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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, 17 April 20
OPEC BRACES FOR OIL MARKET'S "HISTORIC SHOCK"
OPEC released its much anticipated April monthly report.
Crude Oil Price Movements
Crude oil prices collapsed in March 2020, rec ...
Friday, 17 April 20
SAUDI ARABIA'S MAY 2020 OSPS FOR CRUDE EXPORTS BODE WELL FOR ASIAN REFINERS - WOOD MACKENZIE
On 13 April, Saudi Arabia announced the Official Selling Prices (OSPs) for its May crude oil exports. The new OSPs speak volumes about Saudi Arabia ...
Friday, 17 April 20
SEABORNE COAL PRICES UNDER PRESSURE AS DEMAND SOFTENS IN CHINA, INDIA - CLYDE RUSSELL
Worrying signs are emerging for coal exporters to the world’s biggest markets in Asia, as top buyers China and India move to favour domestic ...
Thursday, 16 April 20
THERMAL POWER SECTOR FACES BLEAK SCENARIO POST-COVID SITUATION - THE HINDU BUSINESS LINE
The centre should take a fresh look at coal-energy value chain as the sector tops the chart on loan defaults.
Covid-19 may have serv ...
Thursday, 16 April 20
CHINA'S BENCHMARK POWER COAL PRICE FALLS 5 YUAN PER TONNE - XINHUA
China’s benchmark power coal price fell by 5 yuan (about 70 U.S. cents) per tonne during the past week.
The Bohai-Rim Steam-Co ...
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- Chettinad Cement Corporation Ltd - India
- ASAPP Information Group - India
- Australian Coal Association
- Minerals Council of Australia
- Thai Mozambique Logistica
- Trasteel International SA, Italy
- Indogreen Group - Indonesia
- Ministry of Mines - Canada
- VISA Power Limited - India
- International Coal Ventures Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Central Java Power - Indonesia
- Aditya Birla Group - India
- Maheswari Brothers Coal Limited - India
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- IEA Clean Coal Centre - UK
- Indonesian Coal Mining Association
- Binh Thuan Hamico - Vietnam
- Orica Mining Services - Indonesia
- PowerSource Philippines DevCo
- London Commodity Brokers - England
- Bhatia International Limited - India
- Interocean Group of Companies - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Metalloyd Limited - United Kingdom
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indika Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- GAC Shipping (India) Pvt Ltd
- IHS Mccloskey Coal Group - USA
- Meralco Power Generation, Philippines
- Siam City Cement - Thailand
- Directorate Of Revenue Intelligence - India
- Global Coal Blending Company Limited - Australia
- Medco Energi Mining Internasional
- SMC Global Power, Philippines
- Madhucon Powers Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Dalmia Cement Bharat India
- Sarangani Energy Corporation, Philippines
- McConnell Dowell - Australia
- Makarim & Taira - Indonesia
- The State Trading Corporation of India Ltd
- Riau Bara Harum - Indonesia
- New Zealand Coal & Carbon
- Vedanta Resources Plc - India
- Sinarmas Energy and Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Planning Commission, India
- Indian Oil Corporation Limited
- Heidelberg Cement - Germany
- Oldendorff Carriers - Singapore
- Petron Corporation, Philippines
- Coal and Oil Company - UAE
- Electricity Generating Authority of Thailand
- Krishnapatnam Port Company Ltd. - India
- Karaikal Port Pvt Ltd - India
- Cement Manufacturers Association - India
- Power Finance Corporation Ltd., India
- Edison Trading Spa - Italy
- Australian Commodity Traders Exchange
- Jindal Steel & Power Ltd - India
- Energy Development Corp, Philippines
- Rio Tinto Coal - Australia
- Globalindo Alam Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Wood Mackenzie - Singapore
- Jorong Barutama Greston.PT - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Attock Cement Pakistan Limited
- Holcim Trading Pte Ltd - Singapore
- Sindya Power Generating Company Private Ltd
- Africa Commodities Group - South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kumho Petrochemical, South Korea
- Bharathi Cement Corporation - India
- Essar Steel Hazira Ltd - India
- Alfred C Toepfer International GmbH - Germany
- PetroVietnam Power Coal Import and Supply Company
- Tamil Nadu electricity Board
- Banpu Public Company Limited - Thailand
- GMR Energy Limited - India
- Ministry of Finance - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Kepco SPC Power Corporation, Philippines
- Eastern Energy - Thailand
- Miang Besar Coal Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Georgia Ports Authority, United States
- Bhushan Steel Limited - India
- Therma Luzon, Inc, Philippines
- Lanco Infratech Ltd - India
- Gujarat Sidhee Cement - India
- Jaiprakash Power Ventures ltd
- Asmin Koalindo Tuhup - Indonesia
- South Luzon Thermal Energy Corporation
- Bahari Cakrawala Sebuku - Indonesia
- Iligan Light & Power Inc, Philippines
- Coalindo Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Star Paper Mills Limited - India
- Mjunction Services Limited - India
- Deloitte Consulting - India
- Chamber of Mines of South Africa
- Petrochimia International Co. Ltd.- Taiwan
- GN Power Mariveles Coal Plant, Philippines
- Mercuria Energy - Indonesia
- Agrawal Coal Company - India
- Baramulti Group, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Barasentosa Lestari - Indonesia
- Pendopo Energi Batubara - Indonesia
- Aboitiz Power Corporation - Philippines
- Savvy Resources Ltd - HongKong
- Formosa Plastics Group - Taiwan
- Bhoruka Overseas - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Commonwealth Bank - Australia
- Bayan Resources Tbk. - Indonesia
- San Jose City I Power Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Romanian Commodities Exchange
- Sical Logistics Limited - India
- Mercator Lines Limited - India
- Singapore Mercantile Exchange
- Karbindo Abesyapradhi - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Carbofer General Trading SA - India
- Borneo Indobara - Indonesia
- Ambuja Cements Ltd - India
- CIMB Investment Bank - Malaysia
- Siam City Cement PLC, Thailand
- Bulk Trading Sa - Switzerland
- Indian Energy Exchange, India
- TeaM Sual Corporation - Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Timah Investasi Mineral - Indoneisa
- Semirara Mining and Power Corporation, Philippines
- Wilmar Investment Holdings
- Energy Link Ltd, New Zealand
- Anglo American - United Kingdom
- Global Business Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- SN Aboitiz Power Inc, Philippines
- The University of Queensland
- Straits Asia Resources Limited - Singapore
- Posco Energy - South Korea
- Bukit Makmur.PT - Indonesia
- Sojitz Corporation - Japan
- Kideco Jaya Agung - Indonesia
- Kobexindo Tractors - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Directorate General of MIneral and Coal - Indonesia
- Videocon Industries ltd - India
- Antam Resourcindo - Indonesia
- White Energy Company Limited
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Samtan Co., Ltd - South Korea
- Intertek Mineral Services - Indonesia
- PTC India Limited - India
- Mintek Dendrill Indonesia
- Merrill Lynch Commodities Europe
- Semirara Mining Corp, Philippines
- Marubeni Corporation - India
- Toyota Tsusho Corporation, Japan
- Bangladesh Power Developement Board
- Grasim Industreis Ltd - India
- Economic Council, Georgia
- Orica Australia Pty. Ltd.
- Larsen & Toubro Limited - India
- Parry Sugars Refinery, India
- Central Electricity Authority - India
- GVK Power & Infra Limited - India
- Xindia Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- SMG Consultants - Indonesia
- Malabar Cements Ltd - India
- Meenaskhi Energy Private Limited - India
- Independent Power Producers Association of India
- Ministry of Transport, Egypt
- Indo Tambangraya Megah - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Eastern Coal Council - USA
- Port Waratah Coal Services - Australia
- LBH Netherlands Bv - Netherlands
- Altura Mining Limited, Indonesia
- Electricity Authority, New Zealand
- Tata Chemicals Ltd - India
- Renaissance Capital - South Africa
- Standard Chartered Bank - UAE
- Latin American Coal - Colombia
- Sakthi Sugars Limited - India
- MS Steel International - UAE
- Coastal Gujarat Power Limited - India
- Billiton Holdings Pty Ltd - Australia
- Leighton Contractors Pty Ltd - Australia
- India Bulls Power Limited - India
- Parliament of New Zealand
- The Treasury - Australian Government
- Salva Resources Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Goldman Sachs - Singapore
- PNOC Exploration Corporation - Philippines
- ICICI Bank Limited - India
- CNBM International Corporation - China
- Gujarat Electricity Regulatory Commission - India
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