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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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Friday, 29 May 20
KOMIPO ON BEHALF FIVE KOREAN GENCOS INVITED COAL BIDS FOR 5,700 & 4999 NCV COAL FOR AUGUST 2020 LOADING
COALspot.com: South Korea’s Korea Midland Power Co.,Ltd (KOMIPO) on behalf five (5) Korean Gencos has Issued an International Tender for tota ...
Friday, 29 May 20
DRY BULK SHIPPING: NO QUICK RECOVERY FOR THE DRY BULK MARKET AS COVID-19 DIGS DEEPER
The outlook is poor for dry bulk, as the negative demand shock and overcapacity come together to send rates to multi-year lows, even a return to wo ...
Thursday, 28 May 20
COVID-19: A FORCE MAJEURE EVENT? - KYPRIANOU
KNOWLEDGE TO ELEVATE
While seeing the unexpected COVID-19 outbreak expanding worldwide and the first cases being identified in Cyprus, the com ...
Thursday, 28 May 20
OIL DEMAND RECOVERED BY 20% IN MAY AGAINST APRIL: RUSSIAN ENERGY MINISTER - TASS
Oil demand remains at a low level but the demand in May increased by 20% against April, Russian Energy Minister Alexander Novak said, cited by the ...
Thursday, 28 May 20
MARKET INSIGHT - INTERMODAL
Earlier in May, China’s top leaders convened for the annual National People's Congress, following over two months of delays due to the co ...
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- Directorate Of Revenue Intelligence - India
- Meralco Power Generation, Philippines
- Karaikal Port Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Bangladesh Power Developement Board
- Indonesian Coal Mining Association
- South Luzon Thermal Energy Corporation
- Central Electricity Authority - India
- Trasteel International SA, Italy
- Indogreen Group - Indonesia
- Mercuria Energy - Indonesia
- Siam City Cement PLC, Thailand
- PetroVietnam Power Coal Import and Supply Company
- Romanian Commodities Exchange
- Gujarat Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Jindal Steel & Power Ltd - India
- Uttam Galva Steels Limited - India
- Ministry of Transport, Egypt
- Samtan Co., Ltd - South Korea
- Essar Steel Hazira Ltd - India
- Cement Manufacturers Association - India
- Maheswari Brothers Coal Limited - India
- Global Coal Blending Company Limited - Australia
- Salva Resources Pvt Ltd - India
- PTC India Limited - India
- MS Steel International - UAE
- Eastern Coal Council - USA
- Wood Mackenzie - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Merrill Lynch Commodities Europe
- Coalindo Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Straits Asia Resources Limited - Singapore
- Semirara Mining Corp, Philippines
- Planning Commission, India
- Pendopo Energi Batubara - Indonesia
- Energy Link Ltd, New Zealand
- Sarangani Energy Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Renaissance Capital - South Africa
- Indian Oil Corporation Limited
- Chamber of Mines of South Africa
- The University of Queensland
- Madhucon Powers Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Goldman Sachs - Singapore
- Savvy Resources Ltd - HongKong
- Singapore Mercantile Exchange
- Georgia Ports Authority, United States
- Indo Tambangraya Megah - Indonesia
- LBH Netherlands Bv - Netherlands
- Attock Cement Pakistan Limited
- Marubeni Corporation - India
- Deloitte Consulting - India
- Riau Bara Harum - Indonesia
- Iligan Light & Power Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Bayan Resources Tbk. - Indonesia
- CIMB Investment Bank - Malaysia
- Orica Mining Services - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Mines - Canada
- Africa Commodities Group - South Africa
- Ministry of Finance - Indonesia
- The State Trading Corporation of India Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Star Paper Mills Limited - India
- IHS Mccloskey Coal Group - USA
- San Jose City I Power Corp, Philippines
- Manunggal Multi Energi - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Anglo American - United Kingdom
- Mercator Lines Limited - India
- Siam City Cement - Thailand
- Vijayanagar Sugar Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Agrawal Coal Company - India
- Jaiprakash Power Ventures ltd
- Bukit Baiduri Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Aditya Birla Group - India
- Wilmar Investment Holdings
- Sojitz Corporation - Japan
- Bahari Cakrawala Sebuku - Indonesia
- SN Aboitiz Power Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kepco SPC Power Corporation, Philippines
- Parry Sugars Refinery, India
- Central Java Power - Indonesia
- Videocon Industries ltd - India
- Coastal Gujarat Power Limited - India
- Tata Chemicals Ltd - India
- Thiess Contractors Indonesia
- Formosa Plastics Group - Taiwan
- Miang Besar Coal Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Standard Chartered Bank - UAE
- Kaltim Prima Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Electricity Authority, New Zealand
- Malabar Cements Ltd - India
- Vedanta Resources Plc - India
- Kalimantan Lumbung Energi - Indonesia
- Bharathi Cement Corporation - India
- Electricity Generating Authority of Thailand
- Banpu Public Company Limited - Thailand
- Commonwealth Bank - Australia
- European Bulk Services B.V. - Netherlands
- Borneo Indobara - Indonesia
- Kobexindo Tractors - Indoneisa
- Interocean Group of Companies - India
- Barasentosa Lestari - Indonesia
- Medco Energi Mining Internasional
- Sical Logistics Limited - India
- Globalindo Alam Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Toyota Tsusho Corporation, Japan
- Xindia Steels Limited - India
- PNOC Exploration Corporation - Philippines
- New Zealand Coal & Carbon
- Sakthi Sugars Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Mjunction Services Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- VISA Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Parliament of New Zealand
- Sindya Power Generating Company Private Ltd
- Kumho Petrochemical, South Korea
- Minerals Council of Australia
- Altura Mining Limited, Indonesia
- GVK Power & Infra Limited - India
- Carbofer General Trading SA - India
- Bhatia International Limited - India
- Grasim Industreis Ltd - India
- Australian Coal Association
- London Commodity Brokers - England
- Global Green Power PLC Corporation, Philippines
- Economic Council, Georgia
- TeaM Sual Corporation - Philippines
- McConnell Dowell - Australia
- GN Power Mariveles Coal Plant, Philippines
- Binh Thuan Hamico - Vietnam
- Bukit Makmur.PT - Indonesia
- ASAPP Information Group - India
- Kartika Selabumi Mining - Indonesia
- ICICI Bank Limited - India
- SMC Global Power, Philippines
- White Energy Company Limited
- Baramulti Group, Indonesia
- India Bulls Power Limited - India
- Ind-Barath Power Infra Limited - India
- Port Waratah Coal Services - Australia
- Rio Tinto Coal - Australia
- Chettinad Cement Corporation Ltd - India
- Dalmia Cement Bharat India
- Heidelberg Cement - Germany
- Tamil Nadu electricity Board
- Larsen & Toubro Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Coal and Oil Company - UAE
- Oldendorff Carriers - Singapore
- Antam Resourcindo - Indonesia
- Aboitiz Power Corporation - Philippines
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Holcim Trading Pte Ltd - Singapore
- Bhoruka Overseas - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Australian Commodity Traders Exchange
- Petron Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Indian Energy Exchange, India
- SMG Consultants - Indonesia
- Mintek Dendrill Indonesia
- Indika Energy - Indonesia
- Eastern Energy - Thailand
- Meenaskhi Energy Private Limited - India
- OPG Power Generation Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Price Waterhouse Coopers - Russia
- Lanco Infratech Ltd - India
- Posco Energy - South Korea
- Vizag Seaport Private Limited - India
- Leighton Contractors Pty Ltd - Australia
- Thai Mozambique Logistica
- Edison Trading Spa - Italy
- Latin American Coal - Colombia
- Kapuas Tunggal Persada - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Orica Australia Pty. Ltd.
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GMR Energy Limited - India
- Krishnapatnam Port Company Ltd. - India
- Simpson Spence & Young - Indonesia
- CNBM International Corporation - China
- Independent Power Producers Association of India
- Neyveli Lignite Corporation Ltd, - India
- AsiaOL BioFuels Corp., Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Metalloyd Limited - United Kingdom
- Makarim & Taira - Indonesia
- Global Business Power Corporation, Philippines
- The Treasury - Australian Government
- Power Finance Corporation Ltd., India
- Bulk Trading Sa - Switzerland
- Ambuja Cements Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Bhushan Steel Limited - India
- Gujarat Sidhee Cement - India
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