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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, 31 March 20
COAL POWER REMAINS IN GLOBAL DECLINE, DESPITE CHINESE SURGE - SYDNEY MORNING HERALD
The impact of coronavirus has prompted a surge in coal-fired power plant construction permits in China, with the Chinese government issuing more pe ...
Monday, 30 March 20
CORONAVIRUS - IMPLICATIONS FOR SHIPS AND CREW - GARD
KNOWLEDGE TO ELEVATE
Countries around the world are strengthening their border control measures in order to prevent the further spread of COVI ...
Monday, 30 March 20
LAY-UP AND RE-ACTIVATION REVISITED - GARD
KNOWLEDGE TO ELEVATE
The COVID-19 pandemic has affected the maritime industry in previously unthinkable ways. Ports around the world are denyi ...
Monday, 30 March 20
PANAMAX: INDONESIA LACKED VOLUME, PARTLY DUE TO FORCE MAJEURE IN INDIAN PORTS - BALTIC BRIEFING
Capesize
As Covid-19 continued to ratchet up tensions across the globe, the Cape market dealt with the change to remote working. Most regions o ...
Saturday, 28 March 20
ASIA'S COAL MARKETS DIVERGE ON QUALITY LINES AS CORONAVIRUS HITS INDIA - REUTERS
Asia’s seaborne coal market is increasingly diverging between higher-quality Australian coal, where prices are holding up despite the economi ...
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- Bank of Tokyo Mitsubishi UFJ Ltd
- Samtan Co., Ltd - South Korea
- Metalloyd Limited - United Kingdom
- Interocean Group of Companies - India
- Holcim Trading Pte Ltd - Singapore
- OPG Power Generation Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Aditya Birla Group - India
- LBH Netherlands Bv - Netherlands
- Semirara Mining Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- Kalimantan Lumbung Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- South Luzon Thermal Energy Corporation
- Energy Link Ltd, New Zealand
- Indo Tambangraya Megah - Indonesia
- Power Finance Corporation Ltd., India
- Coal and Oil Company - UAE
- Leighton Contractors Pty Ltd - Australia
- India Bulls Power Limited - India
- Ministry of Transport, Egypt
- Global Green Power PLC Corporation, Philippines
- Latin American Coal - Colombia
- Eastern Energy - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- VISA Power Limited - India
- Eastern Coal Council - USA
- Oldendorff Carriers - Singapore
- Africa Commodities Group - South Africa
- Mercuria Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Price Waterhouse Coopers - Russia
- Thiess Contractors Indonesia
- Indian Oil Corporation Limited
- Mjunction Services Limited - India
- Central Electricity Authority - India
- Independent Power Producers Association of India
- Bhatia International Limited - India
- Globalindo Alam Lestari - Indonesia
- Sical Logistics Limited - India
- Formosa Plastics Group - Taiwan
- Singapore Mercantile Exchange
- Borneo Indobara - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Romanian Commodities Exchange
- Intertek Mineral Services - Indonesia
- PowerSource Philippines DevCo
- Attock Cement Pakistan Limited
- Edison Trading Spa - Italy
- ASAPP Information Group - India
- Global Business Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Jindal Steel & Power Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Heidelberg Cement - Germany
- Merrill Lynch Commodities Europe
- Meenaskhi Energy Private Limited - India
- McConnell Dowell - Australia
- CIMB Investment Bank - Malaysia
- Manunggal Multi Energi - Indonesia
- Ministry of Finance - Indonesia
- Parliament of New Zealand
- Lanco Infratech Ltd - India
- Bayan Resources Tbk. - Indonesia
- Kartika Selabumi Mining - Indonesia
- Sojitz Corporation - Japan
- Energy Development Corp, Philippines
- Wood Mackenzie - Singapore
- Siam City Cement PLC, Thailand
- Standard Chartered Bank - UAE
- Goldman Sachs - Singapore
- Grasim Industreis Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Maheswari Brothers Coal Limited - India
- Bukit Makmur.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- Australian Commodity Traders Exchange
- Trasteel International SA, Italy
- Petron Corporation, Philippines
- Larsen & Toubro Limited - India
- Rio Tinto Coal - Australia
- The State Trading Corporation of India Ltd
- European Bulk Services B.V. - Netherlands
- Videocon Industries ltd - India
- London Commodity Brokers - England
- Alfred C Toepfer International GmbH - Germany
- Bukit Baiduri Energy - Indonesia
- Medco Energi Mining Internasional
- Essar Steel Hazira Ltd - India
- SN Aboitiz Power Inc, Philippines
- Gujarat Sidhee Cement - India
- Vizag Seaport Private Limited - India
- Simpson Spence & Young - Indonesia
- Anglo American - United Kingdom
- Bhoruka Overseas - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Chamber of Mines of South Africa
- PetroVietnam Power Coal Import and Supply Company
- Sindya Power Generating Company Private Ltd
- Bharathi Cement Corporation - India
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
- Siam City Cement - Thailand
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Ministry of Mines - Canada
- Commonwealth Bank - Australia
- Mercator Lines Limited - India
- Ambuja Cements Ltd - India
- Indian Energy Exchange, India
- GVK Power & Infra Limited - India
- Bangladesh Power Developement Board
- GN Power Mariveles Coal Plant, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Jaiprakash Power Ventures ltd
- Sarangani Energy Corporation, Philippines
- Makarim & Taira - Indonesia
- Ind-Barath Power Infra Limited - India
- Coalindo Energy - Indonesia
- Xindia Steels Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Electricity Regulatory Commission - India
- Iligan Light & Power Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- CNBM International Corporation - China
- Agrawal Coal Company - India
- Mintek Dendrill Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Bulk Trading Sa - Switzerland
- Coastal Gujarat Power Limited - India
- Straits Asia Resources Limited - Singapore
- Kideco Jaya Agung - Indonesia
- Kumho Petrochemical, South Korea
- Aboitiz Power Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Timah Investasi Mineral - Indoneisa
- Thai Mozambique Logistica
- Carbofer General Trading SA - India
- Port Waratah Coal Services - Australia
- The University of Queensland
- Savvy Resources Ltd - HongKong
- Binh Thuan Hamico - Vietnam
- MS Steel International - UAE
- Cigading International Bulk Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate General of MIneral and Coal - Indonesia
- Kobexindo Tractors - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Global Coal Blending Company Limited - Australia
- Chettinad Cement Corporation Ltd - India
- Planning Commission, India
- International Coal Ventures Pvt Ltd - India
- Star Paper Mills Limited - India
- Georgia Ports Authority, United States
- Orica Australia Pty. Ltd.
- PNOC Exploration Corporation - Philippines
- GMR Energy Limited - India
- SMG Consultants - Indonesia
- White Energy Company Limited
- Malabar Cements Ltd - India
- IEA Clean Coal Centre - UK
- Altura Mining Limited, Indonesia
- Cement Manufacturers Association - India
- Barasentosa Lestari - Indonesia
- Bhushan Steel Limited - India
- Wilmar Investment Holdings
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Generating Authority of Thailand
- Miang Besar Coal Terminal - Indonesia
- PTC India Limited - India
- Central Java Power - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Krishnapatnam Port Company Ltd. - India
- GAC Shipping (India) Pvt Ltd
- Indogreen Group - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tata Chemicals Ltd - India
- The Treasury - Australian Government
- Deloitte Consulting - India
- Toyota Tsusho Corporation, Japan
- Sakthi Sugars Limited - India
- Sree Jayajothi Cements Limited - India
- Dalmia Cement Bharat India
- New Zealand Coal & Carbon
- Banpu Public Company Limited - Thailand
- Indonesian Coal Mining Association
- Baramulti Group, Indonesia
- SMC Global Power, Philippines
- Madhucon Powers Ltd - India
- IHS Mccloskey Coal Group - USA
- Karaikal Port Pvt Ltd - India
- Posco Energy - South Korea
- Meralco Power Generation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Renaissance Capital - South Africa
- TeaM Sual Corporation - Philippines
- Indika Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Parry Sugars Refinery, India
- Tamil Nadu electricity Board
- Sinarmas Energy and Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Orica Mining Services - Indonesia
- Directorate Of Revenue Intelligence - India
- Kepco SPC Power Corporation, Philippines
- Australian Coal Association
- Vedanta Resources Plc - India
- ICICI Bank Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Economic Council, Georgia
- Electricity Authority, New Zealand
- Semirara Mining and Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
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