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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, 24 April 20
CHINA COAL PRODUCER YANZHOU COAL POSTS 9.6 PCT RISE IN 2019 NET PROFIT - XINHUA
China’s major coal producer Yanzhou Coal Mining Co., Ltd. said Thursday that its net profit saw a 9.6 percent rise in 2019.
Th ...
Tuesday, 21 April 20
INDONESIA ACCOUNTS FOR 19% OF JAPAN'S TOTAL COAL IMPORTS - BANCHERO COSTA
Coal trade in Asia is proving remarkably resilient this year, despite the global economic impact from COVID-19.
We have seen China&r ...
Tuesday, 21 April 20
COVID-19: CHARTERPARTY MATTERS FOR SHIPOWNERS - SKULD
KNOWLEDGE TO ELEVATE
Whilst the plight of cruise ships, stranded off shore with sick passengers and crew, may be dominating media headlines, t ...
Monday, 20 April 20
SUPRAMAX: A 52,000DWT SHIP FIXING AN INDONESIA COAL RUN TO CHINA AT $4400 - BALTIC BRIEFING
Capesize
This week was the strongest period seen for the Capesize market in several months. All routes globally succumbed to improved sentiment ...
Friday, 17 April 20
PANDEMIC TO BRING ASIA'S 2020 GROWTH TO HALT FOR 1ST TIME IN 60 YEARS - IMF: REUTERS
Asia’s economic growth this year will grind to a halt for the first time in 60 years, as the coronavirus crisis takes an “unprecedented ...
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- South Luzon Thermal Energy Corporation
- Neyveli Lignite Corporation Ltd, - India
- SMG Consultants - Indonesia
- Parry Sugars Refinery, India
- Sree Jayajothi Cements Limited - India
- Essar Steel Hazira Ltd - India
- Intertek Mineral Services - Indonesia
- SMC Global Power, Philippines
- Maheswari Brothers Coal Limited - India
- Vedanta Resources Plc - India
- Energy Link Ltd, New Zealand
- ASAPP Information Group - India
- Agrawal Coal Company - India
- Xindia Steels Limited - India
- Semirara Mining and Power Corporation, Philippines
- Thai Mozambique Logistica
- Altura Mining Limited, Indonesia
- OPG Power Generation Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Energy Development Corp, Philippines
- London Commodity Brokers - England
- Kohat Cement Company Ltd. - Pakistan
- Savvy Resources Ltd - HongKong
- Ceylon Electricity Board - Sri Lanka
- Indian Energy Exchange, India
- Globalindo Alam Lestari - Indonesia
- Ministry of Mines - Canada
- CNBM International Corporation - China
- Aditya Birla Group - India
- Madhucon Powers Ltd - India
- Kideco Jaya Agung - Indonesia
- Uttam Galva Steels Limited - India
- Borneo Indobara - Indonesia
- Wood Mackenzie - Singapore
- Bharathi Cement Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Standard Chartered Bank - UAE
- Port Waratah Coal Services - Australia
- Australian Commodity Traders Exchange
- Formosa Plastics Group - Taiwan
- White Energy Company Limited
- Sarangani Energy Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Chettinad Cement Corporation Ltd - India
- Simpson Spence & Young - Indonesia
- Kartika Selabumi Mining - Indonesia
- Singapore Mercantile Exchange
- GAC Shipping (India) Pvt Ltd
- Renaissance Capital - South Africa
- Goldman Sachs - Singapore
- Gujarat Electricity Regulatory Commission - India
- Independent Power Producers Association of India
- Gujarat Sidhee Cement - India
- Central Java Power - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Iligan Light & Power Inc, Philippines
- Bulk Trading Sa - Switzerland
- Pendopo Energi Batubara - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
- Cement Manufacturers Association - India
- IEA Clean Coal Centre - UK
- Indian Oil Corporation Limited
- Attock Cement Pakistan Limited
- Africa Commodities Group - South Africa
- Riau Bara Harum - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Parliament of New Zealand
- Indonesian Coal Mining Association
- Sical Logistics Limited - India
- Manunggal Multi Energi - Indonesia
- European Bulk Services B.V. - Netherlands
- Mercuria Energy - Indonesia
- Orica Mining Services - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Banpu Public Company Limited - Thailand
- McConnell Dowell - Australia
- GVK Power & Infra Limited - India
- Indogreen Group - Indonesia
- Global Coal Blending Company Limited - Australia
- TeaM Sual Corporation - Philippines
- Power Finance Corporation Ltd., India
- Bhoruka Overseas - Indonesia
- Mjunction Services Limited - India
- Bangladesh Power Developement Board
- Deloitte Consulting - India
- PNOC Exploration Corporation - Philippines
- Rashtriya Ispat Nigam Limited - India
- Holcim Trading Pte Ltd - Singapore
- Latin American Coal - Colombia
- Economic Council, Georgia
- Meralco Power Generation, Philippines
- New Zealand Coal & Carbon
- Wilmar Investment Holdings
- Sakthi Sugars Limited - India
- ICICI Bank Limited - India
- Sojitz Corporation - Japan
- Global Business Power Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Coal and Oil Company - UAE
- Commonwealth Bank - Australia
- Australian Coal Association
- Ambuja Cements Ltd - India
- Larsen & Toubro Limited - India
- Baramulti Group, Indonesia
- Star Paper Mills Limited - India
- Siam City Cement - Thailand
- Georgia Ports Authority, United States
- Central Electricity Authority - India
- MS Steel International - UAE
- Edison Trading Spa - Italy
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Kobexindo Tractors - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Electricity Authority, New Zealand
- Mercator Lines Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Krishnapatnam Port Company Ltd. - India
- Lanco Infratech Ltd - India
- Toyota Tsusho Corporation, Japan
- Bhushan Steel Limited - India
- Salva Resources Pvt Ltd - India
- Tamil Nadu electricity Board
- SN Aboitiz Power Inc, Philippines
- Chamber of Mines of South Africa
- Ministry of Finance - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- The University of Queensland
- Eastern Coal Council - USA
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- San Jose City I Power Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Mintek Dendrill Indonesia
- Sinarmas Energy and Mining - Indonesia
- Trasteel International SA, Italy
- Price Waterhouse Coopers - Russia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Therma Luzon, Inc, Philippines
- IHS Mccloskey Coal Group - USA
- Timah Investasi Mineral - Indoneisa
- GMR Energy Limited - India
- Antam Resourcindo - Indonesia
- Anglo American - United Kingdom
- Petron Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Planning Commission, India
- CIMB Investment Bank - Malaysia
- Jindal Steel & Power Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Heidelberg Cement - Germany
- Ind-Barath Power Infra Limited - India
- Orica Australia Pty. Ltd.
- Bhatia International Limited - India
- Malabar Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Indika Energy - Indonesia
- Samtan Co., Ltd - South Korea
- PTC India Limited - India
- PowerSource Philippines DevCo
- The State Trading Corporation of India Ltd
- Jorong Barutama Greston.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- AsiaOL BioFuels Corp., Philippines
- Leighton Contractors Pty Ltd - Australia
- Thiess Contractors Indonesia
- Videocon Industries ltd - India
- Bukit Baiduri Energy - Indonesia
- Medco Energi Mining Internasional
- Carbofer General Trading SA - India
- Kapuas Tunggal Persada - Indonesia
- India Bulls Power Limited - India
- Global Green Power PLC Corporation, Philippines
- Coalindo Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Metalloyd Limited - United Kingdom
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Transport, Egypt
- Jaiprakash Power Ventures ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Posco Energy - South Korea
- Siam City Cement PLC, Thailand
- Grasim Industreis Ltd - India
- Tata Chemicals Ltd - India
- Minerals Council of Australia
- Eastern Energy - Thailand
- VISA Power Limited - India
- Kumho Petrochemical, South Korea
- Straits Asia Resources Limited - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Romanian Commodities Exchange
- Petrochimia International Co. Ltd.- Taiwan
- TNB Fuel Sdn Bhd - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- Coastal Gujarat Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Rio Tinto Coal - Australia
- Dalmia Cement Bharat India
- Bahari Cakrawala Sebuku - Indonesia
- Makarim & Taira - Indonesia
- The Treasury - Australian Government
- Marubeni Corporation - India
- Interocean Group of Companies - India
- Miang Besar Coal Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- Aboitiz Power Corporation - Philippines
- Merrill Lynch Commodities Europe
- Vizag Seaport Private Limited - India
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