Unplanned oil production outages among countries outside the Organization of the Petroleum Exporting Countries (OPEC) fell to 64,000 barrels per day (b/d) in August, the lowest level since the U.S. Energy Information Administration (EIA) began tracking global production outages in 2011. Unplanned outages in major non-OPEC oil producers such as the United States, Russia, and Canada have abated, leaving Sudan and South Sudan as the only remaining non-OPEC producers with unplanned outages in August. The decline in non-OPEC unplanned outages may have contributed to the resilience of the global oil market following the disruption of almost 5.7 million b/d of Saudi Arabian crude oil production on September 14, 2019.
EIA tracks both OPEC and non-OPEC production outages. In its estimates of outages, EIA differentiates among declines in production resulting from unplanned production outages, permanent losses of production capacity, and voluntary production cutbacks. EIA’s estimates of unplanned production outages are calculated as the difference between estimated effective production capacity (the level of supply that could be available within one year) and estimated production. EIA publishes historical unplanned production outage estimates in EIA’s Short-Term Energy Outlook (STEO).
The duration of any supply outage mainly depends on the cause of the disruption. When an outage is related to weather, natural disasters, labor strikes, technical failures, or accidents, the disruption generally ends within weeks, such as is often the case in non-OPEC countries. Disruptions tied to political disputes or conflicts—such as in Sudan and South Sudan—often last for years.
South Sudan declared independence from Sudan in July 2011, but it remained dependent on Sudan to export its oil through Sudan's pipelines. In 2012, South Sudan shut in its oil production, mainly because of a dispute with Sudan over oil transportation fees via the pipelines. The countries resolved the dispute, and South Sudan restarted oil production in 2013, but armed conflict persists in both countries as unresolved issues on domestic and interstate relations linger. South Sudan has revived some of its production in 2019, lowering its total disrupted volumes.
Other than in Sudan and South Sudan, the largest outages in the past year in non-OPEC member countries were the result of unplanned maintenance and weather events. In Russia, flows on the Druzhba pipeline—which supplies Russian Urals crude oil to Europe—were suspended at the end of April 2019 because contaminated crude oil entered the pipeline, disrupting about 100,000 b/d in production. These disrupted volumes were fully restored by July 2019.
U.S. crude oil production has been disrupted this year because of unplanned maintenance and hurricanes. U.S. unplanned disruptions peaked in July at nearly 400,000 b/d when Hurricane Barry caused the precautionary evacuation of platforms and oil rigs in the Gulf of Mexico. This disruption was quickly alleviated. By contrast, Hurricane Dorian, which did not track across the Gulf of Mexico, did not affect U.S. crude oil production.
Source: U.S. Energy Information Administration, Short-Term Energy Outlook, September 2019
Note: OPEC disruptions include crude oil only. OPEC is the Organization of the Petroleum Exporting Countries.
Unplanned production outages among OPEC members (which includes Saudi Arabia), however, have remained relatively high. In August, OPEC unplanned crude oil production outages were about 2.7 million b/d, with Iran accounting for 2.1 million b/d of the total. OPEC liquids production in August totaled 35 million b/d, or about 35% of total global production, compared with non-OPEC production of 66 million b/d. The next edition of EIA’s Short-Term Energy Outlook, to be published on October 8, will include updated estimates of OPEC and non-OPEC unplanned production outages.
Source: U.S. Energy Information Administration, Short-Term Energy Outlook, September 2019
Note: Non-OPEC disruptions include crude oil and other liquid fuels. OPEC disruptions include crude oil only.
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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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