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Last Updated: April 23, 2019
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Market Watch

Headline crude prices for the week beginning 15 April 2019 – Brent: US$71/b; WTI: US$63/b

  • Crude oil futures could be on the verge of snapping its longest weekly rally since 2016, as the market continues to balance managed crude supply from the OPEC+ nations with accelerating American output
  • Analysts are predicting that things could be coming to a head, which might see OPEC+ abandon its plans to stabilise supply and prices for an intense battle for market share with American shale producers instead
  • This seems to be echoed by comments from Saudi Arabia, hinting at a U-turn in OPEC+’s dedication to extending the current supply quota agreement
  • Russian Premier Vladimir Putin also chimed in, saying that he was ‘keeping his options open’ on the cuts and that he does not support an ‘uncontrollable’ increase in oil prices
  • Ongoing concerns in Libya, Venezuela and Iran are giving other OPEC nations some room to breathe in their supply deal, with the organisation reporting that its output plunged in March to 758,000 b/d below the expected Q2 average
  • After Japan reported it would hold back on resuming Iranian crude imports, India is now doing the same until clarification of American waivers on the sanctions is received
  • The International Energy Agency reports that it sees global oil markets tightening, warning that this could lower actual demand and forecasts
  • After a large 19 rig gain last week, the US reversed gear to lose 3 rigs, adding two oil sites while dropping five gas rigs, bringing the total active count to 1022
  • Rumbles of a shale slowdown in the US could keep crude prices on a gentle upward curve, with Brent likely to trade at US$71-72/b and WTI and US$63-64/b


Headlines of the week

Upstream

  • Shell has sold its 22.45% non-operating interest in the US Gulf of Mexico Caeser-Tonga asset to the Delek Group for some US$965 million in cash
  • US President Donald Trump is aiming to limit state powers over cross-border pipeline to promote projects stalled by state regulators over permit and environmental concerns through the issuance of Executive Orders
  • CNOOC has signed a new PSC with Smart Oil Investment for the Bohai 09/17 block in the shallow-water Qikou area of the Bohai Bay Basin in China
  • Also in the Bohai Bay, CNOOC and ConocoPhillips are planning to double production from the Penglai 19-3 field over the next few years
  • Shell has partnered with Sinopec in a maiden exploration of China’s shale oil potential, targeting the Dongying trough in Shengli in eastern China
  • Shell has also announced an ambitious drilling programme in Brazil, targeting the Argonauta pre-salt areas in the Santos Basin
  • Petrobras and the Brazilian government have settled a deepwater contract dispute for US$9.06 billion, paving the way for Petrobras and its partners to begin development of the crude deposits under the 2010 Transfer of Rights

Midstream & Downstream

  • Continuing on its diversification strategy, Saudi Aramco is now looking to double its global refining network to some 10 mmb/d by 2030 as a means of locking in buyers for its crude amidst intense competition, which would see Aramco to continue investing in key global refining centres
  • Shell is aiming to complete the overhaul of its RCCU at the 218 kb/d Norco refinery in Louisiana by May, ahead the US summer driving gasoline demand
  • Sinopec reports that its Jinling refinery in Jiangsu has sold its first 4,200-ton cargo of low-sulfur marine fuel ahdad of the new IMO standards kicking in
  • Saudi Aramco has signed an agreement with Poland’s PKN Orlen to trade Arabian-grade crude to the refiner in exchanges for high-sulfur fuel oil

Natural Gas/LNG

  • Total has been awarded an exploration licence for Block 12 in Oman, with the onshore 10,000 sq.km asset near the gas-rich Greater Barik area that is expected to hold ‘significant prospective gas resources’
  • Saudi Aramco is planning to move into LNG for first time ever, offering to supply Pakistan with cargos on a spot or short-term basis, even though it does not produce LNG and has only just begun developing an LNG trading desk
  • First feed gas has begun to flow at Sempra Energy’s Cameron LNG Train 1 in Louisiana, the final commissioning phase for the project
  • Keppel Gas in Singapore has imported its first 160,000 cbm cargo of US LNG under the country’s Spot Import Policy, its first from outside Southeast Asia and the first trickle in an exported flood of American LNG into the region

Corporate

  • Saudi Aramco has issued its first global bond, raising US$100 billion from the sale, above and beyond the initial expectations of US$10-15 billion
  • Abu Dhabi’s Mubadala Investment Company has sold a ‘significant minority interest’ of 30-40% in Spanish energy firm Cepsa to investment group The Carlyle Group, but will retain majority shareholder
  • Canadian player Africa Oil has acquired 18.8% of fellow Canadian upstream firm Eco (Atlantic) Oil and Gas, but stressed that the acquisition was for investment purposes with no intention of exercising control

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Compliance Is Critical

The signs going into OPEC’s bi-annual meeting in Vienna were broadly positive. On one hand, you had some key members – including Iraq, surprisingly – stating the need for the broader OPEC+ club to make further cuts to its supply deal. On the other hand, there was Saudi Arabia, which needed a win to support Saudi Aramco’s upcoming IPO. What emerged was a little something for everyone, that was still broadly positive but scant on the details.

The headlines spinning out of the December 5 meeting was that the OPEC+ alliance agreed to slash a further 500,000 b/d, with Saudi Arabia pledging an additional voluntary cut of 400,000 b/d. Collectively, this would raise the club’s total supply reduction to 2.1 mmb/d – or over 2% of global oil demand – up from the previous 1.2 mmb/d target. Beneath those headlines, however, the details of the new adjustment to the deal were murkier.  The 500,000 b/d cut is, in fact, more of a formalisation of the current production levels within OPEC. It won’t remove additional barrels from the market, but it won’t add them back into global supply either.

Saudi Arabia is, once again, key to this equation. Even with the attacks on the heart of its crude processing facilities in September, Saudi Arabia has been shouldering the extra burden within the deal, making up for errant members that have consistently overshot their quotas. These include Nigeria and Iraq, and crucially Russia. The caveat that the new targets – especially Saudi Arabia’s voluntary portion – will only come into force if all members of the OPEC+ club implement 100% of their pledged cuts underscores the Kingdom’s new, more hardline stance that full compliance is required before it makes additional concessions. Because even with the declines in Venezuela and Iran, Saudi Arabia has trimmed its output to below 10 mmb/d in an attempt to show leadership through example. But its patience is now wearing thin.

But it is those details that are sketchy right now. OPEC states that the new deal formalises current production levels and will make up for Saudi overcompliance by ‘redistributing’ those volumes across other OPEC+ members. But no specifics on that split were given – a worrying sign that more arguments were coming – with the group preferring to meet compliance first before moving on to the fresh cuts.

Full adherence to the targets is tough. But it might get easier. Russia – which has only met its quota 3 months this year, when the Druzhba oil pipeline crisis hit – won a significant concession. Its argument that the only reason it was not hitting its target was due to condensate production, a by-product of its increasing natural gas output, was accepted; the quotas will exclude condensate, and Russian Energy Minister Alexander Novak was optimistic that it could meet its quota of a 300,000 b/d reduction for the first quarter of 2020. And the first quarter of 2020 is crucial, as that is the remaining length of the supply deal. Ahead of the March 31 expiry in 2020, OPEC has agreed to hold an extraordinary general meeting to assess the situation – the point which the deal either ends or is extended.

Underpinning this bet is some sentiment-based optimism from OPEC. The rise and rise of US shale has diluted OPEC’s impact over the past five years, requiring it to make deeper and deeper cuts that were muted by increasing amounts of American crude. But OPEC is betting that the wind will go out of US shale sails next year, hoping that it will allow output within OPEC+ to rise again. But low growth in US shale does not mean no growth. And perhaps for this reason, the price impact on the new OPEC decision has been muted. Despite the club’s attempt to prove that it is still effective, the market simply doesn’t believe the new cut will do much. Crude prices reflect that. Call it cynicism, but the market might have more faith if full compliance was reached and that is exactly what OPEC is striving towards. 

The OPEC+ supply deal: 

  • Reductions of 1.2 mmb/d, as of March 2019
  • A further reduction of 500,000 b/d, formalising October 2019 levels
  • A voluntary cut of 400,000 b/d from Saudi Arabia
  • New cuts will only be formalised once all members comply with their quotas, with full details unavailable
  • Errant members exceeding quotas: Russia, Kazakhstan, Iraq, Nigeria
December, 10 2019
INDONESIA’S DECOMMISSIONING CHALLENGE REPORT

A report by Nicholas Newman

Many of Indonesia’s oil and gas fields, both on and offshore, are coming to the end of their commercially viable operational lifespan. More than 60% of Indonesia’s oil and more than 30% of gas production comes from late-life-cycle resources spread across the world's largest island country. Despite investment and use of enhanced oil field recovery measures, as well as increasing automation to extend the economic lifespan of these assets, decommissioning will soon become necessary.

However Indonesia, like many countries new to the prospect of decommissioning energy infrastructure, face many key technological, fiscal, environmental, regulatory and industrial capacity issues, which need to be addressed by both government and industry decision makers.

This report, commissioned by the consulting and advisory arm of London and Aberdeen based Precision Media & Communications aims to takes a look at many of the issues Indonesia and other South East Asian oil producing nations are likely to face with the prospect of decommissioning the region's oil and gas aging energy infrastructure both onshore and offshore... To find out more Click here

December, 09 2019
Your Weekly Update: 2 - 6 December 2019

Market Watch  

Headline crude prices for the week beginning 2 December 2019 – Brent: US$61/b; WTI: US$55/b

  • As the posturing begins ahead of the OPEC meeting in Vienna, crude oil prices mounted gains as several OPEC members signalled that the club was prepared to deepen cuts to the existing supply deal
  • Data showing that the Chinese manufacturing sector growth jumped unexpectedly in November, although the see-saw messages regarding a potential US-China trade deal continue to cloud the market… especially given recent US legislation to sanction China for its policies in Hong Kong and against its own Uighur community
  • The discussion in Vienna by the OPEC nations and the wider OPEC+ club revolved around adherence and implementation of the current supply deal, focusing on cajoling errant members – ie. Russia – into meeting their quotas, in exchange for a deeper cut to prop up prices
  • This resulted in a decision to cut output by a further 500,000 b/d in Q1 2020 – formalising the supply reductions already in place and subject to all members of OPEC+ implementing all of their pledged curbs; further details on the new plan are expected to be released
  • OPEC’s outlook on the crude market in 2020 has changed slightly, as it expects that the US shale revolution will slow down considerably in the next two years; however, it also warns of additional output coming from non-OPEC members, including Norway and Brazil, the latter being a possible new OPEC member
  • Meanwhile, in the US, the chronic decline in the active rig count continues, with the Baker Hughes index falling by a net 1 last week – the loss of 3 gas rigs offset by the gain of two gas rigs – the 13th decrease in the past 15 weeks, with the active count down 274 y-o-y
  • The decision spinning out of OPEC’s Vienna meeting is broadly positive – not a great shot in the arm, but not detrimental to the current market; as such we see crude prices trading in their current range of US$62-64/b for Brent and US$57-60/b for WTI


Headlines of the week

Upstream

  • Norway’s Equinor has announced that it will scale back exploration activities in frontier areas in the Barents Sea, shedding risk to focus on drilling near existing discoveries such as Johan Castberg and Wisting, and therefore decreasing the chance of discovering a new Arctic oil region
  • Cairn Energy will be exiting Norway as it sells its entire stake in Capricorn Norge AS to Solveig Gas Norway AS for US$100 million
  • Libya’s El Feel – a key field operated by Eni and Libya’s National Oil Corp near the giant Sharara field – has restarted production at 74,000 b/d after clashing between rival fighting factions forced it to shut down
  • Woodside’s development plan for Phase 1 of the offshore Sangomar field in Senegal – targeting production of 100,000 b/d via FPSO – has been submitted to the Senegalese government, paving the way for FID
  • Spurred on by success, ExxonMobil is adding a fifth drillship in Guyana as it probes a new ultra-deepwater prospect just north of the Stabroek block
  • Equatorial Guinea’s latest licensing round was a boon to Lukoil, which walked away with the prime EG-27 block containing the Fortuna gas discovery, while US player Vaalco Energy won 4 blocks in the onshore Rio Muni basin

Midstream/Downstream

  • Pertamina has purchased US crude for the first time in a long while, inking a shipment for 950,000 barrels of US WTI crude with Total to be delivered over 1H 2020 to the Cilacap refinery, pivoting away from Middle East grades
  • Trafigura is looking to sell off its fuel station network in Australia – operated through its retail arm Puma Energy – as continued losses in the space since it entered the market in 2013 for US$850 million pile up
  • Construction on BASF’s giant US$10 billion integrated petrochemicals project in Zhanjiang, Guangdong has begun, with the first phase to be launched in 2022 as the first wholly foreign-owned chemicals complex in China
  • Equatorial Guinea has announced plans to build two new oil refineries – each with a processing capacity of 30-40,000 b/d using local Zafiro crude – along with other projects including a methanol-to-gasoline plant and LNG expansion
  • Bosnia’s sole refinery – the 25,000 b/d Brod site – should be operational by mid-2020, following a major overhaul that began in January 2019

Natural Gas/LNG

  • Algerian piped natural gas exports to Europe have been squeezed out by boosted supply of LNG from Australia and the US, as well as piped gas from Russia, which has forced Sonatrach to turn more of its gas into LNG sold by spot
  • Gunvor has agreed to market LNG from the Commonwealth LNG project in Louisiana internationally, as well as double its own purchases from the project to as much as 3 million tpa once the project begins operations in 2024
  • Norway’s BW Offshore insist that its Kudu natural gas project in Namibia is ‘alive and well’, with talks ongoing with the government two years after the FPSO specialist acquired a 56% stake in the license from NAMCOR
  • ExxonMobil is reportedly looking to sell its 50% stake in the Neptun Deep gas project in the Black Sea offshore Romania – the location of its major Domino discovery – for some US$250 million as it continues on a major asset sale
  • Petronas is sending its second FLNG unit – the PFLNG Dua – to the Rotan gas field in Sabah, beginning liquefaction operations there by February
December, 06 2019