NrgEdge Editor

Sharing content and articles for users
Last Updated: November 15, 2018
13 views
Business Trends
image

Market Watch

Headline crude prices for the week beginning 12 November 2018 – Brent: US$71/b; WTI: US$60/b

  • Crude prices continue their retreat from recent highs, as a bear market engulfed sentiment last week over fears of oversupply from frantic OPEC+ pumping offsetting the loss of Iranian crude volumes, which itself was mitigated by the US handing out waivers to eight key crude importers
  • After stating that OPEC was in a ‘pump as much as you can’ mode, the quick fall in prices has caused alarm across the cartel, with Saudi Arabia reversing gear to curb its exports by 500,000 b/d in December to shore up prices
  • With the OPEC meeting in Vienna imminent, it is possible that a new output cut agreement could be reached within OPEC+, to counter an oversupply situation stemming from declining demand, as well as surging US shale production – which will rise to a record 7.94 mmb/d across seven major shale basins in December, according to the EIA
  • However, beyond Saudi Arabia, there is not much appetite within the OPEC+ alliance to reduce output, with Iraq happy with its record production and Russia dismissing the oversupply situation as a ‘seasonal glitch’
  • Saudi Arabia’s plan to cut its oil production was criticised by US President Donald Trump, stung by losses in midterm elections that Trump chalks up to, in part, high fuel prices
  • News that Saudi Arabia was researching the topic of breaking up OPEC rattled the markets, but the Kingdom moved to quash rumours as Aramco raised the pricing for its medium and heavy crudes sold to Asia
  • Despite this, trends have turned bearish for crude prices over this week, propelled by large jumps in US crude output and worries over a global economic slowdown, particularly in China; Brent and WTI fell by over US$4/b on Tuesday alone, falling below the US$70/b and US$60/b levels again
  • After several weeks of caution, US drillers added 14 new rigs this week – up by 12 oil rigs and 2 gas rigs to 1,081 in total – with the most gains once again coming from the prolific Permian Basin
  • Crude price outlook: After the large drop on Tuesday, crude prices appear to have stabilised somewhat around the US$65-66/b level for Brent and the US$55-56/b level for WTI


Headlines of the week

Upstream

  • Another setback for TransCanada’s beleaguered Keystone XL pipeline, as a judge in Montana halted the project over two lawsuits filed asserting that its environmental impact assessment required further review
  • Phillips 66 and Bridger Pipeline are launching two new crude pipelines connecting Rockies and Bakken oil to the Texas Gulf Coast; the Liberty Pipeline will carry 350 kb/d from Bakken/Rockies to Corpus Christi, while the 400 kb/d Red Oak Pipeline connects Corpus Christi to Houston
  • Magellan Midstream Partners is looking to build a new pipeline connecting Cushing to Houston, with the 250 kb/d Voyager pipeline targeted at end-2020
  • The Kurdistan Regional Government in Iraq has increased capacity of its oil pipeline from Kirkuk to Ceyhan, Turkey, from 700,000 b/d to 1 mmb/d
  • After previously fleeing from Canadian oil sands, ExxonMobil is investing again, with its Imperial Oil unit earmarking some US$2 billion for the new Aspen project in northern Alberta
  • Senrica Energy continues its buying spree in the North Sea, acquiring Marubeni Oil & Gas’ 3.75% and 8.33% interest in the Bruce and Keith fields
  • ADNOC is implementing a comprehensive hydrocarbons strategy that will increase its crude output capacity to 4 mmb/d by 2020 and 5 mmb/d by 2030
  • Croatia has launched the country’s second onshore licensing round, offering seven blocks in the prolific Pannonian basin
  • Eni and Lukoil have signed a farm-out deal, transferring participating interests in three shallow-water offshore Mexican licenses, including Area 10, 12 and 14
  • Buoyed by recent gas successes, Israel has announced its second offshore licensing round, offering up 19 blocks in its southern waters
  • Senegal is overhauling its own code, with plans to raise royalties and have the state take a bigger stake in projects after a string of major discoveries
  • CNOOC is kickstarting a development drive aimed at eking out additional volumes from several marginal fields in Bohai Bay and the South China Sea

Downstream

  • Nigeria’s ambitious overhaul of its state-owned refineries has been pushed back to end-2019 over slow progress in NNPC’s attempt to seek joint financing
  • NNPC is looking to sign crude-for-product swap deals with Shell and ExxonMobil, after signing one with BP, to acquire crude for its refineries
  • France is pushing ahead with its attempt to introduce a new fuel tax, despite a series of major blockades and protests planned to oppose the measure

Natural Gas/LNG

  • Total and Sempra Energy have signed a new MoU on LNG cooperation, covering the Cameron LNG in Louisiana, USA and Energía Costa Azul in Baja California, Mexico, with Total potentially taking up to 9 mtpa of LNG for its global portfolio from both projects
  • Cuadrilla has had first shale gas flow at its exploration well in the UK’s Preston New Road site, sparking optimism for the commercialisation of Bowland Shale
  • Croatia has picked Golar Power to deliver an FSRU for a planned floating LNG terminal in the northern Adriatic Sea
  • Tellurian confirms that construction on its Driftwood LNG terminal Louisiana will begin in 2H2019, which operations planned to begin in 2023
  • Japan’s Toshiba Corp is exiting the US LNG business, selling off its assets to China’s ENN Ecological Holdings for over US$800 million

Oil Oil and Gas News Oil and Gas Industry LNG Oil and Gas Companies News Weekly Update Market Watch Market Trends Latest Oil and Gas Trends
3
2 3

Something interesting to share?
Join NrgEdge and create your own NrgBuzz today

Latest NrgBuzz

Your Weekly Update: 13 - 17 May 2019

Market Watch

Headline crude prices for the week beginning 13 May 2019 – Brent: US$70/b; WTI: US$61/b

  • Crude oil prices are holding their ground, despite the markets showing nervousness over the escalating trade dispute between the USA and China, as well as brewing tensions in the Middle East over the Iranian situation
  • China retaliated against President Trump’s decision to raise tariffs from 10% to 25% on US$200 billion worth of Chinese imports by raising its own tariffs; crucially, China has also slapped taxes on US LNG imports at a time when American export LNG projects banking on Chinese demand are coming online
  • In the Middle East, Saudi Arabia reported that two of its oil tankers were attacked in the Persian Gulf, with the ‘sabotage attack’ near the UAE speculated to be related to Iran; with the US increasing its military presence in the area, the risk of military action has escalated
  • The non-extension of US waiver on Iranian crude is biting hard on Iran, with its leaders calling it ‘unprecedented pressure’, setting the stage for a contentious OPEC meeting in Vienna
  • In a move that is sure to be opposed by Iran, Saudi Arabia has said it is willing to meet ‘all orders’ from former Iranian buyers through June at least; Saudi Aramco is also responding to requests by Asian buyers to provide extra oil
  • The see-saw trend in US drilling activity continues; after a huge gain two weeks ago, the active US rig count declined for a second consecutive rig, with the loss of two oil rigs bringing the total site count to 988, below the equivalent number of 1,045 last year
  • There is considerably more upside to crude prices at the moment, with jitters over the health of the global economy and a delicate situation in the Middle East likely to keep Brent higher at US$71-73/b and WTI at US$62-64/b


Headlines of the week

Upstream

  • Occidental Petroleum and Warren Buffet have triumphed, as Chevron bowed out of a bidding war for Anadarko Petroleum; Occidental will now acquire Anadarko for US$57 billion, up significantly from Chevron’s US$33 billion bid
  • The deal means that Occidental’s agreement to sell Anadarko’s African assets to Total for US$8.8 billion will also go through, covering the Hassi Berkine, Ourhoud and El Merk fields in Algeria, the Jubilee and TEN fields in Ghana, the Area 1 LNG project in Mozambiuqe and E&P licences in South Africa
  • BP has sanctioned the Thunder Horse South Expansion Phase 2 deepwater project in the US Gulf of Mexico, which is expected to add 50,000 boe/d of production at the Thunder Horse platform beginning 2021
  • Africa is proving to be very fruitful for Eni, as it announced a new gas and condensate discovery offshore Ghana; the CTP-Block 4 in the Akoma prospect is estimated to hold some 550-650 bcf of gas and 18-20 mmbl of condensate
  • In an atypical development, South Africa has signed a deal for the B2 oil block in South Sudan, as part of efforts to boost output there to 350,000 b/d
  • Shell expects to drill its first deepwater well in Mexico by December 2019 after walking away with nine Mexican deepwater blocks last year

Midstream & Downstream

  • China’s domestic crude imports surged to a record 10.64 mmb/d in April, as refiners stocked up on an Iranian crude bonanza due to uncertainty over US policy, which has been confirmed as crude waivers were not renewed
  • Having had to close the Druzhba pipeline and Ust-Luga port for contaminated crude, Russia says it will fully restore compliant crude by end May shipments, including cargoes to Poland and the Czech Republic
  • Mexico’s attempt to open up its refining sector has seemingly failed, with Pemex taking over the new 340 kb/d refinery as private players balked at the US$8 billion price tag and 3-year construction deadline
  • Ahead of India’s move to Euro VI fuels in April 2020, CPCL is partially shutting down its 210 kb/d Manali refinery for a desulfurisation revamp
  • China’s Hengli Petrochemical is reportedly now stocking up on Saudi Arabian crude imports as it prepares to ramp up production at its new 400 kb/d Dalian refinery alongside its 175 kb/d site in Brunei
  • South Korea’s Lotte Chemical Corp expects its ethane cracker in Louisiana to start up by end May, adding 1 mtpa of ethylene capacity to its portfolio
  • Due to water shortage, India’s MRPL will be operating its 300 kb/d refinery in Katipalla at 50% as drought causes a severe water shortage in the area

Natural Gas/LNG

  • Partners in the US$30 billion Rovuma LNG project in Mozambique now expect to sanction FID by July, even after a recent devastating cyclone
  • Also in Mozambioque, Anadarko is set to announce FID on its Mozambique LNG project on June 18, calling it a ‘historic day’
  • After talks of a joint LNG export complex to develop gas resources in Tanzania, Shell and Equinor now appear to be planning separate projects
  • Gazprom has abandoned plans to build an LNG plant in West Siberia to compete with Novatek, focusing instead on an LNG complex is Ust-Luga
  • First LNG has begun to flow at Sempra Energy’s 13.5 mtpa Cameron LNG project in Louisiana, with exports expected to begin by Q319
May, 17 2019
Shell Eclipses ExxonMobil Once Again

The world’s largest oil & gas companies have generally reported a mixed set of results in Q1 2019. Industry turmoil over new US sanctions on Venezuela, production woes in Canada and the ebb-and-flow between OPEC+’s supply deal and rising American production have created a shaky environment at the start of the year, with more ongoing as the oil world grapples with the removal of waivers on Iranian crude and Iran’s retaliation.

The results were particularly disappointing for ExxonMobil and Chevron, the two US supermajors. Both firms cited weak downstream performance as a drag on their financial performance, with ExxonMobil posting its first loss in its refining business since 2009. Chevron, too, reported a 65% drop in the refining and chemicals profit. Weak refining margins, particularly on gasoline, were blamed for the underperformance, exacerbating a set of weaker upstream numbers impaired by lower crude pricing even though production climbed. ExxonMobil was hit particularly hard, as its net profit fell below Chevron’s for the first time in nine years. Both supermajors did highlight growing output in the American Permian Basin as a future highlight, with ExxonMobil saying it was on track to produce 1 million barrels per day in the Permian by 2024. The Permian is also the focus of Chevron, which agreed to a US$33 billion takeover of Anadarko Petroleum (and its Permian Basin assets), only for the deal to be derailed by a rival bid from Occidental Petroleum with the backing of billionaire investor guru Warren Buffet. Chevron has now decided to opt out of the deal – a development that would put paid to Chevron’s ambitions to match or exceed ExxonMobil in shale.

Performance was better across the pond. Much better, in fact, for Royal Dutch Shell, which provided a positive end to a variable earnings season. Net profit for the Anglo-Dutch firm may have been down 2% y-o-y to US$5.3 billion, but that was still well ahead of even the highest analyst estimates of US$4.52 billion. Weaker refining margins and lower crude prices were cited as a slight drag on performance, but Shell’s acquisition of BG Group is paying dividends as strong natural gas performance contributed to the strong profits. Unlike ExxonMobil and Chevron, Shell has only dipped its toes in the Permian, preferring to maintain a strong global portfolio mixed between oil, gas and shale assets.

For the other European supermajors, BP and Total largely matched earning estimates. BP’s net profits of US$2.36 billion hit the target of analyst estimates. The addition of BHP Group’s US shale oil assets contributed to increased performance, while BP’s downstream performance was surprisingly resilient as its in-house supply and trading arm showed a strong performance – a business division that ExxonMobil lacks. France’s Total also hit the mark of expectations, with US$2.8 billion in net profit as lower crude prices offset the group’s record oil and gas output. Total’s upstream performance has been particularly notable – with start-ups in Angola, Brazil, the UK and Norway – with growth expected at 9% for the year.

All in all, the volatile environment over the first quarter of 2019 has seen some shift among the supermajors. Shell has eclipsed ExxonMobil once again – in both revenue and earnings – while Chevron’s failed bid for Anadarko won’t vault it up the rankings. Almost ten years after the Deepwater Horizon oil spill, BP is now reclaiming its place after being overtaken by Total over the past few years. With Q219 looking to be quite volatile as well, brace yourselves for an interesting earnings season.

Supermajor Financials: Q1 2019

  • ExxonMobil – Revenue (US$63.6 million, down 6.7% y-o-y), Net profit (US$2.35 billion, down 49.5% y-o-y)
  • Shell - Revenue (US$85.66 billion, down 5.9% y-o-y), Net profit (US$5.3 billion, down 2% y-o-y)
  • Chevron – Revenue (US$35.19 billion, down 5% y-o-y), Net profit (US$2.65 billion, down 27.2% y-o-y)
  • BP - Revenue (US$67.4 billion, down 2.51% y-o-y), Net profit (US$2.36 billion, down 9.2% y-o-y)
  • Total - Revenue (US$51.2billion, up 3.2% y-o-y), Net profit (US$2.8 billion, down 4.0% y-o-y)
May, 15 2019
EIA revises its crude oil price forecast upward as supply expectations change

monthly average Brent crude spot price

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January, April, and May 2019 editions

In its May 2019 edition of the Short-Term Energy Outlook (STEO), EIA revised its price forecast for Brent crude oil upward, reflecting price increases in recent months, more recent data, and changing expectations of global oil markets. Several supply constraints have caused oil markets to be generally tighter and oil prices to be higher so far in 2019 than previous STEOs expected.

Members of the Organization of the Petroleum Exporting Countries (OPEC) had agreed at a December 2018 meeting to cut crude oil production in the first six months of 2019; compliance with these cuts has been more effective than EIA initially expected. In the January STEO, OPEC’s crude oil and petroleum liquids production was expected to decline by 1.0 million b/d in 2019 compared with the 2018 level, but EIA now forecasts OPEC production to decline by 1.9 million b/d in the May STEO.

Within OPEC, EIA expects Iran’s liquid fuels production and exports to also decline. On April 22, 2019, the United States issued a statement indicating that it would not reissue waivers, which previously allowed eight countries to continue importing crude oil and condensate from Iran after their waivers expired on May 2. Although EIA’s previous forecasts had assumed that the United States would not reissue waivers, the increased certainty regarding waiver policy and enforcement led to lower forecasts of Iran’s crude oil production.

Venezuela—another OPEC member—has experienced declines in production and exports as a result of recurring power outages, political instability, and U.S. sanctions. In addition to supply constraints that have already materialized in 2019, political instability in Libya may further affect global supply. Any further escalation in conflict may damage crude oil infrastructure or result in a security environment where oil fields are shut in. Either situation could reduce global supply by more than EIA currently forecasts.

In the May STEO, total OPEC crude oil and other liquids supply was estimated at 37.3 million b/d in 2018, and EIA forecasts that it will average 35.4 million b/d in 2019. EIA assumes that the December 2018 agreement among OPEC members to limit production will expire following the June 2019 OPEC meeting.

annual changes in global liquids production

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January, April, and May 2019 editions

U.S. crude oil and other liquids production is sensitive to changes in crude oil prices, taking into account a lag of several months for drilling operations to adjust. As crude oil prices have increased in recent months, so too have EIA’s domestic liquid fuels production forecasts for the remaining months of 2019.

U.S. crude oil and other liquids production, which grew by 2.2 million b/d in 2018, is forecast in EIA’s May STEO to grow by 2.0 million b/d in 2019, an increase of 310,000 b/d more than anticipated in the January STEO. In 2019, EIA expects overall U.S. crude oil and liquids production to average 19.9 million b/d, with crude oil production alone forecast to average 12.4 million b/d.

Relative to these changes in forecasted supply, EIA’s changes in forecasted demand were relatively minor. EIA expects that global oil markets will be tightest in the second and third quarters of 2019, resulting in draws in global inventories. By the fourth quarter of 2019, EIA expects that inventories will build again, and Brent crude oil prices will fall slightly.

More information about changes in STEO expectations for crude oil prices, supply, demand, and inventories is available in This Week in Petroleum.

May, 15 2019