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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, 29 May 20
KOMIPO ON BEHALF FIVE KOREAN GENCOS INVITED COAL BIDS FOR 5,700 & 4999 NCV COAL FOR AUGUST 2020 LOADING
COALspot.com: South Korea’s Korea Midland Power Co.,Ltd (KOMIPO) on behalf five (5) Korean Gencos has Issued an International Tender for tota ...
Friday, 29 May 20
DRY BULK SHIPPING: NO QUICK RECOVERY FOR THE DRY BULK MARKET AS COVID-19 DIGS DEEPER
The outlook is poor for dry bulk, as the negative demand shock and overcapacity come together to send rates to multi-year lows, even a return to wo ...
Thursday, 28 May 20
COVID-19: A FORCE MAJEURE EVENT? - KYPRIANOU
KNOWLEDGE TO ELEVATE
While seeing the unexpected COVID-19 outbreak expanding worldwide and the first cases being identified in Cyprus, the com ...
Thursday, 28 May 20
OIL DEMAND RECOVERED BY 20% IN MAY AGAINST APRIL: RUSSIAN ENERGY MINISTER - TASS
Oil demand remains at a low level but the demand in May increased by 20% against April, Russian Energy Minister Alexander Novak said, cited by the ...
Thursday, 28 May 20
MARKET INSIGHT - INTERMODAL
Earlier in May, China’s top leaders convened for the annual National People's Congress, following over two months of delays due to the co ...
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- Electricity Authority, New Zealand
- Alfred C Toepfer International GmbH - Germany
- Thiess Contractors Indonesia
- New Zealand Coal & Carbon
- Ministry of Finance - Indonesia
- Aboitiz Power Corporation - Philippines
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- Ministry of Transport, Egypt
- Sree Jayajothi Cements Limited - India
- Vizag Seaport Private Limited - India
- Meenaskhi Energy Private Limited - India
- OPG Power Generation Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Electricity Generating Authority of Thailand
- TNB Fuel Sdn Bhd - Malaysia
- PNOC Exploration Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Economic Council, Georgia
- Baramulti Group, Indonesia
- Coastal Gujarat Power Limited - India
- MS Steel International - UAE
- Coalindo Energy - Indonesia
- Bhatia International Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Gujarat Electricity Regulatory Commission - India
- Jindal Steel & Power Ltd - India
- South Luzon Thermal Energy Corporation
- Kartika Selabumi Mining - Indonesia
- VISA Power Limited - India
- Deloitte Consulting - India
- Independent Power Producers Association of India
- Antam Resourcindo - Indonesia
- Bukit Baiduri Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Ceylon Electricity Board - Sri Lanka
- Cigading International Bulk Terminal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Parry Sugars Refinery, India
- Miang Besar Coal Terminal - Indonesia
- Uttam Galva Steels Limited - India
- Thai Mozambique Logistica
- Manunggal Multi Energi - Indonesia
- Tata Chemicals Ltd - India
- GMR Energy Limited - India
- Indian Oil Corporation Limited
- Karbindo Abesyapradhi - Indoneisa
- Trasteel International SA, Italy
- Renaissance Capital - South Africa
- Bangladesh Power Developement Board
- Kohat Cement Company Ltd. - Pakistan
- Globalindo Alam Lestari - Indonesia
- Eastern Coal Council - USA
- IEA Clean Coal Centre - UK
- Gujarat Mineral Development Corp Ltd - India
- Timah Investasi Mineral - Indoneisa
- ICICI Bank Limited - India
- Global Green Power PLC Corporation, Philippines
- Global Business Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Chamber of Mines of South Africa
- Latin American Coal - Colombia
- Ministry of Mines - Canada
- McConnell Dowell - Australia
- The State Trading Corporation of India Ltd
- SMG Consultants - Indonesia
- Altura Mining Limited, Indonesia
- Kumho Petrochemical, South Korea
- Kaltim Prima Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- Kapuas Tunggal Persada - Indonesia
- White Energy Company Limited
- Wood Mackenzie - Singapore
- Port Waratah Coal Services - Australia
- Price Waterhouse Coopers - Russia
- Savvy Resources Ltd - HongKong
- Semirara Mining and Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Larsen & Toubro Limited - India
- Australian Coal Association
- PowerSource Philippines DevCo
- Intertek Mineral Services - Indonesia
- Heidelberg Cement - Germany
- Central Electricity Authority - India
- Indian Energy Exchange, India
- Cement Manufacturers Association - India
- Chettinad Cement Corporation Ltd - India
- Billiton Holdings Pty Ltd - Australia
- CNBM International Corporation - China
- Siam City Cement - Thailand
- LBH Netherlands Bv - Netherlands
- European Bulk Services B.V. - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Mintek Dendrill Indonesia
- Straits Asia Resources Limited - Singapore
- Orica Australia Pty. Ltd.
- Petrochimia International Co. Ltd.- Taiwan
- Toyota Tsusho Corporation, Japan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bhushan Steel Limited - India
- Iligan Light & Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- Mjunction Services Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Rashtriya Ispat Nigam Limited - India
- Africa Commodities Group - South Africa
- SN Aboitiz Power Inc, Philippines
- Carbofer General Trading SA - India
- Therma Luzon, Inc, Philippines
- Sojitz Corporation - Japan
- Interocean Group of Companies - India
- Eastern Energy - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Medco Energi Mining Internasional
- GAC Shipping (India) Pvt Ltd
- Jaiprakash Power Ventures ltd
- Semirara Mining Corp, Philippines
- Makarim & Taira - Indonesia
- Marubeni Corporation - India
- Metalloyd Limited - United Kingdom
- Bayan Resources Tbk. - Indonesia
- Oldendorff Carriers - Singapore
- Barasentosa Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kepco SPC Power Corporation, Philippines
- Planning Commission, India
- Karaikal Port Pvt Ltd - India
- SMC Global Power, Philippines
- Petron Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- GVK Power & Infra Limited - India
- Gujarat Sidhee Cement - India
- PTC India Limited - India
- Agrawal Coal Company - India
- Simpson Spence & Young - Indonesia
- Maheswari Brothers Coal Limited - India
- Bukit Makmur.PT - Indonesia
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Salva Resources Pvt Ltd - India
- Borneo Indobara - Indonesia
- Anglo American - United Kingdom
- Mercator Lines Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Merrill Lynch Commodities Europe
- Singapore Mercantile Exchange
- Standard Chartered Bank - UAE
- Meralco Power Generation, Philippines
- Wilmar Investment Holdings
- London Commodity Brokers - England
- The University of Queensland
- Ambuja Cements Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Commonwealth Bank - Australia
- Ind-Barath Power Infra Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Central Java Power - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Madhucon Powers Ltd - India
- Australian Commodity Traders Exchange
- Mercuria Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Lanco Infratech Ltd - India
- Minerals Council of Australia
- Essar Steel Hazira Ltd - India
- Orica Mining Services - Indonesia
- Indogreen Group - Indonesia
- Indika Energy - Indonesia
- Dalmia Cement Bharat India
- Indonesian Coal Mining Association
- Posco Energy - South Korea
- Pendopo Energi Batubara - Indonesia
- Bulk Trading Sa - Switzerland
- Romanian Commodities Exchange
- Siam City Cement PLC, Thailand
- India Bulls Power Limited - India
- Indo Tambangraya Megah - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Banpu Public Company Limited - Thailand
- Grasim Industreis Ltd - India
- Videocon Industries ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Neyveli Lignite Corporation Ltd, - India
- AsiaOL BioFuels Corp., Philippines
- Directorate General of MIneral and Coal - Indonesia
- Georgia Ports Authority, United States
- Tamil Nadu electricity Board
- Formosa Plastics Group - Taiwan
- Sarangani Energy Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Parliament of New Zealand
- Energy Development Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Malabar Cements Ltd - India
- Star Paper Mills Limited - India
- Bharathi Cement Corporation - India
- Kobexindo Tractors - Indoneisa
- Kideco Jaya Agung - Indonesia
- Samtan Co., Ltd - South Korea
- Aditya Birla Group - India
- Edison Trading Spa - Italy
- Goldman Sachs - Singapore
- Coal and Oil Company - UAE
- Attock Cement Pakistan Limited
- International Coal Ventures Pvt Ltd - India
- Sical Logistics Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Leighton Contractors Pty Ltd - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- The Treasury - Australian Government
- Xindia Steels Limited - India
- Sakthi Sugars Limited - India
- ASAPP Information Group - India
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