran and Venezuela
  • President Trump’s Twitter tantrums against OPEC has failed to budge the organisation from its stance that oil prices should be allowed to rise, feeding even more into an already bullish market
  • Possible industrial action in Nigeria could drive prices up even further, as unions representing two-thirds of upstream workers in Africa’s largest oil producer could go on strike
  • US$100/b oil by the year’s end could become a reality; Total is accepting that the market is heading towards this and expressed reservations over its impact, while BP think the new sanctions will have a larger impact than the previous ones, contributing to volatility over the remainder of 2018 and into 2019
  • Iranian customers across Asia – even loyal ones – continue to abandon ship to appease the US, hoping to qualify for waivers that would allow them to import some Iranian crude; Japan’s Cosmo Oil announced it will replace all its Iranian volumes with other Middle Eastern crudes, while India’s state refiners have not placed any orders from Iran for November loading
  • Meanwhile, Iran’s fleet of oil tankers are starting to disappear from global satellite tracking systems – with the most likely explanation that the vessels’ transponder systems have been switched off to prevent tracking, and hamper American ability to track its sales
  • It has been suggested that the US could temper the oil bull run by releasing stocks from the Strategic Petroleum Reserve, but Energy Secretary Rick Perry has ruled out that option for now
  • The EU is reportedly working on a plan with Russia and China to sidestep the US sanctions by using an alternative payment system, but the interconnected nature of global finance means the risk of punitive actions by the US remains, scaring off potential users of the proposed payment channel
  • Meanwhile, despite strong price signals, American drillers are still being cautious on introducing new rigs. The active US oil rig count lost three sites last week, offset by four gas gains to leave the total at 1,029. Most losses were in the Permian, where infrastructure bottlenecks continue to be an issue
  • Crude price outlook: The rise in crude prices will continue, although the market could take a breather for some profit-taking and steady itself. We see Brent trading in the US$84-86/b and WTI in the US$75-77/b range.


Headlines of the week

Upstream

  • Nigeria’s two main oil unions are preparing for a possible nationwide strike, aimed at pressuring Chevron to reverse its plan to sack thousands of workers
  • Chevron has received expressions of interest for its 40% of the Rosebank project in the UK Continental Shelf, with potential volumes of some 300 million barrels
  • Total has agreed to purchase the entirety of Chevron Denmark Inc from Chevron, earning it a 12% interest in the Danish Underground Consortium, as well as shares in License 8/06 and the Tyra West pipeline
  • BP will be proceeding with the development of the Vorlich field in the North Sea after receiving approval from the UK upstream operator, expected to start in 2022 and produce some 20,000 b/d of oil at peak
  • ExxonMobil has won exploration rights for the Titã pre-salt block in Brazil, adding more than 71,500 acres to its already large position in Brazilian upstream

Downstream

  • Saudi Aramco has signed a long-term supply deal with Zhejiang Rongsheng, providing crude for the private firm’s new 400 kb/d refinery in eastern China
  • ExxonMobil has started up a new ultra-low sulfur fuels units at its refinery in Beaumont, Texas, boosting its capacity for clean fuels by some 45,000 b/d
  • Total has sanctioned the expansion of its Texas Bay port Polymer joint venture, doubling polyethylene capacity to 1.1 million tons per year
  • Petrobras will be slashing the price of gasoline provided by its refineries after average pump prices in Brazil jumped to a record high last week
  • India is looking to overcome land acquisition issues for its mammoth planned refinery in Maharashtra by setting up a panel to provide suggestions to mollify the strong farmer lobby, as well as environmental and ecological impact
  • Indonesia’s plan to roll out strict adherence to its biodiesel mandate has hit snags, as a shortage of palm methyl ester and distribution difficulties means that only half of Pertamina’s fuel depots have received biodiesel components

Natural Gas/LNG

  • PetroChina and Korea Gas have given the go-ahead for Shell’s LNG Canada project, and final approval could come this week as Petronas, Mitsubishi and Shell are also due to sanction the long-dormant project
  • Total has made a ‘major’ gas discovery in the Glendronach well in the Shetlands, with potential recoverable volumes of some 1 trillion cubic feet
  • Total’s Shwe Yee Htun-2 discovery in Myanmar’s A6 Block has completed a successful appraisal, adding to the earlier Shwe Yee Htun-1 and Pyi Thit-1 finds that have a cumulative estimate of 2-3 tcf of natural gas
  • Delek Drilling, Noble Energy and Egyptian East Gas – partners developing and commercialising the Tamar and Leviathan fields in Israel – have purchased control of the Eastern Mediterranean Gas pipeline for US$518 million to connect up to 64 million cubic metres of gas through the Sinai
  • Pointe LNG in the US has started applying for permission for a planned 6 mtpa LNG project in Plaquemines Parish, Louisiana using three 2 mtpa trains
  • Enable Midstream is proposing to build a US$550 million, 165-mile natural gas pipeline, connecting the Haynesville and nearby shale regions to new LNG export terminals in Texas and Louisiana

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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