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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, 14 May 20
OPEC REVISES DOWN GLOBAL OIL DEMAND FORECAST AGAIN
Crude Oil Price Movements
Crude oil prices recorded a second sharp monthly drop in April, amid an increasing oil surplus in the spot market. Th ...
Thursday, 14 May 20
NEW COVID-19 GUIDELINES FOCUS ON SAFE INTERFACE BETWEEN SHIP AND SHORE STAFF - GARD
At a time when the COVID-19 pandemic is affecting the global population, it is important that ships’ crew and port workers protect each other ...
Wednesday, 13 May 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.4 PCT - XINHUA
China Taiyuan coal transaction price index stood at 124.93 points Monday, down 0.4 percent week on week.
The index, released by Chin ...
Tuesday, 12 May 20
IN THE FIRST 4 MONTHS OF 2020, SOUTH KOREA IMPORTED 46.6 MLN TONNES OF CRUDE OIL BY SEA, A NET DECLINE OF 14.1% YOY - BC
South Korea is certainly one of the countries which has handled better the current Covid-19 crisis. In the first week of May 2020, new cases of ...
Tuesday, 12 May 20
OIL MARKET TURBULENCE PIVOTS FOCUS ON FLOATING STORAGE TECHNICAL NEEDS - LLOYD'S REGISTER
KNOWLEDGE TO ELEVATE
Negative oil prices and off-the-scale volatility in crude markets are positive for floating storage, as the next chapter ...
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- PNOC Exploration Corporation - Philippines
- Cement Manufacturers Association - India
- Anglo American - United Kingdom
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coalindo Energy - Indonesia
- Thai Mozambique Logistica
- Uttam Galva Steels Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Manunggal Multi Energi - Indonesia
- Independent Power Producers Association of India
- Alfred C Toepfer International GmbH - Germany
- Australian Commodity Traders Exchange
- Mintek Dendrill Indonesia
- International Coal Ventures Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Medco Energi Mining Internasional
- Kartika Selabumi Mining - Indonesia
- Salva Resources Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Dalmia Cement Bharat India
- Cigading International Bulk Terminal - Indonesia
- Borneo Indobara - Indonesia
- Marubeni Corporation - India
- Bhoruka Overseas - Indonesia
- ASAPP Information Group - India
- Indian Energy Exchange, India
- Chettinad Cement Corporation Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CIMB Investment Bank - Malaysia
- Bulk Trading Sa - Switzerland
- Aditya Birla Group - India
- Siam City Cement PLC, Thailand
- Deloitte Consulting - India
- ICICI Bank Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Parry Sugars Refinery, India
- Sojitz Corporation - Japan
- Goldman Sachs - Singapore
- Iligan Light & Power Inc, Philippines
- Simpson Spence & Young - Indonesia
- India Bulls Power Limited - India
- Sinarmas Energy and Mining - Indonesia
- Minerals Council of Australia
- OPG Power Generation Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Chamber of Mines of South Africa
- Timah Investasi Mineral - Indoneisa
- Karbindo Abesyapradhi - Indoneisa
- Heidelberg Cement - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
- Georgia Ports Authority, United States
- Orica Australia Pty. Ltd.
- Kepco SPC Power Corporation, Philippines
- Attock Cement Pakistan Limited
- The State Trading Corporation of India Ltd
- Interocean Group of Companies - India
- Krishnapatnam Port Company Ltd. - India
- Global Green Power PLC Corporation, Philippines
- Makarim & Taira - Indonesia
- Jindal Steel & Power Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Petrochimia International Co. Ltd.- Taiwan
- CNBM International Corporation - China
- Toyota Tsusho Corporation, Japan
- PTC India Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Bhatia International Limited - India
- Bukit Makmur.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Karaikal Port Pvt Ltd - India
- Indogreen Group - Indonesia
- McConnell Dowell - Australia
- Mjunction Services Limited - India
- Electricity Generating Authority of Thailand
- Wood Mackenzie - Singapore
- SMG Consultants - Indonesia
- IHS Mccloskey Coal Group - USA
- Kaltim Prima Coal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Siam City Cement - Thailand
- Economic Council, Georgia
- Madhucon Powers Ltd - India
- Sree Jayajothi Cements Limited - India
- Coal and Oil Company - UAE
- Bukit Asam (Persero) Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Electricity Authority, New Zealand
- Barasentosa Lestari - Indonesia
- Thiess Contractors Indonesia
- Edison Trading Spa - Italy
- Grasim Industreis Ltd - India
- Tata Chemicals Ltd - India
- Directorate Of Revenue Intelligence - India
- Orica Mining Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Ministry of Finance - Indonesia
- Energy Link Ltd, New Zealand
- Intertek Mineral Services - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Xindia Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Mercuria Energy - Indonesia
- Latin American Coal - Colombia
- Agrawal Coal Company - India
- The Treasury - Australian Government
- London Commodity Brokers - England
- Kapuas Tunggal Persada - Indonesia
- SMC Global Power, Philippines
- Straits Asia Resources Limited - Singapore
- GAC Shipping (India) Pvt Ltd
- Global Coal Blending Company Limited - Australia
- Renaissance Capital - South Africa
- Bangladesh Power Developement Board
- Semirara Mining and Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- IEA Clean Coal Centre - UK
- Indonesian Coal Mining Association
- Mercator Lines Limited - India
- Sarangani Energy Corporation, Philippines
- Ambuja Cements Ltd - India
- Energy Development Corp, Philippines
- Indika Energy - Indonesia
- Sakthi Sugars Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Ministry of Mines - Canada
- SN Aboitiz Power Inc, Philippines
- PowerSource Philippines DevCo
- Vizag Seaport Private Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Africa Commodities Group - South Africa
- Wilmar Investment Holdings
- Oldendorff Carriers - Singapore
- Malabar Cements Ltd - India
- European Bulk Services B.V. - Netherlands
- MS Steel International - UAE
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Therma Luzon, Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Banpu Public Company Limited - Thailand
- Gujarat Electricity Regulatory Commission - India
- Merrill Lynch Commodities Europe
- Videocon Industries ltd - India
- Petron Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Savvy Resources Ltd - HongKong
- Pendopo Energi Batubara - Indonesia
- Antam Resourcindo - Indonesia
- Bukit Baiduri Energy - Indonesia
- San Jose City I Power Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Riau Bara Harum - Indonesia
- Lanco Infratech Ltd - India
- Global Business Power Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Central Java Power - Indonesia
- Power Finance Corporation Ltd., India
- Central Electricity Authority - India
- Globalindo Alam Lestari - Indonesia
- Price Waterhouse Coopers - Russia
- White Energy Company Limited
- Bhushan Steel Limited - India
- Carbofer General Trading SA - India
- Singapore Mercantile Exchange
- Semirara Mining Corp, Philippines
- Vedanta Resources Plc - India
- Larsen & Toubro Limited - India
- Indian Oil Corporation Limited
- Miang Besar Coal Terminal - Indonesia
- Port Waratah Coal Services - Australia
- Ministry of Transport, Egypt
- Kumho Petrochemical, South Korea
- Kobexindo Tractors - Indoneisa
- Bharathi Cement Corporation - India
- Samtan Co., Ltd - South Korea
- Metalloyd Limited - United Kingdom
- Tamil Nadu electricity Board
- Baramulti Group, Indonesia
- The University of Queensland
- Australian Coal Association
- Standard Chartered Bank - UAE
- Posco Energy - South Korea
- Holcim Trading Pte Ltd - Singapore
- Eastern Energy - Thailand
- Aboitiz Power Corporation - Philippines
- Meralco Power Generation, Philippines
- Ind-Barath Power Infra Limited - India
- Commonwealth Bank - Australia
- Sical Logistics Limited - India
- Romanian Commodities Exchange
- Rio Tinto Coal - Australia
- Parliament of New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Maheswari Brothers Coal Limited - India
- VISA Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- GVK Power & Infra Limited - India
- Trasteel International SA, Italy
- Neyveli Lignite Corporation Ltd, - India
- Planning Commission, India
- New Zealand Coal & Carbon
- Jaiprakash Power Ventures ltd
- Eastern Coal Council - USA
- TeaM Sual Corporation - Philippines
- South Luzon Thermal Energy Corporation
- Gujarat Sidhee Cement - India
- Essar Steel Hazira Ltd - India
- GMR Energy Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coastal Gujarat Power Limited - India
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