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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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- Heidelberg Cement - Germany
- Australian Coal Association
- Mercuria Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- GVK Power & Infra Limited - India
- Thiess Contractors Indonesia
- European Bulk Services B.V. - Netherlands
- New Zealand Coal & Carbon
- Posco Energy - South Korea
- Mjunction Services Limited - India
- SMC Global Power, Philippines
- Gujarat Sidhee Cement - India
- Gujarat Electricity Regulatory Commission - India
- Vijayanagar Sugar Pvt Ltd - India
- Planning Commission, India
- Minerals Council of Australia
- Parliament of New Zealand
- Dalmia Cement Bharat India
- Goldman Sachs - Singapore
- Sojitz Corporation - Japan
- Gujarat Mineral Development Corp Ltd - India
- Trasteel International SA, Italy
- Energy Link Ltd, New Zealand
- Sical Logistics Limited - India
- Aboitiz Power Corporation - Philippines
- Ministry of Finance - Indonesia
- Petron Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Australian Commodity Traders Exchange
- Parry Sugars Refinery, India
- Binh Thuan Hamico - Vietnam
- Bukit Makmur.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- Bhoruka Overseas - Indonesia
- Semirara Mining Corp, Philippines
- Kideco Jaya Agung - Indonesia
- Bukit Baiduri Energy - Indonesia
- Singapore Mercantile Exchange
- Samtan Co., Ltd - South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- San Jose City I Power Corp, Philippines
- Savvy Resources Ltd - HongKong
- Sarangani Energy Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SN Aboitiz Power Inc, Philippines
- PTC India Limited - India
- Videocon Industries ltd - India
- Therma Luzon, Inc, Philippines
- SMG Consultants - Indonesia
- Indian Oil Corporation Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Power Finance Corporation Ltd., India
- Kepco SPC Power Corporation, Philippines
- Indonesian Coal Mining Association
- VISA Power Limited - India
- Port Waratah Coal Services - Australia
- Uttam Galva Steels Limited - India
- Tamil Nadu electricity Board
- Directorate Of Revenue Intelligence - India
- Latin American Coal - Colombia
- Karbindo Abesyapradhi - Indoneisa
- India Bulls Power Limited - India
- Ind-Barath Power Infra Limited - India
- Kumho Petrochemical, South Korea
- Maheswari Brothers Coal Limited - India
- Madhucon Powers Ltd - India
- Anglo American - United Kingdom
- Toyota Tsusho Corporation, Japan
- Global Coal Blending Company Limited - Australia
- Ambuja Cements Ltd - India
- Eastern Coal Council - USA
- Electricity Authority, New Zealand
- Carbofer General Trading SA - India
- Simpson Spence & Young - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Larsen & Toubro Limited - India
- Deloitte Consulting - India
- CIMB Investment Bank - Malaysia
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- Meralco Power Generation, Philippines
- Manunggal Multi Energi - Indonesia
- Salva Resources Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Romanian Commodities Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- GMR Energy Limited - India
- PowerSource Philippines DevCo
- Krishnapatnam Port Company Ltd. - India
- South Luzon Thermal Energy Corporation
- Coal and Oil Company - UAE
- Economic Council, Georgia
- Metalloyd Limited - United Kingdom
- Borneo Indobara - Indonesia
- Cement Manufacturers Association - India
- Siam City Cement - Thailand
- Altura Mining Limited, Indonesia
- Chamber of Mines of South Africa
- Cigading International Bulk Terminal - Indonesia
- TeaM Sual Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Thai Mozambique Logistica
- MS Steel International - UAE
- Global Business Power Corporation, Philippines
- ICICI Bank Limited - India
- Jindal Steel & Power Ltd - India
- Aditya Birla Group - India
- Africa Commodities Group - South Africa
- Grasim Industreis Ltd - India
- Coastal Gujarat Power Limited - India
- PNOC Exploration Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- LBH Netherlands Bv - Netherlands
- ASAPP Information Group - India
- Renaissance Capital - South Africa
- Oldendorff Carriers - Singapore
- Baramulti Group, Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Kobexindo Tractors - Indoneisa
- Indo Tambangraya Megah - Indonesia
- Banpu Public Company Limited - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Makarim & Taira - Indonesia
- Attock Cement Pakistan Limited
- Merrill Lynch Commodities Europe
- Bhushan Steel Limited - India
- Rio Tinto Coal - Australia
- Timah Investasi Mineral - Indoneisa
- Central Electricity Authority - India
- Vedanta Resources Plc - India
- Central Java Power - Indonesia
- Independent Power Producers Association of India
- Vizag Seaport Private Limited - India
- Wood Mackenzie - Singapore
- Ministry of Mines - Canada
- White Energy Company Limited
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Sindya Power Generating Company Private Ltd
- Tata Chemicals Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Sakthi Sugars Limited - India
- Essar Steel Hazira Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Formosa Plastics Group - Taiwan
- IHS Mccloskey Coal Group - USA
- Antam Resourcindo - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Indika Energy - Indonesia
- Medco Energi Mining Internasional
- London Commodity Brokers - England
- Bhatia International Limited - India
- Wilmar Investment Holdings
- GN Power Mariveles Coal Plant, Philippines
- AsiaOL BioFuels Corp., Philippines
- The University of Queensland
- Global Green Power PLC Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Barasentosa Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Georgia Ports Authority, United States
- Price Waterhouse Coopers - Russia
- Orica Australia Pty. Ltd.
- TNB Fuel Sdn Bhd - Malaysia
- Kapuas Tunggal Persada - Indonesia
- Intertek Mineral Services - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Bharathi Cement Corporation - India
- Ministry of Transport, Egypt
- Mercator Lines Limited - India
- Billiton Holdings Pty Ltd - Australia
- Standard Chartered Bank - UAE
- Semirara Mining and Power Corporation, Philippines
- Xindia Steels Limited - India
- Kartika Selabumi Mining - Indonesia
- OPG Power Generation Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Edison Trading Spa - Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- IEA Clean Coal Centre - UK
- The Treasury - Australian Government
- Electricity Generating Authority of Thailand
- Meenaskhi Energy Private Limited - India
- CNBM International Corporation - China
- PetroVietnam Power Coal Import and Supply Company
- Energy Development Corp, Philippines
- Commonwealth Bank - Australia
- Chettinad Cement Corporation Ltd - India
- Jaiprakash Power Ventures ltd
- Pendopo Energi Batubara - Indonesia
- Star Paper Mills Limited - India
- McConnell Dowell - Australia
- GAC Shipping (India) Pvt Ltd
- Interocean Group of Companies - India
- Orica Mining Services - Indonesia
- Agrawal Coal Company - India
- Malabar Cements Ltd - India
- International Coal Ventures Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Eastern Energy - Thailand
- Kaltim Prima Coal - Indonesia
- Sree Jayajothi Cements Limited - India
- Indian Energy Exchange, India
- Jorong Barutama Greston.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Iligan Light & Power Inc, Philippines
- Coalindo Energy - Indonesia
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