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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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Friday, 01 May 20
LUKOIL SHARES LUBRICANT EXPERIENCE AFTER FIRST 100 DAYS OF OPERATION ON VLSFO
KNOWLEDGE TO ELEVATE
After 100 days of VLSFO operation, LUKOIL Marine Lubricants is sharing recent experience on VLSFO operation with NAVIGO M ...
Wednesday, 29 April 20
OIL CLOSES IN ON PEAK OVERSUPPLY - WOOD MACKENZIE
Are we now deep in the abyss? Up to our necks in it, if the oil price is any guide. Brent has now tested sub-US$20/bbl in this downturn and WTI sub ...
Monday, 27 April 20
INCIDENT INVESTIGATION: SEARCH FOR THE CAUSE, NOT THE VILLAIN - GARD
Incident investigations often conclude with placing the blame for an incident on the crew. Causes of the incidents are usually identified as proced ...
Monday, 27 April 20
A 58,000DWT VESSEL WAS FIXED DELIVERY SINGAPORE TRIP VIA INDONESIA, RE-DELIVERY WC INDIA, AT $4,500 - BALTIC BRIEFING
Capesize
The tide turned this week for the Capesize market, as voyage rates registered dramatically falling fuel costs. This was led primarily ...
Sunday, 26 April 20
STRONGER BUNKER PRICES FAIL TO RALLY FREIGHT MARKET - FIS
VLSFO bunker prices rebounded by $22.50 to $229/mt in the port of Singapore but failed to turn around the spot freight market.
Some ...
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- San Jose City I Power Corp, Philippines
- PowerSource Philippines DevCo
- Eastern Energy - Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- London Commodity Brokers - England
- Gujarat Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- PTC India Limited - India
- Coalindo Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Indo Tambangraya Megah - Indonesia
- Kobexindo Tractors - Indoneisa
- Latin American Coal - Colombia
- Barasentosa Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Price Waterhouse Coopers - Russia
- Edison Trading Spa - Italy
- Formosa Plastics Group - Taiwan
- Directorate Of Revenue Intelligence - India
- Power Finance Corporation Ltd., India
- Goldman Sachs - Singapore
- Port Waratah Coal Services - Australia
- Bangladesh Power Developement Board
- Madhucon Powers Ltd - India
- Uttam Galva Steels Limited - India
- Kideco Jaya Agung - Indonesia
- SMC Global Power, Philippines
- Indian Oil Corporation Limited
- Sindya Power Generating Company Private Ltd
- Simpson Spence & Young - Indonesia
- Maheswari Brothers Coal Limited - India
- The State Trading Corporation of India Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Economic Council, Georgia
- Sree Jayajothi Cements Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- McConnell Dowell - Australia
- Ministry of Transport, Egypt
- Mercuria Energy - Indonesia
- White Energy Company Limited
- Meenaskhi Energy Private Limited - India
- Electricity Generating Authority of Thailand
- Aboitiz Power Corporation - Philippines
- IEA Clean Coal Centre - UK
- Videocon Industries ltd - India
- Bharathi Cement Corporation - India
- Bhatia International Limited - India
- Baramulti Group, Indonesia
- Globalindo Alam Lestari - Indonesia
- Sakthi Sugars Limited - India
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- Planning Commission, India
- IHS Mccloskey Coal Group - USA
- Kaltim Prima Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- ASAPP Information Group - India
- VISA Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Trasteel International SA, Italy
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- CIMB Investment Bank - Malaysia
- Indogreen Group - Indonesia
- TeaM Sual Corporation - Philippines
- Ministry of Mines - Canada
- Mercator Lines Limited - India
- CNBM International Corporation - China
- Karbindo Abesyapradhi - Indoneisa
- Dalmia Cement Bharat India
- ICICI Bank Limited - India
- Independent Power Producers Association of India
- Metalloyd Limited - United Kingdom
- Mjunction Services Limited - India
- Rio Tinto Coal - Australia
- Sarangani Energy Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Sical Logistics Limited - India
- Alfred C Toepfer International GmbH - Germany
- Orica Australia Pty. Ltd.
- Pipit Mutiara Jaya. PT, Indonesia
- Samtan Co., Ltd - South Korea
- Global Business Power Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Neyveli Lignite Corporation Ltd, - India
- India Bulls Power Limited - India
- Agrawal Coal Company - India
- Siam City Cement PLC, Thailand
- Therma Luzon, Inc, Philippines
- Bhoruka Overseas - Indonesia
- Renaissance Capital - South Africa
- Semirara Mining and Power Corporation, Philippines
- Sojitz Corporation - Japan
- Romanian Commodities Exchange
- Global Coal Blending Company Limited - Australia
- Heidelberg Cement - Germany
- Indonesian Coal Mining Association
- Asmin Koalindo Tuhup - Indonesia
- Ambuja Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Thai Mozambique Logistica
- Global Green Power PLC Corporation, Philippines
- Tamil Nadu electricity Board
- Australian Coal Association
- Central Java Power - Indonesia
- Coastal Gujarat Power Limited - India
- GMR Energy Limited - India
- Standard Chartered Bank - UAE
- Anglo American - United Kingdom
- Commonwealth Bank - Australia
- Kumho Petrochemical, South Korea
- Bukit Makmur.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- Rashtriya Ispat Nigam Limited - India
- Riau Bara Harum - Indonesia
- Marubeni Corporation - India
- Carbofer General Trading SA - India
- Lanco Infratech Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jindal Steel & Power Ltd - India
- Petron Corporation, Philippines
- Electricity Authority, New Zealand
- Straits Asia Resources Limited - Singapore
- SMG Consultants - Indonesia
- Energy Link Ltd, New Zealand
- GVK Power & Infra Limited - India
- Toyota Tsusho Corporation, Japan
- Ministry of Finance - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Siam City Cement - Thailand
- Bhushan Steel Limited - India
- Bukit Baiduri Energy - Indonesia
- Posco Energy - South Korea
- Karaikal Port Pvt Ltd - India
- Cement Manufacturers Association - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The Treasury - Australian Government
- Ceylon Electricity Board - Sri Lanka
- South Luzon Thermal Energy Corporation
- Vijayanagar Sugar Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Aditya Birla Group - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Chettinad Cement Corporation Ltd - India
- LBH Netherlands Bv - Netherlands
- Salva Resources Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Gujarat Sidhee Cement - India
- Xindia Steels Limited - India
- Vizag Seaport Private Limited - India
- Kepco SPC Power Corporation, Philippines
- Georgia Ports Authority, United States
- Interocean Group of Companies - India
- Grasim Industreis Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Singapore Mercantile Exchange
- Savvy Resources Ltd - HongKong
- Pendopo Energi Batubara - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Parliament of New Zealand
- Jorong Barutama Greston.PT - Indonesia
- Malabar Cements Ltd - India
- Central Electricity Authority - India
- Coal and Oil Company - UAE
- GN Power Mariveles Coal Plant, Philippines
- Oldendorff Carriers - Singapore
- MS Steel International - UAE
- Borneo Indobara - Indonesia
- Antam Resourcindo - Indonesia
- Indika Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Miang Besar Coal Terminal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Meralco Power Generation, Philippines
- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
- Binh Thuan Hamico - Vietnam
- PNOC Exploration Corporation - Philippines
- Medco Energi Mining Internasional
- Ind-Barath Power Infra Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Semirara Mining Corp, Philippines
- GAC Shipping (India) Pvt Ltd
- Minerals Council of Australia
- Deloitte Consulting - India
- Makarim & Taira - Indonesia
- SN Aboitiz Power Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Australian Commodity Traders Exchange
- Krishnapatnam Port Company Ltd. - India
- Attock Cement Pakistan Limited
- Merrill Lynch Commodities Europe
- Larsen & Toubro Limited - India
- Thiess Contractors Indonesia
- Mintek Dendrill Indonesia
- Timah Investasi Mineral - Indoneisa
- Africa Commodities Group - South Africa
- Indian Energy Exchange, India
- Wilmar Investment Holdings
- New Zealand Coal & Carbon
- Vedanta Resources Plc - India
- Altura Mining Limited, Indonesia
- Wood Mackenzie - Singapore
- Parry Sugars Refinery, India
- OPG Power Generation Pvt Ltd - India
- Tata Chemicals Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Energy Development Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Eastern Coal Council - USA
- The University of Queensland
- Chamber of Mines of South Africa
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