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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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Wednesday, 06 May 20
KOSPO INVITED COAL BIDS FOR LOW CALORIFIC VALUE COAL
COALspot.com: Korea Southern Power Co., Ltd. (KOSPO) has issued an International tender for 160,000 Metric Tons (MT) Low Calorific Value Coal for J ...
Wednesday, 06 May 20
MARKET INSIGHT - INTERMODAL
It comes as no surprise that activity in the dry bulk SnP market remains soft, with asset values caught in the downward spiral generated by the Cov ...
Wednesday, 06 May 20
FLOATING STORAGE OF OIL CARGOES - STANDARD CLUB
KNOWLEDGE TO ELEVATE
Due to a combination of circumstances there is now a worldwide shortage of storage space ashore for both unrefi ...
Wednesday, 06 May 20
IRON ORE TRADE REMAINS REMARKABLY RESILIENT THIS YEAR, AT LEAST IN ASIA - BANCHERO COSTA
Iron ore trade remains remarkably resilient this year, at least in Asia, despite the global economic impact from COVID-19. In the first 4 months of ...
Tuesday, 05 May 20
SUPRAMAXES: YTD SLIDE HAS BEEN 45%, WITH THE AVERAGE FOR 2020 TCA HOLDING AT US$5,793 - ALLIED
It has been almost three months since the WHO officially categorized the current coronavirus outbreak as a global pandemic, an outbreak that has br ...
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- Tamil Nadu electricity Board
- The Treasury - Australian Government
- Bukit Makmur.PT - Indonesia
- Minerals Council of Australia
- Edison Trading Spa - Italy
- Karbindo Abesyapradhi - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Sree Jayajothi Cements Limited - India
- Electricity Authority, New Zealand
- Jindal Steel & Power Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Orica Mining Services - Indonesia
- Standard Chartered Bank - UAE
- Central Electricity Authority - India
- Manunggal Multi Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Semirara Mining Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- PTC India Limited - India
- Jaiprakash Power Ventures ltd
- PowerSource Philippines DevCo
- Australian Commodity Traders Exchange
- Meralco Power Generation, Philippines
- Uttam Galva Steels Limited - India
- Planning Commission, India
- Energy Link Ltd, New Zealand
- Interocean Group of Companies - India
- Kartika Selabumi Mining - Indonesia
- Borneo Indobara - Indonesia
- Globalindo Alam Lestari - Indonesia
- GMR Energy Limited - India
- Orica Australia Pty. Ltd.
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Goldman Sachs - Singapore
- Krishnapatnam Port Company Ltd. - India
- Vedanta Resources Plc - India
- Sakthi Sugars Limited - India
- Merrill Lynch Commodities Europe
- IHS Mccloskey Coal Group - USA
- Bharathi Cement Corporation - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ministry of Finance - Indonesia
- Independent Power Producers Association of India
- Indogreen Group - Indonesia
- GVK Power & Infra Limited - India
- Ind-Barath Power Infra Limited - India
- Wilmar Investment Holdings
- Bukit Baiduri Energy - Indonesia
- Energy Development Corp, Philippines
- Australian Coal Association
- Economic Council, Georgia
- MS Steel International - UAE
- Medco Energi Mining Internasional
- IEA Clean Coal Centre - UK
- TeaM Sual Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Oldendorff Carriers - Singapore
- Baramulti Group, Indonesia
- Makarim & Taira - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Thai Mozambique Logistica
- Mercator Lines Limited - India
- Cement Manufacturers Association - India
- Bhushan Steel Limited - India
- Bhoruka Overseas - Indonesia
- Samtan Co., Ltd - South Korea
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Metalloyd Limited - United Kingdom
- ICICI Bank Limited - India
- The University of Queensland
- Rio Tinto Coal - Australia
- Sindya Power Generating Company Private Ltd
- Eastern Coal Council - USA
- GAC Shipping (India) Pvt Ltd
- CIMB Investment Bank - Malaysia
- OPG Power Generation Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- SMG Consultants - Indonesia
- Ministry of Transport, Egypt
- Heidelberg Cement - Germany
- Marubeni Corporation - India
- Indika Energy - Indonesia
- Africa Commodities Group - South Africa
- PNOC Exploration Corporation - Philippines
- San Jose City I Power Corp, Philippines
- India Bulls Power Limited - India
- Carbofer General Trading SA - India
- Altura Mining Limited, Indonesia
- Straits Asia Resources Limited - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Indonesian Coal Mining Association
- Singapore Mercantile Exchange
- Sojitz Corporation - Japan
- Videocon Industries ltd - India
- Ministry of Mines - Canada
- Global Coal Blending Company Limited - Australia
- Power Finance Corporation Ltd., India
- CNBM International Corporation - China
- Gujarat Sidhee Cement - India
- Binh Thuan Hamico - Vietnam
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMC Global Power, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Ambuja Cements Ltd - India
- Toyota Tsusho Corporation, Japan
- Barasentosa Lestari - Indonesia
- Chamber of Mines of South Africa
- Indian Oil Corporation Limited
- Formosa Plastics Group - Taiwan
- Therma Luzon, Inc, Philippines
- Intertek Mineral Services - Indonesia
- Mjunction Services Limited - India
- Riau Bara Harum - Indonesia
- London Commodity Brokers - England
- Coastal Gujarat Power Limited - India
- Price Waterhouse Coopers - Russia
- New Zealand Coal & Carbon
- Port Waratah Coal Services - Australia
- Gujarat Mineral Development Corp Ltd - India
- Romanian Commodities Exchange
- Bayan Resources Tbk. - Indonesia
- White Energy Company Limited
- Central Java Power - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Timah Investasi Mineral - Indoneisa
- Kobexindo Tractors - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- AsiaOL BioFuels Corp., Philippines
- Electricity Generating Authority of Thailand
- Eastern Energy - Thailand
- Kalimantan Lumbung Energi - Indonesia
- Georgia Ports Authority, United States
- Neyveli Lignite Corporation Ltd, - India
- Kumho Petrochemical, South Korea
- Dalmia Cement Bharat India
- Posco Energy - South Korea
- Coalindo Energy - Indonesia
- Mintek Dendrill Indonesia
- Lanco Infratech Ltd - India
- Petron Corporation, Philippines
- ASAPP Information Group - India
- Kohat Cement Company Ltd. - Pakistan
- Banpu Public Company Limited - Thailand
- Sical Logistics Limited - India
- Aboitiz Power Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- Deloitte Consulting - India
- Tata Chemicals Ltd - India
- Anglo American - United Kingdom
- Directorate Of Revenue Intelligence - India
- Malabar Cements Ltd - India
- The State Trading Corporation of India Ltd
- Madhucon Powers Ltd - India
- Savvy Resources Ltd - HongKong
- Billiton Holdings Pty Ltd - Australia
- Latin American Coal - Colombia
- Bukit Asam (Persero) Tbk - Indonesia
- Xindia Steels Limited - India
- Thiess Contractors Indonesia
- Gujarat Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Global Business Power Corporation, Philippines
- Bhatia International Limited - India
- Meenaskhi Energy Private Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Wood Mackenzie - Singapore
- Bangladesh Power Developement Board
- Holcim Trading Pte Ltd - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Renaissance Capital - South Africa
- Grasim Industreis Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Indian Energy Exchange, India
- Bulk Trading Sa - Switzerland
- Siam City Cement - Thailand
- Mercuria Energy - Indonesia
- Commonwealth Bank - Australia
- Aditya Birla Group - India
- European Bulk Services B.V. - Netherlands
- PetroVietnam Power Coal Import and Supply Company
- Coal and Oil Company - UAE
- Rashtriya Ispat Nigam Limited - India
- VISA Power Limited - India
- Antam Resourcindo - Indonesia
- Essar Steel Hazira Ltd - India
- Chettinad Cement Corporation Ltd - India
- Trasteel International SA, Italy
- Simpson Spence & Young - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Pendopo Energi Batubara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- South Luzon Thermal Energy Corporation
- Semirara Mining and Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Vizag Seaport Private Limited - India
- Star Paper Mills Limited - India
- Maheswari Brothers Coal Limited - India
- Parry Sugars Refinery, India
- Parliament of New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Indo Tambangraya Megah - Indonesia
- Sarangani Energy Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- LBH Netherlands Bv - Netherlands
- Kaltim Prima Coal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Larsen & Toubro Limited - India
- Kapuas Tunggal Persada - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Attock Cement Pakistan Limited
- McConnell Dowell - Australia
- Karaikal Port Pvt Ltd - India
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