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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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Friday, 27 March 20
CHINA'S BULKS: THE SENTIMENT GAP BETWEEN STEEL AND COAL WIDENS - WOOD MACKENZIE
China seems to be containing its local coronavirus situation, with imported cases now posing the greater threat. While quarantine measures remain t ...
Friday, 27 March 20
S.KOREA Q1 THERMAL COAL IMPORTS SET FOR 10-YR LOW ON ANTI-POLLUTION MEASURES - REUTERS
South Korea’s first-quarter thermal coal imports are set to fall to a decade-low due to stricter air pollution measures, while the coronaviru ...
Friday, 27 March 20
PORT OF NEWCASTLE OPERATIONS CONTINUE WITH COVID-19 RESPONSE MEASURES IN PLACE
Port of Newcastle, like many organisations, is taking a precautionary approach to help manage COVID-19 risks in the community. Our focus is on ensu ...
Thursday, 26 March 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 ...
Wednesday, 25 March 20
CORONAVIRUS CRISIS IS CRUSHING GLOBAL GDP GROWTH - FITCH RATINGS
The coronavirus crisis is crushing global GDP growth according to Fitch Ratings in its latest quarterly “Global Economic Outlook” (GEO) ...
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- South Luzon Thermal Energy Corporation
- Agrawal Coal Company - India
- Tamil Nadu electricity Board
- Central Electricity Authority - India
- MS Steel International - UAE
- Toyota Tsusho Corporation, Japan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Baramulti Group, Indonesia
- Carbofer General Trading SA - India
- Bukit Baiduri Energy - Indonesia
- Electricity Authority, New Zealand
- TeaM Sual Corporation - Philippines
- Renaissance Capital - South Africa
- IEA Clean Coal Centre - UK
- Kapuas Tunggal Persada - Indonesia
- CIMB Investment Bank - Malaysia
- Sindya Power Generating Company Private Ltd
- White Energy Company Limited
- Gujarat Mineral Development Corp Ltd - India
- Straits Asia Resources Limited - Singapore
- Ambuja Cements Ltd - India
- European Bulk Services B.V. - Netherlands
- London Commodity Brokers - England
- SN Aboitiz Power Inc, Philippines
- Borneo Indobara - Indonesia
- Bayan Resources Tbk. - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Billiton Holdings Pty Ltd - Australia
- Kideco Jaya Agung - Indonesia
- The State Trading Corporation of India Ltd
- Electricity Generating Authority of Thailand
- Uttam Galva Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Timah Investasi Mineral - Indoneisa
- Indonesian Coal Mining Association
- Therma Luzon, Inc, Philippines
- Savvy Resources Ltd - HongKong
- Anglo American - United Kingdom
- Parry Sugars Refinery, India
- Siam City Cement - Thailand
- Chamber of Mines of South Africa
- Bhatia International Limited - India
- Mjunction Services Limited - India
- Star Paper Mills Limited - India
- Jaiprakash Power Ventures ltd
- Global Coal Blending Company Limited - Australia
- Medco Energi Mining Internasional
- Kumho Petrochemical, South Korea
- Goldman Sachs - Singapore
- Sakthi Sugars Limited - India
- Chettinad Cement Corporation Ltd - India
- Alfred C Toepfer International GmbH - Germany
- San Jose City I Power Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Riau Bara Harum - Indonesia
- Merrill Lynch Commodities Europe
- Vedanta Resources Plc - India
- Madhucon Powers Ltd - India
- Directorate Of Revenue Intelligence - India
- Rio Tinto Coal - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Latin American Coal - Colombia
- Meralco Power Generation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Eastern Energy - Thailand
- Bhoruka Overseas - Indonesia
- Global Business Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- New Zealand Coal & Carbon
- International Coal Ventures Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- McConnell Dowell - Australia
- Asmin Koalindo Tuhup - Indonesia
- Jindal Steel & Power Ltd - India
- GVK Power & Infra Limited - India
- Tata Chemicals Ltd - India
- Minerals Council of Australia
- Kalimantan Lumbung Energi - Indonesia
- Trasteel International SA, Italy
- LBH Netherlands Bv - Netherlands
- Lanco Infratech Ltd - India
- Malabar Cements Ltd - India
- PowerSource Philippines DevCo
- Vijayanagar Sugar Pvt Ltd - India
- Wood Mackenzie - Singapore
- Heidelberg Cement - Germany
- Coastal Gujarat Power Limited - India
- Maheswari Brothers Coal Limited - India
- Essar Steel Hazira Ltd - India
- Kepco SPC Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Holcim Trading Pte Ltd - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement PLC, Thailand
- Leighton Contractors Pty Ltd - Australia
- Ministry of Finance - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Gujarat Sidhee Cement - India
- Edison Trading Spa - Italy
- Sical Logistics Limited - India
- Bukit Makmur.PT - Indonesia
- Sojitz Corporation - Japan
- Semirara Mining Corp, Philippines
- Salva Resources Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Miang Besar Coal Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Mintek Dendrill Indonesia
- ICICI Bank Limited - India
- PNOC Exploration Corporation - Philippines
- Larsen & Toubro Limited - India
- Oldendorff Carriers - Singapore
- SMC Global Power, Philippines
- Altura Mining Limited, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Antam Resourcindo - Indonesia
- Orica Australia Pty. Ltd.
- Interocean Group of Companies - India
- Coal and Oil Company - UAE
- Kobexindo Tractors - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- The University of Queensland
- Globalindo Alam Lestari - Indonesia
- Romanian Commodities Exchange
- Parliament of New Zealand
- Ind-Barath Power Infra Limited - India
- Samtan Co., Ltd - South Korea
- Georgia Ports Authority, United States
- OPG Power Generation Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Posco Energy - South Korea
- AsiaOL BioFuels Corp., Philippines
- Indika Energy - Indonesia
- Thai Mozambique Logistica
- Ministry of Mines - Canada
- Simpson Spence & Young - Indonesia
- Vizag Seaport Private Limited - India
- Mercuria Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Mercator Lines Limited - India
- Central Java Power - Indonesia
- Xindia Steels Limited - India
- Orica Mining Services - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Energy Link Ltd, New Zealand
- Rashtriya Ispat Nigam Limited - India
- Standard Chartered Bank - UAE
- Makarim & Taira - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Intertek Mineral Services - Indonesia
- Thiess Contractors Indonesia
- Eastern Coal Council - USA
- Australian Commodity Traders Exchange
- IHS Mccloskey Coal Group - USA
- Sarangani Energy Corporation, Philippines
- Dalmia Cement Bharat India
- Australian Coal Association
- Cigading International Bulk Terminal - Indonesia
- GMR Energy Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Karaikal Port Pvt Ltd - India
- Petron Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- GAC Shipping (India) Pvt Ltd
- Metalloyd Limited - United Kingdom
- Energy Development Corp, Philippines
- Marubeni Corporation - India
- India Bulls Power Limited - India
- Indian Oil Corporation Limited
- Indo Tambangraya Megah - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Planning Commission, India
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Electricity Regulatory Commission - India
- Economic Council, Georgia
- Sree Jayajothi Cements Limited - India
- Ministry of Transport, Egypt
- Port Waratah Coal Services - Australia
- ASAPP Information Group - India
- Kaltim Prima Coal - Indonesia
- Indian Energy Exchange, India
- Meenaskhi Energy Private Limited - India
- Independent Power Producers Association of India
- PTC India Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Singapore Mercantile Exchange
- Banpu Public Company Limited - Thailand
- Manunggal Multi Energi - Indonesia
- SMG Consultants - Indonesia
- Binh Thuan Hamico - Vietnam
- Aboitiz Power Corporation - Philippines
- VISA Power Limited - India
- Wilmar Investment Holdings
- Coalindo Energy - Indonesia
- CNBM International Corporation - China
- Sinarmas Energy and Mining - Indonesia
- Cement Manufacturers Association - India
- Indogreen Group - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Barasentosa Lestari - Indonesia
- Bhushan Steel Limited - India
- Videocon Industries ltd - India
- Grasim Industreis Ltd - India
- Iligan Light & Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Attock Cement Pakistan Limited
- Commonwealth Bank - Australia
- Aditya Birla Group - India
- Bharathi Cement Corporation - India
- Deloitte Consulting - India
- Africa Commodities Group - South Africa
- The Treasury - Australian Government
- Bangladesh Power Developement Board
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