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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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Monday, 18 May 20
TAKING ADVANTAGE OF VIRUS DISTRACTION - BALTIC EXCHANGE
As the industry grapples to deal with exceptional Covid-19-related challenges, a deeper threat is coming to the fore. At this time of crisis, more ...
Monday, 18 May 20
THERMAL COAL SPOT PRICE TUMBLES 25 PER CENT, PUTTING PRESSURE ON SOME PRODUCERS - ABC RURAL
The spot price for thermal coal has fallen 25 per cent per cent in the past month with one leading analyst saying it is because of a reduction in d ...
Monday, 18 May 20
CHINA'S COAL OUTPUT UP 1.3 PCT IN JANUARY-APRIL: XINHUA
Output of raw coal in China rose 1.3 percent year on year to 1.15 billion tonnes in the first four months this year, official data showed.
&nbs ...
Sunday, 17 May 20
A 55,000 OPEN ILIGAN FIXING AT $6,500 VIA INDONESIA REDELIVERY INDIA - BALTIC BRIEFING
Capesize
A precipitous fall in the market this week had the Capesize 5TC shedding over 50 per cent in value. A small rebound at the end of the ...
Friday, 15 May 20
CHINA'S COAL CONSUMPTION TO FALL Y/Y IN SECOND QUARTER, IMPROVEMENT EXPECTED IN SECOND HALF - INDUSTRY BODY: REUTERS
China’s coal consumption is expected to decline in the second quarter from a year earlier, but will see an improvement in the second half of ...
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- International Coal Ventures Pvt Ltd - India
- Carbofer General Trading SA - India
- Ministry of Transport, Egypt
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Jaiprakash Power Ventures ltd
- PTC India Limited - India
- Electricity Generating Authority of Thailand
- Intertek Mineral Services - Indonesia
- Sakthi Sugars Limited - India
- Mjunction Services Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Indonesian Coal Mining Association
- PNOC Exploration Corporation - Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- New Zealand Coal & Carbon
- Deloitte Consulting - India
- Orica Australia Pty. Ltd.
- Billiton Holdings Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Central Electricity Authority - India
- Grasim Industreis Ltd - India
- Kobexindo Tractors - Indoneisa
- Binh Thuan Hamico - Vietnam
- Coalindo Energy - Indonesia
- Sojitz Corporation - Japan
- Standard Chartered Bank - UAE
- ICICI Bank Limited - India
- Petron Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Kideco Jaya Agung - Indonesia
- Altura Mining Limited, Indonesia
- Siam City Cement PLC, Thailand
- Dalmia Cement Bharat India
- Power Finance Corporation Ltd., India
- Uttam Galva Steels Limited - India
- SMG Consultants - Indonesia
- SMC Global Power, Philippines
- Australian Coal Association
- Australian Commodity Traders Exchange
- Makarim & Taira - Indonesia
- LBH Netherlands Bv - Netherlands
- The State Trading Corporation of India Ltd
- Indika Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- PetroVietnam Power Coal Import and Supply Company
- Global Business Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- ASAPP Information Group - India
- AsiaOL BioFuels Corp., Philippines
- Simpson Spence & Young - Indonesia
- SN Aboitiz Power Inc, Philippines
- Borneo Indobara - Indonesia
- Ministry of Finance - Indonesia
- IEA Clean Coal Centre - UK
- Trasteel International SA, Italy
- Coastal Gujarat Power Limited - India
- GVK Power & Infra Limited - India
- Eastern Coal Council - USA
- Star Paper Mills Limited - India
- Kapuas Tunggal Persada - Indonesia
- Rio Tinto Coal - Australia
- Sarangani Energy Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- The University of Queensland
- Larsen & Toubro Limited - India
- Xindia Steels Limited - India
- Global Green Power PLC Corporation, Philippines
- Siam City Cement - Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aboitiz Power Corporation - Philippines
- Bharathi Cement Corporation - India
- Interocean Group of Companies - India
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Mercuria Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Riau Bara Harum - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Sinarmas Energy and Mining - Indonesia
- London Commodity Brokers - England
- Miang Besar Coal Terminal - Indonesia
- Maheswari Brothers Coal Limited - India
- VISA Power Limited - India
- GMR Energy Limited - India
- Chamber of Mines of South Africa
- Wood Mackenzie - Singapore
- Tamil Nadu electricity Board
- White Energy Company Limited
- Mercator Lines Limited - India
- Economic Council, Georgia
- Gujarat Electricity Regulatory Commission - India
- Port Waratah Coal Services - Australia
- Lanco Infratech Ltd - India
- Romanian Commodities Exchange
- Chettinad Cement Corporation Ltd - India
- Savvy Resources Ltd - HongKong
- Vedanta Resources Plc - India
- Heidelberg Cement - Germany
- Oldendorff Carriers - Singapore
- The Treasury - Australian Government
- MS Steel International - UAE
- Parliament of New Zealand
- Tata Chemicals Ltd - India
- Bhushan Steel Limited - India
- Timah Investasi Mineral - Indoneisa
- Merrill Lynch Commodities Europe
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indian Energy Exchange, India
- Commonwealth Bank - Australia
- Semirara Mining and Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Independent Power Producers Association of India
- Kepco SPC Power Corporation, Philippines
- Cement Manufacturers Association - India
- Medco Energi Mining Internasional
- Eastern Energy - Thailand
- Kumho Petrochemical, South Korea
- Indian Oil Corporation Limited
- Barasentosa Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Baramulti Group, Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Africa Commodities Group - South Africa
- Banpu Public Company Limited - Thailand
- Electricity Authority, New Zealand
- Wilmar Investment Holdings
- Therma Luzon, Inc, Philippines
- Sical Logistics Limited - India
- India Bulls Power Limited - India
- Marubeni Corporation - India
- Sindya Power Generating Company Private Ltd
- Vizag Seaport Private Limited - India
- Gujarat Sidhee Cement - India
- Toyota Tsusho Corporation, Japan
- PowerSource Philippines DevCo
- Meenaskhi Energy Private Limited - India
- Attock Cement Pakistan Limited
- Posco Energy - South Korea
- CIMB Investment Bank - Malaysia
- Globalindo Alam Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Bulk Trading Sa - Switzerland
- Ceylon Electricity Board - Sri Lanka
- Agrawal Coal Company - India
- Malabar Cements Ltd - India
- Salva Resources Pvt Ltd - India
- Central Java Power - Indonesia
- Ambuja Cements Ltd - India
- Meralco Power Generation, Philippines
- Jindal Steel & Power Ltd - India
- Karaikal Port Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Bhatia International Limited - India
- Bhoruka Overseas - Indonesia
- Videocon Industries ltd - India
- Rashtriya Ispat Nigam Limited - India
- Aditya Birla Group - India
- Madhucon Powers Ltd - India
- San Jose City I Power Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Bangladesh Power Developement Board
- Indo Tambangraya Megah - Indonesia
- Antam Resourcindo - Indonesia
- IHS Mccloskey Coal Group - USA
- Neyveli Lignite Corporation Ltd, - India
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Mineral Development Corp Ltd - India
- Ind-Barath Power Infra Limited - India
- Bukit Baiduri Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- CNBM International Corporation - China
- Renaissance Capital - South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Sree Jayajothi Cements Limited - India
- Price Waterhouse Coopers - Russia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indogreen Group - Indonesia
- GAC Shipping (India) Pvt Ltd
- Manunggal Multi Energi - Indonesia
- Kaltim Prima Coal - Indonesia
- McConnell Dowell - Australia
- Orica Mining Services - Indonesia
- European Bulk Services B.V. - Netherlands
- Planning Commission, India
- OPG Power Generation Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Singapore Mercantile Exchange
- Global Coal Blending Company Limited - Australia
- Goldman Sachs - Singapore
- Straits Asia Resources Limited - Singapore
- Kartika Selabumi Mining - Indonesia
- Latin American Coal - Colombia
- Samtan Co., Ltd - South Korea
- Directorate General of MIneral and Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- Minerals Council of Australia
- Parry Sugars Refinery, India
- TeaM Sual Corporation - Philippines
- Georgia Ports Authority, United States
- Energy Development Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Ministry of Mines - Canada
- Mintek Dendrill Indonesia
- Edison Trading Spa - Italy
- Pendopo Energi Batubara - Indonesia
- Coal and Oil Company - UAE
- Leighton Contractors Pty Ltd - Australia
- Thai Mozambique Logistica
- Bayan Resources Tbk. - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Thiess Contractors Indonesia
- Alfred C Toepfer International GmbH - Germany
- Kalimantan Lumbung Energi - Indonesia
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