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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 ...
Monday, 01 June 20
SUPRAMAX: IN SOUTH EAST ASIA RATES TRADED SIDEWAYS - BALTIC BRIEFING
Capesize
A sober end to the week, with the market seemingly ready for the weekend. After a steady week of rate declines a small flurry of Atlan ...
Friday, 29 May 20
COVID-19: COAL SUPPLY BY CIL TO POWER SECTOR DIPS 22% TO 32 MT IN APRIL DUE TO DEMAND SLUMP - PTI
Over 95% of CIL’s production comes from its 171 open cast mines.
The supply of coal to the power sector by state-owned Coal In ...
Friday, 29 May 20
AUSTRALIA'S NEW HOPE WARNS OF HIT FROM COAL PRICE SLUMP - REUTERS
Australia’s New Hope Corp Ltd said on Thursday that a sudden drop in thermal coal prices and lower output from its Queensland operations woul ...
Friday, 29 May 20
GOVT MAY LAUNCH COAL BLOCKS AUCTION PROCESS UNDER COMMERCIAL MINING ON JUN 11 - PTI
The Centre is likely to launch the process of coal blocks auction under commercial mining on June 11 and around 50 mines are expected to go under t ...
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- Eastern Energy - Thailand
- Essar Steel Hazira Ltd - India
- Baramulti Group, Indonesia
- McConnell Dowell - Australia
- Singapore Mercantile Exchange
- Riau Bara Harum - Indonesia
- Oldendorff Carriers - Singapore
- Metalloyd Limited - United Kingdom
- London Commodity Brokers - England
- Minerals Council of Australia
- Central Java Power - Indonesia
- Kepco SPC Power Corporation, Philippines
- VISA Power Limited - India
- Intertek Mineral Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sarangani Energy Corporation, Philippines
- Chamber of Mines of South Africa
- GN Power Mariveles Coal Plant, Philippines
- Global Green Power PLC Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Trasteel International SA, Italy
- Interocean Group of Companies - India
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- LBH Netherlands Bv - Netherlands
- Billiton Holdings Pty Ltd - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ceylon Electricity Board - Sri Lanka
- Meenaskhi Energy Private Limited - India
- Petron Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Grasim Industreis Ltd - India
- Attock Cement Pakistan Limited
- Energy Link Ltd, New Zealand
- Kohat Cement Company Ltd. - Pakistan
- Merrill Lynch Commodities Europe
- Price Waterhouse Coopers - Russia
- Agrawal Coal Company - India
- Siam City Cement - Thailand
- Bhushan Steel Limited - India
- White Energy Company Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CNBM International Corporation - China
- Jorong Barutama Greston.PT - Indonesia
- Indian Energy Exchange, India
- TNB Fuel Sdn Bhd - Malaysia
- Cigading International Bulk Terminal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Deloitte Consulting - India
- GMR Energy Limited - India
- Eastern Coal Council - USA
- Indika Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Xindia Steels Limited - India
- Coalindo Energy - Indonesia
- Tata Chemicals Ltd - India
- European Bulk Services B.V. - Netherlands
- Karbindo Abesyapradhi - Indoneisa
- Sindya Power Generating Company Private Ltd
- Maharashtra Electricity Regulatory Commission - India
- PTC India Limited - India
- Wilmar Investment Holdings
- Meralco Power Generation, Philippines
- Romanian Commodities Exchange
- GVK Power & Infra Limited - India
- ASAPP Information Group - India
- Georgia Ports Authority, United States
- SN Aboitiz Power Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Tamil Nadu electricity Board
- CIMB Investment Bank - Malaysia
- Simpson Spence & Young - Indonesia
- Formosa Plastics Group - Taiwan
- Goldman Sachs - Singapore
- Planning Commission, India
- Indogreen Group - Indonesia
- Heidelberg Cement - Germany
- Ind-Barath Power Infra Limited - India
- Edison Trading Spa - Italy
- Kobexindo Tractors - Indoneisa
- Ministry of Transport, Egypt
- IEA Clean Coal Centre - UK
- Africa Commodities Group - South Africa
- Neyveli Lignite Corporation Ltd, - India
- Krishnapatnam Port Company Ltd. - India
- Borneo Indobara - Indonesia
- Standard Chartered Bank - UAE
- Posco Energy - South Korea
- Orica Australia Pty. Ltd.
- Carbofer General Trading SA - India
- Latin American Coal - Colombia
- MS Steel International - UAE
- Medco Energi Mining Internasional
- Global Business Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Malabar Cements Ltd - India
- Bangladesh Power Developement Board
- Electricity Generating Authority of Thailand
- PNOC Exploration Corporation - Philippines
- Indonesian Coal Mining Association
- New Zealand Coal & Carbon
- Kaltim Prima Coal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- The Treasury - Australian Government
- Petrochimia International Co. Ltd.- Taiwan
- PetroVietnam Power Coal Import and Supply Company
- Globalindo Alam Lestari - Indonesia
- Makarim & Taira - Indonesia
- Mercator Lines Limited - India
- Orica Mining Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Barasentosa Lestari - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Uttam Galva Steels Limited - India
- Sakthi Sugars Limited - India
- Central Electricity Authority - India
- Kapuas Tunggal Persada - Indonesia
- San Jose City I Power Corp, Philippines
- Bhatia International Limited - India
- PowerSource Philippines DevCo
- Electricity Authority, New Zealand
- Energy Development Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- Commonwealth Bank - Australia
- Thiess Contractors Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bhoruka Overseas - Indonesia
- IHS Mccloskey Coal Group - USA
- Semirara Mining and Power Corporation, Philippines
- Thai Mozambique Logistica
- Kalimantan Lumbung Energi - Indonesia
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Ministry of Mines - Canada
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Miang Besar Coal Terminal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Larsen & Toubro Limited - India
- Rio Tinto Coal - Australia
- Sical Logistics Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Savvy Resources Ltd - HongKong
- Coal and Oil Company - UAE
- Maheswari Brothers Coal Limited - India
- International Coal Ventures Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- TeaM Sual Corporation - Philippines
- Bharathi Cement Corporation - India
- Vedanta Resources Plc - India
- Economic Council, Georgia
- Jaiprakash Power Ventures ltd
- Asmin Koalindo Tuhup - Indonesia
- Wood Mackenzie - Singapore
- Madhucon Powers Ltd - India
- Mintek Dendrill Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Ministry of Finance - Indonesia
- Straits Asia Resources Limited - Singapore
- Samtan Co., Ltd - South Korea
- Sree Jayajothi Cements Limited - India
- Kumho Petrochemical, South Korea
- SMC Global Power, Philippines
- SMG Consultants - Indonesia
- Jindal Steel & Power Ltd - India
- Pendopo Energi Batubara - Indonesia
- Semirara Mining Corp, Philippines
- Dalmia Cement Bharat India
- Australian Commodity Traders Exchange
- Bukit Makmur.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Binh Thuan Hamico - Vietnam
- Videocon Industries ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Bukit Baiduri Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Power Finance Corporation Ltd., India
- Mjunction Services Limited - India
- Aditya Birla Group - India
- Renaissance Capital - South Africa
- Parliament of New Zealand
- Indian Oil Corporation Limited
- Cement Manufacturers Association - India
- Manunggal Multi Energi - Indonesia
- Siam City Cement PLC, Thailand
- Coastal Gujarat Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- The State Trading Corporation of India Ltd
- OPG Power Generation Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Lanco Infratech Ltd - India
- ICICI Bank Limited - India
- Vizag Seaport Private Limited - India
- Iligan Light & Power Inc, Philippines
- Gujarat Electricity Regulatory Commission - India
- Anglo American - United Kingdom
- Altura Mining Limited, Indonesia
- South Luzon Thermal Energy Corporation
- Indo Tambangraya Megah - Indonesia
- Sojitz Corporation - Japan
- Chettinad Cement Corporation Ltd - India
- Parry Sugars Refinery, India
- Independent Power Producers Association of India
- Star Paper Mills Limited - India
- Timah Investasi Mineral - Indoneisa
- Bulk Trading Sa - Switzerland
- Ambuja Cements Ltd - India
- Banpu Public Company Limited - Thailand
- Directorate Of Revenue Intelligence - India
- India Bulls Power Limited - India
- Toyota Tsusho Corporation, Japan
- The University of Queensland
- Salva Resources Pvt Ltd - India
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