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Last Updated: July 4, 2019
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Market Watch 

Headline crude prices for the week beginning 1 July 2019 – Brent: US$66/b; WTI: US$59/b

  • As the members of OPEC and the wider OPEC+ group sat down in Vienna for a delayed meeting, oil prices surged to a five-week high on optimism that a supply deal would be reached and positive developments out of the G20 Summit
  • OPEC+ was widely expected to extend the current supply deal to the end of 2019, but there was optimism that more could be expected; OPEC delivered by agreeing to extend the production cuts to March 2020
  • At the recently concluded G20 Summit in Osaka, all eyes were on US and China interactions, with President Donald Trump and Premier Xi Jinping agreeing to restart trade talks that could end a period of uncertainty of the global economy
  • Reaction to the events was mixed; the extension of the supply deal was widely expected, and the additional three months was not enough to shake up the status quo, while the US-China thaw was a mere truce but held no promise of a concrete deal being reached
  • US drillers snapped a declining streak, adding four oil rigs but dropping four gas rigs to leave the active US rig count unchanged at 967, 80 sites down from the count a year ago
  • After initial optimism, the extent of the OPEC+ supply deal extension is unlikely to be comprehensive enough to please the market and we expect crude prices will pare back gains to trade US$63-65/b for Brent and US$56-58 for WTI


Headlines of the week

Upstream

  • The Kenya government has officially signed an agreement with Tullow Oil, Total and Africa Oil Corp for a 60-80 kb/d crude oil processing facility to cover crude discoveries in Blocks 10BB and 3T in the Lokichar Basin
  • ExxonMobil is reportedly looking to put its Norwegian upstream portfolio up for sale, covering some 150,000 boe/d of production, following in the footsteps of other American firms pulling back from the North Sea
  • South Africa is working on a new oil and gas policy to clearly define regulation for oil and gas resources in light of Total’s massive Brulpadda discovery

Midstream/Downstream

  • Saudi Aramco has announced plans to spend US$6 billion to build additional petrochemical capabilities at its South Korean refining joint venture with S-Oil, adding a steam cracker and olefins unit to the 669 kb/d site by 2024
  • Philadelphia Energy Solutions has confirmed that it will shut down its 335 kb/d US refinery that was crippled by a massive fire last month
  • Chevron Phillips Chemical and Qatar Petroleum have signed an agreement to build a 1.9 mtpa ethane cracker and two polyethylene units at the Ras Laffan Industrial City complex in Qatar
  • Vitol has started construction of a 30 kb/d small oil refinery at its Malaysian storage terminal in Tanjung Bin aimed at providing low-sulfur fuel oil for ships
  • Petronas Chemicals has announced plans to invest US$6 billion over the next 20 years to expand its specialty chemicals portfolio, primarily through acquisitions like its US$186 million takeover of the Da Vinci Group in May
  • In synergy with ExxonMobil’s planned expansion of its Singapore refining complex, industrial gas player Linde is spending US$1.4 billion to expand its facilities to supply hydrogen and synthesis gas to the ExxonMobil site
  • Turkmenistan has inaugurated the world’s first gas-to-gasoline plant in Ashgabat, with the capacity for 15,500 b/d of gasoline from natural gas
  • Petrobras has reaffirmed its intent to depart completely from fuels distribution in Brazil, aiming to sell off at least one of its 8 refineries this year and strike a deal for its LPG unit as soon as August

Natural Gas/LNG

  • BP’s gas marketing arm has signed an LNG sales and purchase agreement with Woodfibre LNG in Canada’s British Columbia, taking on 750,000 tons per annum of LNG over 15 years beginning 2024
  • Cheniere has produced first LNG from its Corpus Christi Train 2 site in Texas
  • Kufpec, the international upstream arm of Kuwait Petroleum Corp, is aiming to boost production from its gas assets in Canada and Australia, targeting a boost at its Canadian shale gas to 20,000 boe/d by end-2019 and gaining right to three new gas blocks in Australia where currently production is almost 40,000 boe/d
  • Australia’s Evol LNG has agreed to supply LNG to the Adaman Resources’ Western Australian Kirkalocka Gold mine beginning September 2019
  • American liquefaction player Venture Global has raised an additional US$675 million to fund the ongoing development of its 20 mtpa Plaquemines LNG export terminal in Louisiana
  • Sempra LNG has applied for permission to expand its Port Arthur LNG plant with two additional trains (Train 3 and Train 4) that would double production capacity to 27 million tons per annum

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The United States now exports crude oil to more destinations than it imports from

As U.S. crude oil export volumes have increased to an average of 2.8 million barrels per day (b/d) in the first seven months of 2019, the number of destinations (which includes countries, territories, autonomous regions, and other administrative regions) that receive U.S. exports has also increased. Earlier this year, the number of U.S. crude oil export destinations surpassed the number of sources of U.S. crude oil imports that EIA tracks.

In 2009, the United States imported crude oil from as many as of 37 sources per month. In the first seven months of 2019, the largest number of sources in any month fell to 27. As the number of sources fell, the number of destinations for U.S. crude oil exports rose. In the first seven months of 2019, the United States exported crude oil to as many as 31 destinations per month.

This rise in U.S. export destinations coincides with the late 2015 lifting of restrictions on exporting domestic crude oil. Before the restrictions were lifted, U.S. crude oil exports almost exclusively went to Canada. Between January 2016 (the first full month of unrestricted U.S. crude oil exports) and July 2019, U.S. crude oil production increased by 2.6 million b/d, and export volumes increased by 2.2 million b/d.

monthly U.S. crude oil production and exports

Source: U.S. Energy Information Administration, Petroleum Supply Monthly

The United States has also been importing crude oil from fewer of these sources largely because of the increase in domestic crude oil production. Most of this increase has been relatively light-sweet crude oil, but most U.S. refineries are configured to process medium- to heavy-sour crude oil. U.S. refineries have accommodated this increase in production by displacing imports of light and medium crude oils from countries other than Canada and by increasing refinery utilization rates.

Conversely, the United States has exported crude oil to more destinations because of growing demand for light-sweet crude oil abroad. Several infrastructure changes have allowed the United States to export this crude oil. New, expanded, or reversed pipelines have been delivering crude oil from production centers to export terminals. Export terminals have been expanded to accommodate greater crude oil tanker traffic, larger crude oil tankers, and larger cargo sizes.

More stringent national and international regulations limiting the sulfur content of transportation fuels are also affecting demand for light-sweet crude oil. Many of the less complex refineries outside of the United States cannot process and remove sulfur from heavy-sour crude oils and are better suited to process light-sweet crude oil into transportation fuels with lower sulfur content.

The U.S. Energy Information Administration’s monthly export data for crude oil and petroleum products come from the U.S. Census Bureau. For export values, Census trade data records the destinations of trade volumes, which may not be the ultimate destinations of the shipments.

October, 23 2019
Recalibrating Singapore’s Offshore Marine Industry

The state investment firm Temasek Holdings has made an offer to purchase control of Singaporean conglomerate Keppel Corp for S$4.1 billion. News of this has reverberated around the island, sparking speculation about what the new ownership structure could bring – particularly in the Singaporean rig-building sector.

Temasek already owns 20.5% of Keppel Corp. Its offer to increase its stake to 51% for S$4.1 billion would see it gain majority shareholding, allowing a huge amount of strategic flexibility. The deal would be through Temasek’s wholly-owned subsidiary Kyanite Investment Holdings, offering S$7.35 per share of Keppel Corp, a 26% premium of the traded price at that point. The financial analyst community have remarked that the bid is ‘fair’ and ‘reasonable’, and there appears to be no political headwinds against the deal being carried out with the exception of foreign and domestic regulatory approval.

The implications of the deal are far-ranging. Keppel Corp’s business ranges from property to infrastructure to telecommunications, including Keppel Land and a partial stake in major Singapore telco M1. Temasek has already said that it does not intend to delist and privatise Keppel Corp, and has a long-standing history of not interfering or getting involved in the operations or decisions of its portfolio companies.

This might be different. Speculation is that this move, if successful could lead to a restructuring of the Singapore offshore and marine industry. Since 2015, Singapore’s rig-building industry has been in the doldrums as global oil prices tumbled. Although prices have recovered, cost-cutting and investment reticence have provided a slower recovery for the industry. In Singapore, this has affected the two major rigbuilders – Keppel O&M and its rival Sembcorp Marine. In 2018, Keppel O&M reported a loss of over SS$100 million (although much improved from its previous loss of over SS$800 million); Sembcorp Marine, too, faces a challenging market, with a net loss of nearly 50 million. Temasek itself is already a majority shareholder in Sembcorp Marine.

Once Keppel Corp is under Temasek’s control, this could lead to consolidation in the industry. There are many pros to this, mainly the merging of rig-building operations and shipyards will put Singapore is a stronger position against giant shipyards of China and South Korea, which have been on an asset buying spree. With the overhang of the Sete Brasil scandal over as both Keppel O&M and Sembcorp Marine have settled corruption allegations over drillship and rig contracts, a merger is now increasingly likely. It would sort of backtrack from Temasek’s recent direction in steering away from fossil fuel investments (it had decided to not participate in the upcoming Saudi Aramco IPO for environmental concerns) but strengthening the Singaporeans O&M industry has national interest implications. As a representative of Temasek said of its portfolio – ‘(we are trying to) re-purpose some businesses to try and grasp the demands of tomorrow.’ So, if there is to be a tomorrow, then Singapore’s two largest offshore players need to start preparing for that now in the face of tremendous competition. And once again it will fall on the Singaporean government, through Temasek, to facilitate an arranged marriage for the greater good.

Keppel and Sembcorp O&M at a glance:

Keppel Offshore & Marine, 2018

  • Revenue: S$1.88 billion (up from S$1.80 billion)
  • Net Profit: -S$109 million (up from -S$826 million)
  • Contracts secured: S$1.7 billion

Sembcorp Marine, 2018

  • Turnover: S$4.88 billion (up from S$3.03 billion)
  • Net Profit: -S$48 million (down from S$157 million)
  • Contracts secured: S$1.2 billion
October, 22 2019
Global energy consumption driven by more electricity in residential, commercial buildings

Energy used in the buildings sector—which includes residential and commercial structures—accounted for 20% of global delivered energy consumption in 2018. In its International Energy Outlook 2019 (IEO2019) Reference case, the U.S. Energy Information Administration (EIA) projects that global energy consumption in buildings will grow by 1.3% per year on average from 2018 to 2050. In countries that are not part of the Organization for Economic Cooperation and Development (non-OECD countries), EIA projects that energy consumed in buildings will grow by more than 2% per year, or about five times the rate of OECD countries.

building sector energy consumption

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case

Electricity—the main energy source for lighting, space cooling, appliances, and equipment—is the fastest-growing energy source in residential and commercial buildings. EIA expects that rising population and standards of living in non-OECD countries will lead to an increase in the demand for electricity-consuming appliances and personal equipment.

EIA expects that in the early 2020s, total electricity use in buildings in non-OECD countries will surpass electricity use in OECD countries. By 2050, buildings in non-OECD countries will collectively use about twice as much electricity as buildings in OECD countries.

average annual change in buildings sector electricity consumption

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case
Note: OECD is the Organization for Economic Cooperation and Development.

In the IEO2019 Reference case, electricity use by buildings in China is projected to increase more than any other country in absolute terms, but India will experience the fastest growth rate in buildings electricity use from 2018 to 2050. EIA expects that use of electricity by buildings in China will surpass that of the United States by 2030. By 2050, EIA expects China’s buildings will account for more than one-fifth of the electricity consumption in buildings worldwide.

As the quality of life in emerging economies improves with urbanization, rising income, and access to electricity, EIA projects that electricity’s share of the total use of energy in buildings will nearly double in non-OECD countries, from 21% in 2018 to 38% in 2050. By contrast, electricity’s share of delivered energy consumption in OECD countries’ buildings will decrease from 24% to 21%.

building sector electricity consumption per capita by region

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case
Note: OECD is the Organization for Economic Cooperation and Development.

The per capita use of electricity in buildings in OECD countries will increase 0.6% per year between 2018 and 2050. The relatively slow growth is affected by improvements in building codes and improvements in the efficiency of appliances and equipment. Despite a slower rate of growth than non-OECD countries, OECD per capita electricity use in buildings will remain higher than in non-OECD countries because of more demand for energy-intensive services such as space cooling.

In non-OECD countries, the IEO2019 Reference case projects that per capita electricity use in buildings will grow by 2.5% per year, as access to energy expands and living standards rise, leading to increased use of electric-intensive appliances and equipment. This trend is particularly evident in India and China, where EIA projects that per capita electricity use in buildings will increase by 5.3% per year in India and 3.6% per year in China from 2018 to 2050.

October, 22 2019