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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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Wednesday, 06 May 20
KOSPO INVITED COAL BIDS FOR LOW CALORIFIC VALUE COAL
COALspot.com: Korea Southern Power Co., Ltd. (KOSPO) has issued an International tender for 160,000 Metric Tons (MT) Low Calorific Value Coal for J ...
Wednesday, 06 May 20
MARKET INSIGHT - INTERMODAL
It comes as no surprise that activity in the dry bulk SnP market remains soft, with asset values caught in the downward spiral generated by the Cov ...
Wednesday, 06 May 20
FLOATING STORAGE OF OIL CARGOES - STANDARD CLUB
KNOWLEDGE TO ELEVATE
Due to a combination of circumstances there is now a worldwide shortage of storage space ashore for both unrefi ...
Wednesday, 06 May 20
IRON ORE TRADE REMAINS REMARKABLY RESILIENT THIS YEAR, AT LEAST IN ASIA - BANCHERO COSTA
Iron ore trade remains remarkably resilient this year, at least in Asia, despite the global economic impact from COVID-19. In the first 4 months of ...
Tuesday, 05 May 20
SUPRAMAXES: YTD SLIDE HAS BEEN 45%, WITH THE AVERAGE FOR 2020 TCA HOLDING AT US$5,793 - ALLIED
It has been almost three months since the WHO officially categorized the current coronavirus outbreak as a global pandemic, an outbreak that has br ...
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- Coastal Gujarat Power Limited - India
- Manunggal Multi Energi - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Indonesian Coal Mining Association
- Altura Mining Limited, Indonesia
- TeaM Sual Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Globalindo Alam Lestari - Indonesia
- Energy Development Corp, Philippines
- Sindya Power Generating Company Private Ltd
- The State Trading Corporation of India Ltd
- Petron Corporation, Philippines
- Australian Commodity Traders Exchange
- MS Steel International - UAE
- Kohat Cement Company Ltd. - Pakistan
- Rashtriya Ispat Nigam Limited - India
- Tamil Nadu electricity Board
- Asmin Koalindo Tuhup - Indonesia
- Star Paper Mills Limited - India
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Semirara Mining and Power Corporation, Philippines
- Eastern Coal Council - USA
- Kepco SPC Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sree Jayajothi Cements Limited - India
- Thiess Contractors Indonesia
- Kalimantan Lumbung Energi - Indonesia
- SN Aboitiz Power Inc, Philippines
- Mercator Lines Limited - India
- Baramulti Group, Indonesia
- Parliament of New Zealand
- Binh Thuan Hamico - Vietnam
- Neyveli Lignite Corporation Ltd, - India
- VISA Power Limited - India
- Georgia Ports Authority, United States
- IHS Mccloskey Coal Group - USA
- Indian Oil Corporation Limited
- Gujarat Sidhee Cement - India
- GVK Power & Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Global Green Power PLC Corporation, Philippines
- Singapore Mercantile Exchange
- Larsen & Toubro Limited - India
- Global Coal Blending Company Limited - Australia
- Sakthi Sugars Limited - India
- SMG Consultants - Indonesia
- Attock Cement Pakistan Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Parry Sugars Refinery, India
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Borneo Indobara - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Posco Energy - South Korea
- Agrawal Coal Company - India
- Trasteel International SA, Italy
- AsiaOL BioFuels Corp., Philippines
- PNOC Exploration Corporation - Philippines
- Maheswari Brothers Coal Limited - India
- Orica Australia Pty. Ltd.
- Kartika Selabumi Mining - Indonesia
- Port Waratah Coal Services - Australia
- Rio Tinto Coal - Australia
- Ministry of Mines - Canada
- Merrill Lynch Commodities Europe
- GMR Energy Limited - India
- Chettinad Cement Corporation Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Leighton Contractors Pty Ltd - Australia
- Sinarmas Energy and Mining - Indonesia
- Minerals Council of Australia
- Riau Bara Harum - Indonesia
- Coalindo Energy - Indonesia
- Kumho Petrochemical, South Korea
- Electricity Generating Authority of Thailand
- Indogreen Group - Indonesia
- CNBM International Corporation - China
- White Energy Company Limited
- Toyota Tsusho Corporation, Japan
- Xindia Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- International Coal Ventures Pvt Ltd - India
- Tata Chemicals Ltd - India
- Sical Logistics Limited - India
- Intertek Mineral Services - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Finance - Indonesia
- Bangladesh Power Developement Board
- Directorate General of MIneral and Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- Power Finance Corporation Ltd., India
- Mjunction Services Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- ASAPP Information Group - India
- Lanco Infratech Ltd - India
- Pendopo Energi Batubara - Indonesia
- Bhoruka Overseas - Indonesia
- Deloitte Consulting - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Makmur.PT - Indonesia
- Bhushan Steel Limited - India
- Meenaskhi Energy Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Mintek Dendrill Indonesia
- Kideco Jaya Agung - Indonesia
- Cigading International Bulk Terminal - Indonesia
- The Treasury - Australian Government
- Edison Trading Spa - Italy
- Economic Council, Georgia
- Vijayanagar Sugar Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- European Bulk Services B.V. - Netherlands
- Therma Luzon, Inc, Philippines
- Latin American Coal - Colombia
- Oldendorff Carriers - Singapore
- Bukit Baiduri Energy - Indonesia
- LBH Netherlands Bv - Netherlands
- PetroVietnam Power Coal Import and Supply Company
- Independent Power Producers Association of India
- Planning Commission, India
- Timah Investasi Mineral - Indoneisa
- Energy Link Ltd, New Zealand
- PTC India Limited - India
- Interocean Group of Companies - India
- Electricity Authority, New Zealand
- Aditya Birla Group - India
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- Anglo American - United Kingdom
- Semirara Mining Corp, Philippines
- Africa Commodities Group - South Africa
- Thai Mozambique Logistica
- Ambuja Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Jindal Steel & Power Ltd - India
- Metalloyd Limited - United Kingdom
- Ministry of Transport, Egypt
- Bharathi Cement Corporation - India
- Savvy Resources Ltd - HongKong
- Kapuas Tunggal Persada - Indonesia
- Dalmia Cement Bharat India
- Siam City Cement PLC, Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Samtan Co., Ltd - South Korea
- Videocon Industries ltd - India
- Bhatia International Limited - India
- Aboitiz Power Corporation - Philippines
- Wilmar Investment Holdings
- Krishnapatnam Port Company Ltd. - India
- Commonwealth Bank - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Indian Energy Exchange, India
- Siam City Cement - Thailand
- Bulk Trading Sa - Switzerland
- The University of Queensland
- New Zealand Coal & Carbon
- Standard Chartered Bank - UAE
- IEA Clean Coal Centre - UK
- McConnell Dowell - Australia
- Maharashtra Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- Eastern Energy - Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Formosa Plastics Group - Taiwan
- Chamber of Mines of South Africa
- Heidelberg Cement - Germany
- Miang Besar Coal Terminal - Indonesia
- SMC Global Power, Philippines
- Madhucon Powers Ltd - India
- CIMB Investment Bank - Malaysia
- Kobexindo Tractors - Indoneisa
- Essar Steel Hazira Ltd - India
- Kaltim Prima Coal - Indonesia
- Antam Resourcindo - Indonesia
- Marubeni Corporation - India
- GAC Shipping (India) Pvt Ltd
- Renaissance Capital - South Africa
- Indika Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Central Java Power - Indonesia
- Directorate Of Revenue Intelligence - India
- Grasim Industreis Ltd - India
- Vizag Seaport Private Limited - India
- ICICI Bank Limited - India
- Jaiprakash Power Ventures ltd
- PowerSource Philippines DevCo
- Sojitz Corporation - Japan
- Jorong Barutama Greston.PT - Indonesia
- Carbofer General Trading SA - India
- Wood Mackenzie - Singapore
- Barasentosa Lestari - Indonesia
- Goldman Sachs - Singapore
- Coal and Oil Company - UAE
- India Bulls Power Limited - India
- Karaikal Port Pvt Ltd - India
- London Commodity Brokers - England
- Indo Tambangraya Megah - Indonesia
- Meralco Power Generation, Philippines
- Malabar Cements Ltd - India
- Salva Resources Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Gujarat Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- Billiton Holdings Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Mercuria Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Holcim Trading Pte Ltd - Singapore
- Central Electricity Authority - India
- Romanian Commodities Exchange
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