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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 ...
Monday, 01 June 20
SUPRAMAX: IN SOUTH EAST ASIA RATES TRADED SIDEWAYS - BALTIC BRIEFING
Capesize
A sober end to the week, with the market seemingly ready for the weekend. After a steady week of rate declines a small flurry of Atlan ...
Friday, 29 May 20
COVID-19: COAL SUPPLY BY CIL TO POWER SECTOR DIPS 22% TO 32 MT IN APRIL DUE TO DEMAND SLUMP - PTI
Over 95% of CIL’s production comes from its 171 open cast mines.
The supply of coal to the power sector by state-owned Coal In ...
Friday, 29 May 20
AUSTRALIA'S NEW HOPE WARNS OF HIT FROM COAL PRICE SLUMP - REUTERS
Australia’s New Hope Corp Ltd said on Thursday that a sudden drop in thermal coal prices and lower output from its Queensland operations woul ...
Friday, 29 May 20
GOVT MAY LAUNCH COAL BLOCKS AUCTION PROCESS UNDER COMMERCIAL MINING ON JUN 11 - PTI
The Centre is likely to launch the process of coal blocks auction under commercial mining on June 11 and around 50 mines are expected to go under t ...
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- Chettinad Cement Corporation Ltd - India
- PTC India Limited - India
- Minerals Council of Australia
- Thiess Contractors Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Wilmar Investment Holdings
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement PLC, Thailand
- Intertek Mineral Services - Indonesia
- Ambuja Cements Ltd - India
- Mercator Lines Limited - India
- Asmin Koalindo Tuhup - Indonesia
- New Zealand Coal & Carbon
- Timah Investasi Mineral - Indoneisa
- Leighton Contractors Pty Ltd - Australia
- Grasim Industreis Ltd - India
- Dalmia Cement Bharat India
- PNOC Exploration Corporation - Philippines
- Marubeni Corporation - India
- Ministry of Transport, Egypt
- Holcim Trading Pte Ltd - Singapore
- GAC Shipping (India) Pvt Ltd
- Medco Energi Mining Internasional
- VISA Power Limited - India
- Sindya Power Generating Company Private Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Merrill Lynch Commodities Europe
- PowerSource Philippines DevCo
- Bahari Cakrawala Sebuku - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Miang Besar Coal Terminal - Indonesia
- Kobexindo Tractors - Indoneisa
- Lanco Infratech Ltd - India
- The Treasury - Australian Government
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Sical Logistics Limited - India
- South Luzon Thermal Energy Corporation
- Bulk Trading Sa - Switzerland
- Larsen & Toubro Limited - India
- Tamil Nadu electricity Board
- Metalloyd Limited - United Kingdom
- Kapuas Tunggal Persada - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- SN Aboitiz Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Straits Asia Resources Limited - Singapore
- Global Coal Blending Company Limited - Australia
- Simpson Spence & Young - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Salva Resources Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Borneo Indobara - Indonesia
- Cement Manufacturers Association - India
- Singapore Mercantile Exchange
- Meralco Power Generation, Philippines
- Electricity Authority, New Zealand
- Indo Tambangraya Megah - Indonesia
- Sojitz Corporation - Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Krishnapatnam Port Company Ltd. - India
- Malabar Cements Ltd - India
- Orica Australia Pty. Ltd.
- Indian Oil Corporation Limited
- Goldman Sachs - Singapore
- Toyota Tsusho Corporation, Japan
- Karbindo Abesyapradhi - Indoneisa
- Bukit Makmur.PT - Indonesia
- Bhoruka Overseas - Indonesia
- European Bulk Services B.V. - Netherlands
- ASAPP Information Group - India
- Eastern Energy - Thailand
- Indika Energy - Indonesia
- Coalindo Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Renaissance Capital - South Africa
- Bhatia International Limited - India
- Africa Commodities Group - South Africa
- Xindia Steels Limited - India
- Global Business Power Corporation, Philippines
- Wood Mackenzie - Singapore
- GMR Energy Limited - India
- Anglo American - United Kingdom
- Samtan Co., Ltd - South Korea
- Central Electricity Authority - India
- Attock Cement Pakistan Limited
- Semirara Mining Corp, Philippines
- Barasentosa Lestari - Indonesia
- Georgia Ports Authority, United States
- Planning Commission, India
- Romanian Commodities Exchange
- Gujarat Mineral Development Corp Ltd - India
- GVK Power & Infra Limited - India
- Meenaskhi Energy Private Limited - India
- Baramulti Group, Indonesia
- TeaM Sual Corporation - Philippines
- The University of Queensland
- Kalimantan Lumbung Energi - Indonesia
- Petron Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Star Paper Mills Limited - India
- Vizag Seaport Private Limited - India
- Antam Resourcindo - Indonesia
- Bangladesh Power Developement Board
- Tata Chemicals Ltd - India
- Uttam Galva Steels Limited - India
- Thai Mozambique Logistica
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Deloitte Consulting - India
- Orica Mining Services - Indonesia
- Bayan Resources Tbk. - Indonesia
- Kaltim Prima Coal - Indonesia
- Coal and Oil Company - UAE
- Interocean Group of Companies - India
- Formosa Plastics Group - Taiwan
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Global Green Power PLC Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Altura Mining Limited, Indonesia
- Bhushan Steel Limited - India
- Aboitiz Power Corporation - Philippines
- Maheswari Brothers Coal Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Electricity Generating Authority of Thailand
- Economic Council, Georgia
- Price Waterhouse Coopers - Russia
- Latin American Coal - Colombia
- San Jose City I Power Corp, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Indian Energy Exchange, India
- CNBM International Corporation - China
- Siam City Cement - Thailand
- Karaikal Port Pvt Ltd - India
- SMG Consultants - Indonesia
- SMC Global Power, Philippines
- Kumho Petrochemical, South Korea
- Sarangani Energy Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Mjunction Services Limited - India
- Semirara Mining and Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Independent Power Producers Association of India
- Eastern Coal Council - USA
- Oldendorff Carriers - Singapore
- Heidelberg Cement - Germany
- Commonwealth Bank - Australia
- The State Trading Corporation of India Ltd
- Standard Chartered Bank - UAE
- Savvy Resources Ltd - HongKong
- Aditya Birla Group - India
- Parry Sugars Refinery, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- London Commodity Brokers - England
- Videocon Industries ltd - India
- Manunggal Multi Energi - Indonesia
- Parliament of New Zealand
- Ceylon Electricity Board - Sri Lanka
- Bukit Baiduri Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Alfred C Toepfer International GmbH - Germany
- Jaiprakash Power Ventures ltd
- Kideco Jaya Agung - Indonesia
- Pendopo Energi Batubara - Indonesia
- Binh Thuan Hamico - Vietnam
- IEA Clean Coal Centre - UK
- Power Finance Corporation Ltd., India
- Chamber of Mines of South Africa
- Cigading International Bulk Terminal - Indonesia
- Madhucon Powers Ltd - India
- White Energy Company Limited
- Edison Trading Spa - Italy
- Trasteel International SA, Italy
- MS Steel International - UAE
- Ministry of Finance - Indonesia
- Makarim & Taira - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Vedanta Resources Plc - India
- McConnell Dowell - Australia
- Globalindo Alam Lestari - Indonesia
- CIMB Investment Bank - Malaysia
- Kartika Selabumi Mining - Indonesia
- Bharathi Cement Corporation - India
- Indonesian Coal Mining Association
- Agrawal Coal Company - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sakthi Sugars Limited - India
- Gujarat Sidhee Cement - India
- Posco Energy - South Korea
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mercuria Energy - Indonesia
- Indogreen Group - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Sree Jayajothi Cements Limited - India
- ICICI Bank Limited - India
- Energy Link Ltd, New Zealand
- Australian Commodity Traders Exchange
- Carbofer General Trading SA - India
- India Bulls Power Limited - India
- Jindal Steel & Power Ltd - India
- Kepco SPC Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Therma Luzon, Inc, Philippines
- Coastal Gujarat Power Limited - India
- Ind-Barath Power Infra Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Iligan Light & Power Inc, Philippines
- Port Waratah Coal Services - Australia
- Energy Development Corp, Philippines
- Ministry of Mines - Canada
- Essar Steel Hazira Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Riau Bara Harum - Indonesia
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