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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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Wednesday, 01 April 20
TRADERS SCRAMBLE TO SELL CHEAP CRUDE CARGOES AS GLUT GROWS - REUTERS
Oil traders across the globe are offering cargoes far in advance as rapidly vanishing demand drives key physical crude prices to multi-decade lows, ...
Wednesday, 01 April 20
MARKET INSIGHT - INTERMODAL
There is an old, allegedly Chinese, saying suggesting that living in “interesting” times usually refers to times of trouble. The latest ...
Tuesday, 31 March 20
FREIGHT MARKET: DRY BULKERS - SPOT MARKET 23-29 MARCH 2020
Capesize
The rebound in freight rates resumed this past week, with rates man-aging to post further gains by week’s end. The BCI is in negat ...
Tuesday, 31 March 20
DRY BULK: Q1 HAS BEEN THE WORST QUARTER NOTED FOR MORE THAN 3 YEARS NOW - ALLIED RESEARCH
At this point, the Covid-19 pandemic seems to be monopolizing all market (as well as all other) discussions across the world and any market insight ...
Tuesday, 31 March 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.43 PCT - XINHUA
China Taiyuan coal transaction price index stood at 132.17 points Monday, down 0.43 percent week on week.
The index, released by Chi ...
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- Pipit Mutiara Jaya. PT, Indonesia
- Medco Energi Mining Internasional
- Jaiprakash Power Ventures ltd
- Coalindo Energy - Indonesia
- Bhushan Steel Limited - India
- Siam City Cement - Thailand
- Interocean Group of Companies - India
- ICICI Bank Limited - India
- Marubeni Corporation - India
- GN Power Mariveles Coal Plant, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Vijayanagar Sugar Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Baiduri Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ceylon Electricity Board - Sri Lanka
- Eastern Energy - Thailand
- Independent Power Producers Association of India
- Indo Tambangraya Megah - Indonesia
- Sinarmas Energy and Mining - Indonesia
- South Luzon Thermal Energy Corporation
- Energy Development Corp, Philippines
- Manunggal Multi Energi - Indonesia
- Jindal Steel & Power Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Asmin Koalindo Tuhup - Indonesia
- Semirara Mining Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kepco SPC Power Corporation, Philippines
- Agrawal Coal Company - India
- Deloitte Consulting - India
- London Commodity Brokers - England
- Orica Australia Pty. Ltd.
- CIMB Investment Bank - Malaysia
- Trasteel International SA, Italy
- Sree Jayajothi Cements Limited - India
- Australian Commodity Traders Exchange
- Electricity Authority, New Zealand
- Rashtriya Ispat Nigam Limited - India
- Mjunction Services Limited - India
- Merrill Lynch Commodities Europe
- Central Electricity Authority - India
- Mintek Dendrill Indonesia
- Antam Resourcindo - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Gujarat Sidhee Cement - India
- Bangladesh Power Developement Board
- Videocon Industries ltd - India
- Bulk Trading Sa - Switzerland
- Baramulti Group, Indonesia
- Commonwealth Bank - Australia
- Meralco Power Generation, Philippines
- Edison Trading Spa - Italy
- AsiaOL BioFuels Corp., Philippines
- MS Steel International - UAE
- LBH Netherlands Bv - Netherlands
- Coal and Oil Company - UAE
- Miang Besar Coal Terminal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Jorong Barutama Greston.PT - Indonesia
- The State Trading Corporation of India Ltd
- Wood Mackenzie - Singapore
- GVK Power & Infra Limited - India
- Ind-Barath Power Infra Limited - India
- Riau Bara Harum - Indonesia
- Iligan Light & Power Inc, Philippines
- Goldman Sachs - Singapore
- SMG Consultants - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Binh Thuan Hamico - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Petrochimia International Co. Ltd.- Taiwan
- Energy Link Ltd, New Zealand
- Samtan Co., Ltd - South Korea
- Kumho Petrochemical, South Korea
- Holcim Trading Pte Ltd - Singapore
- Timah Investasi Mineral - Indoneisa
- Aditya Birla Group - India
- Sojitz Corporation - Japan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Simpson Spence & Young - Indonesia
- Ambuja Cements Ltd - India
- Salva Resources Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- White Energy Company Limited
- Indian Energy Exchange, India
- Electricity Generating Authority of Thailand
- Latin American Coal - Colombia
- Bukit Asam (Persero) Tbk - Indonesia
- Economic Council, Georgia
- Thiess Contractors Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kideco Jaya Agung - Indonesia
- Vedanta Resources Plc - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Tata Chemicals Ltd - India
- Africa Commodities Group - South Africa
- Thai Mozambique Logistica
- Straits Asia Resources Limited - Singapore
- Grasim Industreis Ltd - India
- IEA Clean Coal Centre - UK
- Australian Coal Association
- Central Java Power - Indonesia
- Therma Luzon, Inc, Philippines
- Malabar Cements Ltd - India
- ASAPP Information Group - India
- Mercator Lines Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Lanco Infratech Ltd - India
- Barasentosa Lestari - Indonesia
- OPG Power Generation Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Finance - Indonesia
- Indian Oil Corporation Limited
- Makarim & Taira - Indonesia
- Mercuria Energy - Indonesia
- Renaissance Capital - South Africa
- Planning Commission, India
- Chamber of Mines of South Africa
- Port Waratah Coal Services - Australia
- Bhoruka Overseas - Indonesia
- Larsen & Toubro Limited - India
- Parry Sugars Refinery, India
- Wilmar Investment Holdings
- Siam City Cement PLC, Thailand
- Leighton Contractors Pty Ltd - Australia
- Kaltim Prima Coal - Indonesia
- Power Finance Corporation Ltd., India
- Global Business Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- Global Coal Blending Company Limited - Australia
- Essar Steel Hazira Ltd - India
- PTC India Limited - India
- Heidelberg Cement - Germany
- Cement Manufacturers Association - India
- GAC Shipping (India) Pvt Ltd
- Singapore Mercantile Exchange
- Ministry of Mines - Canada
- PNOC Exploration Corporation - Philippines
- Minerals Council of Australia
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- Uttam Galva Steels Limited - India
- Indogreen Group - Indonesia
- Tamil Nadu electricity Board
- SN Aboitiz Power Inc, Philippines
- SMC Global Power, Philippines
- Dalmia Cement Bharat India
- Parliament of New Zealand
- Pendopo Energi Batubara - Indonesia
- Bharathi Cement Corporation - India
- New Zealand Coal & Carbon
- GMR Energy Limited - India
- VISA Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Posco Energy - South Korea
- Savvy Resources Ltd - HongKong
- Maheswari Brothers Coal Limited - India
- Petron Corporation, Philippines
- Ministry of Transport, Egypt
- The University of Queensland
- Bayan Resources Tbk. - Indonesia
- Kartika Selabumi Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- Eastern Coal Council - USA
- Sarangani Energy Corporation, Philippines
- Carbofer General Trading SA - India
- Semirara Mining and Power Corporation, Philippines
- Romanian Commodities Exchange
- PowerSource Philippines DevCo
- Orica Mining Services - Indonesia
- Anglo American - United Kingdom
- Toyota Tsusho Corporation, Japan
- Indonesian Coal Mining Association
- Asia Pacific Energy Resources Ventures Inc, Philippines
- San Jose City I Power Corp, Philippines
- Oldendorff Carriers - Singapore
- The Treasury - Australian Government
- Intertek Mineral Services - Indonesia
- Metalloyd Limited - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- CNBM International Corporation - China
- IHS Mccloskey Coal Group - USA
- Aboitiz Power Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Georgia Ports Authority, United States
- Indika Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Formosa Plastics Group - Taiwan
- Xindia Steels Limited - India
- Bukit Makmur.PT - Indonesia
- Sical Logistics Limited - India
- Alfred C Toepfer International GmbH - Germany
- Rio Tinto Coal - Australia
- Meenaskhi Energy Private Limited - India
- Sindya Power Generating Company Private Ltd
- Madhucon Powers Ltd - India
- Attock Cement Pakistan Limited
- International Coal Ventures Pvt Ltd - India
- Bhatia International Limited - India
- India Bulls Power Limited - India
- Sakthi Sugars Limited - India
- Vizag Seaport Private Limited - India
- Karaikal Port Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- McConnell Dowell - Australia
- Banpu Public Company Limited - Thailand
- Standard Chartered Bank - UAE
- Coastal Gujarat Power Limited - India
- Borneo Indobara - Indonesia
- TeaM Sual Corporation - Philippines
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