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Last Updated: June 21, 2019
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Market Watch 

Headline crude prices for the week beginning 17 June 2019 – Brent: US$61/b; WTI: US$52/b

  • Bear-ish trends continue for global oil prices, as more signs of a global economic and manufacturing slowdown emerge, sending crude benchmarks to their lowest levels in almost five months
  • With OPEC and its OPEC+ allies meeting in Vienna soon, it seems like a foregone conclusion that the global supply deal will be extended to December; in the absence of any surprises, the meeting is unlikely to move the needle on crude prices much
  • However, the market has been rattled by a long impasse between Iran, Saudi Arabia and Russia over the date of the upcoming meeting; originally scheduled for June 25-26, the meeting has now been postponed to July 1-2, but not after reports of internal squabbles that exposed the fragile balance in the group
  • While OPEC+ is putting up a united front beyond its internal tensions, it has named international trade tensions as a catalyst for hurting current demand for oil, causing it to slash its consumption forecast for the year by 20%
  • US manufacturing production and housing sentiment are the latest indicators to show unexpected slowdowns, joining warning signs from China and Germany that the global economy was under pressure, as US crude stockpiles swell
  • With China now slapping a 25% tariff on US LNG imports and President Donald Trump considering additional sanctions, the American Petroleum Institute has urged Trump to return to the negotiating table to avoid a ‘negative and long-term impact on American businesses’
  • Geopolitical tensions are also high, as the recent attack on a Norwegian and a Japanese oil tanker in the Persian Gulf keeps the threat of conflict very real
  • With all these factors in play, the US EIA has lowered its Brent price forecast for 2019 to US$67/b, down from its previous expectations of US$70/b, citing ‘rising uncertainty about global oil demand growth’; last month, the IEA slashed its growth forecast for oil demand slightly to 1.3 mmb/d
  • With prices under pressure, the active US rig count dropped by a net six last week, losing one oil and five gas sites, bringing the total count to 969 sites
  • Prevailing concerns over the health of oil demand and the global economy will keep crude prices on a lowered trajectory, although we do expect some improvement in global benchmarks to US$62-64/b for Brent and US$53-55/b for WTI

Headlines of the week

Upstream

  • Cuba is the latest Caribbean country aiming for upstream riches, launching its first offshore licensing round in London offering 24 blocks in northwest areas in the Gulf of Mexico, with Eni, Premier Oil and CNPC expressing interest
  • ExxonMobil is moving ahead with the Bajo del Choique-La Invernada block development in Argentina’s Vaca Muerta basin, which should produce output of 55,000 boe/d within five years with plans for a 75,000 b/d second phase
  • China’s CNOOC will be offering five offshore blocks in the Pearl River Mouth basin in the South China Sea to international investors as part of a seven-year plan to expand offshore exploration in China

Midstream & Downstream

  • Shell is selling off its Martinez refinery in California to American refining specialist PBF Energy for some US$1 billion, expanding the latter’s presence on the US West Coast after Shell’s repeated attempts to sell Martinez since 2015
  • PetroChina’s expansion of its Huabei refinery has been completed, doubling crude capacity to 200 kb/d along with a new hydrocracker and hydrotreater
  • Cameroon’s sole 42 kb/d Sonara refinery will be shut down for a year following a major fire, forcing the country to cover fuel demand through increased imports
  • ExxonMobil and Saudi Arabia’s SABIC will be proceeding with a 1.8 mtpa ethane steam cracker in San Patricio, Texas – the world’s largest steam cracker that will power a major petrochemicals complex using Permian output
  • Indonesia has begun testing of B30 biodiesel blends in a bid to introduce a new national mandate in 2020, reduce oil imports and boost palm oil consumption
  • Phillips 66 has formed two new joint ventures totalling US$4 billion to construct pipelines delivering crude from shale basins to market, teaming up with Plains All American Pipeline for the Red Oak system connecting the Permian/Cushing to coastal Texas facilities and Bridger Pipeline for the Liberty pipeline connecting the Rockies/Bakken to Cushing, Oklahoma

Natural Gas/LNG

  • Total has begun production at its Culzean gas condensate field in the UK North Sea’s Block 22/25a near Aberdeen, which should deliver some 100,000 boe/d of natural gas or some 5% of the UK’s gas consumption
  • Poland’s PGNiG has signed a new agreement with Venture Global LNG to purchase an additional 1.5 mtpa of LNG from the Plaquemines and Calcasieu Pass LNG export projects, bringing PGNiG’s total purchase commitments with Venture Global LNG to 3.5 mtpa over a period of 20 years
  • Swiss trader Gunvor has inked a deal with Commonwealth LNG in Louisiana to purchase 1.5 mtpa of LNG for 15 years when it starts up in 2024
  • The first shipment of LNG from Shell’s Prelude FLNG facility in Western Australia has sailed, completing the last of Australia’s mega-LNG projects
  • US President Donald Trump is looking to implement US sanctions to halt the construction of the Nord Stream 2 pipeline between Germany and Russia, potentially derailing the controversial project and boost US LNG sales
  • The Tango FLNG vessel in Argentina has completed commissioning and handed over to state firm YPF, delivering its first cargo in early June
  • Kinder Morgan has delayed the start-up of its Elba LNG terminal Georgia, USA again, with no new timeline set for the 2.5 mtpa liquefaction terminal
  • Austria’s OMV will acquire stakes in the Achimov IV and V developments in the West Siberia Urengoy gas field from Gazprom for some US$1 billion

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December, 01 2021
Royal Dutch Shell Poised To Become Just Shell

On 10 December 2021, if all goes to plan Royal Dutch Shell will become just Shell. The energy supermajor will move its headquarters from The Hague in The Netherlands to London, UK. At least three-quarters of the company’s shareholders must vote in favour of the change at the upcoming general meeting, which has been sold by Shell as a means of simplifying its corporate structure and better return value to shareholders, as well as be ‘better positioned to seize opportunities and play a leading role in the energy transition’. In doing so, it will no longer meet Dutch conditions for ‘royal’ designation, dropping a moniker that has defined the company through decades of evolution since 1907.

But why this and why now?

There is a complex web of reasons why, some internal and some external but the ultimate reason boils down to improving growth sustainability. Royal Dutch Shell was born through the merger of Shell Transport and Trading Company (based in the UK) and Royal Dutch (based in The Netherlands) in 1907, with both companies engaging in exploration activities ranging from seashells to crude oil. Unified across international borders, Royal Dutch Shell emerged as Europe’s answer to John D Rockefeller’s Standard Oil empire, as the race to exploit oil (and later natural gas) reserves spilled out over the world. Along the way, Royal Dutch Shell chalked up a number of achievements including establishing the iconic Brent field in the North Sea to striking the first commercial oil in Nigeria. Unlike Standard Oil which was dissolved into 34 smaller companies in 1911, Royal Dutch Shell remained intact, operating as two entities until 2005, when they were finally combined in a dual-nationality structure: incorporated in the UK, but residing in the Netherlands. This managed to satisfy the national claims both countries make on the supermajor, second only to ExxonMobil in revenue and profits but proved to be costly to maintain. In 2020, fellow Anglo-Dutch conglomerate Unilever also ditched its dual structure, opting to be based fully out of the City of London. In that sense, Shell is following the direction of the wind, as forces in its (soon to be former) home country turn sour.

There is a specific grievance that Royal Dutch Shell has with the Dutch government, the 15% dividend tax collected for Dutch-domiciled companies. It is the reason why Unilever abandoned Rotterdam and is now the reason why Shell is abandoning The Hague. And this point is particularly existentialist for Shell, since its share prices has been battered in recent years following the industry downturn since 2015, the global pandemic and being in the crosshairs of climate change activists as an emblem of why the world’s average temperatures are going haywire. The latter has already caused the largest Dutch state pension fund ABP to stop investing in fossil fuels, thereby divesting itself of Royal Dutch Shell. This was largely a symbolic move, but as religious figures will know, symbols themselves carry much power. To combat this, Shell has done two things. First, it has positioned itself to be at the forefront of energy transition, announcing ambitious emissions reductions plans in line with its European counterparts to become carbon neutral by 2050. Second, it is looking to bump up its dividend payouts after slashing them through the depths of the Covid-19 pandemic and accelerating share buybacks to remain the bluest of blue-chip stocks. But then, earlier this year, a Dutch court ruled that Shell’s emissions targets were ‘not ambitious enough’, ordering a stricter aim within a tighter timeframe. And the 15% dividend tax remains – even though Prime Minister Mark Rutte’s coalition government has been attempting to scrap it, with (it is presumed) some lobbying from Royal Dutch Shell and Unilever.

As simplistic it is to think that Shell is leaving for London believes the citizens of the Netherlands has turned its back on the company, the ultimate reason was the dividend tax. Reportedly, CEO Ben van Buerden called up Mark Rutte on Sunday informing him of the planned move. Rutte’s reaction, it is said was of dismay. And he embarked on a last-ditch effort to persuade Royal Dutch Shell to change its mind, by immediately lobbying his government’s coalition partners to back an abolition of the dividend tax. The reaction was perhaps not what he expected, with left-wing and green parties calling Shell’s threat ‘blackmail’. With democracy drawing a line, Shell decided to walk; or at least present an exit plan endorsed by its Board to be voted by shareholders. Many in the Netherlands see Shell’s exit and the loss of the moniker Royal Dutch – as a blow to national pride, especially since the country has been basking in the glow of expanded reputation as a result of post-Brexit migration of financial activities to Amsterdam from London. The UK, on the other hand, sees Shell’s decision and Unilever’s – as an endorsement of the country’s post-Brexit potential.

The move, if passed and in its initial stages, will be mainly structural, transferring the tax residence of Shell to London. Just ten top executives including van Buerden and CFO Jessica Uhl will be making the move to London. Three major arms – Projects and Technology, Global Upstream and Integrated Gas and Renewable Energies – will remain in The Hague. As will Shell’s massive physical reach on Dutch soil: the huge integrated refinery in Pernis, the biofuels hub in Rotterdam, the country’s first offshore wind farm and the mammoth Porthos carbon capture project that will funnel emissions from Rotterdam to be stored in empty North Sea gas fields. And Shell’s troubles with activists will still continue. British climate change activists are as, if not more aggressive as their Dutch counterpart, this being the country where Extinction Rebellion was born. Perhaps more of a threat is activist investor Third Point, which recently acquired a chunk of Shell shares and has been advocating splitting the company into two – a legacy business for fossil fuels and a futures-focused business for renewables.

So Shell’s business remains, even though its address has changed. In the grand scheme of things, never mind the small matter of Dutch national pride – Royal Dutch Shell’s roadmap to remain an investment icon and a major driver of energy transition will continue in its current form. This is a quibble about money or rather, tax – that will have little to no impact on Shell’s operations or on its ambitions. Royal Dutch Shell is poised to become just Shell. Different name and a different house, but the same contents. Unless, of course, Queen Elizabeth II decides to provide royal assent, in which case, Shell might one day become Royal British Shell.

End of Article 

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