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