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Last Updated: October 19, 2018
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Headline crude prices for the week beginning 15 October 2018 – Brent: US$81/b; WTI: US$71/b

  • After settling lower on promises of increased supply, the crude oil markets were rocked this week as it became clearer and clearer that the Saudi Arabian state was involved in the disappearance and alleged assassination of prominent Saudi critic Jamal Khashoggi in Istanbul
  • Internal condemnation has been loud, but US President Donald Trump has ruled out trade sanctions and cancelling of defense contracts with Saudi Arabia; the Kingdom issued veiled threats to use its vast oil reserves as a political weapon if punitive measures are taken against it – the first time it has made such a threat since the 1973 Arab oil war.
  • Grapevine chatter suggests that Saudi Arabia is preparing to admit its involvement of Khashoggi’s disappearance as the result of an ‘investigation gone wrong’, and has activated its diplomatic network to push back against criticism
  • This comes at a fragile time, with Saudi Arabia required to play a key role in balancing the market ahead of the new American sanctions on Iran and the upcoming OPEC meeting on December 3
  • Meanwhile, global oil demand and supply have risen to new records according to the International Energy Agency, with global supply rising to 100.3 mmb/d and demand very close to the 100 mmb/d level, implying a very narrow level of spare supply in the market
  • Fears of the removal of Iranian crude from the market continue to haunt prices, but Saudi Arabia did state that the Kingdom was ready to absorb the shock and supply additional to India to counter their loss of Iranian volumes
  • The level of crude prices is expected to persist at their current levels for a while, with BP now looking to sanction projects that would require crude oil prices at the US$60-65/b level, up from US$50-55/b last year
  • While China hasn't imposed sanctions on US crude imports yet, Chinese importers have largely halted all imports of American crude since August, moving to using West Africa and also tapping into cheap Canadian oil sands crude, which is currently selling for under US$50/b
  • With the American EIA reporting an unexpected decline in US crude inventories, crude prices also got a boost from that early this week
  • After weeks of caution, American drills boosted active rig numbers last week, adding 8 new oil rigs and 4 new gas rigs for a net gain of 11 sites, with all new rigs being onshore ones; this comes as signs are showing that mature wells in the Permian are showing high decline rates
  • Crude price outlook: The Saudi scandal over Jamal Khashoggi is concerning, but there is resistance to taking too harsh an action on the fear that it could lead to a deliberate supply shock. As the market settles, we think Brent and WTI will trend downwards to the US$79-80/b and US$69-70/b this week


Headlines of the week

Upstream

  • BP, Eni and Libya’s National Oil Corporation have agreed to work towards resuming exploration activities on the EPSA production contract in Libya, covering the onshore Ghadames basin and the offshore Sirt basin, with Eni acquiring 42.5% interest in the contract
  • Chevron is fully exiting the Norwegian portion of the North Sea Basin, transferring its 20% stake in the PL859 licence in the Barents Sea to DNO ASA, part of the plan to completely exit the area in search of higher returns elsewhere
  • While others are exiting the North Sea, others are still keen; RockRose Energy has sanctioned FID on the Arran field, expecting to produce 100 mscf/d and 4,000 b/d of condensate at peak production
  • Murphy Oil and Petrobras’ American subsidiary have agreed to enter into a joint venture merging their Gulf of Mexico, with Murphy holding 80% and Petrobras the remaining 20% of a JV covering the St. Malo field and other assets
  • ConocoPhillips has achieved first oil at the Greater Mooses Tooth#1 site on the Alaskan North Slope, with peak output expected to be 25-30,000 b/d

Downstream

  • Hammered by the recent rise in crude prices, India is taking a commercial model for its strategic petroleum reserves, inviting global oil producers and traders to invest US$1.5 billion in storing some 6.5 million tons of crude at two sites
  • Saudi Aramco and Total have signed a new joint development agreement for engineering and design of the giant 1.5 mtpa petrochemicals plant in Jubail, located next to the SATORP refinery and now scheduled for start-up in 2024
  • Fresh off signing an MoU with Italy’s Eni on developing bio-refineries, Indonesia is mulling plans to convert two of its aging refineries – Plaju and Dumai – into biofuels plants producing 100% biodiesel from palm oil
  • The new 200 kb/d SOCAR Star refinery in Turkey – the first in the country in 30 years – will be starting up this month, boosting Turkish capacity by 30%
  • Total has opened up a new state-of-the-art 40,000 tpa lubricants blending plant in Russia’s Kaluga region, aimed at localising production to feed Russia’s growing hunger for top quality lubricants

Natural Gas/LNG

  • The first cargo at Inpex’s Ichthys LNG export project in Australia is ready for loading this week, finally bringing to a fruition a much-delayed project
  • Qatar Petroleum has signed a new mid-term supply agreement with China’s Oriental Energy, providing 600,000 tpa of LNG over a five year period
  • Egypt’s plan to import natural gas from Israel is accelerating, with partners now evaluating the condition of the East Mediterranean Gas pipeline, expecting the first gas to flow in March 2019 at 100 mscf/d
  • Shell is reportedly dropping plans to purchase a stake in Kazakhstan’s KazMunayGas National Co, after the results of a due diligence study into the role of the Kazakh state in the natural gas firm
  • ExxonMobil has signed a long-term, 20-year deal to supply Zhejiang Provincial Energy Group with LNG, as the Chinese power utility player expands on its role in energy after agreeing to a joint venture with Glencore this year
  • Novatek has made a massive 11 tcf gas discovery in the Ob Bay area of the North Obsk licence area, expected to feed into a future Arctic LNG project

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Suriname’s Mega Discovery

It was just over five years ago that ExxonMobil discovered first oil in Guyana, transforming the sleepy South American country into the world’s upstream hotspot in just half a decade. The strike rate there has been amazing – 18 discoveries out of 20 well campaigns, and more seem to coming as new discovery efforts get underway. This made Guyana the envy of its neighbours. And why not? The Guyanese economy is projected to grow at 86% y-o-y in 2020, despite the Covid-19 pandemic, as first commercial oil from the Liza field hit the market.

Just over the Guyana border, Suriname, a former Dutch colony had all the more reason to be envious. Unlike Guyana, Suriname has an established upstream industry. Managed by the state oil firm Staastsolie, the volumes are paltry: the onshore Calcutta and Tamabredjo field collectively produce at a current rate of 17,000 b/d. Guyana’s Liza field alone is 15 times larger than Suriname’s total crude output. But the Guyanese miracle always did herald some hope that some of that golden dust could blow Suriname’s way, not least because the giant offshore discoveries in the Staebroek block were just across the maritime border.

In January 2020, this bet proved right. US independent Apache announced it had made a ‘significant oil discovery’ at the Maka-Central 1 well, the first suggestion that the Cretaceous oil formation in Guyana extended southeast to Suriname. Two more discoveries were announced by Apache in quick succession, Sapakara West and, just this week, Kwaskwasi. All three are located in the 1.4 million acre offshore Block 58, which was originally held entirely by Apache before French supermajor Total bought into a 50% stake just before the Maka Central discovery was announced. Three discoveries in six month is quite a payoff, especially with the Kwaskwasi-1 well delivering the highest net pay and confirming a ‘world-class hydrocarbon resource’. More importantly, initial findings suggest that Kwaskwasi holds oil with API gravities in the 34-43 degree range, the sort of light oil that is perfect for petrochemicals and higher-grade fuels.

With Total scheduled to take over operatorship of the block after a fourth drilling campaign, the partners are eager to extend their streak. The Sam Croft drillship is scheduled to head to Keskesi, the fourth scheduled prospect in Block 58, after operations at Kwaskwasi-1 have concluded, and an additional exploration campaign is already in the plans for 2021.

Total and Apache aren’t the only ones playing in Surinamese waters, though they are the first to hit the payday. Most of the country’s offshore blocks have been apportioned, snapped up by ExxonMobil, Kosmos, Petronas, Tullow and Equinor, and all are hoping to be the next to announce a find. ExxonMobil, with Equinor and Hess Energy, have a good position in Block 59, just next to the Caieteur block in Guyana, while Kosmos is hunting in Block 42, right next to the Canje block in Guyana. However, it is Malaysia’s Petronas that is the next likely candidate. Present in Suriname since 2016, when it drilled the exploratory Roselle-1 well in Block 52, Petronas also has interests in Block 48 and Block 53, and recently completed a farm-out sale with ExxonMobil for 50% of Block 52. Its drilling campaign for the Sloanea-1 well is scheduled to begin in Q4 2020, and will be keenly watched by all in Suriname.

Unlike Guyana that had no state oil company, Suriname has existing national oil infrastructure. Staatsolie currently controls onshore and shallow water areas in the country. However, all wells drill in offshore Block A, B, C and D have turned out dry so far. That leaves Staatsolie in a situation: its own areas are not prolific as discoveries by Total, Apache, Petronas et al. For now, Staatsolie is looking to gain rights to 10-20% of any oil discovery within Suriname, but the framework for this is weak and it must navigate carefully to not antagonise the oil majors that are powering the discoveries in its waters. It will do well to avoid the confrontational attitude that is jeopardising LNG development in Papua New Guinea with ExxonMobil and Total, but Staatsolie does have a claim to Suriname’s oil riches for itself.

For now, it is exhilarating to observe the progress in this previously quiet corner of South America. It is the closest thing to frontier oil exploration in the 21st century, with each new discovery generating more and more excitement. Who would have thought there was so much oil left undiscovered? Guyana has shot into the spotlight, Suriname is starting its own ascent and… who knows… could French Guiana be next?

End of Article 

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August, 01 2020
2019 U.S. coal production falls to its lowest level since 1978

U.S. total annual coal production

Source: U.S. Energy Information Administration, Annual Coal Report

In 2019, U.S. coal production totaled 706 million short tons (MMst), a 7% decrease from the 756 MMst mined in 2018. Last year’s production was the lowest amount of coal produced in the United States since 1978, when a coal miners’ strike halted most of the country’s coal production from December 1977 to March 1978. Weekly coal production estimates from the U.S. Energy Information Administration (EIA) show the United States is on pace for an even larger decline in 2020, falling to production levels comparable with those in the 1960s.

2019 annual coal production by state

2019 annual coal production, top 10 coal-producing states


Source: U.S. Energy Information Administration, Annual Coal Report

Wyoming produces more coal than any other state, representing 39% of U.S. coal production in 2019, at 277 MMst, which is 9% lower than its coal production in 2018. Coal production in West Virginia, the state with the second-highest coal output, fell by a relatively smaller 2% in 2019. West Virginia is a primary producer of metallurgical coal, which saw sustained demand for exports in 2019. Coal production recently stopped in two states, Kansas in 2017 and Arkansas in 2018. Arizona stopped producing coal in the fall of 2019 when the coal-fired Navajo Generating Station and adjacent Kayenta coal mine that supplied it both closed.

EIA estimates weekly coal production using coal railcar loadings. In 2020, weekly coal railcar loadings have been trending much lower than 2019 levels, and most recent year-to-date coal railcar loadings were down 27% compared with 2019.

U.S. weekly railcar loadings

Source: U.S. Energy Information Administration, Weekly Coal Production

The decline of U.S. coal production so far in 2020 reflects less demand for coal internationally and less generation from U.S. coal-fired power plants. U.S. coal exports through May 2020 are 29% lower than during the first five months of 2019. U.S. coal-fired generation fell to a 42-year low in 2019, decreasing nearly 16% from the previous year, and has fallen another 34% through May 2020.

Estimated U.S. coal production through mid-July 2020 is 27% lower than the average annual 2019 output, and EIA expects these reductions in production to persist during the remainder of the year. In the latest Short-Term Energy Outlook (STEO), EIA forecasts a 29% decline in U.S. coal production in 2020.

EIA forecasts that U.S. coal production will increase by 7% in 2021, when rising natural gas prices may cause some coal-fired electric power plants to become more economical to dispatch. Much of EIA’s projected recovery in coal production is in the western United States.

Principal contributor: Rosalyn Berry

July, 29 2020
Key Upstream Positive Developments Since April 2020

Amid the unprecedented upheaval that has taken its toll on the world and, in particular the energy industry in the first half of this year, life goes on. Despite shut-ins, weak prices, huge impairments, gloomy forecasts and business challenges, life still goes on. Rigs are still running, exploration is still being conducted and projects are still being approved. The oil and gas world has weathered a huge storm, but that has not stopped it from focusing on necessary work that is vital for the future of the industry itself and the global economy. We have summarised a list of key upstream announcements and developments since April.

One of the major headlines that came out over the past three months was news that Total’s giant LNG in Mozambique has secured as much as US$16 billion in funds from various financial institutions. This is the single largest foreign direct investment project in Africa ever, matching the total current GDP of Mozambique. The speed at which Total completed financing for the US$23 billion project (which taps in the gigantic Golfinho and Atum natural gas fields) is quite remarkable, when the ExxonMobil-led Rovuma LNG next door is facing delays. In fact, the funding raised US$600 million than expected, representing the faith that the 13.1 million ton per annum project, potentially expandable to 43 mtpa, will pay off in the long run. For Total, this will be a hedge, given that its LNG efforts in Papua New Guinea are currently still stymied by a showdown against the country’s new government.

Chevron also had some major news to publish. After failing to acquire Anadarko in 2019 in a dramatic storyline against Occidental Petroleum, the US supermajor has swooped in to acquire US independent Noble Energy for some US$5 billion. The acquisition neatly replaces what the original Anadarko purchase was supposed to achieve – expand Chevron’s presence in the prolific US onshore shale basins, with Noble’s 92,000 acres in the Permian noted as being ‘largely contiguous and adjacent’ to Chevron’s current assets. Noble will also bring with it established positions in the Eagle Ford basin, significant US midstream assets and upstream assets in Israel and Equatorial Guinea, swelling Chevron’s proven oil and gas reserves by 18%. For that amount of potential, the price is a steal. With smaller shale players under pressure, expect more acquisitions of this sort to be announced by deep-pocketed bargain hunters.

Chevron wasn’t the only one to make acquisitions. ConocoPhillips splashed out US$375 million to take up land in Western Canada’s liquids-rich Montney formation, taking the Inga-Fireweed asset from Kelt Exploration. Trident Energy completed its purchase of 10 concessions in the offshore Pampo and Enchova clusters in Brazil from Petrobras. And trader Vitol announced a rara avis, a new US upstream venture called Vencer Energy, focusing on acquiring and operating mature assets in the US Lower 48 region from its base in Houston.

New discoveries have also been coming at a regular speed. Despite divesting assets, Petrobras announced two new discoveries in the offshore Buzios and Albacora pre-salt fields, with reserves of ‘excellent quality’. Eni continues its winning run in Egypt with the new Bashrush natural gas discovery in the Mediterranean Sea, while MOL made its lucky 13th discovery in Pakistan with the Mamikhel South-1 well (the tenth in the TAL Block alone) that revealed ‘significant gas and condensate reserves’. ExxonMobil has restarted two of its four drillships in Guyana and Petronas has handed out contracts in Suriname, so more discoveries are due from that part of the Caribbean. Neptune Energy hit oil at the Dugong well in the Norwegian North Sea, and China’s CNOOC announced a ‘significant discovery’ at the Huizhou 26-6 well in the Pearl River Mouth Basin – the first mid-to-large sized oil and gas field in the area.

CNOOC will be hoping the Huizhou discovery will continue its streak of recent discoveries, boosting domestic Chinese upstream output. Its Luda 21-2/16-3 asset, in the Bohai Sea’s Liaodong Bay, has just started up production, reaching a peak of 25,600 b/d in 2022. Sinopec is also marshalling resources, announcing a US$770 million plan to develop the Dingbei gas prospect in Ningxia and its 230 bcm of natural gas.

Medco reported first gas from the Meliwis field off East Java in Indonesia from an unmanned platform, while the National Iranian Oil Co shrugged off a domestic economic crisis to partner with Persia Oil and Gas Industry Development Co for US$463 million to re-develop the Yaran field in the Khuzestan Province, raising output by 40 million barrels over 10 years. And then in frozen Siberia, where Novatek is speeding ahead with LNG, Gazprom Neft and Shell have agreed to collaborate on developing the Leskinsky and Pukhutsyayakhshy blocks in the Gydan Peninsula: an unusual display of cooperation between a Russian state firm and a Western supermajor.

This is not an exhaustive list of recent developments in the upstream oil and gas corner of the universe. They are the most notable, but there are other signs that the thaw is coming and the industry can recover and begin to grow again. Covid-19 may be something that we must all learn to live with going forward, but life will always go on, and this too shall pass.

Market Outlook:

  • Crude price trading range: Brent – US$42-44/b, WTI – US$40-42/b
  • Global crude oil price markers remain stuck in the lower US$40/b area, as concerns of demand linger given the accelerating rate of Covid-19 in the Americas
  • News that OPEC+ was looking for a gradual phasing into the new supply quota level provides some support on the supply side, while key developments in potential Covid-19 vaccines indicate that first availability could be as early as September
  • A massive stimulus package agreed by the EU and positive messaging of recovery in Asia after two quarters of bad economic data also offer hope that growth could resume soon, though global trends are likely to be uneven given the situation in the Americas

End of Article

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End of Article

In this time of COVID-19, we have had to relook at the way we approach workplace learning. We understand that businesses can’t afford to push the pause button on capability building, as employee safety comes in first and mistakes can be very costly. That’s why we have put together a series of Virtual Instructor Led Training or VILT to ensure that there is no disruption to your workplace learning and progression.

Find courses available for Virtual Instructor Led Training through latest video conferencing technology.


July, 26 2020