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