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Last Updated: May 31, 2019
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Market Watch

Headline crude prices for the week beginning 27 May 2019 – Brent: US$68/b; WTI: US$58/b

  • After tumbling down last week on the escalation of the US-China trade war, global crude oil prices have steadied up although the downside risk remains vast as the health of the global economy has become fragile
  • Beyond just China, US President Donald Trump launched a new front in his trade war, imposing tariffs on all Mexican imports over ‘facilitating illegal immigration’; in between the trade tiffs with allies, sanctions on rogue-ish states and possible military action towards Iran, the global geopolitical situation is dicey and crude prices have tumbled in response.
  • Ahead of its meeting in Vienna next month, OPEC and the wider OPEC+ group is adamant about controlling supply over the remainder of 2019; but while the Middle Eastern members are adhering, Russia is lagging and has seen sales of its crude to the USA increase dramatically
  • Also on the supply side, the chronic political turmoil has taken its toll on Venezuela, where production fell to 740,000 b/d in March, making the founding member of OPEC only the fourth current largest Latin American oil producer behind Brazil, Mexico and Colombia
  • But while the oil world frets about the health of global demand, American drillers reduced active rigs for the third consecutive week, cutting five oil rigs and starting up one gas rig for a net loss of 4 to a total of 983
  • With trouble brewing on the horizon on several macro-economic fronts – and seemingly happily fanned by US belligerence – the trend for crude oil price is downwards; we expect Brent to drop down to a trading range of US$63-65/b and WTI to US$55/57/b while the situations (attempts) to calm down


Headlines of the week

Upstream

  • Shell has started up its Appomattox floating production system in deepwater US Gulf of Mexico several months ahead of schedule, with expected production of 175,000 boe/d from the Norphlet formation
  • Ukraine will be launching a third licensing round for 2019 in June, covering nine blocks across three regions for a period of 20 years, as well as a public tender for nine onshore and one offshore block for 50 years
  • Canada’s controversial Trans Mountain pipeline expansion that will move oil sands from Alberta to British Columbia has been given a boost as a BC Appeals Court ruled that the province does not have the jurisdiction to restrict the project
  • Shell has announced a small upstream success in Albania, with the Shpirag 4 onshore well showing flow of ‘several thousand barrels per day’ of light oil
  • A consortium led by Italy’s Eni has won the offshore block MLO 124 in Argentina’s Malvinas Basin near Tierra del Fuego
  • Polish refiner Lotos is reportedly looking at purchasing upstream assets to reduce its dependence on Russian crude given the recent toxic crude situation
  • There might be turmoil in Guyana, as its anti-corruption agency is investigating how exploration rights were awarded to ExxonMobil and Tullow

Midstream & Downstream

  • China’s Jinling refinery exported its first cargo of gasoline from Nanjing, shipping it to Singapore as Chinese players expand their export operations on swollen domestic inventories and a new round of higher export quotas
  • A month after South Africa’s Strategic Fuel Fund acquired 90% of the B2 Block in South Sudan, the state-backed fund is looking to expand its scope to include midstream facilities and a possible 60 kb/d refinery in Pagak
  • The toxic crude situation across Russia’s Druzhba pipeline appears to have been mostly rectified, with refineries in Poland and Slovakia now receiving clean oil
  • Russia’s 180 kb/d Antipinsky refinery has officially filed for bankruptcy, with a London court ordering its assets to be frozen in favour of VTB Trading
  • Despite being a major crude producer, Angola has been facing severe fuel shortages domestically and has signed Trafigura and Total to supply gasoline, diesel and marine gas oil by tender through May 2019

Natural Gas/LNG

  • Gazprom has confirmed its recent giant gas discoveries in Russia’s Yamal peninsula, with the Dinkov and Nyarmeyskoye fields in the Kara Sea estimated to hold up to a collective 17.9 tcf of recoverable resources
  • Russia’s Novatek has unveiled plans to build the new Ob LNG plant near the port of Sabetta in the Yamal Peninsula, which is planned to have capacity for 4.8 million tons per year and come into operation in 2023 for US$5 billion
  • The US$20 billion Abadi LNG project in the Arafura Sea might actually be progressing as Japan’s Inpex has reportedly reached an agreement with the new Widodo government on the development plan for the giant gas field
  • Australia’s Woodside is on the hunt to expand its LNG portfolio with a particular focus on foreign opportunities along with domestic brownfield assets
  • The little known Cynergy Group from Cyprus has announced plans to spend up to US$10 billion to buy and unite under-utilised gas assets in the East Mediterranean with the intent of cutting through bureaucratic red tape

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September, 16 2021
The New Wave of Renewable Fuels

In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.

Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.

Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.

This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.

But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.

In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.

But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.

Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.

Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.

End of Article

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Market Outlook:

  • Crude price trading range: Brent – US$71-73/b, WTI – US$68-70/b
  • Global crude benchmarks have stayed steady, even as OPEC+ sticks to its plans to ease supply quotas against the uncertainty of rising Covid-19 cases worldwide
  • However, the success of vaccination drives has kindled hope that the effect of lockdowns – if any – will be mild, with pockets of demand resurgence in Europe; in China, where there has been a zero-tolerance drive to stamp out Covid outbreaks, fuel consumption is strengthening again, possibly tightening fuel balances in Q4
  • Meanwhile, much of the US Gulf of Mexico crude production remains hampered by the effects of Hurricane Ida, providing a counter-balance on the supply side

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