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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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Saturday, 25 April 20
KOREA SOUTH-EAST POWER CO. INVITED BIDS FOR 780K - 900K MT OF 5600 NCV COAL FOR JULY TO OCTOBER 2020 LOADING
COALspot.com: South Korea’s KOREA SOUTH-EAST POWER CO., LTD. (KOEN) has issued an international tender for 780,000~900,000 Metric Tons (MT) s ...
Saturday, 25 April 20
SEAFARER MENTAL WELLBEING DURING THE COVID-19 PANDEMIC - STANDARD CLUB
KNOWLEDGE TO ELEVATE
COVID-19 has forced many parts of the world to enforce a lockdown in a bid to flatten the curve in terms of transmissions ...
Friday, 24 April 20
KOMIPO INVITED BIDS FOR 5700 NAR COAL FOR JUNE & JULY LOADING
COALspot.com: South Korea’s Korea Midland Power Co. Ltd. (KOMIPO) Has Issued An International Tender For 260,000 Metric Tons (MT) Steam Coal ...
Friday, 24 April 20
CHINA'S BENCHMARK POWER COAL PRICE REMAINS FLAT - XINHUA
China’s benchmark power coal price remained flat during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Friday, 24 April 20
COAL INDIA TO PRODUCE 710 MT COAL - MINISTER OF COAL AND MINES
Coal India Limited (CIL) will produce 710 million tonnes (MT) of coal and company’s coal off take target will also remain at710 MT for this f ...
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- Coastal Gujarat Power Limited - India
- Dalmia Cement Bharat India
- Global Green Power PLC Corporation, Philippines
- Medco Energi Mining Internasional
- Kobexindo Tractors - Indoneisa
- Global Business Power Corporation, Philippines
- MS Steel International - UAE
- Bulk Trading Sa - Switzerland
- Binh Thuan Hamico - Vietnam
- Energy Link Ltd, New Zealand
- Bhushan Steel Limited - India
- Kartika Selabumi Mining - Indonesia
- Orica Mining Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Singapore Mercantile Exchange
- Timah Investasi Mineral - Indoneisa
- SMG Consultants - Indonesia
- Thiess Contractors Indonesia
- Directorate General of MIneral and Coal - Indonesia
- SN Aboitiz Power Inc, Philippines
- SMC Global Power, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Vizag Seaport Private Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Sojitz Corporation - Japan
- Orica Australia Pty. Ltd.
- Cement Manufacturers Association - India
- Australian Coal Association
- TNB Fuel Sdn Bhd - Malaysia
- Oldendorff Carriers - Singapore
- Grasim Industreis Ltd - India
- Ministry of Transport, Egypt
- Thai Mozambique Logistica
- International Coal Ventures Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- White Energy Company Limited
- Australian Commodity Traders Exchange
- Siam City Cement - Thailand
- Straits Asia Resources Limited - Singapore
- Parry Sugars Refinery, India
- Leighton Contractors Pty Ltd - Australia
- Latin American Coal - Colombia
- Indo Tambangraya Megah - Indonesia
- Xindia Steels Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Trasteel International SA, Italy
- Bukit Asam (Persero) Tbk - Indonesia
- Bhatia International Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jorong Barutama Greston.PT - Indonesia
- GMR Energy Limited - India
- European Bulk Services B.V. - Netherlands
- Globalindo Alam Lestari - Indonesia
- Sakthi Sugars Limited - India
- Coal and Oil Company - UAE
- Attock Cement Pakistan Limited
- Renaissance Capital - South Africa
- Goldman Sachs - Singapore
- Miang Besar Coal Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Sical Logistics Limited - India
- Holcim Trading Pte Ltd - Singapore
- Kaltim Prima Coal - Indonesia
- San Jose City I Power Corp, Philippines
- Videocon Industries ltd - India
- Baramulti Group, Indonesia
- Jindal Steel & Power Ltd - India
- Madhucon Powers Ltd - India
- LBH Netherlands Bv - Netherlands
- Pipit Mutiara Jaya. PT, Indonesia
- Africa Commodities Group - South Africa
- Vedanta Resources Plc - India
- PetroVietnam Power Coal Import and Supply Company
- Eastern Energy - Thailand
- Bhoruka Overseas - Indonesia
- Pendopo Energi Batubara - Indonesia
- Riau Bara Harum - Indonesia
- New Zealand Coal & Carbon
- Toyota Tsusho Corporation, Japan
- Makarim & Taira - Indonesia
- PowerSource Philippines DevCo
- Bukit Makmur.PT - Indonesia
- Mintek Dendrill Indonesia
- India Bulls Power Limited - India
- Standard Chartered Bank - UAE
- Central Electricity Authority - India
- Iligan Light & Power Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- VISA Power Limited - India
- Sree Jayajothi Cements Limited - India
- Mercuria Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Banpu Public Company Limited - Thailand
- Global Coal Blending Company Limited - Australia
- TeaM Sual Corporation - Philippines
- Electricity Generating Authority of Thailand
- Maheswari Brothers Coal Limited - India
- PTC India Limited - India
- Sarangani Energy Corporation, Philippines
- Port Waratah Coal Services - Australia
- Ministry of Mines - Canada
- GAC Shipping (India) Pvt Ltd
- McConnell Dowell - Australia
- Star Paper Mills Limited - India
- Kapuas Tunggal Persada - Indonesia
- Carbofer General Trading SA - India
- Salva Resources Pvt Ltd - India
- Deloitte Consulting - India
- The State Trading Corporation of India Ltd
- Barasentosa Lestari - Indonesia
- Altura Mining Limited, Indonesia
- Sindya Power Generating Company Private Ltd
- Merrill Lynch Commodities Europe
- Semirara Mining Corp, Philippines
- Gujarat Sidhee Cement - India
- Economic Council, Georgia
- Chamber of Mines of South Africa
- Mercator Lines Limited - India
- Karaikal Port Pvt Ltd - India
- Indika Energy - Indonesia
- ASAPP Information Group - India
- Malabar Cements Ltd - India
- Tata Chemicals Ltd - India
- Commonwealth Bank - Australia
- IHS Mccloskey Coal Group - USA
- Semirara Mining and Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Aditya Birla Group - India
- Bharathi Cement Corporation - India
- Aboitiz Power Corporation - Philippines
- Siam City Cement PLC, Thailand
- Lanco Infratech Ltd - India
- Planning Commission, India
- Energy Development Corp, Philippines
- Gujarat Electricity Regulatory Commission - India
- Indian Energy Exchange, India
- Mjunction Services Limited - India
- Edison Trading Spa - Italy
- Marubeni Corporation - India
- Borneo Indobara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- CIMB Investment Bank - Malaysia
- Bangladesh Power Developement Board
- Heidelberg Cement - Germany
- Anglo American - United Kingdom
- Antam Resourcindo - Indonesia
- IEA Clean Coal Centre - UK
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- Eastern Coal Council - USA
- Wood Mackenzie - Singapore
- Interocean Group of Companies - India
- Meralco Power Generation, Philippines
- Kumho Petrochemical, South Korea
- Central Java Power - Indonesia
- Metalloyd Limited - United Kingdom
- Essar Steel Hazira Ltd - India
- OPG Power Generation Pvt Ltd - India
- Indonesian Coal Mining Association
- Minerals Council of Australia
- Sinarmas Energy and Mining - Indonesia
- Coalindo Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Savvy Resources Ltd - HongKong
- ICICI Bank Limited - India
- Electricity Authority, New Zealand
- Independent Power Producers Association of India
- The Treasury - Australian Government
- Simpson Spence & Young - Indonesia
- Uttam Galva Steels Limited - India
- Chettinad Cement Corporation Ltd - India
- Therma Luzon, Inc, Philippines
- Indogreen Group - Indonesia
- Larsen & Toubro Limited - India
- CNBM International Corporation - China
- Intertek Mineral Services - Indonesia
- Posco Energy - South Korea
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Georgia Ports Authority, United States
- Romanian Commodities Exchange
- Directorate Of Revenue Intelligence - India
- Manunggal Multi Energi - Indonesia
- Meenaskhi Energy Private Limited - India
- Parliament of New Zealand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Petron Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Rio Tinto Coal - Australia
- Rashtriya Ispat Nigam Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kohat Cement Company Ltd. - Pakistan
- Ceylon Electricity Board - Sri Lanka
- Power Finance Corporation Ltd., India
- Bukit Baiduri Energy - Indonesia
- The University of Queensland
- Jaiprakash Power Ventures ltd
- GVK Power & Infra Limited - India
- Kideco Jaya Agung - Indonesia
- Price Waterhouse Coopers - Russia
- Wilmar Investment Holdings
- Alfred C Toepfer International GmbH - Germany
- London Commodity Brokers - England
- Formosa Plastics Group - Taiwan
- Ambuja Cements Ltd - India
- Indian Oil Corporation Limited
- Gujarat Mineral Development Corp Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Agrawal Coal Company - India
- Asmin Koalindo Tuhup - Indonesia
- Ind-Barath Power Infra Limited - India
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