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Last Updated: April 6, 2020
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Headline crude prices for the week beginning 30 March 2020 – Brent: US$22/b; WTI: US$20/b

  • Crude oil prices fell to their lowest level since March 2002, as the global oil (and gas) market deals with twin catastrophes – cratering demand from a global economic lockdown that now involves half of the world’s population and a ballooning surplus as Russia and Saudi Arabia go to war on crude prices
  • US President Donald Trump has attempted to bring Saudi Arabia and Russia back to the negotiation table to trash out a deal that would prop up oil prices; while a Trump call with Russian Premier Vladimir Putin yielded a message that ‘low prices… helps no one’, there is no concrete progress on a new wide-ranging agreement
  • Saudi Arabia, however, does not appear to be in the mood to talk, stating that it ‘has not had any contact with Moscow about oil production cuts’ or ‘enlarging the OPEC+ alliance’; the issue was not discussed at the recent (virtual) G20 meeting, and is unlikely to proceed without an equivalent pledge from the US
  • Goldman Sachs estimates that if the ramp up by Saudi Arabia and its allies continues, global crude inventories will grow by 20 million barrels per day in April and May 2020, maxing out storage capacity and even prompting the use of onshore pipeline systems as temporary storage mechanisms
  • The price crash is so bad now that Canadian heavy crude oil is now so cheap that the cost of shipping exceeds the value of the oil itself, with Western Canadian Select crude trading at a record low of US$6.45/b
  • Oil majors worldwide have slashed their capex budgets due to this; Chevron has cut US$4 billion from its spending plan, Shell will reduce its capex by US$5 billion or more and Total by 20% (or US$3 billion)
  • The crisis is really biting down on the US active rig count, which fell by 44 sites over a week to 728 (-40 for oil, -4 for gas); the situation remains even more grim in Canada, where the rig count fell by another 44 rigs to a near-historic low of 54
  • A proclamation of US President Donald Trump that Russia and Saudi Arabia are close to agreeing on a new output cut deal prompted a recovery in oil prices, but many in the market doubt the veracity of the claim; with so much turmoil, crude oil prices will trade in an expanded range of US$22-30/b for Brent, and US$18-24/b for WTI


Headlines of the week

Upstream

  • Rosneft has sold its assets in Venezuela – mainly upstream, but also some trading operations – to a Russian state-oil company, as it aims to avoid further sanctions by the US; Rosneft has already received US sanctions on two of its units after it had continued to operate in Maduro-controlled Venezuela
  • Ineos has delayed the summer shutdown planned for essential maintenance at the Forties Pipeline System in the UK North Sea that was scheduled for June 16 to ‘August, at the earliest’
  • China’s CNOOC hit some major milestones in 2019, reporting net oil and gas production of 506.5 million boe, exceeding the 500 million mark for the first time, with 23 commercial and 30 new discoveries made

Midstream/Downstream

  • Refiners globally have announced a swathe of delays to planned turnaround, maintenance or new commissioning in existing refineries, including a delay in scheduled major turnaround at Neste’s Porvoo site in Finland and a delay in restarting Total’s 102 kb/d Grandpuits refinery in France
  • In contrast, some refiners are still pushing ahead with restarting their sites after maintenance, with Gunvor restarting its 110 lb/d Ingolstadt refinery in Germany and PDVSA looking to resume gasoline production at its mothballed 146 kb/d El Palito refinery in Venezuela
  • The government of Curacao is pursuing an arbitration claim amounting to US$162 million from PDVSA, seeking overdue payment, maintenance costs and environmental damage over the 335 kb/d Isla refinery

Natural Gas/LNG

  • ExxonMobil and its partners on the Rovuma LNG project in Mozambique are planning to delay FID on the US$23 billion project that was due in June 2020
  • Australia’s offshore energy regulator has given approval to Woodside for the Scarborough gas field development in Western Australia, which will eventually underpin an expansion train at the Pluto LNG facility
  • The US FERC has approved the proposed Jordan Cove LNG terminal and Pacific Connector Gas Pipeline projects in Oregon, which would be the first US gas export facility on the West Coast connecting to the Pacific
  • India’s LNG import trio – Petronet LNG, GAIL and Gujarat State Petroleum Corporation – have issued force majeure notices, delaying LNG cargo deliveries from key suppliers such as Qatar and Australia
  • Shell has postponed FID on the Crux gas and condensate development project in Western Australia, citing the Covid-19 related global downturn
  • Sempra is proceeding with the first phase of its Energia Costa Azul LNG project in Baja California, Mexico on schedule, which should bring a 2.4 mtpa liquefaction train onstream by 2022
  • Dominion Energy bought into two mid-sized LNG operations in the USA, taking 100% ownership of Pivotal LNG’s liquefaction facility in Trussville, Alabama and 50% ownership of the Jax LNG bunkering operation in Florida
  • Construction of the Nigeria LNG Train 7, budgeted at US$10 billion, is likely to be pushed back from an initial May 2020 into Q3 2020
  • Shell is exiting the planned Lake Charles LNG export project in Louisiana, selling off its 50% stake but continuing to support its partner Energy Transfer

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December, 01 2021
Royal Dutch Shell Poised To Become Just Shell

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.

End of Article 

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