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Last Updated: March 20, 2020
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Headline crude prices for the week beginning 16 March 2020 – Brent: US$30/b; WTI: US$28/b

  • The dark days continue, with global crude oil prices at their weakest point since 2015 as the Covid-19 pandemic deepens worldwide and the Saudi Arabia-Russia oil war heats up
  • With infections and deaths piling up in Europe and the US – and a second wave of infections threatening Asia – the number of global cases has topped 240,000 and 10,000 respectively
  • Travel lockdown are taking place worldwide; Europe has largely shut its borders, as well as the US and other major countries, resulting in airlines slashing international travel and cratering jet fuel demand
  • But of more concern for oil prices, is the standoff between Saudi Arabia and Russia, as both countries dig in their heels to engage in a protracted price war
  • Saudi Arabia is on the hunt for more supertankers, with the intention of flooding the market with oil; Saudi Aramco will supply a record 12.3 million barrels in April and is looking to raise capacity by another 1 mmb/d after
  • Russian producers are also ready to raise production, with Rosneft announcing it would lift production as soon as the current supply deal ends on March 31
  • Abu Dhabi, a close ally of Saudi Arabia, is fanning the flames as well; ADNOC is discounting its flagship Murban crude and pledging a rise of output to 4 mmb/d in April, and possibly 5 mmb/d in May, to join the race for market share
  • There is a glimmer of hope that a joint resolution could halt the price war, with OPEC+ still holding meetings – albeit virtually – to assess the situation
  • In light of the meltdown in oil prices, the US has suspended its planned sale of inventories from its Strategic Petroleum Reserve, but instead will add to it by purchasing large volumes in an attempt to prop up US shale oil producers
  • With weak oil prices, the active US rig count according to Baker Hughes is holding steady so far, down by a net one site with the loss of two gas rigs offset by a single gain in the oil rig count; however, do expect sharp drops in the near future if there is no resolution to the oil price imbroglio
  • With sentiment over the global macroeconomic situation and oil prices at near worst-case scenario levels, crude oil prices will remain depressed – Brent in the US$29-33/b range and WTI in the US$25-28/b range

 

Headlines of the week

Upstream

  • Beset by a blockade of its oilfields and ports by strongman Khalifa Haftar, Libya’s oil production fell to a new low of 97,508 b/d in early March
  • Petronas and ExxonMobil are looking to sell their stakes in the Chad-Cameroon Petroleum Development and Pipeline Project – connecting three fields in Chad to a floating facility offshore Cameroon; Petronas holds a 35% stake in the project, with ExxonMobil holding a 40% stake
  • Petronas has halted production at the Garraf area in Iraq’s Thi Qar province, evacuating all its employees as Iraq grapples with a major Covid-19 outbreak
  • Murphy Oil has announced some delays to its projects in the Gulf of Mexico as the global oil industry is hit by the Covid-19 pandemic and the price war, reducing its 2020 budget by US$500 million to US$950 million
  • As the Covid-19 pandemic rolls across the globe, licensing rounds are either being suspended or postponed: South Sudan deferring its debut round, Liberia taking its offshore round online and Bangladesh postponing indefinitely
  • Equinor has halted all work on the Martin Linge field offshore Norway, adding to the project’s delay woes as uncertainty over Covid-19 boils over
  • WPX Energy has acquired Felix Energy, expanding its footprint in the eastern part of the Permian Delaware Basin, adding 60 mboe/d of production and bringing WPX Energy’s total output to some 150,000 b/d of shale oil

Midstream/Downstream

  • Asian refiners are looking to cash in on cheap crude being offered as a result of the price war – with Chinese teapots planning to ramp out output – but are planning to curb jet fuel output by redirecting processing to gasoil, as a result of travel bans worldwide that will severely distress international travel
  • Marathon Petroleum – the largest American independent refinery – is looking to sell off its pipeline subsidiary MPLX LP for some US$15 billion
  • ExxonMobil has restarted the fourth and final CDU at its 502,500 b/d Baton Rouge refinery, after the entire plant was taken out by a fire in February 2020
  • Calumet is planning to sell its 30 kb/d refinery in Great Falls, Montana, retaining a bank to begin sales proceedings; Great Falls is the second refinery in Montana to go under the block, after ExxonMobil’s 61.5 kb/d Billings site
  • Production of very low sulfur fuel oil (VLSFO) in China is ramping up, with Jinxi Petrochemical being the latest refiner to begin exports of the marine fuel
  • Austria’s OMV will be purchasing an additional 39% in petrochemicals processor Borealis from Abu Dhabi’s Mubadala for some US$4.7 billion
  • The GTI Statia crude and refined storage terminal in the Caribbean island of St. Eustatius will undergo a US$100 million upgrade to meet growing demand

Natural Gas/LNG

  • The Alaska LNG project – which is designed to produced 3.5 bcf/d of gas in Nikiski on the Kenai Peninsula, sourced from a 1,300km pipeline from the North Slope – has been granted EIS (Environment Impact Statement) by the US FERC, the first step towards authorisation of project to go ahead
  • BP and Azerbaijan’s SOCAR are in discussion over a new Caspian Sea project that goes beyond the current deep gas scheme, called Future Gas
  • Norway’s Golar Power has announced plans to develop an LNG import terminal with the Brazilian northeastern state of Pernambuco
  • Lithuania’s Kaipedos Nafta is moving to fully acquire the Hoegh floating storage and regasification unit that is it currently leasing

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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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