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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, 02 June 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.86 PCT - XINHUA
China Taiyuan coal transaction price index stood at 123.95 points Monday, down 0.86 percent week on week.
The index, released by Chi ...
Tuesday, 02 June 20
THE HISTORIC DECLINE OF US COAL - WOOD MACKENZIE
The first commercial power plant in the US was Thomas Edison’s coal-fired Pearl Street station in lower Manhattan, which started operating in ...
Tuesday, 02 June 20
COAL INDIA'S MAY SALES DRIVEN SHARPLY LOWER BY SLUMP IN POWER DEMAND - REUTER
Coal India’s sales fell 23.3% in May as utilities refrained from purchases amid record stockpiles and tepid demand because of a nationwide lo ...
Tuesday, 02 June 20
TUAH TURANGGA AGUNG RECORDED 4.54 MILLION TONS OF COAL SALES IN THE FIRST FOUR MONTHS OF 2020
PT United Tractors Tbk through its subsidiary, PT Tuah Turangga Agung recorded 4.54 million tons of coal sales in the first four months of 2020, up ...
Tuesday, 02 June 20
SOURING SINO-AUSTRALIA TRADE RELATIONS - BALTIC EXCHANGE
Cooling relations between the commodity powerhouses of China and Australia may point to trade troubles ahead when the world emerges from the Covid- ...
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- CNBM International Corporation - China
- Indonesian Coal Mining Association
- Ministry of Finance - Indonesia
- Central Java Power - Indonesia
- Sical Logistics Limited - India
- Formosa Plastics Group - Taiwan
- Jorong Barutama Greston.PT - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Banpu Public Company Limited - Thailand
- The University of Queensland
- Orica Australia Pty. Ltd.
- IHS Mccloskey Coal Group - USA
- Vijayanagar Sugar Pvt Ltd - India
- Posco Energy - South Korea
- Tamil Nadu electricity Board
- Sojitz Corporation - Japan
- Borneo Indobara - Indonesia
- Timah Investasi Mineral - Indoneisa
- Planning Commission, India
- Minerals Council of Australia
- New Zealand Coal & Carbon
- Manunggal Multi Energi - Indonesia
- Parry Sugars Refinery, India
- Kideco Jaya Agung - Indonesia
- Indogreen Group - Indonesia
- Wilmar Investment Holdings
- Trasteel International SA, Italy
- Economic Council, Georgia
- GMR Energy Limited - India
- Oldendorff Carriers - Singapore
- Vizag Seaport Private Limited - India
- Maheswari Brothers Coal Limited - India
- Global Coal Blending Company Limited - Australia
- ICICI Bank Limited - India
- Makarim & Taira - Indonesia
- Commonwealth Bank - Australia
- Indian Oil Corporation Limited
- Tata Chemicals Ltd - India
- Riau Bara Harum - Indonesia
- VISA Power Limited - India
- Carbofer General Trading SA - India
- Bhushan Steel Limited - India
- Standard Chartered Bank - UAE
- Latin American Coal - Colombia
- Madhucon Powers Ltd - India
- Sarangani Energy Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- The Treasury - Australian Government
- Intertek Mineral Services - Indonesia
- Bhoruka Overseas - Indonesia
- GAC Shipping (India) Pvt Ltd
- Deloitte Consulting - India
- Siam City Cement - Thailand
- Holcim Trading Pte Ltd - Singapore
- Meenaskhi Energy Private Limited - India
- Siam City Cement PLC, Thailand
- Australian Coal Association
- Grasim Industreis Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Simpson Spence & Young - Indonesia
- Energy Development Corp, Philippines
- Mercuria Energy - Indonesia
- ASAPP Information Group - India
- OPG Power Generation Pvt Ltd - India
- Power Finance Corporation Ltd., India
- IEA Clean Coal Centre - UK
- Kapuas Tunggal Persada - Indonesia
- Eastern Coal Council - USA
- Mintek Dendrill Indonesia
- Eastern Energy - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Petron Corporation, Philippines
- Medco Energi Mining Internasional
- Antam Resourcindo - Indonesia
- Therma Luzon, Inc, Philippines
- Gujarat Electricity Regulatory Commission - India
- TNB Fuel Sdn Bhd - Malaysia
- Georgia Ports Authority, United States
- Ministry of Transport, Egypt
- Ministry of Mines - Canada
- SMG Consultants - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Aditya Birla Group - India
- CIMB Investment Bank - Malaysia
- PTC India Limited - India
- London Commodity Brokers - England
- Global Green Power PLC Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Port Waratah Coal Services - Australia
- Attock Cement Pakistan Limited
- Bukit Baiduri Energy - Indonesia
- Singapore Mercantile Exchange
- White Energy Company Limited
- The State Trading Corporation of India Ltd
- Bukit Makmur.PT - Indonesia
- Semirara Mining Corp, Philippines
- Meralco Power Generation, Philippines
- Independent Power Producers Association of India
- Central Electricity Authority - India
- Jaiprakash Power Ventures ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Sidhee Cement - India
- Chettinad Cement Corporation Ltd - India
- International Coal Ventures Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Malabar Cements Ltd - India
- Globalindo Alam Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Mjunction Services Limited - India
- Barasentosa Lestari - Indonesia
- MS Steel International - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Parliament of New Zealand
- Vedanta Resources Plc - India
- India Bulls Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Coastal Gujarat Power Limited - India
- Savvy Resources Ltd - HongKong
- Australian Commodity Traders Exchange
- Goldman Sachs - Singapore
- Bayan Resources Tbk. - Indonesia
- Krishnapatnam Port Company Ltd. - India
- SMC Global Power, Philippines
- Ceylon Electricity Board - Sri Lanka
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Indian Energy Exchange, India
- San Jose City I Power Corp, Philippines
- McConnell Dowell - Australia
- Chamber of Mines of South Africa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Anglo American - United Kingdom
- Neyveli Lignite Corporation Ltd, - India
- Pipit Mutiara Jaya. PT, Indonesia
- Kaltim Prima Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Electricity Generating Authority of Thailand
- Rashtriya Ispat Nigam Limited - India
- Sindya Power Generating Company Private Ltd
- Ambuja Cements Ltd - India
- Kepco SPC Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Bhatia International Limited - India
- Thiess Contractors Indonesia
- Karaikal Port Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Pendopo Energi Batubara - Indonesia
- Baramulti Group, Indonesia
- Indika Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Bharathi Cement Corporation - India
- Renaissance Capital - South Africa
- Edison Trading Spa - Italy
- Kumho Petrochemical, South Korea
- Straits Asia Resources Limited - Singapore
- Leighton Contractors Pty Ltd - Australia
- Essar Steel Hazira Ltd - India
- Price Waterhouse Coopers - Russia
- Lanco Infratech Ltd - India
- LBH Netherlands Bv - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- PowerSource Philippines DevCo
- PNOC Exploration Corporation - Philippines
- Africa Commodities Group - South Africa
- Cement Manufacturers Association - India
- Agrawal Coal Company - India
- Toyota Tsusho Corporation, Japan
- Coalindo Energy - Indonesia
- Electricity Authority, New Zealand
- Semirara Mining and Power Corporation, Philippines
- Dalmia Cement Bharat India
- TeaM Sual Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Binh Thuan Hamico - Vietnam
- Alfred C Toepfer International GmbH - Germany
- Energy Link Ltd, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mercator Lines Limited - India
- Star Paper Mills Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Merrill Lynch Commodities Europe
- Directorate Of Revenue Intelligence - India
- Thai Mozambique Logistica
- Coal and Oil Company - UAE
- European Bulk Services B.V. - Netherlands
- Iligan Light & Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Metalloyd Limited - United Kingdom
- GN Power Mariveles Coal Plant, Philippines
- Uttam Galva Steels Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Sree Jayajothi Cements Limited - India
- Heidelberg Cement - Germany
- Interocean Group of Companies - India
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Rio Tinto Coal - Australia
- GVK Power & Infra Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Ind-Barath Power Infra Limited - India
- Altura Mining Limited, Indonesia
- Xindia Steels Limited - India
- Indo Tambangraya Megah - Indonesia
- Bangladesh Power Developement Board
- Videocon Industries ltd - India
- Global Business Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Sakthi Sugars Limited - India
- Romanian Commodities Exchange
- Larsen & Toubro Limited - India
- SN Aboitiz Power Inc, Philippines
- Wood Mackenzie - Singapore
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