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Wednesday, 06 May 20
COST CHALLENGES IN A US$20/BBL WORLD - WOOD MACKENZIE
 A new approach is needed to ensure supply sector resilience
How will US$20/bbl affect the oil and gas supply chain?
It’s going to get tough, very tough.
The service sector is already on the ropes but will be first port of call when operators look to save money. IOCs and NOCs need to recognise they’ll want a functioning, reliable service sector when things pick up, as they will. I talked it all through with Andy Tidey, Head of our Performance Improvement team.
Covid-19 has already disrupted the supply chain. The ability of service companies to manufacture and deliver equipment and supply personnel to industry sites is seriously compromised by restrictions on travel and movement of people.
Last downturn, the service sector did its bit in getting costs down. The Majors reduced unit development costs by 55% between 2014 and 2019; our Upstream Cost Survey shows that almost half was rate cuts by suppliers.
It’s taken its toll on service sector finances. Margins for five leading service companies fell by an average of 65% between 2014 and 2019. EBITDA margins (earnings before interest, tax, depreciation and amortisation) for the wider sector have shrunk close to zero.
IOCs will look to cut more to get their own finances on an even keel and reassure shareholders. Cash flow breakevens for the Majors averaged US$55/bbl pre-crisis. BP said this week it aims to reduce underlying breakeven to below US$35/bbl in 2021, and others are heading in the same direction. The primary lever is to cut investment – discretionary spend by IOCs will all but dry up in 2020.
Operators are signalling cuts of up to 50% to expenditure in the US Lower 48. Only a handful of the 53 conventional pre-FID projects we expected to get sanctioned in 2020 will get the green light. These cuts make up a big chunk of the 20% to 25% reduction in spend the Majors have announced.
What drives NOC decisions isn’t quite so straightforward. Their stakeholder is the government, and the NOC may be central to their national economy – big employer, investor and a source of revenue through dividends and taxation. US$20/bbl oil isn’t just a problem for the NOC, it’s a national problem. We estimate that, pre-crisis, Angola needed US$75/bbl to fund its 2020 budget, Saudi Arabia US$85/bbl and Nigeria US$131/bbl – prices of a long-gone era.
Overall cuts in spend by NOCs so far are more muted, averaging 10% to 15%. Chinese NOCs are prioritising domestic investment to maintain production and employment. In the Middle East, ADNOC and Qatar Petroleum will likely proceed with big new gas projects where the scale and economics will win investment from the big IOCs. There have been concerns about market tightness in certain segments in the Middle East.
Many others face an investment drought. Ten higher cost projects at pre-sanction stage in Nigeria, Mexico, Libya and Angola won’t get the support they need from IOC partners. Combined spend will be pushed out indefinitely into the future along with 0.4 million boe/d of new production.
NOCs have to perform a tricky balancing act. To keep investment moving, costs need to come down. The service sector is the easy target; but the service companies are sizeable employers, too. They may be bound into the domestic economy through local obligation requirements and, in certain cases, may even be government-owned.
So, where do NOCs go from here? The adversarial approach between operator and suppliers is counterproductive and could end badly – for both sides. What’s needed is a change in relationship, built on openness, transparency and trust. We are starting to see alliances and partnerships emerging between mid-sized operators and service companies. That could be the template for a win-win – more competitive prices for the operator, and acceptable returns for the supplier. It’s a model NOCs need to consider if they are to foster and preserve a strong supply chain through the coming challenges.
NOCs need to take a strategic view of how they address the cost challenge of US$20/bbl oil. As operator and “national champion”, many NOCs can shape the service sector, in ways not open to the IOCs. There are opportunities to change the commercial model with individual suppliers and bring in practices from other sectors, such as true open-book pricing. Many NOCs could also act as an aggregator of plans, providing the service sector with an aggregated demand profile.
Simon Flowers
Chairman, Chief Analyst and author of The Edge
Source: Wood Mackenzie
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Tuesday, 09 June 20
BUNKER SUPPLY CONTRACTS - KEY CONSIDERATIONS FOR THE BUYER - GARD
KNOWLEDGE TO ELEVATE
Regardless of whether a buyer purchases fuel directly from physical suppliers or via brokers or traders and whether sale ...
Tuesday, 09 June 20
INDIA: COAL IMPORT DROPS BY 20% TO NEARLY 19 MILLION TONNES IN MAY, SAYS REPORT - HINDUSTAN TIMES
The country’s coal import dropped by 20 per cent to 18.93 million tonnes (MT) last month, industry data showed.
The government ...
Monday, 08 June 20
WOOD MACKENZIE: THE INDISPENSABLE OPEC+
Rumours of “the death of OPEC” have been circulating for almost as long as the organisation has existed. Just three years after the car ...
Monday, 08 June 20
CHINA'S COAL IMPORTS FALL NEARLY 20% IN MAY EVEN AS DEMAND RISES - REUTERS
China’s coal imports in May fell nearly 20% compared with a year earlier even as demand recovered at power plants and industrial users, custo ...
Monday, 08 June 20
JUNE 2020 INDONESIAN COAL PRICE REFERENCE HIT US$ 52.98 A TON, ITS LOWEST LEVEL SINCE AT LEAST AUGUST 2016
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down again the benchmark price of Indonesian th ...
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- Coastal Gujarat Power Limited - India
- The University of Queensland
- Eastern Energy - Thailand
- Edison Trading Spa - Italy
- Eastern Coal Council - USA
- Pendopo Energi Batubara - Indonesia
- The Treasury - Australian Government
- Pipit Mutiara Jaya. PT, Indonesia
- New Zealand Coal & Carbon
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Deloitte Consulting - India
- Intertek Mineral Services - Indonesia
- TeaM Sual Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Grasim Industreis Ltd - India
- Kepco SPC Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Larsen & Toubro Limited - India
- Miang Besar Coal Terminal - Indonesia
- Directorate Of Revenue Intelligence - India
- Bhatia International Limited - India
- Mercator Lines Limited - India
- Samtan Co., Ltd - South Korea
- PNOC Exploration Corporation - Philippines
- Thiess Contractors Indonesia
- GVK Power & Infra Limited - India
- Chettinad Cement Corporation Ltd - India
- Minerals Council of Australia
- Port Waratah Coal Services - Australia
- Holcim Trading Pte Ltd - Singapore
- Trasteel International SA, Italy
- Meenaskhi Energy Private Limited - India
- Global Business Power Corporation, Philippines
- Economic Council, Georgia
- Mintek Dendrill Indonesia
- Banpu Public Company Limited - Thailand
- Krishnapatnam Port Company Ltd. - India
- Lanco Infratech Ltd - India
- San Jose City I Power Corp, Philippines
- Sojitz Corporation - Japan
- Essar Steel Hazira Ltd - India
- Vizag Seaport Private Limited - India
- Xindia Steels Limited - India
- Global Coal Blending Company Limited - Australia
- Ind-Barath Power Infra Limited - India
- Manunggal Multi Energi - Indonesia
- Indian Oil Corporation Limited
- Bulk Trading Sa - Switzerland
- Carbofer General Trading SA - India
- Bharathi Cement Corporation - India
- White Energy Company Limited
- Indonesian Coal Mining Association
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coalindo Energy - Indonesia
- Parry Sugars Refinery, India
- Timah Investasi Mineral - Indoneisa
- IHS Mccloskey Coal Group - USA
- OPG Power Generation Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- India Bulls Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Dalmia Cement Bharat India
- Georgia Ports Authority, United States
- Thai Mozambique Logistica
- CIMB Investment Bank - Malaysia
- Chamber of Mines of South Africa
- Meralco Power Generation, Philippines
- Kumho Petrochemical, South Korea
- Cigading International Bulk Terminal - Indonesia
- Ambuja Cements Ltd - India
- Gujarat Sidhee Cement - India
- Wilmar Investment Holdings
- Australian Coal Association
- Antam Resourcindo - Indonesia
- Uttam Galva Steels Limited - India
- Electricity Authority, New Zealand
- Mercuria Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Mjunction Services Limited - India
- Sarangani Energy Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Kobexindo Tractors - Indoneisa
- Jorong Barutama Greston.PT - Indonesia
- Kartika Selabumi Mining - Indonesia
- Bukit Makmur.PT - Indonesia
- Heidelberg Cement - Germany
- Australian Commodity Traders Exchange
- Straits Asia Resources Limited - Singapore
- Baramulti Group, Indonesia
- Star Paper Mills Limited - India
- Rashtriya Ispat Nigam Limited - India
- The State Trading Corporation of India Ltd
- Karaikal Port Pvt Ltd - India
- SMG Consultants - Indonesia
- Parliament of New Zealand
- PowerSource Philippines DevCo
- Cement Manufacturers Association - India
- Riau Bara Harum - Indonesia
- Romanian Commodities Exchange
- Aditya Birla Group - India
- Bahari Cakrawala Sebuku - Indonesia
- Therma Luzon, Inc, Philippines
- Jaiprakash Power Ventures ltd
- PetroVietnam Power Coal Import and Supply Company
- Neyveli Lignite Corporation Ltd, - India
- Bayan Resources Tbk. - Indonesia
- PTC India Limited - India
- Sree Jayajothi Cements Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Global Green Power PLC Corporation, Philippines
- Interocean Group of Companies - India
- Orica Australia Pty. Ltd.
- Jindal Steel & Power Ltd - India
- Renaissance Capital - South Africa
- Anglo American - United Kingdom
- Bhushan Steel Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Videocon Industries ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Semirara Mining Corp, Philippines
- Tata Chemicals Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- VISA Power Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Oldendorff Carriers - Singapore
- IEA Clean Coal Centre - UK
- Standard Chartered Bank - UAE
- Tamil Nadu electricity Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Marubeni Corporation - India
- Orica Mining Services - Indonesia
- Energy Link Ltd, New Zealand
- Bangladesh Power Developement Board
- Alfred C Toepfer International GmbH - Germany
- Sinarmas Energy and Mining - Indonesia
- Merrill Lynch Commodities Europe
- Central Electricity Authority - India
- Borneo Indobara - Indonesia
- Posco Energy - South Korea
- Asmin Koalindo Tuhup - Indonesia
- Planning Commission, India
- Sical Logistics Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Makarim & Taira - Indonesia
- Medco Energi Mining Internasional
- Kaltim Prima Coal - Indonesia
- Simpson Spence & Young - Indonesia
- Energy Development Corp, Philippines
- Malabar Cements Ltd - India
- Siam City Cement PLC, Thailand
- Binh Thuan Hamico - Vietnam
- Wood Mackenzie - Singapore
- Savvy Resources Ltd - HongKong
- Metalloyd Limited - United Kingdom
- Latin American Coal - Colombia
- Singapore Mercantile Exchange
- Vedanta Resources Plc - India
- Rio Tinto Coal - Australia
- Commonwealth Bank - Australia
- International Coal Ventures Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- SN Aboitiz Power Inc, Philippines
- McConnell Dowell - Australia
- London Commodity Brokers - England
- Electricity Generating Authority of Thailand
- Madhucon Powers Ltd - India
- Agrawal Coal Company - India
- Central Java Power - Indonesia
- South Luzon Thermal Energy Corporation
- Indian Energy Exchange, India
- Indika Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Power Finance Corporation Ltd., India
- Toyota Tsusho Corporation, Japan
- Indogreen Group - Indonesia
- GMR Energy Limited - India
- Semirara Mining and Power Corporation, Philippines
- MS Steel International - UAE
- Independent Power Producers Association of India
- Africa Commodities Group - South Africa
- European Bulk Services B.V. - Netherlands
- LBH Netherlands Bv - Netherlands
- Coal and Oil Company - UAE
- Kalimantan Lumbung Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Formosa Plastics Group - Taiwan
- AsiaOL BioFuels Corp., Philippines
- Attock Cement Pakistan Limited
- Ceylon Electricity Board - Sri Lanka
- Kapuas Tunggal Persada - Indonesia
- Siam City Cement - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- CNBM International Corporation - China
- Sindya Power Generating Company Private Ltd
- SMC Global Power, Philippines
- Ministry of Transport, Egypt
- Maheswari Brothers Coal Limited - India
- ASAPP Information Group - India
- Sakthi Sugars Limited - India
- Altura Mining Limited, Indonesia
- Globalindo Alam Lestari - Indonesia
- ICICI Bank Limited - India
- Bukit Baiduri Energy - Indonesia
- Ministry of Mines - Canada
- GAC Shipping (India) Pvt Ltd
- Kideco Jaya Agung - Indonesia
- Ministry of Finance - Indonesia
- Petron Corporation, Philippines
- Goldman Sachs - Singapore
- Aboitiz Power Corporation - Philippines
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