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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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Thursday, 21 May 20
KOMIPO INVITED BIDS FOR TOTAL 610000 MT OF LCV AND HCV COAL FOR 2H 2020
COALspot.com: South Korea’s Korea Midland Power Co. Ltd. (KOMIPO) has Issued an International Tender for 130,000 mt of 5700 NCV coal an ...
Wednesday, 20 May 20
ADARO ENERGY BOOKED A 5% INCREASE IN COAL PRODUCTION VOLUME Y-O-Y IN 1Q2020
PT. Adaro Energy Tbk, Indonesia’s one of the largest coal miner, booked a 5% increase in coal production volume year-over-year in 1Q2020. The ...
Wednesday, 20 May 20
BRAZIL SOYBEAN EXPORTS HAVE BEEN SURGING THIS YEAR - BANCHERO COSTA
Brazil soybean exports have been surging this year, thanks to a combination of strong demand from China, a bumper crop, and favourable exchange rat ...
Wednesday, 20 May 20
MARKET INSIGHT
Seafarers keep maritime trade going so that the food, raw materials, energy and manufactured goods on which so many depend can continue moving arou ...
Tuesday, 19 May 20
AMENDMENT OF THE INDONESIAN MINING LAW: TYING UP LOOSE ENDS - UMBRA
KNOWLEDGE TO ELEVATE
The finalized draft of Law on the amendment of the Mining Law (Bill) was publicly released on 11 May 2020 and was then ap ...
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- Uttam Galva Steels Limited - India
- Australian Coal Association
- Asmin Koalindo Tuhup - Indonesia
- PTC India Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indika Energy - Indonesia
- Lanco Infratech Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Vedanta Resources Plc - India
- Star Paper Mills Limited - India
- Rashtriya Ispat Nigam Limited - India
- Binh Thuan Hamico - Vietnam
- European Bulk Services B.V. - Netherlands
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Sree Jayajothi Cements Limited - India
- Indian Oil Corporation Limited
- IEA Clean Coal Centre - UK
- ASAPP Information Group - India
- Meralco Power Generation, Philippines
- Chamber of Mines of South Africa
- Salva Resources Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Edison Trading Spa - Italy
- Essar Steel Hazira Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- International Coal Ventures Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- India Bulls Power Limited - India
- Ambuja Cements Ltd - India
- Ministry of Finance - Indonesia
- Parliament of New Zealand
- Africa Commodities Group - South Africa
- Interocean Group of Companies - India
- Gujarat Sidhee Cement - India
- Ind-Barath Power Infra Limited - India
- Videocon Industries ltd - India
- Cigading International Bulk Terminal - Indonesia
- Wilmar Investment Holdings
- Merrill Lynch Commodities Europe
- Power Finance Corporation Ltd., India
- New Zealand Coal & Carbon
- Mjunction Services Limited - India
- Samtan Co., Ltd - South Korea
- Miang Besar Coal Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- LBH Netherlands Bv - Netherlands
- Goldman Sachs - Singapore
- Coalindo Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Jaiprakash Power Ventures ltd
- Indo Tambangraya Megah - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Krishnapatnam Port Company Ltd. - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Larsen & Toubro Limited - India
- Antam Resourcindo - Indonesia
- Sical Logistics Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Coal and Oil Company - UAE
- San Jose City I Power Corp, Philippines
- Intertek Mineral Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- The Treasury - Australian Government
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- Indogreen Group - Indonesia
- Karaikal Port Pvt Ltd - India
- Thai Mozambique Logistica
- Straits Asia Resources Limited - Singapore
- Agrawal Coal Company - India
- Singapore Mercantile Exchange
- Riau Bara Harum - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Wood Mackenzie - Singapore
- Barasentosa Lestari - Indonesia
- Makarim & Taira - Indonesia
- PowerSource Philippines DevCo
- Trasteel International SA, Italy
- Pipit Mutiara Jaya. PT, Indonesia
- Indonesian Coal Mining Association
- Heidelberg Cement - Germany
- MS Steel International - UAE
- Billiton Holdings Pty Ltd - Australia
- Tamil Nadu electricity Board
- Meenaskhi Energy Private Limited - India
- Borneo Indobara - Indonesia
- Central Electricity Authority - India
- Renaissance Capital - South Africa
- Semirara Mining Corp, Philippines
- Attock Cement Pakistan Limited
- PNOC Exploration Corporation - Philippines
- ICICI Bank Limited - India
- Malabar Cements Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Pendopo Energi Batubara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petron Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Global Coal Blending Company Limited - Australia
- Jorong Barutama Greston.PT - Indonesia
- Ministry of Mines - Canada
- Bank of Tokyo Mitsubishi UFJ Ltd
- Manunggal Multi Energi - Indonesia
- Ministry of Transport, Egypt
- Anglo American - United Kingdom
- Thiess Contractors Indonesia
- Gujarat Electricity Regulatory Commission - India
- Maharashtra Electricity Regulatory Commission - India
- Aditya Birla Group - India
- Bhoruka Overseas - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- SMC Global Power, Philippines
- Bhatia International Limited - India
- Iligan Light & Power Inc, Philippines
- Aboitiz Power Corporation - Philippines
- Romanian Commodities Exchange
- Rio Tinto Coal - Australia
- Bulk Trading Sa - Switzerland
- Neyveli Lignite Corporation Ltd, - India
- Kumho Petrochemical, South Korea
- Xindia Steels Limited - India
- Grasim Industreis Ltd - India
- Independent Power Producers Association of India
- Globalindo Alam Lestari - Indonesia
- Kepco SPC Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- GMR Energy Limited - India
- Toyota Tsusho Corporation, Japan
- Siam City Cement PLC, Thailand
- Electricity Authority, New Zealand
- Bukit Baiduri Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Coastal Gujarat Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Global Business Power Corporation, Philippines
- London Commodity Brokers - England
- Parry Sugars Refinery, India
- Deloitte Consulting - India
- Kobexindo Tractors - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- The State Trading Corporation of India Ltd
- VISA Power Limited - India
- Eastern Energy - Thailand
- Port Waratah Coal Services - Australia
- The University of Queensland
- White Energy Company Limited
- Kideco Jaya Agung - Indonesia
- Formosa Plastics Group - Taiwan
- CNBM International Corporation - China
- Eastern Coal Council - USA
- Madhucon Powers Ltd - India
- Carbofer General Trading SA - India
- SN Aboitiz Power Inc, Philippines
- Indian Energy Exchange, India
- Australian Commodity Traders Exchange
- Sarangani Energy Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Mercator Lines Limited - India
- Oldendorff Carriers - Singapore
- GAC Shipping (India) Pvt Ltd
- Alfred C Toepfer International GmbH - Germany
- Vizag Seaport Private Limited - India
- Minerals Council of Australia
- Latin American Coal - Colombia
- Baramulti Group, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- McConnell Dowell - Australia
- Directorate Of Revenue Intelligence - India
- Altura Mining Limited, Indonesia
- Mintek Dendrill Indonesia
- Energy Link Ltd, New Zealand
- Therma Luzon, Inc, Philippines
- Orica Australia Pty. Ltd.
- Economic Council, Georgia
- OPG Power Generation Pvt Ltd - India
- Marubeni Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- South Luzon Thermal Energy Corporation
- Banpu Public Company Limited - Thailand
- Posco Energy - South Korea
- Sinarmas Energy and Mining - Indonesia
- Bukit Makmur.PT - Indonesia
- Commonwealth Bank - Australia
- Orica Mining Services - Indonesia
- Dalmia Cement Bharat India
- IHS Mccloskey Coal Group - USA
- Electricity Generating Authority of Thailand
- Bhushan Steel Limited - India
- Mercuria Energy - Indonesia
- Planning Commission, India
- Metalloyd Limited - United Kingdom
- CIMB Investment Bank - Malaysia
- SMG Consultants - Indonesia
- TeaM Sual Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement - Thailand
- Georgia Ports Authority, United States
- Gujarat Mineral Development Corp Ltd - India
- Sindya Power Generating Company Private Ltd
- Energy Development Corp, Philippines
- Sojitz Corporation - Japan
- Medco Energi Mining Internasional
- Ceylon Electricity Board - Sri Lanka
- Bharathi Cement Corporation - India
- Jindal Steel & Power Ltd - India
- Tata Chemicals Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- AsiaOL BioFuels Corp., Philippines
- Standard Chartered Bank - UAE
- Cement Manufacturers Association - India
- Bangladesh Power Developement Board
- GVK Power & Infra Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Green Power PLC Corporation, Philippines
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