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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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Thursday, 21 May 20
KOMIPO INVITED BIDS FOR TOTAL 610000 MT OF LCV AND HCV COAL FOR 2H 2020
COALspot.com: South Korea’s Korea Midland Power Co. Ltd. (KOMIPO) has Issued an International Tender for 130,000 mt of 5700 NCV coal an ...
Wednesday, 20 May 20
ADARO ENERGY BOOKED A 5% INCREASE IN COAL PRODUCTION VOLUME Y-O-Y IN 1Q2020
PT. Adaro Energy Tbk, Indonesia’s one of the largest coal miner, booked a 5% increase in coal production volume year-over-year in 1Q2020. The ...
Wednesday, 20 May 20
BRAZIL SOYBEAN EXPORTS HAVE BEEN SURGING THIS YEAR - BANCHERO COSTA
Brazil soybean exports have been surging this year, thanks to a combination of strong demand from China, a bumper crop, and favourable exchange rat ...
Wednesday, 20 May 20
MARKET INSIGHT
Seafarers keep maritime trade going so that the food, raw materials, energy and manufactured goods on which so many depend can continue moving arou ...
Tuesday, 19 May 20
AMENDMENT OF THE INDONESIAN MINING LAW: TYING UP LOOSE ENDS - UMBRA
KNOWLEDGE TO ELEVATE
The finalized draft of Law on the amendment of the Mining Law (Bill) was publicly released on 11 May 2020 and was then ap ...
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- Deloitte Consulting - India
- Aboitiz Power Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Holcim Trading Pte Ltd - Singapore
- Commonwealth Bank - Australia
- Gujarat Sidhee Cement - India
- Agrawal Coal Company - India
- Global Coal Blending Company Limited - Australia
- Global Business Power Corporation, Philippines
- Anglo American - United Kingdom
- SMG Consultants - Indonesia
- Trasteel International SA, Italy
- Port Waratah Coal Services - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- San Jose City I Power Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Leighton Contractors Pty Ltd - Australia
- Vedanta Resources Plc - India
- Electricity Authority, New Zealand
- Siam City Cement PLC, Thailand
- Coastal Gujarat Power Limited - India
- Bayan Resources Tbk. - Indonesia
- Planning Commission, India
- Cement Manufacturers Association - India
- Timah Investasi Mineral - Indoneisa
- Renaissance Capital - South Africa
- Maheswari Brothers Coal Limited - India
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- Manunggal Multi Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Mintek Dendrill Indonesia
- White Energy Company Limited
- Directorate Of Revenue Intelligence - India
- Directorate General of MIneral and Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Petrochimia International Co. Ltd.- Taiwan
- Pipit Mutiara Jaya. PT, Indonesia
- VISA Power Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Wilmar Investment Holdings
- Ind-Barath Power Infra Limited - India
- Mercator Lines Limited - India
- Africa Commodities Group - South Africa
- McConnell Dowell - Australia
- Orica Australia Pty. Ltd.
- Attock Cement Pakistan Limited
- Makarim & Taira - Indonesia
- SN Aboitiz Power Inc, Philippines
- The Treasury - Australian Government
- Bukit Makmur.PT - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- GVK Power & Infra Limited - India
- Lanco Infratech Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Formosa Plastics Group - Taiwan
- Electricity Generating Authority of Thailand
- Xindia Steels Limited - India
- Georgia Ports Authority, United States
- Banpu Public Company Limited - Thailand
- Sarangani Energy Corporation, Philippines
- The State Trading Corporation of India Ltd
- Sinarmas Energy and Mining - Indonesia
- Gujarat Electricity Regulatory Commission - India
- TeaM Sual Corporation - Philippines
- PTC India Limited - India
- Globalindo Alam Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- Coalindo Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- Parliament of New Zealand
- Madhucon Powers Ltd - India
- Kideco Jaya Agung - Indonesia
- Chettinad Cement Corporation Ltd - India
- Kepco SPC Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Semirara Mining Corp, Philippines
- Straits Asia Resources Limited - Singapore
- Dalmia Cement Bharat India
- Sree Jayajothi Cements Limited - India
- Toyota Tsusho Corporation, Japan
- Central Electricity Authority - India
- Ministry of Mines - Canada
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Indika Energy - Indonesia
- Economic Council, Georgia
- The University of Queensland
- Indogreen Group - Indonesia
- South Luzon Thermal Energy Corporation
- Pendopo Energi Batubara - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Ambuja Cements Ltd - India
- Star Paper Mills Limited - India
- Minerals Council of Australia
- Indian Energy Exchange, India
- Borneo Indobara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Videocon Industries ltd - India
- Wood Mackenzie - Singapore
- Mercuria Energy - Indonesia
- Rio Tinto Coal - Australia
- Indonesian Coal Mining Association
- Karbindo Abesyapradhi - Indoneisa
- Power Finance Corporation Ltd., India
- PNOC Exploration Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Eastern Energy - Thailand
- Mjunction Services Limited - India
- Kapuas Tunggal Persada - Indonesia
- Meenaskhi Energy Private Limited - India
- CNBM International Corporation - China
- Gujarat Mineral Development Corp Ltd - India
- Australian Commodity Traders Exchange
- Vizag Seaport Private Limited - India
- Ministry of Transport, Egypt
- CIMB Investment Bank - Malaysia
- Kumho Petrochemical, South Korea
- Asmin Koalindo Tuhup - Indonesia
- Indian Oil Corporation Limited
- Alfred C Toepfer International GmbH - Germany
- Bhoruka Overseas - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Iligan Light & Power Inc, Philippines
- Interocean Group of Companies - India
- Antam Resourcindo - Indonesia
- Barasentosa Lestari - Indonesia
- Bharathi Cement Corporation - India
- Eastern Coal Council - USA
- Bulk Trading Sa - Switzerland
- Thiess Contractors Indonesia
- Karaikal Port Pvt Ltd - India
- Orica Mining Services - Indonesia
- Latin American Coal - Colombia
- AsiaOL BioFuels Corp., Philippines
- Heidelberg Cement - Germany
- Samtan Co., Ltd - South Korea
- Uttam Galva Steels Limited - India
- New Zealand Coal & Carbon
- Goldman Sachs - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Standard Chartered Bank - UAE
- Bhatia International Limited - India
- Altura Mining Limited, Indonesia
- Aditya Birla Group - India
- Metalloyd Limited - United Kingdom
- Price Waterhouse Coopers - Russia
- Jorong Barutama Greston.PT - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kartika Selabumi Mining - Indonesia
- Thai Mozambique Logistica
- Chamber of Mines of South Africa
- Jaiprakash Power Ventures ltd
- Independent Power Producers Association of India
- Larsen & Toubro Limited - India
- European Bulk Services B.V. - Netherlands
- Tamil Nadu electricity Board
- Intertek Mineral Services - Indonesia
- SMC Global Power, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Romanian Commodities Exchange
- Simpson Spence & Young - Indonesia
- IHS Mccloskey Coal Group - USA
- India Bulls Power Limited - India
- Riau Bara Harum - Indonesia
- Marubeni Corporation - India
- Rashtriya Ispat Nigam Limited - India
- Meralco Power Generation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Jindal Steel & Power Ltd - India
- Bangladesh Power Developement Board
- Therma Luzon, Inc, Philippines
- Edison Trading Spa - Italy
- Baramulti Group, Indonesia
- IEA Clean Coal Centre - UK
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- Petron Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Salva Resources Pvt Ltd - India
- Malabar Cements Ltd - India
- Medco Energi Mining Internasional
- Bhushan Steel Limited - India
- Energy Development Corp, Philippines
- ICICI Bank Limited - India
- Parry Sugars Refinery, India
- Miang Besar Coal Terminal - Indonesia
- Merrill Lynch Commodities Europe
- Energy Link Ltd, New Zealand
- London Commodity Brokers - England
- Posco Energy - South Korea
- GMR Energy Limited - India
- Grasim Industreis Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Singapore Mercantile Exchange
- Australian Coal Association
- Sical Logistics Limited - India
- Oldendorff Carriers - Singapore
- ASAPP Information Group - India
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Indo Tambangraya Megah - Indonesia
- Siam City Cement - Thailand
- Sojitz Corporation - Japan
- Billiton Holdings Pty Ltd - Australia
- Coal and Oil Company - UAE
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Carbofer General Trading SA - India
- Bahari Cakrawala Sebuku - Indonesia
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