The U.S. Energy Information Administration (EIA) estimates that members of the Organization of the Petroleum Exporting Countries (OPEC) earned almost $711 billion in net oil export revenues in 2018 (Figure 1). The estimate is up 29% from 2017, but about 40% lower than the record high of almost $1,200 billion in 2012. The 2018 earnings increase is mainly a result of higher crude oil prices. The Brent spot price rose from an annual average of $54 per barrel (b) in 2017 to $71/b in 2018. However, EIA forecasts annual OPEC net oil export revenues will decline to $593 billion in 2019 and to $556 billion in 2020. Decreasing OPEC revenues are primarily a result of decreasing production among a number of OPEC producers.
EIA estimates net oil export revenues based on oil production—including crude oil, condensate, and natural gas plant liquids—and total petroleum consumption estimates, as well as crude oil prices forecast in the August 2019 Short-Term Energy Outlook (STEO). EIA’s net oil export revenues estimate assumes that exports are sold at prevailing spot prices and adjusts the prices for benchmark crude oils forecast in STEO (Brent, West Texas Intermediate, and the average imported refiner crude oil acquisition cost) with historical price differentials among spot prices for the different OPEC crude oil types. For countries that export several different varieties of oil, EIA assumes that the proportion of total net oil exports represented by each variety is the same as the proportion of the total domestic production represented by that variety. For example, if Arab Medium represents 20% of total oil production in Saudi Arabia, the estimate assumes that Arab Medium also represents 20% of total net oil exports from Saudi Arabia.
Although OPEC net export earnings include estimated Iranian revenues, they are not adjusted for possible price discounts that trade press reports indicatedIran may have offered its customers after the United States announced its withdrawal from the Joint Comprehensive Plan of Action in May 2018. The United States reinstated sanctions targeting Iranian oil exports in November 2018. Similarly, EIA does not adjust for Venezuelan crude oil exports to China or India for volumes that are sent for debt repayments to China and Russian energy company Rosneft, respectively, and thus do not generate cash revenue for Venezuela.
If the $711 billion in net oil export revenues by all of OPEC is divided by total population of its member countries and adjusted for inflation, then per capita net oil export revenues across OPEC totaled $1,416 in 2018, up 26% from 2017 (Figure 2). The increase in per capita revenues likely benefited member countries that rely heavily on oil sales to import goods, fund social programs, and otherwise support public services.
In addition to benefiting from higher prices, some OPEC member countries have increased export revenues by reducing domestic consumption and consequently exporting more. For example, Saudi Arabia has significantly reduced the amount of crude oil burned for power generation. Limiting crude oil burn allowed Saudi Arabia to export more crude oil and to maximize revenues.
Others have been able to charge higher premiums based on the quality of their crude oil streams. As the global slate of crude oil has changed with more light crude oil production (with higher API gravity), OPEC members have benefited from a narrowing price discount for their heavy crude oils, which are typically priced lower than lighter crude oils because of quality differences. Smaller discounts for OPEC members’ heavier crude streams contributed to higher spot prices for the OPEC crude oil basket price, which incorporates spot prices for the major crude oil streams from all OPEC members (Figure 3).
Despite the increase in annual average crude oil prices in 2018, OPEC revenues fell during the second half of 2018, mainly because of lower production and export volumes from Iran and Venezuela (Figure 4). EIA estimates that OPEC total petroleum liquids production decreased slightly in 2018 when increased production in Saudi Arabia, Iraq, and Libya could not offset significant declines in Iranian and Venezuelan production. Combined crude oil production in Iran and Venezuela fell by almost 800,000 barrels per day (b/d), or 14%, in 2018 and again by over 1.0 million b/d in the first seven months of 2019. Although Iranian net oil export revenues increased by 18% from 2017 to 2018, a year-to-date comparison indicates a significant decrease in revenues in 2019 (Figure 4). EIA estimates that from January to July 2018, Iran received about $40 billion in export revenues, compared with an estimated $17 billion from January to July 2019. Further decreases in OPEC members’ production beyond current EIA assumptions would further reduce EIA’s OPEC revenue estimates for 2019 and 2020.
U.S. average regular gasoline and diesel prices fall
The U.S. average regular gasoline retail price fell nearly 3 cents from the previous week to $2.60 per gallon on August 19, 22 cents lower than the same time last year. The Gulf Coast price fell nearly 6 cents to $2.27 per gallon, the East Coast price fell nearly 4 cents to $2.52 per gallon, the West Coast and Rocky Mountain prices each fell nearly 2 cents to $3.24 per gallon and $2.67 per gallon, respectively, and the Midwest price fell nearly 1 cent, remaining at $2.52 per gallon.
The U.S. average diesel fuel price fell nearly 2 cents to $2.99 per gallon on August 19, 21 cents lower than a year ago. The Midwest price fell over 2 cents to $2.90 per gallon, the West Coast and East Coast prices each fell nearly 2 cents to $3.56 per gallon and $3.02 per gallon, respectively, the Gulf Coast price fell more than 1 cent to $2.75 per gallon, and the Rocky Mountain price fell less than 1 cent, remaining at $2.94 per gallon.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 4.0 million barrels last week to 90.5 million barrels as of August 16, 2019, 10.2 million barrels (12.7%) greater than the five-year (2014-18) average inventory levels for this same time of year. Gulf Coast, East Coast, Midwest, and Rocky Mountain/West Coast inventories increased by 2.0 million barrels, 1.0 million barrels, 0.7 million barrels, and 0.4 million barrels, respectively. Propylene non-fuel-use inventories represented 4.4% of total propane/propylene inventories.
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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.
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