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Last Updated: April 17, 2020
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Headline crude prices for the week beginning 13 April 2020 – Brent: US$31/b; WTI: US$22/b

  • In the face of a landmark OPEC+ deal to slash production by nearly 10 million barrels a day, crude oil prices did not stage a recovery, but instead lost ground as the size of the supply deal failed to impress a market concerned about the scale of demand destruction from the Covid-19 pandemic
  • Despite a last-minute threat by Mexico to scupper the deal, the OPEC+ club agreed to cut 9.7 mmb/d of output through June 2020; an additional 5 mmb/d of cuts would come as an ‘automatic’ process of low crude prices for non-OPEC+ countries including the US, Norway, Canada and Brazil, but this still pales in comparison to a fall of 18.5 mmb/d of oil demand expected for the year
  • The unprecedented situation has led to a curious situation of many free-market economics supporting supply controls, as the G20 group of countries met virtually to support the OPEC+ deal; the US even offered to ‘pick up some of Mexico’s slack’ to save the OPEC+ deal
  • Adherence to the OPEC+ supply deal, which will last for two years until June 2022, is also up in the air; there is already evidence that both Saudi Arabia and Russia are still pumping oil at full volume in a bid to secure market share before the new deal kicks in May 1
  • However large the deal, it failed to impress the trading market; at a minimum, oil demand is expected to decline by 18.5 mmb/d in 2020, with some models predicting a loss of up to 35 mmb/d in a worst-case scenario, which would leave a huge oversupply in the market
  • While countries and companies are scrambling to fill up reserves and infrastructure – from train cars to pipelines to cargo ships – with spare crude, this will not be enough to absorb the huge amount of excess oil expected
  • Dynamics have also widened the spread between the two global oil benchmarks, with WTI sinking to a near-US$10/b discount to Brent as shale producers are caught in an existential crisis of continuing to pump or ceasing to exist
  • The depressed price environment is still wreaking havoc with the US rig count, which lost another 62 sites (58 oil, 4 gas) to sink to a 3-year low of 602 active sites according to Baker Hughes
  • After OPEC+ did all it could to enforce a new supply deal, crude oil prices are still reeling from the Covid-19 pandemic and the damage done by the Saudi-Russia oil price war; expect crude oil prices to remain soft, with Brent in the US$28-30/b range and WTI at US$24-26/b


Headlines of the week

Upstream

  • The US Department of Energy will made 77 million barrels of storage space in the federal Strategic Petroleum Reserve available to US producers in two tranches of 30 million barrels and 47 million barrels, respectively
  • Total has divested some US$400 million of non-core assets from its portfolio, with the main upstream portion being the sale of its Brunei E&P subsidiary (and 86.95% interest in Block CA1) to Shell
  • India is looking to purchase 15 million barrels of crude to fill up its three strategic reserves to take advantage of low prices, aiming at 5.5 million barrels of the UAE’s Upper Zakum grade for Mangalore, 9.2 million barrels of Saudi grades for Padur, and Iraqi Basrah Light grades for Visakhapatnam
  • Despite the global oil route and countries racing the cut production, Pemex is going to opposite route, continuing on its path to double drilling to 423 wells in 2020 and accelerate development of 15 recent upstream developments
  • Equinor has announced a new oil discovery in the US Gulf of Mexico, with the Monument well striking ‘good’ flows of crude oil
  • Wintershall DEA has made a new oil discovery at Well 6406/3-110 in the Bergknapp prospect’s Garn and Tilje formations in the Norwegian Sea
  • The Covid-19 devastation of global oil demand has forced the Middle East’s largest crude terminal in Fujairah to stop accepting storage requests by traders and refiners, having reached its capacity ceiling of 14 million barrels
  • INEOS will postpone planned summer shutdown for the UK’s Forties Pipeline system to spring 2021 in response to the ongoing Covid-19 lockdown
  • Norway has approved plans to build the Hywind Tampen floating wind farm that will power five oil and gas production platforms in the North Sea, with 11 wind turbines supporting the Snorre A and B, and Gullfaks A, B and C sites
  • Saudi Arabia has delayed the kick-off to develop its US$10 billion offshore Zuluf field until 2H 2020 amid major uncertainty in the industry

Midstream/Downstream

  • Nigeria’s NNPC will shut down its entire refining infrastructure in the country, in a bid to complete a comprehensive upgrade plan while avoid haemorrhaging money from the current low crude and refined price environment
  • As part of Total’s US$400 million non-core asset divestment, the French supermajor has sold its fuels import, distribution and marketing businesses in Liberia and Sierra Leone to Conex Oil & Gas, including 63 service stations
  • Marathon Petroleum has idled its 26,000 b/d refinery in Gallup, New Mexico – becoming the second North American refinery to shut down amid the pandemic
  • The Belarus-Russia oil supply spat seems to be ending, with Russian pipeline operator Transneft resuming supplies of Russian crude to Belarusian refineries

Natural Gas/LNG

  • Total has chartered its first LNG-powered VLCCs, while each of the two vessels owned by Malaysia’s AET aiming to enter service in 2022; the LNG for the vessels will be provided by Total’s own marine bunkering fuels arm
  • BP has declared force majeure on receiving the Gimi 2.5 million tpa FLNG facility from Golar LNG in 2022, after delaying its Greater Tortue Ahmeyim LNG project offshore Mauritania and Senegal
  • SDX has announced a new commercial gas discovery at its Sobhi well in Egypt, with some 24 bcf of recoverable gas and condensate that is expected to be tied back to the Yunus-1X pipeline tied back to the South Disouq processing facility

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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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