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