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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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Monday, 18 May 20
TAKING ADVANTAGE OF VIRUS DISTRACTION - BALTIC EXCHANGE
As the industry grapples to deal with exceptional Covid-19-related challenges, a deeper threat is coming to the fore. At this time of crisis, more ...
Monday, 18 May 20
THERMAL COAL SPOT PRICE TUMBLES 25 PER CENT, PUTTING PRESSURE ON SOME PRODUCERS - ABC RURAL
The spot price for thermal coal has fallen 25 per cent per cent in the past month with one leading analyst saying it is because of a reduction in d ...
Monday, 18 May 20
CHINA'S COAL OUTPUT UP 1.3 PCT IN JANUARY-APRIL: XINHUA
Output of raw coal in China rose 1.3 percent year on year to 1.15 billion tonnes in the first four months this year, official data showed.
&nbs ...
Sunday, 17 May 20
A 55,000 OPEN ILIGAN FIXING AT $6,500 VIA INDONESIA REDELIVERY INDIA - BALTIC BRIEFING
Capesize
A precipitous fall in the market this week had the Capesize 5TC shedding over 50 per cent in value. A small rebound at the end of the ...
Friday, 15 May 20
CHINA'S COAL CONSUMPTION TO FALL Y/Y IN SECOND QUARTER, IMPROVEMENT EXPECTED IN SECOND HALF - INDUSTRY BODY: REUTERS
China’s coal consumption is expected to decline in the second quarter from a year earlier, but will see an improvement in the second half of ...
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- Billiton Holdings Pty Ltd - Australia
- IEA Clean Coal Centre - UK
- GVK Power & Infra Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Coalindo Energy - Indonesia
- Mintek Dendrill Indonesia
- Ceylon Electricity Board - Sri Lanka
- Latin American Coal - Colombia
- Videocon Industries ltd - India
- Dalmia Cement Bharat India
- Interocean Group of Companies - India
- Deloitte Consulting - India
- Bahari Cakrawala Sebuku - Indonesia
- PNOC Exploration Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Electricity Authority, New Zealand
- Miang Besar Coal Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
- CIMB Investment Bank - Malaysia
- Commonwealth Bank - Australia
- Mercator Lines Limited - India
- Jindal Steel & Power Ltd - India
- Carbofer General Trading SA - India
- Medco Energi Mining Internasional
- Kumho Petrochemical, South Korea
- Rio Tinto Coal - Australia
- Bulk Trading Sa - Switzerland
- Sinarmas Energy and Mining - Indonesia
- Ministry of Transport, Egypt
- Sakthi Sugars Limited - India
- SN Aboitiz Power Inc, Philippines
- Vizag Seaport Private Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Malabar Cements Ltd - India
- Australian Commodity Traders Exchange
- Indo Tambangraya Megah - Indonesia
- Indian Energy Exchange, India
- Tamil Nadu electricity Board
- Mercuria Energy - Indonesia
- Central Electricity Authority - India
- Kalimantan Lumbung Energi - Indonesia
- Bangladesh Power Developement Board
- Economic Council, Georgia
- Krishnapatnam Port Company Ltd. - India
- Salva Resources Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Indonesian Coal Mining Association
- Ministry of Mines - Canada
- Bhushan Steel Limited - India
- ASAPP Information Group - India
- Attock Cement Pakistan Limited
- Heidelberg Cement - Germany
- Planning Commission, India
- Eastern Energy - Thailand
- Jorong Barutama Greston.PT - Indonesia
- VISA Power Limited - India
- Thiess Contractors Indonesia
- ICICI Bank Limited - India
- Kepco SPC Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- MS Steel International - UAE
- Neyveli Lignite Corporation Ltd, - India
- Barasentosa Lestari - Indonesia
- Borneo Indobara - Indonesia
- Edison Trading Spa - Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- Sarangani Energy Corporation, Philippines
- Wood Mackenzie - Singapore
- London Commodity Brokers - England
- GN Power Mariveles Coal Plant, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Independent Power Producers Association of India
- Manunggal Multi Energi - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Xindia Steels Limited - India
- PTC India Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Bharathi Cement Corporation - India
- Sical Logistics Limited - India
- The Treasury - Australian Government
- Trasteel International SA, Italy
- Aditya Birla Group - India
- Riau Bara Harum - Indonesia
- Semirara Mining Corp, Philippines
- Metalloyd Limited - United Kingdom
- Bhatia International Limited - India
- Directorate Of Revenue Intelligence - India
- Tata Chemicals Ltd - India
- Australian Coal Association
- Binh Thuan Hamico - Vietnam
- Meenaskhi Energy Private Limited - India
- Singapore Mercantile Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Samtan Co., Ltd - South Korea
- Indogreen Group - Indonesia
- Wilmar Investment Holdings
- Lanco Infratech Ltd - India
- SMG Consultants - Indonesia
- Toyota Tsusho Corporation, Japan
- Kohat Cement Company Ltd. - Pakistan
- IHS Mccloskey Coal Group - USA
- Iligan Light & Power Inc, Philippines
- Central Java Power - Indonesia
- Merrill Lynch Commodities Europe
- Essar Steel Hazira Ltd - India
- Cement Manufacturers Association - India
- Petron Corporation, Philippines
- The State Trading Corporation of India Ltd
- Global Business Power Corporation, Philippines
- Star Paper Mills Limited - India
- Altura Mining Limited, Indonesia
- Rashtriya Ispat Nigam Limited - India
- Thai Mozambique Logistica
- Global Green Power PLC Corporation, Philippines
- Antam Resourcindo - Indonesia
- Meralco Power Generation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Kaltim Prima Coal - Indonesia
- Posco Energy - South Korea
- European Bulk Services B.V. - Netherlands
- GAC Shipping (India) Pvt Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- CNBM International Corporation - China
- Coal and Oil Company - UAE
- Ambuja Cements Ltd - India
- Georgia Ports Authority, United States
- Intertek Mineral Services - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- South Luzon Thermal Energy Corporation
- Renaissance Capital - South Africa
- Formosa Plastics Group - Taiwan
- Karaikal Port Pvt Ltd - India
- Sojitz Corporation - Japan
- Madhucon Powers Ltd - India
- Straits Asia Resources Limited - Singapore
- Eastern Coal Council - USA
- McConnell Dowell - Australia
- Siam City Cement - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Orica Mining Services - Indonesia
- Energy Link Ltd, New Zealand
- Minerals Council of Australia
- Bayan Resources Tbk. - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Timah Investasi Mineral - Indoneisa
- Maheswari Brothers Coal Limited - India
- Anglo American - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Siam City Cement PLC, Thailand
- Standard Chartered Bank - UAE
- Parry Sugars Refinery, India
- Goldman Sachs - Singapore
- Larsen & Toubro Limited - India
- Agrawal Coal Company - India
- SMC Global Power, Philippines
- Kideco Jaya Agung - Indonesia
- Indika Energy - Indonesia
- White Energy Company Limited
- Chamber of Mines of South Africa
- Jaiprakash Power Ventures ltd
- Gujarat Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Orica Australia Pty. Ltd.
- Price Waterhouse Coopers - Russia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- Aboitiz Power Corporation - Philippines
- PowerSource Philippines DevCo
- San Jose City I Power Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Baramulti Group, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Port Waratah Coal Services - Australia
- TeaM Sual Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Mjunction Services Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Makarim & Taira - Indonesia
- Marubeni Corporation - India
- Ministry of Finance - Indonesia
- Romanian Commodities Exchange
- Therma Luzon, Inc, Philippines
- Ind-Barath Power Infra Limited - India
- India Bulls Power Limited - India
- Bhoruka Overseas - Indonesia
- Cigading International Bulk Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Oldendorff Carriers - Singapore
- Sindya Power Generating Company Private Ltd
- Banpu Public Company Limited - Thailand
- New Zealand Coal & Carbon
- Simpson Spence & Young - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Grasim Industreis Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Power Finance Corporation Ltd., India
- Indian Oil Corporation Limited
- The University of Queensland
- GMR Energy Limited - India
- Uttam Galva Steels Limited - India
- Africa Commodities Group - South Africa
- Gujarat Sidhee Cement - India
- Sree Jayajothi Cements Limited - India
- Pendopo Energi Batubara - Indonesia
- Vedanta Resources Plc - India
- Vijayanagar Sugar Pvt Ltd - India
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