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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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Friday, 01 May 20
LUKOIL SHARES LUBRICANT EXPERIENCE AFTER FIRST 100 DAYS OF OPERATION ON VLSFO
KNOWLEDGE TO ELEVATE
After 100 days of VLSFO operation, LUKOIL Marine Lubricants is sharing recent experience on VLSFO operation with NAVIGO M ...
Wednesday, 29 April 20
OIL CLOSES IN ON PEAK OVERSUPPLY - WOOD MACKENZIE
Are we now deep in the abyss? Up to our necks in it, if the oil price is any guide. Brent has now tested sub-US$20/bbl in this downturn and WTI sub ...
Monday, 27 April 20
INCIDENT INVESTIGATION: SEARCH FOR THE CAUSE, NOT THE VILLAIN - GARD
Incident investigations often conclude with placing the blame for an incident on the crew. Causes of the incidents are usually identified as proced ...
Monday, 27 April 20
A 58,000DWT VESSEL WAS FIXED DELIVERY SINGAPORE TRIP VIA INDONESIA, RE-DELIVERY WC INDIA, AT $4,500 - BALTIC BRIEFING
Capesize
The tide turned this week for the Capesize market, as voyage rates registered dramatically falling fuel costs. This was led primarily ...
Sunday, 26 April 20
STRONGER BUNKER PRICES FAIL TO RALLY FREIGHT MARKET - FIS
VLSFO bunker prices rebounded by $22.50 to $229/mt in the port of Singapore but failed to turn around the spot freight market.
Some ...
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- Neyveli Lignite Corporation Ltd, - India
- Orica Australia Pty. Ltd.
- Ind-Barath Power Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Cigading International Bulk Terminal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Eastern Coal Council - USA
- Carbofer General Trading SA - India
- Energy Link Ltd, New Zealand
- ICICI Bank Limited - India
- Antam Resourcindo - Indonesia
- Kartika Selabumi Mining - Indonesia
- Thiess Contractors Indonesia
- Baramulti Group, Indonesia
- Kumho Petrochemical, South Korea
- Medco Energi Mining Internasional
- Banpu Public Company Limited - Thailand
- PowerSource Philippines DevCo
- Holcim Trading Pte Ltd - Singapore
- Therma Luzon, Inc, Philippines
- Star Paper Mills Limited - India
- Chettinad Cement Corporation Ltd - India
- The University of Queensland
- London Commodity Brokers - England
- SN Aboitiz Power Inc, Philippines
- Ministry of Finance - Indonesia
- Mjunction Services Limited - India
- Romanian Commodities Exchange
- Salva Resources Pvt Ltd - India
- Tamil Nadu electricity Board
- Xindia Steels Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Merrill Lynch Commodities Europe
- Semirara Mining Corp, Philippines
- Savvy Resources Ltd - HongKong
- Karbindo Abesyapradhi - Indoneisa
- Electricity Authority, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Kaltim Prima Coal - Indonesia
- Indika Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Sakthi Sugars Limited - India
- Vedanta Resources Plc - India
- Samtan Co., Ltd - South Korea
- Tata Chemicals Ltd - India
- Cement Manufacturers Association - India
- Lanco Infratech Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- CNBM International Corporation - China
- Ambuja Cements Ltd - India
- White Energy Company Limited
- TNB Fuel Sdn Bhd - Malaysia
- Bharathi Cement Corporation - India
- Madhucon Powers Ltd - India
- Standard Chartered Bank - UAE
- Indogreen Group - Indonesia
- Intertek Mineral Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- OPG Power Generation Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Rio Tinto Coal - Australia
- Commonwealth Bank - Australia
- Karaikal Port Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Global Coal Blending Company Limited - Australia
- Bhatia International Limited - India
- Formosa Plastics Group - Taiwan
- PNOC Exploration Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Wood Mackenzie - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Australian Coal Association
- Parry Sugars Refinery, India
- Indian Energy Exchange, India
- Indonesian Coal Mining Association
- Barasentosa Lestari - Indonesia
- Africa Commodities Group - South Africa
- Binh Thuan Hamico - Vietnam
- Eastern Energy - Thailand
- Toyota Tsusho Corporation, Japan
- Videocon Industries ltd - India
- Globalindo Alam Lestari - Indonesia
- Sindya Power Generating Company Private Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sree Jayajothi Cements Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- GN Power Mariveles Coal Plant, Philippines
- India Bulls Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- VISA Power Limited - India
- Global Business Power Corporation, Philippines
- Singapore Mercantile Exchange
- AsiaOL BioFuels Corp., Philippines
- McConnell Dowell - Australia
- Indo Tambangraya Megah - Indonesia
- IEA Clean Coal Centre - UK
- Petron Corporation, Philippines
- The State Trading Corporation of India Ltd
- Renaissance Capital - South Africa
- Sical Logistics Limited - India
- Agrawal Coal Company - India
- Price Waterhouse Coopers - Russia
- Bukit Asam (Persero) Tbk - Indonesia
- Oldendorff Carriers - Singapore
- Bukit Makmur.PT - Indonesia
- Dalmia Cement Bharat India
- Coal and Oil Company - UAE
- Minerals Council of Australia
- Chamber of Mines of South Africa
- PTC India Limited - India
- Bangladesh Power Developement Board
- Larsen & Toubro Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Wilmar Investment Holdings
- Anglo American - United Kingdom
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Maheswari Brothers Coal Limited - India
- Mintek Dendrill Indonesia
- Goldman Sachs - Singapore
- Australian Commodity Traders Exchange
- Indian Oil Corporation Limited
- Uttam Galva Steels Limited - India
- Kideco Jaya Agung - Indonesia
- Borneo Indobara - Indonesia
- Central Electricity Authority - India
- Central Java Power - Indonesia
- ASAPP Information Group - India
- Electricity Generating Authority of Thailand
- Coalindo Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Malabar Cements Ltd - India
- Marubeni Corporation - India
- Economic Council, Georgia
- Bayan Resources Tbk. - Indonesia
- Independent Power Producers Association of India
- MS Steel International - UAE
- Georgia Ports Authority, United States
- Ministry of Transport, Egypt
- Ceylon Electricity Board - Sri Lanka
- Siam City Cement PLC, Thailand
- Essar Steel Hazira Ltd - India
- Straits Asia Resources Limited - Singapore
- Sarangani Energy Corporation, Philippines
- Thai Mozambique Logistica
- Power Finance Corporation Ltd., India
- South Luzon Thermal Energy Corporation
- Iligan Light & Power Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Trasteel International SA, Italy
- Parliament of New Zealand
- Mercuria Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- GMR Energy Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Manunggal Multi Energi - Indonesia
- Ministry of Mines - Canada
- Bhoruka Overseas - Indonesia
- Riau Bara Harum - Indonesia
- International Coal Ventures Pvt Ltd - India
- New Zealand Coal & Carbon
- Kalimantan Lumbung Energi - Indonesia
- Bhushan Steel Limited - India
- GAC Shipping (India) Pvt Ltd
- GVK Power & Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- TeaM Sual Corporation - Philippines
- Sojitz Corporation - Japan
- The Treasury - Australian Government
- Kapuas Tunggal Persada - Indonesia
- Aboitiz Power Corporation - Philippines
- Grasim Industreis Ltd - India
- Mercator Lines Limited - India
- CIMB Investment Bank - Malaysia
- Planning Commission, India
- Posco Energy - South Korea
- San Jose City I Power Corp, Philippines
- Meralco Power Generation, Philippines
- Aditya Birla Group - India
- European Bulk Services B.V. - Netherlands
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining and Power Corporation, Philippines
- Energy Development Corp, Philippines
- Attock Cement Pakistan Limited
- Siam City Cement - Thailand
- Jindal Steel & Power Ltd - India
- Makarim & Taira - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Simpson Spence & Young - Indonesia
- Meenaskhi Energy Private Limited - India
- SMG Consultants - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- Timah Investasi Mineral - Indoneisa
- Metalloyd Limited - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- Pendopo Energi Batubara - Indonesia
- Coastal Gujarat Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Vizag Seaport Private Limited - India
- Gujarat Sidhee Cement - India
- Billiton Holdings Pty Ltd - Australia
- Edison Trading Spa - Italy
- Interocean Group of Companies - India
- Altura Mining Limited, Indonesia
- Latin American Coal - Colombia
- SMC Global Power, Philippines
- LBH Netherlands Bv - Netherlands
- Heidelberg Cement - Germany
- Orica Mining Services - Indonesia
- Deloitte Consulting - India
- Kepco SPC Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
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