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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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Sunday, 07 June 20
A SCRUBBER FITTED 61,000 ULTRAMAX WAS FIXED DELIVERY PHILIPPINES TRIP VIA SOUTH AFRICA REDELIVERY VIETNAM AT $9,500 - BALTIC BRIEFING
Capesize
The small flicker of hope at the beginning of this week has kindled a small fire under the Capesize market. At a paltry $3369 from the ...
Saturday, 06 June 20
KOREA SOUTH-EAST POWER CO INVITED COAL BIDS FOR MIN 5600 NCV COAL
COALspot.com: South Korea’s KOREA SOUTH-EAST POWER CO., LTD. (KOEN) has issued an international tender for 270,000 Tons (MT) min. 5600 NCV co ...
Friday, 05 June 20
COAL INDIA ESTIMATES PRODUCTION GROWTH BY OVERBURDEN REMOVAL - FINANCIAL EXPRESS
PSU miner Coal India (CIL) has now limited mining only to Overburden Removal (OBR) with falling demand of coal. The mining behemoth is now keeping ...
Friday, 05 June 20
U.S. SANCTIONS COMPLIANCE GUIDANCE RELEASED FOR THE GLOBAL MARITIME, ENERGY AND METALS SECTORS - AKIN GUMP
Key Points
On May 14, 2020, OFAC, the Department of State and the U.S. Coast Guard jointly released guidance for persons involved in the ma ...
Friday, 05 June 20
IN THE FIRST 5 MONTHS OF 2020 AUSTRALIA SHIPPED 6.8 MLN TONNES TO VIETNAM - BANCHERO COSTA
In the first 5 months of 2020, global seaborne coal trade declined by as much as -8% year-on-year, according to vessel tracking data from Ref ...
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- Eastern Coal Council - USA
- Gujarat Sidhee Cement - India
- LBH Netherlands Bv - Netherlands
- Petrochimia International Co. Ltd.- Taiwan
- PNOC Exploration Corporation - Philippines
- Anglo American - United Kingdom
- India Bulls Power Limited - India
- Electricity Authority, New Zealand
- Ind-Barath Power Infra Limited - India
- Star Paper Mills Limited - India
- Port Waratah Coal Services - Australia
- Therma Luzon, Inc, Philippines
- IEA Clean Coal Centre - UK
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Romanian Commodities Exchange
- Baramulti Group, Indonesia
- Mercator Lines Limited - India
- Chettinad Cement Corporation Ltd - India
- Grasim Industreis Ltd - India
- GVK Power & Infra Limited - India
- Videocon Industries ltd - India
- Sree Jayajothi Cements Limited - India
- Madhucon Powers Ltd - India
- Maheswari Brothers Coal Limited - India
- Sarangani Energy Corporation, Philippines
- Australian Commodity Traders Exchange
- Global Business Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Commonwealth Bank - Australia
- Sical Logistics Limited - India
- Coastal Gujarat Power Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Parliament of New Zealand
- Makarim & Taira - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Larsen & Toubro Limited - India
- Indo Tambangraya Megah - Indonesia
- Bhushan Steel Limited - India
- Africa Commodities Group - South Africa
- Essar Steel Hazira Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Price Waterhouse Coopers - Russia
- European Bulk Services B.V. - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Borneo Indobara - Indonesia
- Banpu Public Company Limited - Thailand
- ASAPP Information Group - India
- Edison Trading Spa - Italy
- TeaM Sual Corporation - Philippines
- Latin American Coal - Colombia
- The Treasury - Australian Government
- Kideco Jaya Agung - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Trasteel International SA, Italy
- Bukit Makmur.PT - Indonesia
- Attock Cement Pakistan Limited
- Ceylon Electricity Board - Sri Lanka
- Bulk Trading Sa - Switzerland
- San Jose City I Power Corp, Philippines
- New Zealand Coal & Carbon
- Cement Manufacturers Association - India
- Tamil Nadu electricity Board
- Tata Chemicals Ltd - India
- Bharathi Cement Corporation - India
- Semirara Mining Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- The University of Queensland
- Barasentosa Lestari - Indonesia
- Oldendorff Carriers - Singapore
- Toyota Tsusho Corporation, Japan
- Xindia Steels Limited - India
- Rio Tinto Coal - Australia
- Energy Link Ltd, New Zealand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bangladesh Power Developement Board
- Australian Coal Association
- Wilmar Investment Holdings
- Kaltim Prima Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bhatia International Limited - India
- GMR Energy Limited - India
- Heidelberg Cement - Germany
- Renaissance Capital - South Africa
- Ministry of Transport, Egypt
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sinarmas Energy and Mining - Indonesia
- Antam Resourcindo - Indonesia
- Orica Australia Pty. Ltd.
- Pipit Mutiara Jaya. PT, Indonesia
- Parry Sugars Refinery, India
- IHS Mccloskey Coal Group - USA
- Aboitiz Power Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Siam City Cement PLC, Thailand
- Sakthi Sugars Limited - India
- Kartika Selabumi Mining - Indonesia
- Malabar Cements Ltd - India
- Ministry of Finance - Indonesia
- Agrawal Coal Company - India
- Wood Mackenzie - Singapore
- Simpson Spence & Young - Indonesia
- Iligan Light & Power Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Ministry of Mines - Canada
- Orica Mining Services - Indonesia
- Siam City Cement - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kohat Cement Company Ltd. - Pakistan
- Dalmia Cement Bharat India
- Pendopo Energi Batubara - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Timah Investasi Mineral - Indoneisa
- Kepco SPC Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Neyveli Lignite Corporation Ltd, - India
- Electricity Generating Authority of Thailand
- Holcim Trading Pte Ltd - Singapore
- Kobexindo Tractors - Indoneisa
- Independent Power Producers Association of India
- Leighton Contractors Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Chamber of Mines of South Africa
- Ambuja Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- ICICI Bank Limited - India
- CNBM International Corporation - China
- Bukit Asam (Persero) Tbk - Indonesia
- Binh Thuan Hamico - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Sindya Power Generating Company Private Ltd
- Intertek Mineral Services - Indonesia
- Minerals Council of Australia
- Gujarat Electricity Regulatory Commission - India
- Savvy Resources Ltd - HongKong
- Indogreen Group - Indonesia
- Goldman Sachs - Singapore
- Directorate Of Revenue Intelligence - India
- SMG Consultants - Indonesia
- Deloitte Consulting - India
- Power Finance Corporation Ltd., India
- Coalindo Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Vizag Seaport Private Limited - India
- Thai Mozambique Logistica
- OPG Power Generation Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Singapore Mercantile Exchange
- PowerSource Philippines DevCo
- Indian Oil Corporation Limited
- The State Trading Corporation of India Ltd
- Meenaskhi Energy Private Limited - India
- Posco Energy - South Korea
- Formosa Plastics Group - Taiwan
- Petron Corporation, Philippines
- London Commodity Brokers - England
- Coal and Oil Company - UAE
- Thiess Contractors Indonesia
- Indonesian Coal Mining Association
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Planning Commission, India
- Central Electricity Authority - India
- SMC Global Power, Philippines
- Standard Chartered Bank - UAE
- Global Coal Blending Company Limited - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Central Java Power - Indonesia
- VISA Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Marubeni Corporation - India
- Aditya Birla Group - India
- Jindal Steel & Power Ltd - India
- PTC India Limited - India
- Bhoruka Overseas - Indonesia
- Eastern Energy - Thailand
- Mjunction Services Limited - India
- Mercuria Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- Uttam Galva Steels Limited - India
- Mintek Dendrill Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Metalloyd Limited - United Kingdom
- Meralco Power Generation, Philippines
- Energy Development Corp, Philippines
- Medco Energi Mining Internasional
- Interocean Group of Companies - India
- McConnell Dowell - Australia
- Straits Asia Resources Limited - Singapore
- Kumho Petrochemical, South Korea
- Carbofer General Trading SA - India
- White Energy Company Limited
- Indian Energy Exchange, India
- Bahari Cakrawala Sebuku - Indonesia
- International Coal Ventures Pvt Ltd - India
- Vedanta Resources Plc - India
- Sojitz Corporation - Japan
- Lanco Infratech Ltd - India
- Merrill Lynch Commodities Europe
- Samtan Co., Ltd - South Korea
- Salva Resources Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- MS Steel International - UAE
- Georgia Ports Authority, United States
- Economic Council, Georgia
- Indika Energy - Indonesia
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