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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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- Parry Sugars Refinery, India
- Bhoruka Overseas - Indonesia
- Latin American Coal - Colombia
- Ind-Barath Power Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Thai Mozambique Logistica
- Vijayanagar Sugar Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Global Coal Blending Company Limited - Australia
- PNOC Exploration Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- IEA Clean Coal Centre - UK
- Ministry of Finance - Indonesia
- Metalloyd Limited - United Kingdom
- GVK Power & Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- The Treasury - Australian Government
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Australian Commodity Traders Exchange
- Eastern Coal Council - USA
- GMR Energy Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Siam City Cement PLC, Thailand
- Rio Tinto Coal - Australia
- Heidelberg Cement - Germany
- Barasentosa Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Asmin Koalindo Tuhup - Indonesia
- Jaiprakash Power Ventures ltd
- Jorong Barutama Greston.PT - Indonesia
- Parliament of New Zealand
- Sree Jayajothi Cements Limited - India
- Georgia Ports Authority, United States
- ICICI Bank Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Africa Commodities Group - South Africa
- South Luzon Thermal Energy Corporation
- The State Trading Corporation of India Ltd
- Australian Coal Association
- Ceylon Electricity Board - Sri Lanka
- Orica Mining Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PTC India Limited - India
- Meralco Power Generation, Philippines
- Mercuria Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- The University of Queensland
- Agrawal Coal Company - India
- Intertek Mineral Services - Indonesia
- Indonesian Coal Mining Association
- Bulk Trading Sa - Switzerland
- Ministry of Mines - Canada
- Renaissance Capital - South Africa
- Coalindo Energy - Indonesia
- McConnell Dowell - Australia
- Grasim Industreis Ltd - India
- Economic Council, Georgia
- Kepco SPC Power Corporation, Philippines
- Interocean Group of Companies - India
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Dalmia Cement Bharat India
- San Jose City I Power Corp, Philippines
- Petron Corporation, Philippines
- Indian Oil Corporation Limited
- Bukit Asam (Persero) Tbk - Indonesia
- PowerSource Philippines DevCo
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- SMC Global Power, Philippines
- International Coal Ventures Pvt Ltd - India
- White Energy Company Limited
- Indian Energy Exchange, India
- Pendopo Energi Batubara - Indonesia
- LBH Netherlands Bv - Netherlands
- Altura Mining Limited, Indonesia
- Kobexindo Tractors - Indoneisa
- Videocon Industries ltd - India
- Edison Trading Spa - Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Holcim Trading Pte Ltd - Singapore
- India Bulls Power Limited - India
- Coal and Oil Company - UAE
- Energy Development Corp, Philippines
- Banpu Public Company Limited - Thailand
- VISA Power Limited - India
- Larsen & Toubro Limited - India
- Bayan Resources Tbk. - Indonesia
- Electricity Generating Authority of Thailand
- Kideco Jaya Agung - Indonesia
- Therma Luzon, Inc, Philippines
- Bhatia International Limited - India
- Tamil Nadu electricity Board
- Antam Resourcindo - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Xindia Steels Limited - India
- Mintek Dendrill Indonesia
- Simpson Spence & Young - Indonesia
- Sindya Power Generating Company Private Ltd
- Kaltim Prima Coal - Indonesia
- Baramulti Group, Indonesia
- Medco Energi Mining Internasional
- Sinarmas Energy and Mining - Indonesia
- Electricity Authority, New Zealand
- Sakthi Sugars Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Wilmar Investment Holdings
- Global Business Power Corporation, Philippines
- Mercator Lines Limited - India
- SMG Consultants - Indonesia
- Ministry of Transport, Egypt
- Merrill Lynch Commodities Europe
- Alfred C Toepfer International GmbH - Germany
- Borneo Indobara - Indonesia
- ASAPP Information Group - India
- Central Electricity Authority - India
- Binh Thuan Hamico - Vietnam
- Savvy Resources Ltd - HongKong
- Leighton Contractors Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- Coastal Gujarat Power Limited - India
- Power Finance Corporation Ltd., India
- Uttam Galva Steels Limited - India
- Tata Chemicals Ltd - India
- Essar Steel Hazira Ltd - India
- Indogreen Group - Indonesia
- Bhushan Steel Limited - India
- Deloitte Consulting - India
- Kumho Petrochemical, South Korea
- Orica Australia Pty. Ltd.
- Kartika Selabumi Mining - Indonesia
- Sical Logistics Limited - India
- Ambuja Cements Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Jindal Steel & Power Ltd - India
- Thiess Contractors Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Anglo American - United Kingdom
- Mjunction Services Limited - India
- Karaikal Port Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- CIMB Investment Bank - Malaysia
- Samtan Co., Ltd - South Korea
- Goldman Sachs - Singapore
- Aboitiz Power Corporation - Philippines
- Planning Commission, India
- TNB Fuel Sdn Bhd - Malaysia
- Iligan Light & Power Inc, Philippines
- New Zealand Coal & Carbon
- SN Aboitiz Power Inc, Philippines
- Attock Cement Pakistan Limited
- Globalindo Alam Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
- Eastern Energy - Thailand
- Sarangani Energy Corporation, Philippines
- Semirara Mining Corp, Philippines
- Bangladesh Power Developement Board
- CNBM International Corporation - China
- Timah Investasi Mineral - Indoneisa
- Formosa Plastics Group - Taiwan
- Romanian Commodities Exchange
- Bukit Makmur.PT - Indonesia
- MS Steel International - UAE
- Directorate Of Revenue Intelligence - India
- Independent Power Producers Association of India
- Rashtriya Ispat Nigam Limited - India
- Carbofer General Trading SA - India
- Bharathi Cement Corporation - India
- Salva Resources Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- Madhucon Powers Ltd - India
- Price Waterhouse Coopers - Russia
- Marubeni Corporation - India
- London Commodity Brokers - England
- European Bulk Services B.V. - Netherlands
- Semirara Mining and Power Corporation, Philippines
- Commonwealth Bank - Australia
- OPG Power Generation Pvt Ltd - India
- Wood Mackenzie - Singapore
- Billiton Holdings Pty Ltd - Australia
- Oldendorff Carriers - Singapore
- Standard Chartered Bank - UAE
- Kapuas Tunggal Persada - Indonesia
- Vedanta Resources Plc - India
- Indo Tambangraya Megah - Indonesia
- Bukit Baiduri Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Posco Energy - South Korea
- Krishnapatnam Port Company Ltd. - India
- Singapore Mercantile Exchange
- Gujarat Sidhee Cement - India
- Meenaskhi Energy Private Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Manunggal Multi Energi - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Chamber of Mines of South Africa
- IHS Mccloskey Coal Group - USA
- Cigading International Bulk Terminal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Trasteel International SA, Italy
- Siam City Cement - Thailand
- Indika Energy - Indonesia
- Aditya Birla Group - India
- Karbindo Abesyapradhi - Indoneisa
- Central Java Power - Indonesia
- Cement Manufacturers Association - India
- Toyota Tsusho Corporation, Japan
- Lanco Infratech Ltd - India
- Chettinad Cement Corporation Ltd - India
- Maheswari Brothers Coal Limited - India
- Makarim & Taira - Indonesia
- Malabar Cements Ltd - India
- Minerals Council of Australia
- Riau Bara Harum - Indonesia
- GN Power Mariveles Coal Plant, Philippines
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