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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, 12 May 20
A GLOBAL ECONOMIC RESTART HAS SLOWLY BEGUN AS COUNTRIES AROUND THE WORLD GRADUALLY - ALLIED
A global economic restart has slowly begun as countries around the world gradually set their return back to “normality”. Yet by all mea ...
Tuesday, 12 May 20
CAN INDONESIA'S COAL INDUSTRY SURVIVE COVID-19? : IEEFA
Pandemic Lockdown and Slumping Prices Put Extreme Pressure on Coal Miners
Executive Summary
While attention has been focused on th ...
Tuesday, 12 May 20
INDIA'S COAL PRODUCTION TO CLOCK RECORD 700 MILLION TONNES IN FY21: COAL SECRETARY - PTI
Coal Secretary Anil Jain said FY20 coal production was lower than the target of 660 million tonnes because of flooding of a key coal mine.
&nbs ...
Monday, 11 May 20
CHINA'S BENCHMARK POWER COAL PRICE DROPS SLIGHTLY - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
Monday, 11 May 20
CORONAVIRUS PUTS MORE THAN A THIRD OF SEABORNE COAL SUPPLY AT RISK - WOOD MACKENZIE
The full impact of the coronavirus outbreak on the global economy is yet unclear. However, the demand destruction is already becoming evident, with ...
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- SMC Global Power, Philippines
- Parliament of New Zealand
- Gujarat Sidhee Cement - India
- Electricity Authority, New Zealand
- Antam Resourcindo - Indonesia
- Gujarat Electricity Regulatory Commission - India
- MS Steel International - UAE
- Maharashtra Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- Madhucon Powers Ltd - India
- Iligan Light & Power Inc, Philippines
- White Energy Company Limited
- Romanian Commodities Exchange
- Aboitiz Power Corporation - Philippines
- Savvy Resources Ltd - HongKong
- London Commodity Brokers - England
- Krishnapatnam Port Company Ltd. - India
- Globalindo Alam Lestari - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Siam City Cement - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Africa Commodities Group - South Africa
- Tamil Nadu electricity Board
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Coalindo Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Goldman Sachs - Singapore
- Energy Development Corp, Philippines
- Mintek Dendrill Indonesia
- Marubeni Corporation - India
- CNBM International Corporation - China
- Kobexindo Tractors - Indoneisa
- Price Waterhouse Coopers - Russia
- Kaltim Prima Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Merrill Lynch Commodities Europe
- Malabar Cements Ltd - India
- Lanco Infratech Ltd - India
- Minerals Council of Australia
- Barasentosa Lestari - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bhushan Steel Limited - India
- The Treasury - Australian Government
- Cigading International Bulk Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Central Java Power - Indonesia
- South Luzon Thermal Energy Corporation
- Petrochimia International Co. Ltd.- Taiwan
- Sakthi Sugars Limited - India
- Bhoruka Overseas - Indonesia
- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
- Deloitte Consulting - India
- Jaiprakash Power Ventures ltd
- Kideco Jaya Agung - Indonesia
- Formosa Plastics Group - Taiwan
- Thai Mozambique Logistica
- Jorong Barutama Greston.PT - Indonesia
- Indian Energy Exchange, India
- Kartika Selabumi Mining - Indonesia
- Timah Investasi Mineral - Indoneisa
- Intertek Mineral Services - Indonesia
- Attock Cement Pakistan Limited
- Larsen & Toubro Limited - India
- Trasteel International SA, Italy
- Bhatia International Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- McConnell Dowell - Australia
- India Bulls Power Limited - India
- ICICI Bank Limited - India
- Agrawal Coal Company - India
- Xindia Steels Limited - India
- GAC Shipping (India) Pvt Ltd
- Alfred C Toepfer International GmbH - Germany
- Kalimantan Lumbung Energi - Indonesia
- Central Electricity Authority - India
- Renaissance Capital - South Africa
- Siam City Cement PLC, Thailand
- GVK Power & Infra Limited - India
- Ind-Barath Power Infra Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- VISA Power Limited - India
- Eastern Energy - Thailand
- Karbindo Abesyapradhi - Indoneisa
- Port Waratah Coal Services - Australia
- Mercuria Energy - Indonesia
- Ambuja Cements Ltd - India
- Kumho Petrochemical, South Korea
- Planning Commission, India
- Sical Logistics Limited - India
- Meenaskhi Energy Private Limited - India
- Manunggal Multi Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Baramulti Group, Indonesia
- Medco Energi Mining Internasional
- Bharathi Cement Corporation - India
- San Jose City I Power Corp, Philippines
- Orica Australia Pty. Ltd.
- Commonwealth Bank - Australia
- Wood Mackenzie - Singapore
- PowerSource Philippines DevCo
- Gujarat Mineral Development Corp Ltd - India
- CIMB Investment Bank - Malaysia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Eastern Coal Council - USA
- Indogreen Group - Indonesia
- Australian Coal Association
- Binh Thuan Hamico - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- SN Aboitiz Power Inc, Philippines
- Parry Sugars Refinery, India
- Vedanta Resources Plc - India
- New Zealand Coal & Carbon
- Bulk Trading Sa - Switzerland
- Independent Power Producers Association of India
- Chamber of Mines of South Africa
- Sree Jayajothi Cements Limited - India
- The University of Queensland
- Essar Steel Hazira Ltd - India
- Bukit Baiduri Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Neyveli Lignite Corporation Ltd, - India
- Edison Trading Spa - Italy
- Karaikal Port Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Indian Oil Corporation Limited
- Indo Tambangraya Megah - Indonesia
- Power Finance Corporation Ltd., India
- Maheswari Brothers Coal Limited - India
- Wilmar Investment Holdings
- Makarim & Taira - Indonesia
- Ministry of Finance - Indonesia
- Global Business Power Corporation, Philippines
- Vizag Seaport Private Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- TeaM Sual Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- PTC India Limited - India
- Energy Link Ltd, New Zealand
- Georgia Ports Authority, United States
- Coal and Oil Company - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Straits Asia Resources Limited - Singapore
- GN Power Mariveles Coal Plant, Philippines
- OPG Power Generation Pvt Ltd - India
- Sojitz Corporation - Japan
- Bangladesh Power Developement Board
- Australian Commodity Traders Exchange
- AsiaOL BioFuels Corp., Philippines
- Star Paper Mills Limited - India
- Aditya Birla Group - India
- Salva Resources Pvt Ltd - India
- Thiess Contractors Indonesia
- Orica Mining Services - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Indonesian Coal Mining Association
- European Bulk Services B.V. - Netherlands
- IEA Clean Coal Centre - UK
- Grasim Industreis Ltd - India
- Sarangani Energy Corporation, Philippines
- Videocon Industries ltd - India
- Global Coal Blending Company Limited - Australia
- Metalloyd Limited - United Kingdom
- Indika Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Riau Bara Harum - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Simpson Spence & Young - Indonesia
- ASAPP Information Group - India
- Economic Council, Georgia
- SMG Consultants - Indonesia
- Global Green Power PLC Corporation, Philippines
- Therma Luzon, Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Cement Manufacturers Association - India
- Holcim Trading Pte Ltd - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Mines - Canada
- IHS Mccloskey Coal Group - USA
- Heidelberg Cement - Germany
- Toyota Tsusho Corporation, Japan
- Samtan Co., Ltd - South Korea
- Semirara Mining Corp, Philippines
- Mjunction Services Limited - India
- LBH Netherlands Bv - Netherlands
- Singapore Mercantile Exchange
- Meralco Power Generation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- Dalmia Cement Bharat India
- Rashtriya Ispat Nigam Limited - India
- Borneo Indobara - Indonesia
- Ministry of Transport, Egypt
- Kepco SPC Power Corporation, Philippines
- Petron Corporation, Philippines
- Interocean Group of Companies - India
- Sinarmas Energy and Mining - Indonesia
- PNOC Exploration Corporation - Philippines
- Mercator Lines Limited - India
- Carbofer General Trading SA - India
- Standard Chartered Bank - UAE
- Posco Energy - South Korea
- Rio Tinto Coal - Australia
- GMR Energy Limited - India
- Electricity Generating Authority of Thailand
- Kohat Cement Company Ltd. - Pakistan
- Bukit Makmur.PT - Indonesia
- Tata Chemicals Ltd - India
- Oldendorff Carriers - Singapore
- Sindya Power Generating Company Private Ltd
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