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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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Thursday, 16 April 20
MARKET INSIGHT - INTERMODAL
As everyone anticipated the results of the OPEC + G20 meeting last week, it was very interesting to watch the reaction of tanker rates that were in ...
Monday, 13 April 20
SUPRAMAX: A 56,000DWT SHIP WAS FIXED DELIVERY PARADIP, REDELIVERY CHINA, AT $4,700 - BALTIC BRIEFING
Capesize
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Saturday, 11 April 20
FAQ: COVID-19 AND CLUB COVER - UK P&I
KNOWLEDGE TO ELEVATE
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Saturday, 11 April 20
KOEN POWER PLANTS INVITED BIDS FOR 1.5 -1.62 MMT OF STEAM COAL
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Friday, 10 April 20
INDIA'S BULKS SUPPLY CHAIN TAKES A HIT DURING LOCKDOWN - WOOD MACKENZIE
India is under a three-week lockdown from 25 March to contain the spread of the coronavirus outbreak. Businesses are shut, and the supply chain is ...
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- Orica Australia Pty. Ltd.
- Cement Manufacturers Association - India
- Merrill Lynch Commodities Europe
- Manunggal Multi Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Bharathi Cement Corporation - India
- PowerSource Philippines DevCo
- CIMB Investment Bank - Malaysia
- Makarim & Taira - Indonesia
- Georgia Ports Authority, United States
- Rio Tinto Coal - Australia
- Attock Cement Pakistan Limited
- Parry Sugars Refinery, India
- Bhatia International Limited - India
- Ministry of Finance - Indonesia
- Central Java Power - Indonesia
- White Energy Company Limited
- Vijayanagar Sugar Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Gujarat Electricity Regulatory Commission - India
- Videocon Industries ltd - India
- Ceylon Electricity Board - Sri Lanka
- Eastern Coal Council - USA
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Aditya Birla Group - India
- Goldman Sachs - Singapore
- Marubeni Corporation - India
- Ministry of Transport, Egypt
- Electricity Generating Authority of Thailand
- Coal and Oil Company - UAE
- Borneo Indobara - Indonesia
- PTC India Limited - India
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Riau Bara Harum - Indonesia
- Gujarat Sidhee Cement - India
- Ambuja Cements Ltd - India
- Vizag Seaport Private Limited - India
- Grasim Industreis Ltd - India
- Eastern Energy - Thailand
- Baramulti Group, Indonesia
- Indika Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- European Bulk Services B.V. - Netherlands
- San Jose City I Power Corp, Philippines
- New Zealand Coal & Carbon
- Directorate General of MIneral and Coal - Indonesia
- IEA Clean Coal Centre - UK
- Leighton Contractors Pty Ltd - Australia
- Minerals Council of Australia
- London Commodity Brokers - England
- Vedanta Resources Plc - India
- Heidelberg Cement - Germany
- Tamil Nadu electricity Board
- Alfred C Toepfer International GmbH - Germany
- Coalindo Energy - Indonesia
- Renaissance Capital - South Africa
- International Coal Ventures Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Electricity Authority, New Zealand
- SN Aboitiz Power Inc, Philippines
- Economic Council, Georgia
- Ministry of Mines - Canada
- Samtan Co., Ltd - South Korea
- MS Steel International - UAE
- Kaltim Prima Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- Savvy Resources Ltd - HongKong
- Australian Coal Association
- Standard Chartered Bank - UAE
- SMC Global Power, Philippines
- LBH Netherlands Bv - Netherlands
- Semirara Mining and Power Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Orica Mining Services - Indonesia
- Chettinad Cement Corporation Ltd - India
- Deloitte Consulting - India
- Sindya Power Generating Company Private Ltd
- Lanco Infratech Ltd - India
- Oldendorff Carriers - Singapore
- Price Waterhouse Coopers - Russia
- Uttam Galva Steels Limited - India
- Energy Development Corp, Philippines
- Barasentosa Lestari - Indonesia
- Independent Power Producers Association of India
- Sarangani Energy Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Meralco Power Generation, Philippines
- Mintek Dendrill Indonesia
- TeaM Sual Corporation - Philippines
- Petron Corporation, Philippines
- India Bulls Power Limited - India
- Simpson Spence & Young - Indonesia
- Thiess Contractors Indonesia
- Intertek Mineral Services - Indonesia
- Karaikal Port Pvt Ltd - India
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- IHS Mccloskey Coal Group - USA
- Rashtriya Ispat Nigam Limited - India
- Wood Mackenzie - Singapore
- Larsen & Toubro Limited - India
- Indonesian Coal Mining Association
- ASAPP Information Group - India
- Billiton Holdings Pty Ltd - Australia
- Miang Besar Coal Terminal - Indonesia
- Bhushan Steel Limited - India
- Posco Energy - South Korea
- PNOC Exploration Corporation - Philippines
- Malabar Cements Ltd - India
- The Treasury - Australian Government
- Gujarat Mineral Development Corp Ltd - India
- Bulk Trading Sa - Switzerland
- Sree Jayajothi Cements Limited - India
- Carbofer General Trading SA - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Port Waratah Coal Services - Australia
- Bangladesh Power Developement Board
- Romanian Commodities Exchange
- Kalimantan Lumbung Energi - Indonesia
- Salva Resources Pvt Ltd - India
- Agrawal Coal Company - India
- Kideco Jaya Agung - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Africa Commodities Group - South Africa
- GAC Shipping (India) Pvt Ltd
- Siam City Cement PLC, Thailand
- Power Finance Corporation Ltd., India
- Banpu Public Company Limited - Thailand
- Kepco SPC Power Corporation, Philippines
- Chamber of Mines of South Africa
- Edison Trading Spa - Italy
- Australian Commodity Traders Exchange
- Sinarmas Energy and Mining - Indonesia
- Indogreen Group - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kohat Cement Company Ltd. - Pakistan
- Latin American Coal - Colombia
- Karbindo Abesyapradhi - Indoneisa
- Singapore Mercantile Exchange
- South Luzon Thermal Energy Corporation
- Madhucon Powers Ltd - India
- Thai Mozambique Logistica
- Anglo American - United Kingdom
- Offshore Bulk Terminal Pte Ltd, Singapore
- Commonwealth Bank - Australia
- Antam Resourcindo - Indonesia
- Xindia Steels Limited - India
- McConnell Dowell - Australia
- The State Trading Corporation of India Ltd
- Mercator Lines Limited - India
- Wilmar Investment Holdings
- Sakthi Sugars Limited - India
- Essar Steel Hazira Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Planning Commission, India
- Pipit Mutiara Jaya. PT, Indonesia
- Toyota Tsusho Corporation, Japan
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Kumho Petrochemical, South Korea
- Dalmia Cement Bharat India
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Indian Energy Exchange, India
- Coastal Gujarat Power Limited - India
- Sical Logistics Limited - India
- Semirara Mining Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Global Green Power PLC Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Formosa Plastics Group - Taiwan
- Therma Luzon, Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Mercuria Energy - Indonesia
- Siam City Cement - Thailand
- GMR Energy Limited - India
- Interocean Group of Companies - India
- SMG Consultants - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Holcim Trading Pte Ltd - Singapore
- The University of Queensland
- Jindal Steel & Power Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Straits Asia Resources Limited - Singapore
- Bukit Makmur.PT - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bahari Cakrawala Sebuku - Indonesia
- Globalindo Alam Lestari - Indonesia
- Trasteel International SA, Italy
- Central Electricity Authority - India
- Kobexindo Tractors - Indoneisa
- VISA Power Limited - India
- Indian Oil Corporation Limited
- Maheswari Brothers Coal Limited - India
- Indo Tambangraya Megah - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- GVK Power & Infra Limited - India
- Pendopo Energi Batubara - Indonesia
- Iligan Light & Power Inc, Philippines
- Altura Mining Limited, Indonesia
- Medco Energi Mining Internasional
- Parliament of New Zealand
- Ind-Barath Power Infra Limited - India
- Sojitz Corporation - Japan
- Kartika Selabumi Mining - Indonesia
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