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Last Updated: October 18, 2019
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Market Watch  

Headline crude prices for the week beginning 14 October 2019 – Brent: US$59/b; WTI: US$53/b

  • Crude oil prices remain stubbornly stuck in their range, despite several key issues that could potentially move the market occurring over the week
  • The sudden thawing of the icy trade relations between the US and China last week – announcing a partial trade deal where new tariffs would be halted – was a positive for the waning health of the global economy; this, however, failed to send prices any higher as previous optimism has always been dashed
  • The trade spat has already caused fears of an economic recession and tumbling global oil demand, with the IEA projecting yet another drop in the demand that has neutralised another possible ‘geopolitical premium’ on prices
  • That geopolitical premium focuses on the fragile situation in the Middle East, with risk spiking up as Iran announced that one of its tankers in the Red Sea – far away from the Persian Gulf - had been struck by missiles; an initial accusation that Saudi Arabia was behind the attack was later withdrawn
  • Meanwhile, news emerged that Nigeria had been quietly handed an increased quota under the OPEC+ supply deal, from 1.685 mmb/d to 1.774 mmb/d, in July, which would help it meet compliance under the deal
  • After more than two months of continuous declines, the US active rig count increased for the first time, but not by much; two oil rigs were added, offset by the loss of a gas rig, but a net gain of 1 to a total of 856
  • We expect prices to remain entrenched as it displays resilience against political and economic factors, with Brent hovering in the US$58-60/b area and WTI at the US$52-54/b range


Headlines of the week

Upstream

  • The US Department of the Interior will be opening up 722,000 acres of federal land along California’s central coast near Fresno, San Benito and Monterey for oil and gas leasing – the first sale in the state since 2013
  • Alongside the lease sale in California, the US will also be opening up some 78 million acres in Gulf of Mexico federal waters for sale in 2020, covering all available unleased areas not subject to Congressional moratorium
  • Santos has confirmed oil flows at the Dorado-3 well in the Bedout Basin offshore Western Australia, with some 11,1000 b/d in place
  • After having exited Norway, ExxonMobil is now reportedly looking into selling its Malaysian offshore upstream assets as part of its divestiture programme, fetching up to US$3 billion for assets including the Tapis Blend operations
  • Equinor has won a new exploration permit – WA-542-P – in the offshore Western Australia Northern Carnarvon Basin, located new the Dorado well
  • Nigeria is looking to settle a US$62 billion income-sharing dispute with international oil firms such as ExxonMobil, Shell, Chevron, Total and Eni operating in the country, with hopes of reaching a settlement
  • Barbados is looking to emulate its nearby neighbour Guyana as it gears up for its third offshore bid round that will launch in early 2020
  • Petroecuador has been forced to declare force majeure on its crude exports, as widespread protests over the removal of fuel subsidies have led to the shutdown of some oilfields
  • Abu Dhabi is looking to create a new benchmark price for Middle Eastern crude based on its Murban grade that could compete with Brent and WTI

Midstream/Downstream

  • Aruba has ended its contract with Citgo – PDVSA’s US refining arm – to operate its 209,000 b/d refinery that is currently idled; a new operator is being sought, paralleling the situation over Curacao’s Isla refinery and PDVSA
  • Poland’s crude pipeline operator expects to only be able to clear its system of contaminated Russian oil from the Druzhba incident by July 2020
  • Gunvor’s Rotterdam refinery will only be able to produce low sulfur fuel oil by March 2020, part of a larger planned overhaul of the 88,000 b/d site

Natural Gas/LNG

  • After Total’s departure, it is now the turn of CNPC to quit the South Pars Phase 11 project in Iran, leaving Iran to go ahead alone its largest natural gas project ever as the threat of US sanctions bites down
  • CNPC has taken over operation of the Chuandongbei sour gas field in China’s Sichuan basin from Chevron, and will kick of Phase 2 development soon
  • Qatar has invited ExxonMobil, Shell, Total, ConocoPhillips and some other ‘big players’ to assist in the North Field expansion that will underpin its ambitions to boost gas output to 110 million tpa from a current 77 million tpa
  • The FID on the Rovuma LNG project in Mozambique has been pushed back by a year, with first production now expected by 2025 at the earliest
  • Pakistan has cancelled a ‘huge’ 10-year tender covering 240 LNG cargoes to its second LNG terminal, turning instead to spot cargoes due to inadequate demand
  • Inpex has formally received a 35-year extension for the PSC covering the Abadi LNG project in Indonesia, extending its operation of the Masela block to 2055

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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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