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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, 02 June 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.86 PCT - XINHUA
China Taiyuan coal transaction price index stood at 123.95 points Monday, down 0.86 percent week on week.
The index, released by Chi ...
Tuesday, 02 June 20
THE HISTORIC DECLINE OF US COAL - WOOD MACKENZIE
The first commercial power plant in the US was Thomas Edison’s coal-fired Pearl Street station in lower Manhattan, which started operating in ...
Tuesday, 02 June 20
COAL INDIA'S MAY SALES DRIVEN SHARPLY LOWER BY SLUMP IN POWER DEMAND - REUTER
Coal India’s sales fell 23.3% in May as utilities refrained from purchases amid record stockpiles and tepid demand because of a nationwide lo ...
Tuesday, 02 June 20
TUAH TURANGGA AGUNG RECORDED 4.54 MILLION TONS OF COAL SALES IN THE FIRST FOUR MONTHS OF 2020
PT United Tractors Tbk through its subsidiary, PT Tuah Turangga Agung recorded 4.54 million tons of coal sales in the first four months of 2020, up ...
Tuesday, 02 June 20
SOURING SINO-AUSTRALIA TRADE RELATIONS - BALTIC EXCHANGE
Cooling relations between the commodity powerhouses of China and Australia may point to trade troubles ahead when the world emerges from the Covid- ...
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- Karaikal Port Pvt Ltd - India
- Medco Energi Mining Internasional
- Star Paper Mills Limited - India
- Salva Resources Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Parliament of New Zealand
- Parry Sugars Refinery, India
- Straits Asia Resources Limited - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Renaissance Capital - South Africa
- Heidelberg Cement - Germany
- Orica Mining Services - Indonesia
- Mercuria Energy - Indonesia
- Romanian Commodities Exchange
- Trasteel International SA, Italy
- Thai Mozambique Logistica
- Intertek Mineral Services - Indonesia
- Bhatia International Limited - India
- Indian Energy Exchange, India
- Marubeni Corporation - India
- Petron Corporation, Philippines
- Baramulti Group, Indonesia
- Indo Tambangraya Megah - Indonesia
- Bukit Baiduri Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- CNBM International Corporation - China
- Ministry of Finance - Indonesia
- Sindya Power Generating Company Private Ltd
- Posco Energy - South Korea
- Edison Trading Spa - Italy
- Wilmar Investment Holdings
- Mjunction Services Limited - India
- India Bulls Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- AsiaOL BioFuels Corp., Philippines
- Grasim Industreis Ltd - India
- Bukit Makmur.PT - Indonesia
- Sarangani Energy Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sical Logistics Limited - India
- MS Steel International - UAE
- Kartika Selabumi Mining - Indonesia
- Videocon Industries ltd - India
- Bharathi Cement Corporation - India
- Ind-Barath Power Infra Limited - India
- Australian Coal Association
- Coalindo Energy - Indonesia
- GVK Power & Infra Limited - India
- Attock Cement Pakistan Limited
- Indonesian Coal Mining Association
- Riau Bara Harum - Indonesia
- Orica Australia Pty. Ltd.
- Antam Resourcindo - Indonesia
- Aboitiz Power Corporation - Philippines
- Semirara Mining Corp, Philippines
- Eastern Energy - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Globalindo Alam Lestari - Indonesia
- LBH Netherlands Bv - Netherlands
- Cement Manufacturers Association - India
- The Treasury - Australian Government
- Agrawal Coal Company - India
- Bayan Resources Tbk. - Indonesia
- Meralco Power Generation, Philippines
- Uttam Galva Steels Limited - India
- Borneo Indobara - Indonesia
- Interocean Group of Companies - India
- Anglo American - United Kingdom
- Semirara Mining and Power Corporation, Philippines
- Kumho Petrochemical, South Korea
- Chettinad Cement Corporation Ltd - India
- Aditya Birla Group - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Jorong Barutama Greston.PT - Indonesia
- Coal and Oil Company - UAE
- Pendopo Energi Batubara - Indonesia
- Energy Development Corp, Philippines
- GMR Energy Limited - India
- Gujarat Sidhee Cement - India
- Directorate General of MIneral and Coal - Indonesia
- Eastern Coal Council - USA
- Standard Chartered Bank - UAE
- Binh Thuan Hamico - Vietnam
- Ambuja Cements Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- European Bulk Services B.V. - Netherlands
- GN Power Mariveles Coal Plant, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Samtan Co., Ltd - South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Savvy Resources Ltd - HongKong
- Vedanta Resources Plc - India
- Energy Link Ltd, New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Banpu Public Company Limited - Thailand
- CIMB Investment Bank - Malaysia
- Sinarmas Energy and Mining - Indonesia
- Mercator Lines Limited - India
- New Zealand Coal & Carbon
- Power Finance Corporation Ltd., India
- PTC India Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Thiess Contractors Indonesia
- Maheswari Brothers Coal Limited - India
- Lanco Infratech Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Georgia Ports Authority, United States
- Bulk Trading Sa - Switzerland
- PowerSource Philippines DevCo
- Holcim Trading Pte Ltd - Singapore
- McConnell Dowell - Australia
- Kobexindo Tractors - Indoneisa
- Madhucon Powers Ltd - India
- Deloitte Consulting - India
- Meenaskhi Energy Private Limited - India
- Siam City Cement PLC, Thailand
- South Luzon Thermal Energy Corporation
- International Coal Ventures Pvt Ltd - India
- Indika Energy - Indonesia
- London Commodity Brokers - England
- GAC Shipping (India) Pvt Ltd
- SMG Consultants - Indonesia
- Altura Mining Limited, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Tamil Nadu electricity Board
- Toyota Tsusho Corporation, Japan
- Kideco Jaya Agung - Indonesia
- Minerals Council of Australia
- ICICI Bank Limited - India
- Central Java Power - Indonesia
- Ministry of Mines - Canada
- Goldman Sachs - Singapore
- Sojitz Corporation - Japan
- Siam City Cement - Thailand
- Commonwealth Bank - Australia
- Therma Luzon, Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Singapore Mercantile Exchange
- Chamber of Mines of South Africa
- Ceylon Electricity Board - Sri Lanka
- Tata Chemicals Ltd - India
- Manunggal Multi Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Makarim & Taira - Indonesia
- Africa Commodities Group - South Africa
- OPG Power Generation Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- IEA Clean Coal Centre - UK
- VISA Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Wood Mackenzie - Singapore
- Billiton Holdings Pty Ltd - Australia
- Planning Commission, India
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Authority, New Zealand
- Global Business Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Indian Oil Corporation Limited
- Global Coal Blending Company Limited - Australia
- Central Electricity Authority - India
- The State Trading Corporation of India Ltd
- White Energy Company Limited
- Iligan Light & Power Inc, Philippines
- Vizag Seaport Private Limited - India
- Jindal Steel & Power Ltd - India
- TeaM Sual Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Kepco SPC Power Corporation, Philippines
- Independent Power Producers Association of India
- Coastal Gujarat Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Price Waterhouse Coopers - Russia
- Malabar Cements Ltd - India
- Bhoruka Overseas - Indonesia
- Bangladesh Power Developement Board
- SN Aboitiz Power Inc, Philippines
- Xindia Steels Limited - India
- Jaiprakash Power Ventures ltd
- Sakthi Sugars Limited - India
- Kapuas Tunggal Persada - Indonesia
- Mintek Dendrill Indonesia
- The University of Queensland
- Kalimantan Lumbung Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Dalmia Cement Bharat India
- Latin American Coal - Colombia
- Barasentosa Lestari - Indonesia
- Port Waratah Coal Services - Australia
- Indogreen Group - Indonesia
- SMC Global Power, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- IHS Mccloskey Coal Group - USA
- Economic Council, Georgia
- Larsen & Toubro Limited - India
- Gujarat Electricity Regulatory Commission - India
- Rio Tinto Coal - Australia
- Australian Commodity Traders Exchange
- Timah Investasi Mineral - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Metalloyd Limited - United Kingdom
- Ministry of Transport, Egypt
- Kohat Cement Company Ltd. - Pakistan
- ASAPP Information Group - India
- Sree Jayajothi Cements Limited - India
- Oldendorff Carriers - Singapore
- Formosa Plastics Group - Taiwan
- Merrill Lynch Commodities Europe
- Bukit Asam (Persero) Tbk - Indonesia
- Simpson Spence & Young - Indonesia
- Essar Steel Hazira Ltd - India
- Carbofer General Trading SA - India
- Bhushan Steel Limited - India
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