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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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Monday, 04 May 20
U.S. ESTIMATED COAL PRODUCTION FALL 39.4% YEAR ON YEAR IN THE WEEK ENDED APRIL 25 - EIA
Estimated U.S. coal production totaled about 8.6 million short tons (MMst) For the week ended April 25, 2020, says EIA in its latest report.
E ...
Saturday, 02 May 20
SUPRAMAX: ASIA, STRONGER NUMBERS - A 55.000-DWT WAS FIXED FROM INDONESIA TO CHINA IN THE MID $6,000S - BALTIC BRIEFING
Capesize
A tepid week for the big ships, as macro concerns continued to weigh heavily on the index. All of the major voyage routes lost value, ...
Friday, 01 May 20
KOSPO INVITED OFFER FOR 5600 NCV COAL FOR Q3 2020 LOADING
COALspot.com: Korea Southern Power Co., Ltd. (KOSPO) has issued an International tender for 260,000 Metric Tons (MT) steam coal for Boryeong Power ...
Friday, 01 May 20
GLOBAL COAL DEMAND TO FALL BY ABOUT 8% IN 2020,THE LARGEST DROP SINCE WORLD WAR II - IEA
We expect global coal demand to fall by about 8% in 2020, the largest drop since World War II, with coal use declining in virtually every sector of ...
Friday, 01 May 20
GLOBAL COAL DEMAND TO FALL BY 8% IN Q1 2020 RELATIVE TO Q1 2019 - IEA
We expect global coal demand to fall by 8% in Q1 2020 relative to Q1 2019. This significant drop was driven by lower demand in the electricity sect ...
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- White Energy Company Limited
- Bukit Makmur.PT - Indonesia
- Bhushan Steel Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Antam Resourcindo - Indonesia
- Binh Thuan Hamico - Vietnam
- Parliament of New Zealand
- Coal and Oil Company - UAE
- Jindal Steel & Power Ltd - India
- Meralco Power Generation, Philippines
- IEA Clean Coal Centre - UK
- Straits Asia Resources Limited - Singapore
- Romanian Commodities Exchange
- Sakthi Sugars Limited - India
- Petron Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Aditya Birla Group - India
- Madhucon Powers Ltd - India
- Banpu Public Company Limited - Thailand
- Indika Energy - Indonesia
- The State Trading Corporation of India Ltd
- Directorate General of MIneral and Coal - Indonesia
- Simpson Spence & Young - Indonesia
- Marubeni Corporation - India
- Malabar Cements Ltd - India
- Indian Oil Corporation Limited
- Semirara Mining Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Sojitz Corporation - Japan
- Posco Energy - South Korea
- South Luzon Thermal Energy Corporation
- Maheswari Brothers Coal Limited - India
- Baramulti Group, Indonesia
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Chettinad Cement Corporation Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Indian Energy Exchange, India
- Attock Cement Pakistan Limited
- Ministry of Transport, Egypt
- Latin American Coal - Colombia
- Bahari Cakrawala Sebuku - Indonesia
- Billiton Holdings Pty Ltd - Australia
- European Bulk Services B.V. - Netherlands
- Samtan Co., Ltd - South Korea
- Riau Bara Harum - Indonesia
- Lanco Infratech Ltd - India
- Sical Logistics Limited - India
- San Jose City I Power Corp, Philippines
- Bharathi Cement Corporation - India
- New Zealand Coal & Carbon
- Kartika Selabumi Mining - Indonesia
- Siam City Cement PLC, Thailand
- Uttam Galva Steels Limited - India
- Kumho Petrochemical, South Korea
- Minerals Council of Australia
- Heidelberg Cement - Germany
- Energy Development Corp, Philippines
- London Commodity Brokers - England
- Krishnapatnam Port Company Ltd. - India
- Jaiprakash Power Ventures ltd
- Global Green Power PLC Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- LBH Netherlands Bv - Netherlands
- Global Business Power Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Trasteel International SA, Italy
- Edison Trading Spa - Italy
- Kalimantan Lumbung Energi - Indonesia
- GMR Energy Limited - India
- Economic Council, Georgia
- Dalmia Cement Bharat India
- Star Paper Mills Limited - India
- Vizag Seaport Private Limited - India
- Ceylon Electricity Board - Sri Lanka
- Xindia Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Port Waratah Coal Services - Australia
- Indogreen Group - Indonesia
- Wilmar Investment Holdings
- CIMB Investment Bank - Malaysia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- GVK Power & Infra Limited - India
- Mercator Lines Limited - India
- Semirara Mining and Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Georgia Ports Authority, United States
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Electricity Regulatory Commission - India
- OPG Power Generation Pvt Ltd - India
- Bhatia International Limited - India
- India Bulls Power Limited - India
- Orica Australia Pty. Ltd.
- Mintek Dendrill Indonesia
- IHS Mccloskey Coal Group - USA
- Independent Power Producers Association of India
- PTC India Limited - India
- Makarim & Taira - Indonesia
- Electricity Authority, New Zealand
- PNOC Exploration Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Karbindo Abesyapradhi - Indoneisa
- Kideco Jaya Agung - Indonesia
- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- Medco Energi Mining Internasional
- PowerSource Philippines DevCo
- Coastal Gujarat Power Limited - India
- Price Waterhouse Coopers - Russia
- Sree Jayajothi Cements Limited - India
- Kobexindo Tractors - Indoneisa
- Mercuria Energy - Indonesia
- The University of Queensland
- Cigading International Bulk Terminal - Indonesia
- Ambuja Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Wood Mackenzie - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Goldman Sachs - Singapore
- AsiaOL BioFuels Corp., Philippines
- Indo Tambangraya Megah - Indonesia
- Thiess Contractors Indonesia
- McConnell Dowell - Australia
- Interocean Group of Companies - India
- Kaltim Prima Coal - Indonesia
- Siam City Cement - Thailand
- Leighton Contractors Pty Ltd - Australia
- Alfred C Toepfer International GmbH - Germany
- Tamil Nadu electricity Board
- Gujarat Sidhee Cement - India
- Indonesian Coal Mining Association
- Ministry of Finance - Indonesia
- Bhoruka Overseas - Indonesia
- Essar Steel Hazira Ltd - India
- Deloitte Consulting - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sindya Power Generating Company Private Ltd
- Therma Luzon, Inc, Philippines
- Videocon Industries ltd - India
- SN Aboitiz Power Inc, Philippines
- Savvy Resources Ltd - HongKong
- Neyveli Lignite Corporation Ltd, - India
- PetroVietnam Power Coal Import and Supply Company
- Tata Chemicals Ltd - India
- Rio Tinto Coal - Australia
- Global Coal Blending Company Limited - Australia
- Renaissance Capital - South Africa
- Globalindo Alam Lestari - Indonesia
- Thai Mozambique Logistica
- Singapore Mercantile Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- ICICI Bank Limited - India
- Cement Manufacturers Association - India
- Meenaskhi Energy Private Limited - India
- Kepco SPC Power Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Agrawal Coal Company - India
- Africa Commodities Group - South Africa
- GAC Shipping (India) Pvt Ltd
- MS Steel International - UAE
- Commonwealth Bank - Australia
- Jorong Barutama Greston.PT - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Metalloyd Limited - United Kingdom
- Intertek Mineral Services - Indonesia
- Energy Link Ltd, New Zealand
- Manunggal Multi Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- Barasentosa Lestari - Indonesia
- Electricity Generating Authority of Thailand
- Parry Sugars Refinery, India
- Pendopo Energi Batubara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Australian Coal Association
- Power Finance Corporation Ltd., India
- Timah Investasi Mineral - Indoneisa
- Bangladesh Power Developement Board
- CNBM International Corporation - China
- Formosa Plastics Group - Taiwan
- ASAPP Information Group - India
- Eastern Coal Council - USA
- Anglo American - United Kingdom
- Planning Commission, India
- Vedanta Resources Plc - India
- SMG Consultants - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Altura Mining Limited, Indonesia
- Borneo Indobara - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Orica Mining Services - Indonesia
- VISA Power Limited - India
- Iligan Light & Power Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Mjunction Services Limited - India
- Carbofer General Trading SA - India
- Holcim Trading Pte Ltd - Singapore
- TeaM Sual Corporation - Philippines
- Sarangani Energy Corporation, Philippines
- Australian Commodity Traders Exchange
- Bulk Trading Sa - Switzerland
- Bayan Resources Tbk. - Indonesia
- Coalindo Energy - Indonesia
- Standard Chartered Bank - UAE
- Oldendorff Carriers - Singapore
- The Treasury - Australian Government
- Ministry of Mines - Canada
- Chamber of Mines of South Africa
- Central Electricity Authority - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMC Global Power, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Larsen & Toubro Limited - India
- Eastern Energy - Thailand
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