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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, 07 May 20
CRUDE OIL TANKER EARNINGS DROP 68% IN NINE DAYS - BIMCO
Crude oil tanker earnings have come down sharply in recent weeks with Very Large Crude Carrier (VLCC) earnings from the Middle East Gulf to China d ...
Thursday, 07 May 20
UKRAINE PRODUCES 2.5 MLN TONNES OF COAL IN APRIL - UKRINFORM
Ukraine produced 2.5 million tonnes of coal in April 2020, which is 39% less than planned, according to the Coal Miners Union of Ukraine.
...
Thursday, 07 May 20
INDIA: GOVT TO DO AWAY WITH MANDATORY WASHING OF COAL FOR THERMAL POWER UNITS - BUSINESS STANDARD
The Centre is planning to do away with the mandatory requirement of washing of coal before it is transported to thermal power stations. The Ministr ...
Thursday, 07 May 20
CIL'S SUPPLY TO POWER SECTOR FALLS IN MARCH AMID SLUMP IN COAL DEMAND - PTI
The supply of coal to the power sector by state-owned CIL registered a decline of eight per cent to 42.30 million tonne in March in the wake of slu ...
Thursday, 07 May 20
COAL PRICE REFERENCE FALL SHARPLY IN MAY 2020 DUE TO CORONAVIRUS OUTBREAK
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down the benchmark price of Indonesian thermal ...
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- Port Waratah Coal Services - Australia
- Coal and Oil Company - UAE
- Star Paper Mills Limited - India
- Anglo American - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- Timah Investasi Mineral - Indoneisa
- GVK Power & Infra Limited - India
- Metalloyd Limited - United Kingdom
- Bayan Resources Tbk. - Indonesia
- India Bulls Power Limited - India
- Kaltim Prima Coal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Electricity Authority, New Zealand
- Malabar Cements Ltd - India
- Indo Tambangraya Megah - Indonesia
- ASAPP Information Group - India
- London Commodity Brokers - England
- Price Waterhouse Coopers - Russia
- IHS Mccloskey Coal Group - USA
- Neyveli Lignite Corporation Ltd, - India
- Siam City Cement PLC, Thailand
- Deloitte Consulting - India
- CIMB Investment Bank - Malaysia
- Merrill Lynch Commodities Europe
- Kalimantan Lumbung Energi - Indonesia
- TeaM Sual Corporation - Philippines
- Cement Manufacturers Association - India
- White Energy Company Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Jorong Barutama Greston.PT - Indonesia
- Larsen & Toubro Limited - India
- IEA Clean Coal Centre - UK
- Sindya Power Generating Company Private Ltd
- Bulk Trading Sa - Switzerland
- Uttam Galva Steels Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- GAC Shipping (India) Pvt Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Aboitiz Power Corporation - Philippines
- Essar Steel Hazira Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Parliament of New Zealand
- Wilmar Investment Holdings
- Binh Thuan Hamico - Vietnam
- Bukit Makmur.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Goldman Sachs - Singapore
- Africa Commodities Group - South Africa
- Xindia Steels Limited - India
- Coastal Gujarat Power Limited - India
- Eastern Coal Council - USA
- Riau Bara Harum - Indonesia
- Global Business Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Attock Cement Pakistan Limited
- Mintek Dendrill Indonesia
- Directorate General of MIneral and Coal - Indonesia
- McConnell Dowell - Australia
- Bukit Baiduri Energy - Indonesia
- ICICI Bank Limited - India
- Central Electricity Authority - India
- Kumho Petrochemical, South Korea
- Coalindo Energy - Indonesia
- Savvy Resources Ltd - HongKong
- AsiaOL BioFuels Corp., Philippines
- Sree Jayajothi Cements Limited - India
- Indian Oil Corporation Limited
- Kohat Cement Company Ltd. - Pakistan
- Jaiprakash Power Ventures ltd
- Petron Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Independent Power Producers Association of India
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement - Thailand
- Ministry of Mines - Canada
- PTC India Limited - India
- Bangladesh Power Developement Board
- Meralco Power Generation, Philippines
- Global Green Power PLC Corporation, Philippines
- Economic Council, Georgia
- New Zealand Coal & Carbon
- Gujarat Electricity Regulatory Commission - India
- Videocon Industries ltd - India
- Kobexindo Tractors - Indoneisa
- Australian Commodity Traders Exchange
- Baramulti Group, Indonesia
- Aditya Birla Group - India
- MS Steel International - UAE
- Latin American Coal - Colombia
- European Bulk Services B.V. - Netherlands
- SMG Consultants - Indonesia
- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
- SMC Global Power, Philippines
- Toyota Tsusho Corporation, Japan
- Ceylon Electricity Board - Sri Lanka
- Manunggal Multi Energi - Indonesia
- Planning Commission, India
- Antam Resourcindo - Indonesia
- Tata Chemicals Ltd - India
- Formosa Plastics Group - Taiwan
- Jindal Steel & Power Ltd - India
- Altura Mining Limited, Indonesia
- Dalmia Cement Bharat India
- Indian Energy Exchange, India
- The Treasury - Australian Government
- Rio Tinto Coal - Australia
- Bhatia International Limited - India
- Karaikal Port Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Grasim Industreis Ltd - India
- Australian Coal Association
- Marubeni Corporation - India
- Orica Australia Pty. Ltd.
- Energy Development Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Energy Link Ltd, New Zealand
- Lanco Infratech Ltd - India
- Global Coal Blending Company Limited - Australia
- Edison Trading Spa - Italy
- Sakthi Sugars Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kepco SPC Power Corporation, Philippines
- Mjunction Services Limited - India
- Renaissance Capital - South Africa
- Straits Asia Resources Limited - Singapore
- Krishnapatnam Port Company Ltd. - India
- Miang Besar Coal Terminal - Indonesia
- Medco Energi Mining Internasional
- Parry Sugars Refinery, India
- Trasteel International SA, Italy
- Intertek Mineral Services - Indonesia
- Romanian Commodities Exchange
- Posco Energy - South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Oldendorff Carriers - Singapore
- The State Trading Corporation of India Ltd
- Mercuria Energy - Indonesia
- Indogreen Group - Indonesia
- VISA Power Limited - India
- South Luzon Thermal Energy Corporation
- Georgia Ports Authority, United States
- Bhushan Steel Limited - India
- Electricity Generating Authority of Thailand
- Rashtriya Ispat Nigam Limited - India
- Simpson Spence & Young - Indonesia
- Chamber of Mines of South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ind-Barath Power Infra Limited - India
- International Coal Ventures Pvt Ltd - India
- Commonwealth Bank - Australia
- Cigading International Bulk Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Mercator Lines Limited - India
- Bharathi Cement Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Therma Luzon, Inc, Philippines
- GMR Energy Limited - India
- Directorate Of Revenue Intelligence - India
- Ambuja Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- Borneo Indobara - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Maheswari Brothers Coal Limited - India
- Kideco Jaya Agung - Indonesia
- Orica Mining Services - Indonesia
- Barasentosa Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- Wood Mackenzie - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Meenaskhi Energy Private Limited - India
- Vedanta Resources Plc - India
- Thiess Contractors Indonesia
- Central Java Power - Indonesia
- The University of Queensland
- Samtan Co., Ltd - South Korea
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Indika Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- PowerSource Philippines DevCo
- Eastern Energy - Thailand
- Alfred C Toepfer International GmbH - Germany
- Interocean Group of Companies - India
- CNBM International Corporation - China
- Agrawal Coal Company - India
- Tamil Nadu electricity Board
- Ministry of Finance - Indonesia
- Banpu Public Company Limited - Thailand
- Gujarat Sidhee Cement - India
- Indonesian Coal Mining Association
- Gujarat Mineral Development Corp Ltd - India
- Kartika Selabumi Mining - Indonesia
- SN Aboitiz Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Kapuas Tunggal Persada - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Carbofer General Trading SA - India
- Heidelberg Cement - Germany
- Sical Logistics Limited - India
- Ministry of Transport, Egypt
- Asmin Koalindo Tuhup - Indonesia
- Semirara Mining Corp, Philippines
- Madhucon Powers Ltd - India
- Minerals Council of Australia
- PNOC Exploration Corporation - Philippines
- Vizag Seaport Private Limited - India
- Pendopo Energi Batubara - Indonesia
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