Oil prices edged up this week
Friday, September 21st, 2018
Oil prices edged up this week on lost supply from Iran and Venezuela, although those supply concerns are somewhat offset by worries over demand. OPEC downgraded demand while the IEA said in a report that supply outages are “tightening up” the oil market. With Iran sanctions less than two months away, “we are entering a very crucial period for the oil market,” the IEA said.
Oil market remains “fragile,” Russian energy minister says. Russia’s energy minister Alexander Novak said that the global oil market remains “fragile” because of production declines and geopolitical unrest. “This is huge uncertainty on the market – how the countries, which buy almost 2 million barrels per day of Iranian oil will act. Those are Europe, Asia Pacific region ... There is a lot of uncertainty. The situation should be closely watched, the right decisions should be taken,” Novak said. He said Russia could step in if the market needs more supply. “Russia has potential to raise production by 300,000 barrels (per day) mid-term.”
U.S. shale companies increased hedging for 2020. U.S. shale companies took advantage of relatively high oil prices in the second quarter to lock in hedges beyond 2019, according to the Houston Chronicle and Wood Mackenzie. Permian shale drillers increased 2020 hedging by 431 percent in the second quarter of this year, an indication that E&Ps are worried about pipeline bottlenecks stretching beyond 2019. WoodMac says the hedging activity that far out is unusual. The risk of hedging is that some companies could eliminate upside exposure if pipelines are completed on time and oil prices rise.
OPEC lowered demand forecast slightly. OPEC cut its 2019 oil demand forecast because of economic headwinds. The 1.41 mb/d demand growth forecast is 20,000 bpd lower than last month’s figure. “Rising challenges in some emerging and developing economies are skewing the current global economic growth risk forecast to the downside,” OPEC said in the report.
Hurricane could affect natural gas production. Hurricane Florence is battering the coast of North and South Carolina, but there is very little fallout expected for the oil market since no oil refineries or upstream production facilities are located in those states. But if the Hurricane travels further inland into the Appalachian region, it could curtail shale gas production. Platts Analytics says that there is potential for the disruption of 2 billion cubic feet per day of supply over the next several days.
Basra violence flares up again. The protests and riots in Iraq’s oil-rich southern region are flaring up again, potentially posing a threat to the country’s record oil export levels. "We've seen protests around facilities and threats being made against oil companies. Some companies have taken their foreign workers out," Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC. "Production hasn't been hit yet, but if you were to have one facility go down, you could lose upwards of 700,000 to 800,000 barrels of production, so it's a big story to watch." She went on to note that the lack of spare capacity makes such an outage especially worrying. "The problem with the market right now is we don't have a lot of shock absorbers," Croft said. "So we really do have a problem where if we have one more country experience a supply outage, this market will be very tight and prices will go materially higher."
U.S. LNG vulnerable to trade war. An estimated $60 billion of new LNG projects may not go forward if China goes forward with tariffs on American gas imports, according to Morgan Stanley. The LNG market is tightening faster than many thought, and a new wave of prospective LNG projects are getting a lot of attention. But the U.S.-China trade war could significantly damage the outlook for projects in the U.S.
Iran using floating storage again. Iran is storing oil on tankers in the Persian Gulf as buyers begin to walk away. Between 2012 and 2016, Iran stored millions of barrels of oil on supertankers because it could not export enough. That practice is making a comeback, according to Bloomberg. “Iranian exports are falling fast,” Amrita Sen, chief oil analyst at Energy Aspects Ltd., said in a note to clients. Shipments are “set to average as little as 1.5 million barrels a day in September according to the preliminary loading program, compared to around 2.8 million barrels a day of oil exports in April and May,” she said.
India to cut Iran oil imports by half. Indian refiners will reportedly cut oil imports from Iran in September and October, reducing purchases by half relative to levels from earlier this year, according to Reuters. India imported around 658,000 bpd between April and August, and Reuters estimates that imports will fall to 360,000-370,000 bpd over the course of this month and next month. The cuts are significant, but Indian officials have also told Washington that they cannot take imports down to zero, as requested by the Trump administration.
Digitalization could save refiners $15 billion. A new report from Wood Mackenzie finds that artificial intelligence, software and other digital technologies could save oil refiners around $15 billion a year.
ExxonMobil to spend 500 million pounds on upgrading UK refinery. ExxonMobil (NYSE: XOM) is planning on spending 500 million pounds to upgrade the UK’s largest oil refinery. The investment would allow the Fawley refinery on England’s south coast to produce more diesel.
U.S. likely world’s top oil producer. The U.S. likely surpassed Russia this year to become the world’s top oil producer, the EIA said.
China aims to replace 20 percent of heavy duty diesel trucks. As China continues its war on pollution, the government is considering plans to replace about 20 percent of the nation’s heavy duty trucks that run on diesel, according to Reuters. The plans would consist of either using more modern trucks that use a higher grade of diesel, or electric trucks, or trucks that can use LNG. Details have not been finalized but the plan is slated to take effect in 2020.
Oil prices edged up this week on lost supply from Iran and Venezuela, although those supply concerns are somewhat offset by worries over demand. OPEC downgraded demand while the IEA said in a report that supply outages are “tightening up” the oil market. With Iran sanctions less than two months away, “we are entering a very crucial period for the oil market,” the IEA said.
Oil market remains “fragile,” Russian energy minister says. Russia’s energy minister Alexander Novak said that the global oil market remains “fragile” because of production declines and geopolitical unrest. “This is huge uncertainty on the market – how the countries, which buy almost 2 million barrels per day of Iranian oil will act. Those are Europe, Asia Pacific region ... There is a lot of uncertainty. The situation should be closely watched, the right decisions should be taken,” Novak said. He said Russia could step in if the market needs more supply. “Russia has potential to raise production by 300,000 barrels (per day) mid-term.”
U.S. shale companies increased hedging for 2020. U.S. shale companies took advantage of relatively high oil prices in the second quarter to lock in hedges beyond 2019, according to the Houston Chronicle and Wood Mackenzie. Permian shale drillers increased 2020 hedging by 431 percent in the second quarter of this year, an indication that E&Ps are worried about pipeline bottlenecks stretching beyond 2019. WoodMac says the hedging activity that far out is unusual. The risk of hedging is that some companies could eliminate upside exposure if pipelines are completed on time and oil prices rise.
OPEC lowered demand forecast slightly. OPEC cut its 2019 oil demand forecast because of economic headwinds. The 1.41 mb/d demand growth forecast is 20,000 bpd lower than last month’s figure. “Rising challenges in some emerging and developing economies are skewing the current global economic growth risk forecast to the downside,” OPEC said in the report.
Hurricane could affect natural gas production. Hurricane Florence is battering the coast of North and South Carolina, but there is very little fallout expected for the oil market since no oil refineries or upstream production facilities are located in those states. But if the Hurricane travels further inland into the Appalachian region, it could curtail shale gas production. Platts Analytics says that there is potential for the disruption of 2 billion cubic feet per day of supply over the next several days.
Basra violence flares up again. The protests and riots in Iraq’s oil-rich southern region are flaring up again, potentially posing a threat to the country’s record oil export levels. "We've seen protests around facilities and threats being made against oil companies. Some companies have taken their foreign workers out," Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC. "Production hasn't been hit yet, but if you were to have one facility go down, you could lose upwards of 700,000 to 800,000 barrels of production, so it's a big story to watch." She went on to note that the lack of spare capacity makes such an outage especially worrying. "The problem with the market right now is we don't have a lot of shock absorbers," Croft said. "So we really do have a problem where if we have one more country experience a supply outage, this market will be very tight and prices will go materially higher."
U.S. LNG vulnerable to trade war. An estimated $60 billion of new LNG projects may not go forward if China goes forward with tariffs on American gas imports, according to Morgan Stanley. The LNG market is tightening faster than many thought, and a new wave of prospective LNG projects are getting a lot of attention. But the U.S.-China trade war could significantly damage the outlook for projects in the U.S.
Iran using floating storage again. Iran is storing oil on tankers in the Persian Gulf as buyers begin to walk away. Between 2012 and 2016, Iran stored millions of barrels of oil on supertankers because it could not export enough. That practice is making a comeback, according to Bloomberg. “Iranian exports are falling fast,” Amrita Sen, chief oil analyst at Energy Aspects Ltd., said in a note to clients. Shipments are “set to average as little as 1.5 million barrels a day in September according to the preliminary loading program, compared to around 2.8 million barrels a day of oil exports in April and May,” she said.
India to cut Iran oil imports by half. Indian refiners will reportedly cut oil imports from Iran in September and October, reducing purchases by half relative to levels from earlier this year, according to Reuters. India imported around 658,000 bpd between April and August, and Reuters estimates that imports will fall to 360,000-370,000 bpd over the course of this month and next month. The cuts are significant, but Indian officials have also told Washington that they cannot take imports down to zero, as requested by the Trump administration.
Digitalization could save refiners $15 billion. A new report from Wood Mackenzie finds that artificial intelligence, software and other digital technologies could save oil refiners around $15 billion a year.
ExxonMobil to spend 500 million pounds on upgrading UK refinery. ExxonMobil (NYSE: XOM) is planning on spending 500 million pounds to upgrade the UK’s largest oil refinery. The investment would allow the Fawley refinery on England’s south coast to produce more diesel.
U.S. likely world’s top oil producer. The U.S. likely surpassed Russia this year to become the world’s top oil producer, the EIA said.
China aims to replace 20 percent of heavy duty diesel trucks. As China continues its war on pollution, the government is considering plans to replace about 20 percent of the nation’s heavy duty trucks that run on diesel, according to Reuters. The plans would consist of either using more modern trucks that use a higher grade of diesel, or electric trucks, or trucks that can use LNG. Details have not been finalized but the plan is slated to take effect in 2020.
Volf
22.09.2018 kl 10:15
1025
Global Energy Advisory - 21st September 2018
This week saw the latest exchange of tariffs between Washington and Beijing, and this time there is a likely to be a tangible negative impact on the U.S. LNG industry.
Following President Trump’s approval of tariffs on $200 billion worth of Chinese goods, China retaliated with its own list containing goods worth US$60 billion. The list included LNG, which will be subject to a 10% import tariff.
Now, while some in the industry breathed a sigh of relief that the tariff rate is much lower than the initially threatened 25%, the news is not exactly good. The U.S. is certainly one of the focal points of the LNG industry right now, but it’s worth noting that it is not the only such focal point.
Qatar is expanding its production capacity, for one thing. For another, one more megaproject in Australia started operation earlier this year—Inpex’s Ichthys—and another, Shell’s Prelude FLNG, is scheduled to launch before the year’s end. Meanwhile in Russia, Novatek is gearing up for the start of construction of its second LNG facility in the North.
U.S. LNG producers have a lot of planned capacity but building it requires money, most of which is secured via long-term LNG purchase commitments. Unsurprisingly, Chinese LNG buyers are among the top picks for such projects given projections that China will be the biggest driver behind LNG demand in Asia and globally in the coming years. From this perspective, the worsening bilateral relations are not helping U.S. LNG makers, even if the tariff is 10% instead of 25%.
On the flip side, U.S. producers may start exporting LNG to Germany within the next four years, challenging Russia’s gas dominance on the largest European energy market. That’s according to Deputy U.S. Energy Secretary Dan Brouilette. Germany does not seem so excited, however: a spokesperson for the German government said Germany operates an open market and all suppliers are welcome as long as the price is right.
Deals, Mergers & Acquisitions:
- Shell has begun the sale process for an oil block in Nigeria anew after the preferred bidder for the asset, Oil Mining Lease 25, lost the rights to develop it. Crestar Energy offered $53 million for OML 25 back in 2014 but as the sale got delayed it lost its exploration rights. Shell holds 45% in OML 25, and shares the block with Eni and Total.
- Canadian Natural Resources has acquired Laricina Energy Ltd., an oil sands operator from Alberta, for $35.9 million. The target company has two oil sands projects in the West Athabasca basin but both were suspended in the early stages of development as the 2014 oil price collapse hit.
- Kosmos Energy this week completed the acquisition of Deep Gulf Energy Cos—a portfolio company of private equity firm First Reserve—for a total $1.23 billion, which will give the exploration company its first footprint in the Gulf of Mexico. This is the largest acquisition in the history of Kosmos and will give it exposure to the deepwater segments of the GOM.
Tenders, Auctions & Contracts:
- Cheniere Energy signed a 15-year LNG supply contract with global commodity trader Vitol. The contract is for supplies of 700,000 tons annually of the liquefied fuel beginning this year. The price of the gas will be pegged to the Henry Hub monthly average benchmark plus a fee. This is Cheniere’s second LNG supply deal of this magnitude, after earlier this year it inked a contract with Trafigura for annual supplies of 1 million tons of LNG.
- Shell and Petronas signed a deal with the government of Egypt for oil and gas exploration in the West Delta sector of Egypt’s continental shelf. Under the contract, Shell and Petronas will drill eight wells in the deepwater block, investing as much as $1 billion in this phase of exploration.
- Argentina has scheduled its much-anticipated offshore oil and gas tender for October. The results of the tender will be announced in early 2019. Argentina’s energy ministry first announced plans for the tender last year, hoping to replicate the success of Brazil’s offshore auctions on the grounds that its now notorious presalt zone extends into the Argentine shelf.
Discovery & Development:
- Petrobras plans to increase its crude oil production by a tenth to 2.3 million bpd next year and also reduce its debt load by $10 billion, with the former contributing to achieving the latter. The Brazilian state firm hopes the recovery in oil prices will help it in this respect, boosting revenues from oil.
- There is $405 billion worth of ongoing and planned oil and gas projects in the countries from the Gulf Cooperation Council, a recent Middle East Economic Digest report has revealed. That’s out of a total $662 billion in oil and gas projects in the wider MENA region.
- Shale oil driller Cuadrilla has received the green light from the British government to start fracking two wells at its site in Preston New Road, in Lincolnshire. Estimates suggest that shale formations in northern England could contain up to 1,300 trillion cubic feet of natural gas. A tenth of this amount would satisfy the country’s gas demand for a period of four decades. However, there has been strong opposition to fracking after earlier fracking activities caused quakes in the country, which prompted the temporary ban on the extraction technology.
- Libya has restarted oil exports to the United States after a temporary suspension in August due to port closures in the North African country. So far, some 2.7 million barrels of Libyan crude have arrived or are en route to the United States, according to Reuters shipping data.
Company News:
- Spain’s energy major Cepsa plans to go public, listing 25% of its stock in an IPO that could put the value of the company at up to $11.6 billion. This would make Cepsa’s listing one of the largest for the last decade. Cepsa is wholly owned by Emirati state investment firm Mubadala, which said the listing will take place by the end of the year and could expand to more than 25% of the stock in case there is sufficient interest.
Regulatory Updates:
- A Dutch district court will hear a Petrobras shareholders case against the Brazilian energy giant. The hearing is scheduled for December. A group of Petrobras shareholders are demanding compensation for losses they had suffered from the corruptions scandal that erupted a few years ago and that revealed senior Petrobras executives had been involved in graft schemes that drained cash from the company. Petrobras already settled one such case, with U.S. investors, agreeing to pay $3 billion.
Politics, Geopolitics & Conflict:
- China plans to cut import tariffs on some goods as part of its pledge to open up its economy. However, U.S. goods are not as likely to find a place on this list as the tariff exchange between Beijing and Washington continues.
- A far-right candidate for the Brazilian presidential office gained a lead over rivals ahead of the October 7 elections. It remains unclear, however, who will be Jair Bolsonaro’s opponent.
- Iran has asked the UN to condemn Tel Aviv’s threats against Tehran and to start supervising Israel’s nuclear program, which is something of a public secret. Tehran also called on the UN to make Israel join the Nuclear Non-Proliferation Treaty, by force, if necessary.
This week saw the latest exchange of tariffs between Washington and Beijing, and this time there is a likely to be a tangible negative impact on the U.S. LNG industry.
Following President Trump’s approval of tariffs on $200 billion worth of Chinese goods, China retaliated with its own list containing goods worth US$60 billion. The list included LNG, which will be subject to a 10% import tariff.
Now, while some in the industry breathed a sigh of relief that the tariff rate is much lower than the initially threatened 25%, the news is not exactly good. The U.S. is certainly one of the focal points of the LNG industry right now, but it’s worth noting that it is not the only such focal point.
Qatar is expanding its production capacity, for one thing. For another, one more megaproject in Australia started operation earlier this year—Inpex’s Ichthys—and another, Shell’s Prelude FLNG, is scheduled to launch before the year’s end. Meanwhile in Russia, Novatek is gearing up for the start of construction of its second LNG facility in the North.
U.S. LNG producers have a lot of planned capacity but building it requires money, most of which is secured via long-term LNG purchase commitments. Unsurprisingly, Chinese LNG buyers are among the top picks for such projects given projections that China will be the biggest driver behind LNG demand in Asia and globally in the coming years. From this perspective, the worsening bilateral relations are not helping U.S. LNG makers, even if the tariff is 10% instead of 25%.
On the flip side, U.S. producers may start exporting LNG to Germany within the next four years, challenging Russia’s gas dominance on the largest European energy market. That’s according to Deputy U.S. Energy Secretary Dan Brouilette. Germany does not seem so excited, however: a spokesperson for the German government said Germany operates an open market and all suppliers are welcome as long as the price is right.
Deals, Mergers & Acquisitions:
- Shell has begun the sale process for an oil block in Nigeria anew after the preferred bidder for the asset, Oil Mining Lease 25, lost the rights to develop it. Crestar Energy offered $53 million for OML 25 back in 2014 but as the sale got delayed it lost its exploration rights. Shell holds 45% in OML 25, and shares the block with Eni and Total.
- Canadian Natural Resources has acquired Laricina Energy Ltd., an oil sands operator from Alberta, for $35.9 million. The target company has two oil sands projects in the West Athabasca basin but both were suspended in the early stages of development as the 2014 oil price collapse hit.
- Kosmos Energy this week completed the acquisition of Deep Gulf Energy Cos—a portfolio company of private equity firm First Reserve—for a total $1.23 billion, which will give the exploration company its first footprint in the Gulf of Mexico. This is the largest acquisition in the history of Kosmos and will give it exposure to the deepwater segments of the GOM.
Tenders, Auctions & Contracts:
- Cheniere Energy signed a 15-year LNG supply contract with global commodity trader Vitol. The contract is for supplies of 700,000 tons annually of the liquefied fuel beginning this year. The price of the gas will be pegged to the Henry Hub monthly average benchmark plus a fee. This is Cheniere’s second LNG supply deal of this magnitude, after earlier this year it inked a contract with Trafigura for annual supplies of 1 million tons of LNG.
- Shell and Petronas signed a deal with the government of Egypt for oil and gas exploration in the West Delta sector of Egypt’s continental shelf. Under the contract, Shell and Petronas will drill eight wells in the deepwater block, investing as much as $1 billion in this phase of exploration.
- Argentina has scheduled its much-anticipated offshore oil and gas tender for October. The results of the tender will be announced in early 2019. Argentina’s energy ministry first announced plans for the tender last year, hoping to replicate the success of Brazil’s offshore auctions on the grounds that its now notorious presalt zone extends into the Argentine shelf.
Discovery & Development:
- Petrobras plans to increase its crude oil production by a tenth to 2.3 million bpd next year and also reduce its debt load by $10 billion, with the former contributing to achieving the latter. The Brazilian state firm hopes the recovery in oil prices will help it in this respect, boosting revenues from oil.
- There is $405 billion worth of ongoing and planned oil and gas projects in the countries from the Gulf Cooperation Council, a recent Middle East Economic Digest report has revealed. That’s out of a total $662 billion in oil and gas projects in the wider MENA region.
- Shale oil driller Cuadrilla has received the green light from the British government to start fracking two wells at its site in Preston New Road, in Lincolnshire. Estimates suggest that shale formations in northern England could contain up to 1,300 trillion cubic feet of natural gas. A tenth of this amount would satisfy the country’s gas demand for a period of four decades. However, there has been strong opposition to fracking after earlier fracking activities caused quakes in the country, which prompted the temporary ban on the extraction technology.
- Libya has restarted oil exports to the United States after a temporary suspension in August due to port closures in the North African country. So far, some 2.7 million barrels of Libyan crude have arrived or are en route to the United States, according to Reuters shipping data.
Company News:
- Spain’s energy major Cepsa plans to go public, listing 25% of its stock in an IPO that could put the value of the company at up to $11.6 billion. This would make Cepsa’s listing one of the largest for the last decade. Cepsa is wholly owned by Emirati state investment firm Mubadala, which said the listing will take place by the end of the year and could expand to more than 25% of the stock in case there is sufficient interest.
Regulatory Updates:
- A Dutch district court will hear a Petrobras shareholders case against the Brazilian energy giant. The hearing is scheduled for December. A group of Petrobras shareholders are demanding compensation for losses they had suffered from the corruptions scandal that erupted a few years ago and that revealed senior Petrobras executives had been involved in graft schemes that drained cash from the company. Petrobras already settled one such case, with U.S. investors, agreeing to pay $3 billion.
Politics, Geopolitics & Conflict:
- China plans to cut import tariffs on some goods as part of its pledge to open up its economy. However, U.S. goods are not as likely to find a place on this list as the tariff exchange between Beijing and Washington continues.
- A far-right candidate for the Brazilian presidential office gained a lead over rivals ahead of the October 7 elections. It remains unclear, however, who will be Jair Bolsonaro’s opponent.
- Iran has asked the UN to condemn Tel Aviv’s threats against Tehran and to start supervising Israel’s nuclear program, which is something of a public secret. Tehran also called on the UN to make Israel join the Nuclear Non-Proliferation Treaty, by force, if necessary.