Oil prices held steady after Wednesday’s steep selloff,
Friday, July 13th, 2018
Oil prices held steady after Wednesday’s steep selloff, with the return of Libyan supply keeping prices in check despite reports of a tight global market.
IEA: oil market “stretched to the limit.” The IEA said on Thursday that the oil market was tightening significantly and that even though higher production from OPEC was “very welcome,” it would cut into limited spare capacity, which could become “stretched to the limit.” Outages around the world are piling up and “we see no sign of higher production from elsewhere that might ease fears of market tightness,” the IEA wrote.
Libya to restart export terminals. Oil prices have climbed over the last few weeks in large part because nearly 700,000 bpd was shut down in Libya. However, that changed this week when the National Oil Corp. moved to lift force majeure on several export terminals, and said that it would begin restoring the disrupted supply. Oil prices fell sharply on the news, declining by more than 6 percent on Wednesday.
Russia says OPEC+ could increase by more than expected if needed. If the oil market needs more oil, the OPEC+ coalition will provide it, according to Russia. “I can’t rule out that if there is a need for more than 1 million barrels we will be able to quickly discuss it all together and make all necessary decisions,” Russian energy minister Alexander Novak told reporters in Moscow on Friday. OPEC+ has “all needed tools,” if necessary, he said.
Cheniere and CME Group launch LNG contract. CME Group is developing the first physically deliverable U.S. LNG futures contract, which is located at Cheniere Energy’s (NYSE: LNG) Sabine Pass LNG facility in Louisiana. The launch date was not disclosed but the contract will trade on the New York Mercantile Exchange. The futures contract is an indication that the trade in LNG is growing quickly, and analysts expect trade volumes to grow by about 3 percent per year through 2050. The U.S. is expected to become the largest exporter of LNG in the 2020s, and a futures contract will help increase market liquidity (no pun intended).
India’s largest refiner: OPEC needs to lower prices or demand is in jeopardy. The chairman of Indian Oil Corp., the country’s largest refiner, warned that long-term demand is highly price sensitive. “Demand cannot be seen in isolation to prices, especially for a price sensitive market like India,” Sanjiv Singh said, according Bloomberg. “You may not see an impact on demand in the short term, but in the long term, definitely it will have implications.”
U.S. oil exports to India jump because of Iran sanctions. India is one of the largest buyers of Iranian oil and the U.S. government has been urging India to cut back. India is starting to replace Iranian oil with crude from the United States. U.S. oil exports to India are expected to hit 15 million barrels year-to-date in July, up from 8 million barrels for the full year in 2017. Meanwhile, India’s imports of Iranian oil fell by 15.9 percent in June compared to a month earlier.
U.S. hints at leniency on Iran sanctions. After a few weeks of very tough rhetoric about Iran sanctions, U.S. Secretary of State Mike Pompeo signaled a softer line this week, noting that a lot of countries could request waivers. "We’ll consider it,” he said. High gasoline prices are likely putting pressure on the U.S. government to slow down on its campaign to shut in all of Iran’s oil exports.
High gasoline prices raise concerns for U.S. economy. Gasoline demand has flattened out, and some economists are watching energy prices and wondering about the health of the U.S. economy. “People are on the lookout for a downturn,” Joseph LaVorgna, chief economist for the Americas at Natixis, told the WSJ. “Tight monetary policy combined with rising energy costs is typically not a good development for U.S. households.” Airlines are hiking fares, higher energy costs could push up inflation, and consumers could curtail retail spending if expensive gasoline cuts into discretionary spending.
Shale drillers eye the Eagle Ford as Permian hits a wall. The pipeline bottleneck in the Permian is reviving interest in the Eagle Ford. Oil and gas from South Texas can sell for higher prices because the region does not suffer from the same midstream constraints. Recent deals in the Eagle Ford signal an uptick in interest, according to S&P Global Platts.
ConocoPhillips increases share repurchasing program by $1 billion. ConocoPhillips (NYSE: COP) said on Thursday that it would increase its share repurchasing program by $1 billion. The company spent $3 billion from 2016 and 2017 on repurchases, and will spend another $3 billion this year (up from the planned $2 billion).
Trump tariffs hit rare earths that U.S. needs. China is a major producer of rare earth elements, critical materials that are used in high-tech manufacturing and strategic technologies. “The Chinese mine the rare-earths, they separate them, they refine them. This is the long-term trend and a 10 percent tariff will not do anything to stir any domestic production in the U.S.” Jack Lifton, the Michigan-based founder of rare earth consulting service Technology Metals Research LLC, told Bloomberg. “China produces as much as 80 percent of the world’s refined cobalt, and we’ve just raised our price by 10 percent,”
U.S. offers exemptions to Chevron and Shell on steel tariffs. In a closely-watched move, the U.S. granted exemptions to Chevron (NYSE: CVX) and Royal Dutch Shell (NYSE: RDS.A) from the steel tariffs, allowing them to avoid paying the 25 percent tariff on imported steel. The oil and gas industry has pleaded for leniency because as much as three-quarters of the steel that goes into pipelines, for instance, comes from abroad. The exemptions were only narrowly granted to those two companies, but they signal a willingness by the Trump administration to offer exemptions for oil and gas.
Ireland votes to divest from fossil fuels. Ireland became the first country to pass legislation to divest from fossil fuels. The Irish parliament passed a bill that calls for the $10.4 billion strategic investment fund to withdraw investments from coal, oil and gas over the next five years.
Total buys LNG unit from Engie for $1.5 billion. Total SA (NYSE: TOT) agreed to purchase the upstream LNG division from Engie SA (EPA: ENGI) for $1.5 billion. The acquisition will make Total the second largest LNG producer after Royal Dutch Shell (NYSE: RDS.A).
Oil prices held steady after Wednesday’s steep selloff, with the return of Libyan supply keeping prices in check despite reports of a tight global market.
IEA: oil market “stretched to the limit.” The IEA said on Thursday that the oil market was tightening significantly and that even though higher production from OPEC was “very welcome,” it would cut into limited spare capacity, which could become “stretched to the limit.” Outages around the world are piling up and “we see no sign of higher production from elsewhere that might ease fears of market tightness,” the IEA wrote.
Libya to restart export terminals. Oil prices have climbed over the last few weeks in large part because nearly 700,000 bpd was shut down in Libya. However, that changed this week when the National Oil Corp. moved to lift force majeure on several export terminals, and said that it would begin restoring the disrupted supply. Oil prices fell sharply on the news, declining by more than 6 percent on Wednesday.
Russia says OPEC+ could increase by more than expected if needed. If the oil market needs more oil, the OPEC+ coalition will provide it, according to Russia. “I can’t rule out that if there is a need for more than 1 million barrels we will be able to quickly discuss it all together and make all necessary decisions,” Russian energy minister Alexander Novak told reporters in Moscow on Friday. OPEC+ has “all needed tools,” if necessary, he said.
Cheniere and CME Group launch LNG contract. CME Group is developing the first physically deliverable U.S. LNG futures contract, which is located at Cheniere Energy’s (NYSE: LNG) Sabine Pass LNG facility in Louisiana. The launch date was not disclosed but the contract will trade on the New York Mercantile Exchange. The futures contract is an indication that the trade in LNG is growing quickly, and analysts expect trade volumes to grow by about 3 percent per year through 2050. The U.S. is expected to become the largest exporter of LNG in the 2020s, and a futures contract will help increase market liquidity (no pun intended).
India’s largest refiner: OPEC needs to lower prices or demand is in jeopardy. The chairman of Indian Oil Corp., the country’s largest refiner, warned that long-term demand is highly price sensitive. “Demand cannot be seen in isolation to prices, especially for a price sensitive market like India,” Sanjiv Singh said, according Bloomberg. “You may not see an impact on demand in the short term, but in the long term, definitely it will have implications.”
U.S. oil exports to India jump because of Iran sanctions. India is one of the largest buyers of Iranian oil and the U.S. government has been urging India to cut back. India is starting to replace Iranian oil with crude from the United States. U.S. oil exports to India are expected to hit 15 million barrels year-to-date in July, up from 8 million barrels for the full year in 2017. Meanwhile, India’s imports of Iranian oil fell by 15.9 percent in June compared to a month earlier.
U.S. hints at leniency on Iran sanctions. After a few weeks of very tough rhetoric about Iran sanctions, U.S. Secretary of State Mike Pompeo signaled a softer line this week, noting that a lot of countries could request waivers. "We’ll consider it,” he said. High gasoline prices are likely putting pressure on the U.S. government to slow down on its campaign to shut in all of Iran’s oil exports.
High gasoline prices raise concerns for U.S. economy. Gasoline demand has flattened out, and some economists are watching energy prices and wondering about the health of the U.S. economy. “People are on the lookout for a downturn,” Joseph LaVorgna, chief economist for the Americas at Natixis, told the WSJ. “Tight monetary policy combined with rising energy costs is typically not a good development for U.S. households.” Airlines are hiking fares, higher energy costs could push up inflation, and consumers could curtail retail spending if expensive gasoline cuts into discretionary spending.
Shale drillers eye the Eagle Ford as Permian hits a wall. The pipeline bottleneck in the Permian is reviving interest in the Eagle Ford. Oil and gas from South Texas can sell for higher prices because the region does not suffer from the same midstream constraints. Recent deals in the Eagle Ford signal an uptick in interest, according to S&P Global Platts.
ConocoPhillips increases share repurchasing program by $1 billion. ConocoPhillips (NYSE: COP) said on Thursday that it would increase its share repurchasing program by $1 billion. The company spent $3 billion from 2016 and 2017 on repurchases, and will spend another $3 billion this year (up from the planned $2 billion).
Trump tariffs hit rare earths that U.S. needs. China is a major producer of rare earth elements, critical materials that are used in high-tech manufacturing and strategic technologies. “The Chinese mine the rare-earths, they separate them, they refine them. This is the long-term trend and a 10 percent tariff will not do anything to stir any domestic production in the U.S.” Jack Lifton, the Michigan-based founder of rare earth consulting service Technology Metals Research LLC, told Bloomberg. “China produces as much as 80 percent of the world’s refined cobalt, and we’ve just raised our price by 10 percent,”
U.S. offers exemptions to Chevron and Shell on steel tariffs. In a closely-watched move, the U.S. granted exemptions to Chevron (NYSE: CVX) and Royal Dutch Shell (NYSE: RDS.A) from the steel tariffs, allowing them to avoid paying the 25 percent tariff on imported steel. The oil and gas industry has pleaded for leniency because as much as three-quarters of the steel that goes into pipelines, for instance, comes from abroad. The exemptions were only narrowly granted to those two companies, but they signal a willingness by the Trump administration to offer exemptions for oil and gas.
Ireland votes to divest from fossil fuels. Ireland became the first country to pass legislation to divest from fossil fuels. The Irish parliament passed a bill that calls for the $10.4 billion strategic investment fund to withdraw investments from coal, oil and gas over the next five years.
Total buys LNG unit from Engie for $1.5 billion. Total SA (NYSE: TOT) agreed to purchase the upstream LNG division from Engie SA (EPA: ENGI) for $1.5 billion. The acquisition will make Total the second largest LNG producer after Royal Dutch Shell (NYSE: RDS.A).
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Global Energy Advisory - 13th July 2018
U.S. LNG producers are racing to add production capacity amid forecasts for strong growth in demand, with the total—concentrated in Louisiana and Texas—set to reach 10 billion cubic feet daily by the end of next year, from about 4 billion cubic feet a day today. And yet, all this capacity will not be enough to prevent the supply crunch that has been predicted by Shell.
The crunch will be a result of a shortage in final investment decisions on new LNG capacity in the United States, which is shaping up as the largest emerging LNG exporter globally. And the shortage of FIDs itself is a result of producers’ uncertainty about future demand. This uncertainty has pushed them to be creative as buyers begin to shy away from long-term, fixed-price contracts, opting for shorter deals.
So, U.S. LNG producers began offering buyers low-priced LNG in exchange for investing in the construction of the liquefaction trains that will produce this LNG. The approach is working and has helped Cheniere Energy and its sector players secure future supply. However, even that won’t be enough if demand continues to grow so strongly.
By 2025, Cheniere has warned, the world will need an additional 10.5 billion cubic feet daily in LNG capacity. By 2030, another 16.4 billion cubic feet daily will need to be added. But long-term contracts that fund new capacity will continue to get harder to secure as buyers continue to prefer shorter deals and the spot market.
The good news is that this shift to shorter deals has helped make the global LNG market more transparent and this is good for liquidity. S&P Global Platts and Australia-based Global LNG Exchange have become the first platforms to facilitate transparent LNG trades. It’s still early days for LNG and transparency but hopes are that it will at some point approach the level of transparency in oil. This will make things easier for both buyers and sellers and could help the latter bring on that additional capacity forecasts say is urgently needed.
Deals, Mergers & Acquisitions
- Total is selling some $1.5 billion worth of North Sea assets, including 33% of its 60% interest in the Laggan Tormore gas field and its minority stakes—between 43% and 25%—in four other fields that the French company acquired after it took over Danish Moeller/Maersk’s oil unit. A lot of supermajors are ditching their mature assets in the North Sea for new discoveries elsewhere, while their place is taken by new independents backed by private equity set on extracting whatever is possible from the mature assets.
- BP has reportedly emerged as the top bidder for the shale oil business of Australia’s BHP Billiton, which was pressured by activist investor Elliott Management to offload the business. BP’s bid, according to unnamed sources cited by Reuters, is more than $10 billion, while rival bids from companies including Shell and Chevron were all about $9 billion. The assets on the block include 800,000 acres across the shale patch in the U.S., including the Permian.
- BP has bought a $1.98-million stake in Voltaware, a UK-based company that markets an energy-monitoring device allowing both household and industrial users to track and optimize their energy consumption. The move is the latest step in a more energy-efficient direction for the supermajor, which last year acquired Brazilian solar and biofuels company Lightsource for $200 million.
Tenders, Auctions & Contracts
- Shell, along with several other Nigerian and international companies, has inked a deal with the Nigerian national Oil Corporation to take part in the development of seven gas supply projects worth a combined $3.7 billion that will help Nigeria avoid a domestic natural gas shortage forecast for the early 2020s. The fields covered by the projects have combined reserves of 17.7 trillion cubic feet of natural gas, which will be used for power generation: Nigeria has set itself a target of 15 GW in total generation capacity by 2020.
- Iraq has extended the deadline for bidding for the construction of a new refinery in the province of Kut, south of Baghdad. Now, interested parties will have until October 4th to make offers for the 100,000-bpd facility. The oil ministry is offering bidders a choice of two contracts: build-own-operate and build-operate-transfer. The refinery project is part of Iraq’s efforts to get its oil industry back on its feet and expand its refining capacity to reduce dependence on fuel imports.
Discovery & Development
- Libya’s crude oil production has been halved to about 527,000 bpd amid oil terminal closures following militant group clashes in June that led to a change of control of the terminals and the announcement of a force majeure by the national Oil Corporation. Now the force majeure has been lifted, after the Libyan National Army conceded control of the ports to NOC but production will take time to recover.
- Indonesia’s Pertamina has dropped an LNG import terminal project that was to be its second onshore such facility. The company has decided that at the time being the project is not economically feasible. The facility would have cost $800 million and would have had an annual capacity of 4 million tons of LNG. Indonesia is forecast to become a net LNG importer by 2020 as a growing population and industrial activity boosts domestic demand for the fuel.
- An apparent increase in activity by Shell in the Canadian coastal town of Kitimat has sparked hopes the $40-billion LNG project that the supermajor is working on is nearing its final investment decision. Shell, which has partnered with Mitsubishi, Petronas, PertroChina and Kogas for the LNG Canada project, has been slow to make the decision, delaying it twice over the last two years because of the international LNG market dynamics, which swung it into an oversupply. LNG Canada will have a capacity of up to 28 million tons of LNG, to be shipped to foreign markets.
- Italy’s Eni announced a second oil discovery in the South West Meleiha license in Egypt’s Western Desert, which, the company said, confirms the potential of the Faghur Basin. It will follow up with more exploratory wells to consolidate the production area before moving on to commercialization if the reserves prove viable. Eni operates the license through its local subsidiary International Egyptian Oil Company, which pumps 55,000 bpd of oil equivalent in the Western Desert.
Politics, Geopolitics & Conflict
- President Trump has demanded that European NATO members increase their defense spending to 4% of GDP, after slamming Germany for underpaying for defense while buying “inappropriate” amounts of gas from Russia.
- Separately, Trump threatened the five Western European companies involved in the Nord Stream 2 projects with sanctions. These include supermajor Shell, French Engie, German Uniper, Austrian OMV, and Swedish Wintershall.
- The U.S. has compiled a new list of Chinese goods to be slapped with a 10% import tariff. China has said it will once again retaliate.
- Israel has proposed to Russia it will leave Bashar Assad alone if Moscow persuades Iran to leave Syria (this is also possibly the same deal the U.S. has tried to negotiate with Putin, in return for pretending the Crimea annexation didn’t happen). The proposal follows a Syrian army advance on rebel groups near the Golan Heights that Israel captured during the 1967 war.
U.S. LNG producers are racing to add production capacity amid forecasts for strong growth in demand, with the total—concentrated in Louisiana and Texas—set to reach 10 billion cubic feet daily by the end of next year, from about 4 billion cubic feet a day today. And yet, all this capacity will not be enough to prevent the supply crunch that has been predicted by Shell.
The crunch will be a result of a shortage in final investment decisions on new LNG capacity in the United States, which is shaping up as the largest emerging LNG exporter globally. And the shortage of FIDs itself is a result of producers’ uncertainty about future demand. This uncertainty has pushed them to be creative as buyers begin to shy away from long-term, fixed-price contracts, opting for shorter deals.
So, U.S. LNG producers began offering buyers low-priced LNG in exchange for investing in the construction of the liquefaction trains that will produce this LNG. The approach is working and has helped Cheniere Energy and its sector players secure future supply. However, even that won’t be enough if demand continues to grow so strongly.
By 2025, Cheniere has warned, the world will need an additional 10.5 billion cubic feet daily in LNG capacity. By 2030, another 16.4 billion cubic feet daily will need to be added. But long-term contracts that fund new capacity will continue to get harder to secure as buyers continue to prefer shorter deals and the spot market.
The good news is that this shift to shorter deals has helped make the global LNG market more transparent and this is good for liquidity. S&P Global Platts and Australia-based Global LNG Exchange have become the first platforms to facilitate transparent LNG trades. It’s still early days for LNG and transparency but hopes are that it will at some point approach the level of transparency in oil. This will make things easier for both buyers and sellers and could help the latter bring on that additional capacity forecasts say is urgently needed.
Deals, Mergers & Acquisitions
- Total is selling some $1.5 billion worth of North Sea assets, including 33% of its 60% interest in the Laggan Tormore gas field and its minority stakes—between 43% and 25%—in four other fields that the French company acquired after it took over Danish Moeller/Maersk’s oil unit. A lot of supermajors are ditching their mature assets in the North Sea for new discoveries elsewhere, while their place is taken by new independents backed by private equity set on extracting whatever is possible from the mature assets.
- BP has reportedly emerged as the top bidder for the shale oil business of Australia’s BHP Billiton, which was pressured by activist investor Elliott Management to offload the business. BP’s bid, according to unnamed sources cited by Reuters, is more than $10 billion, while rival bids from companies including Shell and Chevron were all about $9 billion. The assets on the block include 800,000 acres across the shale patch in the U.S., including the Permian.
- BP has bought a $1.98-million stake in Voltaware, a UK-based company that markets an energy-monitoring device allowing both household and industrial users to track and optimize their energy consumption. The move is the latest step in a more energy-efficient direction for the supermajor, which last year acquired Brazilian solar and biofuels company Lightsource for $200 million.
Tenders, Auctions & Contracts
- Shell, along with several other Nigerian and international companies, has inked a deal with the Nigerian national Oil Corporation to take part in the development of seven gas supply projects worth a combined $3.7 billion that will help Nigeria avoid a domestic natural gas shortage forecast for the early 2020s. The fields covered by the projects have combined reserves of 17.7 trillion cubic feet of natural gas, which will be used for power generation: Nigeria has set itself a target of 15 GW in total generation capacity by 2020.
- Iraq has extended the deadline for bidding for the construction of a new refinery in the province of Kut, south of Baghdad. Now, interested parties will have until October 4th to make offers for the 100,000-bpd facility. The oil ministry is offering bidders a choice of two contracts: build-own-operate and build-operate-transfer. The refinery project is part of Iraq’s efforts to get its oil industry back on its feet and expand its refining capacity to reduce dependence on fuel imports.
Discovery & Development
- Libya’s crude oil production has been halved to about 527,000 bpd amid oil terminal closures following militant group clashes in June that led to a change of control of the terminals and the announcement of a force majeure by the national Oil Corporation. Now the force majeure has been lifted, after the Libyan National Army conceded control of the ports to NOC but production will take time to recover.
- Indonesia’s Pertamina has dropped an LNG import terminal project that was to be its second onshore such facility. The company has decided that at the time being the project is not economically feasible. The facility would have cost $800 million and would have had an annual capacity of 4 million tons of LNG. Indonesia is forecast to become a net LNG importer by 2020 as a growing population and industrial activity boosts domestic demand for the fuel.
- An apparent increase in activity by Shell in the Canadian coastal town of Kitimat has sparked hopes the $40-billion LNG project that the supermajor is working on is nearing its final investment decision. Shell, which has partnered with Mitsubishi, Petronas, PertroChina and Kogas for the LNG Canada project, has been slow to make the decision, delaying it twice over the last two years because of the international LNG market dynamics, which swung it into an oversupply. LNG Canada will have a capacity of up to 28 million tons of LNG, to be shipped to foreign markets.
- Italy’s Eni announced a second oil discovery in the South West Meleiha license in Egypt’s Western Desert, which, the company said, confirms the potential of the Faghur Basin. It will follow up with more exploratory wells to consolidate the production area before moving on to commercialization if the reserves prove viable. Eni operates the license through its local subsidiary International Egyptian Oil Company, which pumps 55,000 bpd of oil equivalent in the Western Desert.
Politics, Geopolitics & Conflict
- President Trump has demanded that European NATO members increase their defense spending to 4% of GDP, after slamming Germany for underpaying for defense while buying “inappropriate” amounts of gas from Russia.
- Separately, Trump threatened the five Western European companies involved in the Nord Stream 2 projects with sanctions. These include supermajor Shell, French Engie, German Uniper, Austrian OMV, and Swedish Wintershall.
- The U.S. has compiled a new list of Chinese goods to be slapped with a 10% import tariff. China has said it will once again retaliate.
- Israel has proposed to Russia it will leave Bashar Assad alone if Moscow persuades Iran to leave Syria (this is also possibly the same deal the U.S. has tried to negotiate with Putin, in return for pretending the Crimea annexation didn’t happen). The proposal follows a Syrian army advance on rebel groups near the Golan Heights that Israel captured during the 1967 war.