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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, 04 May 20
U.S. ESTIMATED COAL PRODUCTION FALL 39.4% YEAR ON YEAR IN THE WEEK ENDED APRIL 25 - EIA
Estimated U.S. coal production totaled about 8.6 million short tons (MMst) For the week ended April 25, 2020, says EIA in its latest report.
E ...
Saturday, 02 May 20
SUPRAMAX: ASIA, STRONGER NUMBERS - A 55.000-DWT WAS FIXED FROM INDONESIA TO CHINA IN THE MID $6,000S - BALTIC BRIEFING
Capesize
A tepid week for the big ships, as macro concerns continued to weigh heavily on the index. All of the major voyage routes lost value, ...
Friday, 01 May 20
KOSPO INVITED OFFER FOR 5600 NCV COAL FOR Q3 2020 LOADING
COALspot.com: Korea Southern Power Co., Ltd. (KOSPO) has issued an International tender for 260,000 Metric Tons (MT) steam coal for Boryeong Power ...
Friday, 01 May 20
GLOBAL COAL DEMAND TO FALL BY ABOUT 8% IN 2020,THE LARGEST DROP SINCE WORLD WAR II - IEA
We expect global coal demand to fall by about 8% in 2020, the largest drop since World War II, with coal use declining in virtually every sector of ...
Friday, 01 May 20
GLOBAL COAL DEMAND TO FALL BY 8% IN Q1 2020 RELATIVE TO Q1 2019 - IEA
We expect global coal demand to fall by 8% in Q1 2020 relative to Q1 2019. This significant drop was driven by lower demand in the electricity sect ...
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- Thiess Contractors Indonesia
- Coastal Gujarat Power Limited - India
- Makarim & Taira - Indonesia
- Altura Mining Limited, Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Australian Coal Association
- Asmin Koalindo Tuhup - Indonesia
- Sakthi Sugars Limited - India
- Economic Council, Georgia
- IEA Clean Coal Centre - UK
- Asia Pacific Energy Resources Ventures Inc, Philippines
- New Zealand Coal & Carbon
- Power Finance Corporation Ltd., India
- Indian Energy Exchange, India
- Grasim Industreis Ltd - India
- Global Coal Blending Company Limited - Australia
- SN Aboitiz Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Central Electricity Authority - India
- Kalimantan Lumbung Energi - Indonesia
- Bhoruka Overseas - Indonesia
- Mintek Dendrill Indonesia
- Ind-Barath Power Infra Limited - India
- Karbindo Abesyapradhi - Indoneisa
- GMR Energy Limited - India
- Salva Resources Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Tamil Nadu electricity Board
- Africa Commodities Group - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GN Power Mariveles Coal Plant, Philippines
- Bangladesh Power Developement Board
- Maharashtra Electricity Regulatory Commission - India
- Timah Investasi Mineral - Indoneisa
- Aditya Birla Group - India
- PTC India Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Georgia Ports Authority, United States
- Baramulti Group, Indonesia
- Commonwealth Bank - Australia
- Meenaskhi Energy Private Limited - India
- Medco Energi Mining Internasional
- Kideco Jaya Agung - Indonesia
- Kartika Selabumi Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Chettinad Cement Corporation Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Larsen & Toubro Limited - India
- Romanian Commodities Exchange
- Malabar Cements Ltd - India
- Jindal Steel & Power Ltd - India
- Oldendorff Carriers - Singapore
- AsiaOL BioFuels Corp., Philippines
- Agrawal Coal Company - India
- San Jose City I Power Corp, Philippines
- Merrill Lynch Commodities Europe
- Formosa Plastics Group - Taiwan
- Toyota Tsusho Corporation, Japan
- Electricity Authority, New Zealand
- Coal and Oil Company - UAE
- PowerSource Philippines DevCo
- Eastern Energy - Thailand
- London Commodity Brokers - England
- OPG Power Generation Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Ministry of Mines - Canada
- Binh Thuan Hamico - Vietnam
- Simpson Spence & Young - Indonesia
- Banpu Public Company Limited - Thailand
- ASAPP Information Group - India
- Marubeni Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Posco Energy - South Korea
- Deloitte Consulting - India
- Vijayanagar Sugar Pvt Ltd - India
- Coalindo Energy - Indonesia
- Videocon Industries ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Bhatia International Limited - India
- Independent Power Producers Association of India
- Aboitiz Power Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- Sree Jayajothi Cements Limited - India
- Dalmia Cement Bharat India
- Bhushan Steel Limited - India
- Ceylon Electricity Board - Sri Lanka
- Bukit Asam (Persero) Tbk - Indonesia
- Iligan Light & Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Parry Sugars Refinery, India
- Standard Chartered Bank - UAE
- Indo Tambangraya Megah - Indonesia
- Globalindo Alam Lestari - Indonesia
- The University of Queensland
- Goldman Sachs - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Cement Manufacturers Association - India
- Lanco Infratech Ltd - India
- Manunggal Multi Energi - Indonesia
- Meralco Power Generation, Philippines
- Ministry of Transport, Egypt
- Siam City Cement PLC, Thailand
- Tata Chemicals Ltd - India
- Mercator Lines Limited - India
- Cigading International Bulk Terminal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bayan Resources Tbk. - Indonesia
- Savvy Resources Ltd - HongKong
- Rashtriya Ispat Nigam Limited - India
- Intertek Mineral Services - Indonesia
- Sojitz Corporation - Japan
- White Energy Company Limited
- Global Green Power PLC Corporation, Philippines
- Eastern Coal Council - USA
- Bahari Cakrawala Sebuku - Indonesia
- Chamber of Mines of South Africa
- Riau Bara Harum - Indonesia
- Siam City Cement - Thailand
- McConnell Dowell - Australia
- Electricity Generating Authority of Thailand
- Bharathi Cement Corporation - India
- GAC Shipping (India) Pvt Ltd
- Port Waratah Coal Services - Australia
- Heidelberg Cement - Germany
- International Coal Ventures Pvt Ltd - India
- Carbofer General Trading SA - India
- Vedanta Resources Plc - India
- Sical Logistics Limited - India
- Sarangani Energy Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- The Treasury - Australian Government
- TeaM Sual Corporation - Philippines
- Star Paper Mills Limited - India
- Maheswari Brothers Coal Limited - India
- Kobexindo Tractors - Indoneisa
- Xindia Steels Limited - India
- Trasteel International SA, Italy
- Kapuas Tunggal Persada - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Indonesian Coal Mining Association
- European Bulk Services B.V. - Netherlands
- Orica Australia Pty. Ltd.
- Vizag Seaport Private Limited - India
- SMG Consultants - Indonesia
- Petron Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Semirara Mining Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Bank of Tokyo Mitsubishi UFJ Ltd
- LBH Netherlands Bv - Netherlands
- Ambuja Cements Ltd - India
- Mercuria Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Edison Trading Spa - Italy
- Krishnapatnam Port Company Ltd. - India
- Therma Luzon, Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Australian Commodity Traders Exchange
- Attock Cement Pakistan Limited
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Kaltim Prima Coal - Indonesia
- Straits Asia Resources Limited - Singapore
- Bukit Makmur.PT - Indonesia
- Karaikal Port Pvt Ltd - India
- ICICI Bank Limited - India
- Madhucon Powers Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Parliament of New Zealand
- India Bulls Power Limited - India
- Ministry of Finance - Indonesia
- Borneo Indobara - Indonesia
- South Luzon Thermal Energy Corporation
- Uttam Galva Steels Limited - India
- Bukit Baiduri Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Wood Mackenzie - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thai Mozambique Logistica
- Interocean Group of Companies - India
- Indian Oil Corporation Limited
- Barasentosa Lestari - Indonesia
- SMC Global Power, Philippines
- Leighton Contractors Pty Ltd - Australia
- Wilmar Investment Holdings
- Gujarat Sidhee Cement - India
- Holcim Trading Pte Ltd - Singapore
- Latin American Coal - Colombia
- Mjunction Services Limited - India
- Rio Tinto Coal - Australia
- IHS Mccloskey Coal Group - USA
- Renaissance Capital - South Africa
- Minerals Council of Australia
- Pendopo Energi Batubara - Indonesia
- Indika Energy - Indonesia
- VISA Power Limited - India
- Sindya Power Generating Company Private Ltd
- Neyveli Lignite Corporation Ltd, - India
- MS Steel International - UAE
- The State Trading Corporation of India Ltd
- Antam Resourcindo - Indonesia
- GVK Power & Infra Limited - India
- Singapore Mercantile Exchange
- Miang Besar Coal Terminal - Indonesia
- Planning Commission, India
- Energy Link Ltd, New Zealand
- CNBM International Corporation - China
- Kumho Petrochemical, South Korea
- Anglo American - United Kingdom
- Central Java Power - Indonesia
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