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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, 09 April 20
SUSPENSION OF WRONGFUL TRADING IN LIGHT OF COVID 19 - WF&W
KNOWLEDGE TO ELEVATE
DIRECTORS’ PERSONAL LIABILITY FOR WRONGFUL TRADING – RELIEF DURING THE CORONAVIRUS CRISIS
As the UK&rsquo ...
Wednesday, 08 April 20
LESSONS LEARNED FROM SCRUBBER INSTALLATION AND OPERATION - ABS
KNOWLEDGE TO ELEVATE
At the beginning of this year, the IMO’s global sulfur cap on marine fuels entered into force and shipowners who ch ...
Wednesday, 08 April 20
MARKET INSIGHT - INTERMODAL
With lockdown measures around the globe tightening during the last weeks of Q1, there is finally a feeling that most countries are slowly but stead ...
Tuesday, 07 April 20
SHIPPING MARKET ANALYSIS - ALLIED
With the first quarter of 2020 now firmly written in the books, it is worth examining what we have witnessed so far in the tanker market. Undoubted ...
Tuesday, 07 April 20
IS CHINA EMBARKING ON A MAJOR EXPANSION OF COAL-FIRED POWER GENERATION? - WOOD MACKENZIE
As energy companies worldwide grapple with the economic impact of the coronavirus pandemic, long-term planning continues. Ahead of the release of t ...
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- Gujarat Sidhee Cement - India
- Sinarmas Energy and Mining - Indonesia
- Essar Steel Hazira Ltd - India
- Ministry of Mines - Canada
- Semirara Mining and Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Rio Tinto Coal - Australia
- Kapuas Tunggal Persada - Indonesia
- Interocean Group of Companies - India
- Carbofer General Trading SA - India
- Thiess Contractors Indonesia
- Grasim Industreis Ltd - India
- Economic Council, Georgia
- Riau Bara Harum - Indonesia
- MS Steel International - UAE
- Xindia Steels Limited - India
- Global Coal Blending Company Limited - Australia
- Bayan Resources Tbk. - Indonesia
- Orica Mining Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- The State Trading Corporation of India Ltd
- Posco Energy - South Korea
- Straits Asia Resources Limited - Singapore
- IEA Clean Coal Centre - UK
- Bhoruka Overseas - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Sojitz Corporation - Japan
- ASAPP Information Group - India
- McConnell Dowell - Australia
- SMG Consultants - Indonesia
- Global Green Power PLC Corporation, Philippines
- Central Java Power - Indonesia
- Lanco Infratech Ltd - India
- Attock Cement Pakistan Limited
- Antam Resourcindo - Indonesia
- Agrawal Coal Company - India
- Wilmar Investment Holdings
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMC Global Power, Philippines
- Karaikal Port Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Medco Energi Mining Internasional
- Independent Power Producers Association of India
- Maheswari Brothers Coal Limited - India
- SN Aboitiz Power Inc, Philippines
- Baramulti Group, Indonesia
- Manunggal Multi Energi - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Gujarat Mineral Development Corp Ltd - India
- Simpson Spence & Young - Indonesia
- Iligan Light & Power Inc, Philippines
- Standard Chartered Bank - UAE
- London Commodity Brokers - England
- Energy Development Corp, Philippines
- Sakthi Sugars Limited - India
- Barasentosa Lestari - Indonesia
- Uttam Galva Steels Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Authority, New Zealand
- Singapore Mercantile Exchange
- Formosa Plastics Group - Taiwan
- Directorate Of Revenue Intelligence - India
- Latin American Coal - Colombia
- Ceylon Electricity Board - Sri Lanka
- Makarim & Taira - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Cement Manufacturers Association - India
- Borneo Indobara - Indonesia
- Bhushan Steel Limited - India
- Heidelberg Cement - Germany
- Australian Commodity Traders Exchange
- PNOC Exploration Corporation - Philippines
- The University of Queensland
- Parliament of New Zealand
- Price Waterhouse Coopers - Russia
- Bukit Baiduri Energy - Indonesia
- Indika Energy - Indonesia
- Savvy Resources Ltd - HongKong
- White Energy Company Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement - Thailand
- Africa Commodities Group - South Africa
- Madhucon Powers Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- Coal and Oil Company - UAE
- Mintek Dendrill Indonesia
- New Zealand Coal & Carbon
- Offshore Bulk Terminal Pte Ltd, Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Deloitte Consulting - India
- Kepco SPC Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Mercuria Energy - Indonesia
- Sindya Power Generating Company Private Ltd
- CIMB Investment Bank - Malaysia
- Marubeni Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Edison Trading Spa - Italy
- South Luzon Thermal Energy Corporation
- GN Power Mariveles Coal Plant, Philippines
- Aboitiz Power Corporation - Philippines
- VISA Power Limited - India
- Thai Mozambique Logistica
- San Jose City I Power Corp, Philippines
- GVK Power & Infra Limited - India
- India Bulls Power Limited - India
- Energy Link Ltd, New Zealand
- TeaM Sual Corporation - Philippines
- Sarangani Energy Corporation, Philippines
- ICICI Bank Limited - India
- Chamber of Mines of South Africa
- Romanian Commodities Exchange
- Wood Mackenzie - Singapore
- Indogreen Group - Indonesia
- Binh Thuan Hamico - Vietnam
- Aditya Birla Group - India
- Toyota Tsusho Corporation, Japan
- LBH Netherlands Bv - Netherlands
- Vizag Seaport Private Limited - India
- Bulk Trading Sa - Switzerland
- Commonwealth Bank - Australia
- Indian Oil Corporation Limited
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Ministry of Transport, Egypt
- Jaiprakash Power Ventures ltd
- GAC Shipping (India) Pvt Ltd
- Kalimantan Lumbung Energi - Indonesia
- Kobexindo Tractors - Indoneisa
- IHS Mccloskey Coal Group - USA
- Globalindo Alam Lestari - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Semirara Mining Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Altura Mining Limited, Indonesia
- Port Waratah Coal Services - Australia
- Holcim Trading Pte Ltd - Singapore
- Goldman Sachs - Singapore
- Sical Logistics Limited - India
- Cigading International Bulk Terminal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Orica Australia Pty. Ltd.
- Indonesian Coal Mining Association
- Coastal Gujarat Power Limited - India
- Eastern Coal Council - USA
- Georgia Ports Authority, United States
- Maharashtra Electricity Regulatory Commission - India
- Central Electricity Authority - India
- PTC India Limited - India
- Alfred C Toepfer International GmbH - Germany
- Electricity Generating Authority of Thailand
- Australian Coal Association
- Jorong Barutama Greston.PT - Indonesia
- Banpu Public Company Limited - Thailand
- Jindal Steel & Power Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- GMR Energy Limited - India
- Intertek Mineral Services - Indonesia
- Coalindo Energy - Indonesia
- Renaissance Capital - South Africa
- Krishnapatnam Port Company Ltd. - India
- Ambuja Cements Ltd - India
- Star Paper Mills Limited - India
- Ministry of Finance - Indonesia
- Indian Energy Exchange, India
- Bhatia International Limited - India
- Planning Commission, India
- Gujarat Electricity Regulatory Commission - India
- Mercator Lines Limited - India
- Miang Besar Coal Terminal - Indonesia
- Bangladesh Power Developement Board
- CNBM International Corporation - China
- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sree Jayajothi Cements Limited - India
- PetroVietnam Power Coal Import and Supply Company
- PowerSource Philippines DevCo
- Pendopo Energi Batubara - Indonesia
- Kartika Selabumi Mining - Indonesia
- Trasteel International SA, Italy
- Timah Investasi Mineral - Indoneisa
- Vedanta Resources Plc - India
- Bukit Makmur.PT - Indonesia
- The Treasury - Australian Government
- Karbindo Abesyapradhi - Indoneisa
- Ind-Barath Power Infra Limited - India
- Parry Sugars Refinery, India
- Malabar Cements Ltd - India
- Petron Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Eastern Energy - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Samtan Co., Ltd - South Korea
- Siam City Cement PLC, Thailand
- Salva Resources Pvt Ltd - India
- Meralco Power Generation, Philippines
- Bharathi Cement Corporation - India
- Oldendorff Carriers - Singapore
- Global Business Power Corporation, Philippines
- Minerals Council of Australia
- Tamil Nadu electricity Board
- Kumho Petrochemical, South Korea
- Indo Tambangraya Megah - Indonesia
- European Bulk Services B.V. - Netherlands
- Kaltim Prima Coal - Indonesia
- Anglo American - United Kingdom
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