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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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Tuesday, 07 April 20
COAL INDIA'S DISPATCHES DROP, OUTPUT INCREASES - THE HINDU
India’s largest coal producer Coal India Ltd. (CIL) has seen a 10% fall in dispatches in March 2020 due to a sharp fall in demand from the po ...
Tuesday, 07 April 20
CORONAVIRUS AND LOCKDOWNS DRAG DOWN THE INDONESIAN COAL PRICE REFERENCE IN APRIL
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down the benchmark price of the Indonesian ther ...
Monday, 06 April 20
A 52,000DWT SHIP FIXING DELIVERY SINGAPORE TRIP, VIA INDONESIA, REDELIVERY TAIWAN, AT $3,100 - BALTIC BRIEFING
Capesize
The Capesize market this past week looks to have come off life support and found some improved sentiment. The week began rather ordina ...
Monday, 06 April 20
INDIA'S 21-DAY LOCKDOWN - IMPACT ON COMMODITIES? - WOOD MACKENZIE
India is under a three-week lockdown from 25 March, to contain the spread of the coronavirus outbreak. Wood Mackenzie analysts discuss what this me ...
Friday, 03 April 20
CHINA'S BENCHMARK POWER COAL PRICE DROPS SLIGHTLY - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
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- Coal and Oil Company - UAE
- AsiaOL BioFuels Corp., Philippines
- Anglo American - United Kingdom
- Deloitte Consulting - India
- Holcim Trading Pte Ltd - Singapore
- Indian Oil Corporation Limited
- Agrawal Coal Company - India
- Posco Energy - South Korea
- Sical Logistics Limited - India
- Global Green Power PLC Corporation, Philippines
- Semirara Mining Corp, Philippines
- ASAPP Information Group - India
- Tamil Nadu electricity Board
- Electricity Generating Authority of Thailand
- Karaikal Port Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Ambuja Cements Ltd - India
- Maheswari Brothers Coal Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Thiess Contractors Indonesia
- Jindal Steel & Power Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Borneo Indobara - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- SN Aboitiz Power Inc, Philippines
- Australian Commodity Traders Exchange
- Electricity Authority, New Zealand
- Neyveli Lignite Corporation Ltd, - India
- Essar Steel Hazira Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Bharathi Cement Corporation - India
- Aditya Birla Group - India
- McConnell Dowell - Australia
- Star Paper Mills Limited - India
- Sindya Power Generating Company Private Ltd
- IEA Clean Coal Centre - UK
- Indogreen Group - Indonesia
- MS Steel International - UAE
- Timah Investasi Mineral - Indoneisa
- Parry Sugars Refinery, India
- Globalindo Alam Lestari - Indonesia
- Videocon Industries ltd - India
- New Zealand Coal & Carbon
- Barasentosa Lestari - Indonesia
- Oldendorff Carriers - Singapore
- Banpu Public Company Limited - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Directorate Of Revenue Intelligence - India
- Orica Mining Services - Indonesia
- IHS Mccloskey Coal Group - USA
- Rio Tinto Coal - Australia
- GMR Energy Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Parliament of New Zealand
- Port Waratah Coal Services - Australia
- Central Java Power - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- CNBM International Corporation - China
- Attock Cement Pakistan Limited
- Makarim & Taira - Indonesia
- Sakthi Sugars Limited - India
- Leighton Contractors Pty Ltd - Australia
- Sarangani Energy Corporation, Philippines
- Orica Australia Pty. Ltd.
- Central Electricity Authority - India
- South Luzon Thermal Energy Corporation
- PNOC Exploration Corporation - Philippines
- Energy Link Ltd, New Zealand
- VISA Power Limited - India
- Bukit Makmur.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- The University of Queensland
- Ind-Barath Power Infra Limited - India
- International Coal Ventures Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Sidhee Cement - India
- ICICI Bank Limited - India
- Price Waterhouse Coopers - Russia
- Coastal Gujarat Power Limited - India
- Kumho Petrochemical, South Korea
- Standard Chartered Bank - UAE
- Heidelberg Cement - Germany
- Power Finance Corporation Ltd., India
- Global Business Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Ceylon Electricity Board - Sri Lanka
- Salva Resources Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Madhucon Powers Ltd - India
- Mercator Lines Limited - India
- Bayan Resources Tbk. - Indonesia
- GVK Power & Infra Limited - India
- Sree Jayajothi Cements Limited - India
- Kobexindo Tractors - Indoneisa
- Intertek Mineral Services - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Meralco Power Generation, Philippines
- Siam City Cement PLC, Thailand
- Baramulti Group, Indonesia
- Thai Mozambique Logistica
- Kaltim Prima Coal - Indonesia
- Medco Energi Mining Internasional
- Planning Commission, India
- Therma Luzon, Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Meenaskhi Energy Private Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- European Bulk Services B.V. - Netherlands
- Kepco SPC Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Singapore Mercantile Exchange
- Bhushan Steel Limited - India
- Kartika Selabumi Mining - Indonesia
- Toyota Tsusho Corporation, Japan
- Bhoruka Overseas - Indonesia
- London Commodity Brokers - England
- Pendopo Energi Batubara - Indonesia
- Uttam Galva Steels Limited - India
- Latin American Coal - Colombia
- Xindia Steels Limited - India
- Semirara Mining and Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Edison Trading Spa - Italy
- Vedanta Resources Plc - India
- Mjunction Services Limited - India
- Commonwealth Bank - Australia
- Antam Resourcindo - Indonesia
- Aboitiz Power Corporation - Philippines
- Jaiprakash Power Ventures ltd
- OPG Power Generation Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- The Treasury - Australian Government
- Merrill Lynch Commodities Europe
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Coalindo Energy - Indonesia
- Carbofer General Trading SA - India
- Energy Development Corp, Philippines
- Simpson Spence & Young - Indonesia
- Indika Energy - Indonesia
- Indonesian Coal Mining Association
- Bukit Asam (Persero) Tbk - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Dalmia Cement Bharat India
- Wilmar Investment Holdings
- Lanco Infratech Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Minerals Council of Australia
- Romanian Commodities Exchange
- Cement Manufacturers Association - India
- Tata Chemicals Ltd - India
- Marubeni Corporation - India
- Africa Commodities Group - South Africa
- Formosa Plastics Group - Taiwan
- Sinarmas Energy and Mining - Indonesia
- Independent Power Producers Association of India
- Petron Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Bukit Baiduri Energy - Indonesia
- PowerSource Philippines DevCo
- Kideco Jaya Agung - Indonesia
- Grasim Industreis Ltd - India
- Georgia Ports Authority, United States
- Cigading International Bulk Terminal - Indonesia
- Australian Coal Association
- White Energy Company Limited
- Savvy Resources Ltd - HongKong
- SMC Global Power, Philippines
- Bulk Trading Sa - Switzerland
- Riau Bara Harum - Indonesia
- Global Coal Blending Company Limited - Australia
- The State Trading Corporation of India Ltd
- Eastern Coal Council - USA
- CIMB Investment Bank - Malaysia
- Ministry of Finance - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vizag Seaport Private Limited - India
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Straits Asia Resources Limited - Singapore
- Sojitz Corporation - Japan
- Goldman Sachs - Singapore
- Manunggal Multi Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Renaissance Capital - South Africa
- Siam City Cement - Thailand
- Economic Council, Georgia
- Ministry of Transport, Egypt
- Samtan Co., Ltd - South Korea
- Altura Mining Limited, Indonesia
- Binh Thuan Hamico - Vietnam
- Trasteel International SA, Italy
- India Bulls Power Limited - India
- PTC India Limited - India
- San Jose City I Power Corp, Philippines
- Metalloyd Limited - United Kingdom
- TeaM Sual Corporation - Philippines
- Rashtriya Ispat Nigam Limited - India
- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Mines - Canada
- Chamber of Mines of South Africa
- SMG Consultants - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- Interocean Group of Companies - India
- Maharashtra Electricity Regulatory Commission - India
- Eastern Energy - Thailand
- Malabar Cements Ltd - India
- Bangladesh Power Developement Board
- Bhatia International Limited - India
- Wood Mackenzie - Singapore
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