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Market Watch

Headline crude prices for the week beginning 8 April 2019 – Brent: US$70/b; WTI: US$63/b

  • Crude oil futures continue to extend their gains in its best quarterly performance in a decade, touching US$70/b for Brent as an escalation of violence in Libya spooked the market
  • Fighting between the Libyan government and forces of strongman Khalifa Haftar lifted prices on supply-side risks, just a couple of weeks after Libya’s largest field restarted output
  • OPEC chimed in on the situation, with Saudi Arabia stating that oil markets were ‘moving in the right direction’ with no need to ‘deepen output curbs’, walking back on the Kingdom’s stance ahead of OPEC’s June meeting
  • Also within OPEC, power failures in Venezuela reportedly slashed the country’s crude output by half with the outages causing production to dip below 600,000 b/d at peak; meanwhile, the US has begun to sanction companies delivering Venezuelan crude including firms in Liberia and Greece
  • In the US, recent figures show that US crude oil exports hit a record 3.6 mmb/d while total crude and product exports reached 8.2 mmb/d, with markets expanding from just 10 five years ago to 24 countries including South Korea, the UK, the Netherlands and China
  • After six consecutive weeks of declines that brought the active US rig count almost below 1000, the Baker Hughes index showed a big jump of 19 rigs – 15 oil and 4 gas – to 1025 active sites
  • Crude oil prices should be trading with an upward slant – Brent at US$69-71/b and WTI at US$61-63/b – but a change of heart within OPEC on the crude deal extension could cap gains


Headlines of the week

Upstream

  • US President Donald Trump has issued a new permit by executive order approving TransCanada’s Keystone XL pipeline, aiming to circumvent a court ruling that blocked the project on environmental concerns
  • Lukoil and its Kazakh partner KazMunayGas have signed a contract to jointly explore and develop the Zhenis block of the Caspian Sea on a 50:50 basis
  • With Saudi Aramco releasing official reports on its finances and production ahead of its planned IPO, the report revealed that its giant Ghawar field was only producing at some 3.8 mmb/d, far lower than the presumed 5 mmb/d that had become conventional wisdom in the market

Midstream & Downstream

  • ExxonMobil has sanctioned a major expansion at its refinery in Singapore, aiming to convert fuel oil and other bottom-of-the-barrel products into lubricant base oils and other low-sulfur distillates as it grapples with new IMO regulations that will significantly reduce demand for fuel oil
  • Chevron’s takeover of the Pasadena Refining System plant from Petrobras has stalled from its planned April 2 date to an indeterminate Q219 timeline
  • Curacao has renewed efforts to find an operator for its 335 kb/d Isla refinery, after Motiva and a Chinese firm dropped out of the running, while its current operator PDVSA faces challenging conditions from American sanctions
  • Adnoc has signed a major long-term contract for its Group III base oils from the Ruwais refinery to Xiamen Sinolook Oil, a major Chinese base oil trader
  • Sinopec confirmed that its Jiujiang Petrochemical refinery in Jiangxi has begun to produce clean gasoline after a 300 mtpa alkylation unit was installed last year
  • The US EIA confirmed that US refineries racked up a fifth consecutive year of record refinery runs, averaging 17.3 mmb/d in 2018 with a peak of 18 mmb/d
  • Greece’s attempt to sell a majority stake in state oil refiner Hellenic Petroleum has failed with no binding bids received, despite interest from Glencore, Vitol and Algerian state firm Sonatrach

Natural Gas/LNG

  • Shell has inked a new type of LNG contract with Tokyo Gas, signing a 10-year deal for 500,000 tpa with the pricing formula linked to coal indexation instead of the traditional link to crude oil, aligning LNG with a rival power fuel
  • While LNG continues to roll forth on the US coast of the Gulf of Mexico, a Mexican project has also gained approval, with the 7.6 mtpa Energia Costa Azul by Sempra Energy winning US approval to receive US natural gas for processing into LNG that can be re-exported to other countries
  • Marathon Oil has signed a contract to process natural gas from Noble’s Alen field at the Punta Europa site in Equatorial Guinea, merging it with LNG and LPG output currently sourced from Marathon’s own Alba gas/condensate field
  • Japan’s utility major JERA has signed up with the LNG Canada project in Kitimat to purchase up to 1.2 mtpa of LNG beginning 2024 for 15 years
  • Oil Search and its partners Total, Kumul Petroleum and ExxonMobil have formally signed an agreement with Papua New Guinea to develop the offshore Elk-Antelope and P’nyang gas fields, with a planned capacity of 5.4 mtpa
  • Australia’s Woodside has signed a 10-year sales agreement with China’s ENN for supplying 1 million tpa of LNG from the Scarborough field beginning 2025

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August, 26 2019
Your Weekly Update: 19 - 23 August 2019

Market Watch 

Headline crude prices for the week beginning 19 August 2019 – Brent: US$58/b; WTI: US$55/b

  • Although oil prices are still depressed over concerns on long-term health and the global economy, the market received an uptick as the situation in the Middle East continues to remain tense
  • Oil and gas facilities in Shaybah, Saudi Arabia, were attacked by Yemeni rebels over the weekend; although no disruption to production was reported, the attack does illustrate how fragile the Middle East condition is right now, even if confrontations have simmered down
  • The crude tanker seized by British authorities in Gibraltar was released, but the US sought the block the release and has threatened sanctions on any country that aids the ship; Greece has said that it will refuse to help the tanker as it makes its way to the East Mediterranean, with Iran saying it could send a naval escort
  • In the ongoing US-China trade war, the US has delayed sanctions on China’s Huawei Technologies and new tariffs on Chinese imports to mid-December, a sign that the US expects some progress in current trade talks
  • But we have been here before, and the delays do not represent any concrete movement on diffusing the trade tensions between the world’s two largest economies; the trade situation remains volatile and subject to Trump’s whims
  • Also supporting prices are signs that the world’s major economies are moving to stave off the effects of a possible recession, with Germany reporting that it was preparing a package of fiscal stimulus measures
  • The US active rig count managed to finally snap six weeks of consecutive losses, gaining six new oil rigs but losing four gas rigs for a net gain of two; the current total active rigs in the US stand at 935, down 122 y-o-y
  • With the market relatively calm, crude prices will likely stay rangebound in the US$58-60/b space for Brent and US$54-56/b for WTI; the focus will still remain on the long-term health of global oil demand, but intermittent short-term supply issues could swing prices up or down


Headlines of the week

Upstream

  • After ExxonMobil and its series of blockbuster discoveries in Guyana, Tullow Oil joins the race as the Jethro-1 well in the Orinduik license confirms the presence of oil with estimates exceeding pre-drill forecasts
  • The US$7.7 billion Mariner field in the UK North Sea has produced its first oil, with operator Equinor expecting the field to produce over 300 million boe over 30 years, an initial output of 50,000 b/d and 70,000 b/d at peak production
  • Angola will launch a new licensing round, focused on 10 offshore blocks, including frontier areas in the Namibe and the Benguela basins
  • The Hibernia platform in Canada’s Newfoundland and Labrador has been granted permission to resume production after an oil spill in mid-July
  • Kenya has made its first-ever crude oil export as Tullow Oil sold a shipment to ChemChina UK; initial crude shipments are expected to be small-scale until a pipeline connecting Mombasa to the Turkana onshore fields is completed
  • Start-up of Petrobras’s Mero-2 pre-salt project in the Santos basin has fallen behind schedule, with first oil from the Sepetiba FPSO now expected in 2023
  • Joining the trend of other US upstream producers exiting the UK North Sea, ExxonMobil is reportedly considering a sale of its UKNS portfolio, which would be valued at some US$2 billion
  • Repsol has been granted permission by Norway to extend the life of the Rev field in the North Sea past April 2021, which started operations in 2009

Midstream/Downstream

  • After hosting its first-ever earning calls, Saudi Aramco reaffirms its desire to expand its downstream footprint further by taking a 20% stake in Reliance Industries for US$15 billion, which should secure regular sales of 500,000 b/d of Arabian crude to feed the Jamnagar refineries in India
  • First crude has been delivered from the Permian to Corpus Christi as Trafigura/Buckeye received a shipment through the Plains All American Cactus II pipeline that connects the Permian to the Gulf Coast
  • Malaysia is planning to develop the US$2 billion Bunker Island oil storage and ship refuelling site in Johor, which would provide competition to Singapore with capacity for 1.2 million cubic metres of fuel products
  • A group of American small fuel retailers is suing the US government over the move to lift the current ban on year-long E15 ethanol-gasoline sales, a move that was set to benefit the US farm lobby but place pressure on the oil lobby

Natural Gas/LNG

  • The EIA forecasts that Australia will surpass Qatar as the world’s largest LNG exporter by 2020, as data confirms that Australia shipments exceeded Qatar’s in November 2018 and April 2019
  • Equinor has been granted permission by the Norwegian Petroleum Directorate to start production at the Utgard field in the North Sea, with production focused on condensate, natural gas and NGLs
  • Cheniere is on track to become the world’s second-largest LNG operator by capacity in 2020, with an expected installed capacity of 31 million tons per annum through five trains at Sabine Pass and two trains at Corpus Christi
  • Guangzhou Gas is still reportedly looking for LNG supplies after walking away from a potential deal to purchase 1 mtpa of LNG for Canada’s Woodfibre LNG
  • ExxonMobil is gearing up for high-profile natural gas drilling campaign in Australia’s Gippsland basin offshore Victoria
August, 26 2019
New PNG Government Reviews Past Oil Agreements

A lot of complications arise when a government changes. Particularly if the new government comes in on a mandate to reverse alleged deficiencies and corruption of previous governments. This is amplified when significant natural resources are involved. It has happened in the past – when Iran nationalised its oil industry by kicking out BP – and it could happen again in the future – in Guyana where the promise of oil riches in the hands of foreign firms has already caused grumbles. And it is also happening right now in Papua New Guinea, as the new government led by Prime Minister James Marape took aim at the Papua LNG deal.

Negotiated by the previous government of Peter O’Neill, the state’s new position that is the current gas deal is ‘disadvantageous’ to country. A complex set of manoeuvres – accusing O’Neill of multiple levels of corruption – led to a proposed vote of no confidence and an eventual resignation. With the departure of O’Neill, public opinion on the Papua LNG project (as well as the PNG LNG project) switched from being viewed as a boon to the economy to one of unequal terms that would not compensate the nation fairly for its resources.

So, despite a previous assurance in early August that the new government of Papua New Guinea would stand by the previous gas deal agreed with the Papua LNG stakeholders in April, Marape sent a team led by the Minister of Petroleum Kerenga Kua to Singapore to renegotiate with the project’s lead operator Total.

As the meeting was announced, suggestions pointed to a hardline position by Papua New Guinea… that they could ‘walk away from a new deal’ if the new terms were not acceptable. In a statement, Kua stated that the negotiations could ‘work out well or even disastrously’. From Total’s part, CEO Patrick Pouyanne said in July that he expected the government to respect the gas deal while Oil Search stated that it was seeking ‘further clarity on the state’s position’. The gas deal covers framework of the Papua LNG project, which was scheduled to enter FEED phase this year with FID expected in 2020, drawing gas from the giant onshore Elk-Antelope fields ahead of planned first LNG by 2024. So, the stakes are high.

With both sides locked into their positions, reports from Singapore suggested that the negotiations broke down into a ‘Mexican standoff’. No grand new deal was announced, and it can therefore be inferred that no progress was made. There is a possibility that PNG could abandon the deal altogether and seek new partners under more favourable terms, but to do so would be a colossal waste of time, given that Papua LNG is nearing a decade in development. Total and ExxonMobil have already raised the possibility of legal moves if the deal is aborted, with compensation running into billions – billions that the PNG government will not have unless the Papua LNG project goes ahead.

But the implications of the deal or no-deal are even wider. The PNG state has already stated that it will look at the planned expansion of the PNG LNG project (led by ExxonMobil and Santos) next, which draws from the P’nyang field. Renegotiation of the current gas deals in PNG may have populist appeal but have serious implications – alienating two of the largest oil and gas supermajors and two of PNG’s largest foreign investors could lead to a monetary gap and a mood of distrust that PNG may be unable to ever fill. Hardline positions are a good starting position, but eventual moderation is required to ever strike a deal.

Papua LNG Factsheet:

  • Ownership: Total (31.1%), ExxonMobil (28.3%), Oil Search (17.7%), state (22.5%)
  • Feed: Elk-Antelope onshore fields,
  • Capacity: 5.4 million tons per annum
  • Structure: 2 trains of 2.7 mtpa capacity each
August, 22 2019