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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, 25 March 20
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Wednesday, 25 March 20
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Wednesday, 25 March 20
JAN-FEB 2020, INDONESIA SHIPPED 64.5 MLN TONNES OF COAL, UP +3.4% YOY - BANCHERO COSTA
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Tuesday, 24 March 20
MARKET ANALYSIS - ALLIED
As countries around the world struggle to take back control of the ongoing COVID-19 pandemic the global economy shuts down bit by bit, leaving only ...
Tuesday, 24 March 20
THE TRIPLE SHOCK OF CORONAVIRUS IN SHIPPING: WILL IT LAST? - DREWRY
Transport capacity shortages, disruptions to supply chains and inability to plan since late January have been a dangerous combination. But will all ...
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- Kartika Selabumi Mining - Indonesia
- Vedanta Resources Plc - India
- Price Waterhouse Coopers - Russia
- Trasteel International SA, Italy
- Deloitte Consulting - India
- Simpson Spence & Young - Indonesia
- Economic Council, Georgia
- Sarangani Energy Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Asmin Koalindo Tuhup - Indonesia
- Bharathi Cement Corporation - India
- Larsen & Toubro Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Attock Cement Pakistan Limited
- Chettinad Cement Corporation Ltd - India
- Port Waratah Coal Services - Australia
- Billiton Holdings Pty Ltd - Australia
- Mercator Lines Limited - India
- The University of Queensland
- Riau Bara Harum - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- SMG Consultants - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Antam Resourcindo - Indonesia
- Kaltim Prima Coal - Indonesia
- Kumho Petrochemical, South Korea
- Sakthi Sugars Limited - India
- Sinarmas Energy and Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Ministry of Mines - Canada
- Bulk Trading Sa - Switzerland
- GVK Power & Infra Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Xindia Steels Limited - India
- The Treasury - Australian Government
- CIMB Investment Bank - Malaysia
- Parry Sugars Refinery, India
- Petron Corporation, Philippines
- CNBM International Corporation - China
- Aboitiz Power Corporation - Philippines
- Baramulti Group, Indonesia
- IEA Clean Coal Centre - UK
- Chamber of Mines of South Africa
- Grasim Industreis Ltd - India
- Videocon Industries ltd - India
- Marubeni Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Maheswari Brothers Coal Limited - India
- Australian Commodity Traders Exchange
- Therma Luzon, Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- GMR Energy Limited - India
- ICICI Bank Limited - India
- Independent Power Producers Association of India
- GN Power Mariveles Coal Plant, Philippines
- Samtan Co., Ltd - South Korea
- London Commodity Brokers - England
- Formosa Plastics Group - Taiwan
- Essar Steel Hazira Ltd - India
- McConnell Dowell - Australia
- Toyota Tsusho Corporation, Japan
- Eastern Coal Council - USA
- Siam City Cement PLC, Thailand
- Sree Jayajothi Cements Limited - India
- Latin American Coal - Colombia
- Kobexindo Tractors - Indoneisa
- Bukit Baiduri Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Standard Chartered Bank - UAE
- Lanco Infratech Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- OPG Power Generation Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Gujarat Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Africa Commodities Group - South Africa
- Power Finance Corporation Ltd., India
- Mercuria Energy - Indonesia
- Dalmia Cement Bharat India
- Intertek Mineral Services - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Commonwealth Bank - Australia
- Eastern Energy - Thailand
- Straits Asia Resources Limited - Singapore
- Semirara Mining Corp, Philippines
- Medco Energi Mining Internasional
- Offshore Bulk Terminal Pte Ltd, Singapore
- LBH Netherlands Bv - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Salva Resources Pvt Ltd - India
- White Energy Company Limited
- Merrill Lynch Commodities Europe
- Sindya Power Generating Company Private Ltd
- The State Trading Corporation of India Ltd
- Altura Mining Limited, Indonesia
- European Bulk Services B.V. - Netherlands
- Siam City Cement - Thailand
- Makarim & Taira - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parliament of New Zealand
- Banpu Public Company Limited - Thailand
- PNOC Exploration Corporation - Philippines
- Directorate General of MIneral and Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Electricity Generating Authority of Thailand
- Global Green Power PLC Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Orica Australia Pty. Ltd.
- Cigading International Bulk Terminal - Indonesia
- ASAPP Information Group - India
- Kepco SPC Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- New Zealand Coal & Carbon
- Cement Manufacturers Association - India
- Bukit Makmur.PT - Indonesia
- Agrawal Coal Company - India
- Directorate Of Revenue Intelligence - India
- Malabar Cements Ltd - India
- Meralco Power Generation, Philippines
- Bhoruka Overseas - Indonesia
- Romanian Commodities Exchange
- Metalloyd Limited - United Kingdom
- Posco Energy - South Korea
- Sojitz Corporation - Japan
- Orica Mining Services - Indonesia
- Ambuja Cements Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Renaissance Capital - South Africa
- Iligan Light & Power Inc, Philippines
- Rashtriya Ispat Nigam Limited - India
- Coastal Gujarat Power Limited - India
- Indian Oil Corporation Limited
- Singapore Mercantile Exchange
- Thai Mozambique Logistica
- Karbindo Abesyapradhi - Indoneisa
- Tamil Nadu electricity Board
- Thiess Contractors Indonesia
- Wilmar Investment Holdings
- Global Coal Blending Company Limited - Australia
- Mjunction Services Limited - India
- Wood Mackenzie - Singapore
- SMC Global Power, Philippines
- Karaikal Port Pvt Ltd - India
- Indian Energy Exchange, India
- AsiaOL BioFuels Corp., Philippines
- Sical Logistics Limited - India
- Leighton Contractors Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Oldendorff Carriers - Singapore
- Vizag Seaport Private Limited - India
- Borneo Indobara - Indonesia
- Aditya Birla Group - India
- Anglo American - United Kingdom
- Australian Coal Association
- Energy Link Ltd, New Zealand
- Kideco Jaya Agung - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Transport, Egypt
- Bukit Asam (Persero) Tbk - Indonesia
- Barasentosa Lestari - Indonesia
- Rio Tinto Coal - Australia
- Interocean Group of Companies - India
- Planning Commission, India
- Timah Investasi Mineral - Indoneisa
- Central Java Power - Indonesia
- Energy Development Corp, Philippines
- Meenaskhi Energy Private Limited - India
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Mintek Dendrill Indonesia
- Bhushan Steel Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Minerals Council of Australia
- India Bulls Power Limited - India
- Tata Chemicals Ltd - India
- Carbofer General Trading SA - India
- Ministry of Finance - Indonesia
- Manunggal Multi Energi - Indonesia
- Coal and Oil Company - UAE
- VISA Power Limited - India
- Star Paper Mills Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- PTC India Limited - India
- Goldman Sachs - Singapore
- Jaiprakash Power Ventures ltd
- Jindal Steel & Power Ltd - India
- Central Electricity Authority - India
- MS Steel International - UAE
- Indo Tambangraya Megah - Indonesia
- Heidelberg Cement - Germany
- Bangladesh Power Developement Board
- Indika Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Global Business Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indonesian Coal Mining Association
- SN Aboitiz Power Inc, Philippines
- Bhatia International Limited - India
- Edison Trading Spa - Italy
- Gujarat Sidhee Cement - India
- Binh Thuan Hamico - Vietnam
- Madhucon Powers Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Ind-Barath Power Infra Limited - India
- Electricity Authority, New Zealand
- Coalindo Energy - Indonesia
- Uttam Galva Steels Limited - India
- Georgia Ports Authority, United States
- International Coal Ventures Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Neyveli Lignite Corporation Ltd, - India
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