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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, 12 May 20
A GLOBAL ECONOMIC RESTART HAS SLOWLY BEGUN AS COUNTRIES AROUND THE WORLD GRADUALLY - ALLIED
A global economic restart has slowly begun as countries around the world gradually set their return back to “normality”. Yet by all mea ...
Tuesday, 12 May 20
CAN INDONESIA'S COAL INDUSTRY SURVIVE COVID-19? : IEEFA
Pandemic Lockdown and Slumping Prices Put Extreme Pressure on Coal Miners
Executive Summary
While attention has been focused on th ...
Tuesday, 12 May 20
INDIA'S COAL PRODUCTION TO CLOCK RECORD 700 MILLION TONNES IN FY21: COAL SECRETARY - PTI
Coal Secretary Anil Jain said FY20 coal production was lower than the target of 660 million tonnes because of flooding of a key coal mine.
&nbs ...
Monday, 11 May 20
CHINA'S BENCHMARK POWER COAL PRICE DROPS SLIGHTLY - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
Monday, 11 May 20
CORONAVIRUS PUTS MORE THAN A THIRD OF SEABORNE COAL SUPPLY AT RISK - WOOD MACKENZIE
The full impact of the coronavirus outbreak on the global economy is yet unclear. However, the demand destruction is already becoming evident, with ...
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- Edison Trading Spa - Italy
- IHS Mccloskey Coal Group - USA
- Orica Australia Pty. Ltd.
- Thai Mozambique Logistica
- Kepco SPC Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Altura Mining Limited, Indonesia
- Sarangani Energy Corporation, Philippines
- Indian Oil Corporation Limited
- Chamber of Mines of South Africa
- PetroVietnam Power Coal Import and Supply Company
- Larsen & Toubro Limited - India
- Economic Council, Georgia
- OPG Power Generation Pvt Ltd - India
- Tata Chemicals Ltd - India
- Thiess Contractors Indonesia
- Electricity Generating Authority of Thailand
- India Bulls Power Limited - India
- Videocon Industries ltd - India
- Oldendorff Carriers - Singapore
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- Ambuja Cements Ltd - India
- Standard Chartered Bank - UAE
- Planning Commission, India
- Heidelberg Cement - Germany
- Kideco Jaya Agung - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Maheswari Brothers Coal Limited - India
- Kapuas Tunggal Persada - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Directorate General of MIneral and Coal - Indonesia
- Marubeni Corporation - India
- Gujarat Electricity Regulatory Commission - India
- Africa Commodities Group - South Africa
- Jorong Barutama Greston.PT - Indonesia
- Borneo Indobara - Indonesia
- Barasentosa Lestari - Indonesia
- SMG Consultants - Indonesia
- Romanian Commodities Exchange
- Global Coal Blending Company Limited - Australia
- Ministry of Transport, Egypt
- Bukit Baiduri Energy - Indonesia
- Mjunction Services Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Samtan Co., Ltd - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ind-Barath Power Infra Limited - India
- Karaikal Port Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Alfred C Toepfer International GmbH - Germany
- Independent Power Producers Association of India
- Bharathi Cement Corporation - India
- PNOC Exploration Corporation - Philippines
- Savvy Resources Ltd - HongKong
- GMR Energy Limited - India
- Riau Bara Harum - Indonesia
- Bhoruka Overseas - Indonesia
- Power Finance Corporation Ltd., India
- Kalimantan Lumbung Energi - Indonesia
- Port Waratah Coal Services - Australia
- LBH Netherlands Bv - Netherlands
- Deloitte Consulting - India
- Semirara Mining and Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Eastern Energy - Thailand
- Aditya Birla Group - India
- GAC Shipping (India) Pvt Ltd
- CNBM International Corporation - China
- Latin American Coal - Colombia
- Indonesian Coal Mining Association
- Star Paper Mills Limited - India
- Vizag Seaport Private Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Xindia Steels Limited - India
- Ministry of Finance - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Straits Asia Resources Limited - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Simpson Spence & Young - Indonesia
- Bhatia International Limited - India
- Mercator Lines Limited - India
- Sakthi Sugars Limited - India
- Baramulti Group, Indonesia
- SMC Global Power, Philippines
- Bulk Trading Sa - Switzerland
- Commonwealth Bank - Australia
- Kumho Petrochemical, South Korea
- Petron Corporation, Philippines
- Antam Resourcindo - Indonesia
- Essar Steel Hazira Ltd - India
- Salva Resources Pvt Ltd - India
- ASAPP Information Group - India
- Banpu Public Company Limited - Thailand
- Gujarat Sidhee Cement - India
- Madhucon Powers Ltd - India
- The Treasury - Australian Government
- Medco Energi Mining Internasional
- Kohat Cement Company Ltd. - Pakistan
- Bayan Resources Tbk. - Indonesia
- Minerals Council of Australia
- Carbofer General Trading SA - India
- TeaM Sual Corporation - Philippines
- Eastern Coal Council - USA
- Siam City Cement PLC, Thailand
- Trasteel International SA, Italy
- VISA Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Global Green Power PLC Corporation, Philippines
- Siam City Cement - Thailand
- San Jose City I Power Corp, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Tamil Nadu electricity Board
- Rashtriya Ispat Nigam Limited - India
- Therma Luzon, Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Georgia Ports Authority, United States
- Mercuria Energy - Indonesia
- Grasim Industreis Ltd - India
- Manunggal Multi Energi - Indonesia
- Intertek Mineral Services - Indonesia
- Sical Logistics Limited - India
- Anglo American - United Kingdom
- Rio Tinto Coal - Australia
- Bangladesh Power Developement Board
- Bukit Makmur.PT - Indonesia
- Timah Investasi Mineral - Indoneisa
- Indo Tambangraya Megah - Indonesia
- Parry Sugars Refinery, India
- GVK Power & Infra Limited - India
- Sree Jayajothi Cements Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- Miang Besar Coal Terminal - Indonesia
- Coal and Oil Company - UAE
- SN Aboitiz Power Inc, Philippines
- Merrill Lynch Commodities Europe
- Electricity Authority, New Zealand
- Indian Energy Exchange, India
- MS Steel International - UAE
- Goldman Sachs - Singapore
- Dalmia Cement Bharat India
- IEA Clean Coal Centre - UK
- PTC India Limited - India
- Price Waterhouse Coopers - Russia
- McConnell Dowell - Australia
- Coalindo Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Sojitz Corporation - Japan
- Karbindo Abesyapradhi - Indoneisa
- Toyota Tsusho Corporation, Japan
- Holcim Trading Pte Ltd - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Development Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Central Electricity Authority - India
- PowerSource Philippines DevCo
- Wood Mackenzie - Singapore
- White Energy Company Limited
- Kaltim Prima Coal - Indonesia
- Australian Commodity Traders Exchange
- Malabar Cements Ltd - India
- Aboitiz Power Corporation - Philippines
- Energy Link Ltd, New Zealand
- Makarim & Taira - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Jaiprakash Power Ventures ltd
- Wilmar Investment Holdings
- Coastal Gujarat Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Directorate Of Revenue Intelligence - India
- Cement Manufacturers Association - India
- New Zealand Coal & Carbon
- Iligan Light & Power Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- CIMB Investment Bank - Malaysia
- Singapore Mercantile Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Jindal Steel & Power Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Central Java Power - Indonesia
- Ministry of Mines - Canada
- Renaissance Capital - South Africa
- Krishnapatnam Port Company Ltd. - India
- Attock Cement Pakistan Limited
- Kobexindo Tractors - Indoneisa
- Australian Coal Association
- The State Trading Corporation of India Ltd
- Global Business Power Corporation, Philippines
- Agrawal Coal Company - India
- Uttam Galva Steels Limited - India
- Binh Thuan Hamico - Vietnam
- Meralco Power Generation, Philippines
- Posco Energy - South Korea
- The University of Queensland
- Formosa Plastics Group - Taiwan
- Sinarmas Energy and Mining - Indonesia
- European Bulk Services B.V. - Netherlands
- London Commodity Brokers - England
- Parliament of New Zealand
- Meenaskhi Energy Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- Indogreen Group - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Pendopo Energi Batubara - Indonesia
- Lanco Infratech Ltd - India
- Orica Mining Services - Indonesia
- Vedanta Resources Plc - India
- International Coal Ventures Pvt Ltd - India
- ICICI Bank Limited - India
- Semirara Mining Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Mintek Dendrill Indonesia
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