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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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Saturday, 25 April 20
KOREA SOUTH-EAST POWER CO. INVITED BIDS FOR 780K - 900K MT OF 5600 NCV COAL FOR JULY TO OCTOBER 2020 LOADING
COALspot.com: South Korea’s KOREA SOUTH-EAST POWER CO., LTD. (KOEN) has issued an international tender for 780,000~900,000 Metric Tons (MT) s ...
Saturday, 25 April 20
SEAFARER MENTAL WELLBEING DURING THE COVID-19 PANDEMIC - STANDARD CLUB
KNOWLEDGE TO ELEVATE
COVID-19 has forced many parts of the world to enforce a lockdown in a bid to flatten the curve in terms of transmissions ...
Friday, 24 April 20
KOMIPO INVITED BIDS FOR 5700 NAR COAL FOR JUNE & JULY LOADING
COALspot.com: South Korea’s Korea Midland Power Co. Ltd. (KOMIPO) Has Issued An International Tender For 260,000 Metric Tons (MT) Steam Coal ...
Friday, 24 April 20
CHINA'S BENCHMARK POWER COAL PRICE REMAINS FLAT - XINHUA
China’s benchmark power coal price remained flat during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Friday, 24 April 20
COAL INDIA TO PRODUCE 710 MT COAL - MINISTER OF COAL AND MINES
Coal India Limited (CIL) will produce 710 million tonnes (MT) of coal and company’s coal off take target will also remain at710 MT for this f ...
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- Antam Resourcindo - Indonesia
- Larsen & Toubro Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Anglo American - United Kingdom
- London Commodity Brokers - England
- Aboitiz Power Corporation - Philippines
- Borneo Indobara - Indonesia
- Eastern Coal Council - USA
- Indo Tambangraya Megah - Indonesia
- Parry Sugars Refinery, India
- Neyveli Lignite Corporation Ltd, - India
- White Energy Company Limited
- Bukit Baiduri Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Romanian Commodities Exchange
- Energy Development Corp, Philippines
- Salva Resources Pvt Ltd - India
- Lanco Infratech Ltd - India
- Cement Manufacturers Association - India
- Petron Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- ICICI Bank Limited - India
- Bhushan Steel Limited - India
- Chamber of Mines of South Africa
- Bhatia International Limited - India
- Riau Bara Harum - Indonesia
- Kaltim Prima Coal - Indonesia
- New Zealand Coal & Carbon
- Holcim Trading Pte Ltd - Singapore
- Vizag Seaport Private Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Kepco SPC Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- McConnell Dowell - Australia
- Indika Energy - Indonesia
- Ambuja Cements Ltd - India
- Straits Asia Resources Limited - Singapore
- Coal and Oil Company - UAE
- SN Aboitiz Power Inc, Philippines
- Orica Mining Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Meralco Power Generation, Philippines
- Commonwealth Bank - Australia
- Sinarmas Energy and Mining - Indonesia
- Tamil Nadu electricity Board
- MS Steel International - UAE
- Trasteel International SA, Italy
- Kumho Petrochemical, South Korea
- Indogreen Group - Indonesia
- Edison Trading Spa - Italy
- Eastern Energy - Thailand
- Energy Link Ltd, New Zealand
- Iligan Light & Power Inc, Philippines
- Ministry of Transport, Egypt
- Kobexindo Tractors - Indoneisa
- Kideco Jaya Agung - Indonesia
- Mercuria Energy - Indonesia
- Wood Mackenzie - Singapore
- Krishnapatnam Port Company Ltd. - India
- Ministry of Finance - Indonesia
- Formosa Plastics Group - Taiwan
- Vedanta Resources Plc - India
- Mjunction Services Limited - India
- Oldendorff Carriers - Singapore
- IHS Mccloskey Coal Group - USA
- Maharashtra Electricity Regulatory Commission - India
- Indian Oil Corporation Limited
- GN Power Mariveles Coal Plant, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bulk Trading Sa - Switzerland
- Semirara Mining and Power Corporation, Philippines
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Goldman Sachs - Singapore
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- Semirara Mining Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- Australian Coal Association
- South Luzon Thermal Energy Corporation
- Kartika Selabumi Mining - Indonesia
- The Treasury - Australian Government
- Bangladesh Power Developement Board
- Orica Australia Pty. Ltd.
- Intertek Mineral Services - Indonesia
- Mintek Dendrill Indonesia
- Thiess Contractors Indonesia
- Meenaskhi Energy Private Limited - India
- Maheswari Brothers Coal Limited - India
- GMR Energy Limited - India
- Posco Energy - South Korea
- Offshore Bulk Terminal Pte Ltd, Singapore
- Standard Chartered Bank - UAE
- Dalmia Cement Bharat India
- Electricity Authority, New Zealand
- TeaM Sual Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Siam City Cement - Thailand
- Ceylon Electricity Board - Sri Lanka
- Ind-Barath Power Infra Limited - India
- Central Electricity Authority - India
- Altura Mining Limited, Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Port Waratah Coal Services - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Electricity Regulatory Commission - India
- Karaikal Port Pvt Ltd - India
- Medco Energi Mining Internasional
- Bahari Cakrawala Sebuku - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Wilmar Investment Holdings
- International Coal Ventures Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Africa Commodities Group - South Africa
- India Bulls Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mercator Lines Limited - India
- Sarangani Energy Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Carbofer General Trading SA - India
- Bukit Makmur.PT - Indonesia
- Heidelberg Cement - Germany
- Sree Jayajothi Cements Limited - India
- Indonesian Coal Mining Association
- Karbindo Abesyapradhi - Indoneisa
- Uttam Galva Steels Limited - India
- Jaiprakash Power Ventures ltd
- Economic Council, Georgia
- Indian Energy Exchange, India
- Miang Besar Coal Terminal - Indonesia
- Thai Mozambique Logistica
- Power Finance Corporation Ltd., India
- GAC Shipping (India) Pvt Ltd
- Singapore Mercantile Exchange
- Madhucon Powers Ltd - India
- PowerSource Philippines DevCo
- Bukit Asam (Persero) Tbk - Indonesia
- Latin American Coal - Colombia
- Metalloyd Limited - United Kingdom
- Globalindo Alam Lestari - Indonesia
- Bhoruka Overseas - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Aditya Birla Group - India
- Coastal Gujarat Power Limited - India
- Merrill Lynch Commodities Europe
- Deloitte Consulting - India
- AsiaOL BioFuels Corp., Philippines
- Minerals Council of Australia
- Pendopo Energi Batubara - Indonesia
- Bayan Resources Tbk. - Indonesia
- CNBM International Corporation - China
- PNOC Exploration Corporation - Philippines
- IEA Clean Coal Centre - UK
- Ministry of Mines - Canada
- Jorong Barutama Greston.PT - Indonesia
- LBH Netherlands Bv - Netherlands
- Agrawal Coal Company - India
- Videocon Industries ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Grasim Industreis Ltd - India
- Coalindo Energy - Indonesia
- The State Trading Corporation of India Ltd
- Barasentosa Lestari - Indonesia
- CIMB Investment Bank - Malaysia
- ASAPP Information Group - India
- Electricity Generating Authority of Thailand
- Sindya Power Generating Company Private Ltd
- Xindia Steels Limited - India
- Marubeni Corporation - India
- SMC Global Power, Philippines
- Toyota Tsusho Corporation, Japan
- Sojitz Corporation - Japan
- Chettinad Cement Corporation Ltd - India
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Rio Tinto Coal - Australia
- Leighton Contractors Pty Ltd - Australia
- Interocean Group of Companies - India
- Makarim & Taira - Indonesia
- Tata Chemicals Ltd - India
- Sical Logistics Limited - India
- Essar Steel Hazira Ltd - India
- VISA Power Limited - India
- Independent Power Producers Association of India
- Gujarat Sidhee Cement - India
- Australian Commodity Traders Exchange
- Therma Luzon, Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- Planning Commission, India
- SMG Consultants - Indonesia
- San Jose City I Power Corp, Philippines
- Global Business Power Corporation, Philippines
- Star Paper Mills Limited - India
- PTC India Limited - India
- Siam City Cement PLC, Thailand
- Global Green Power PLC Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Samtan Co., Ltd - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bharathi Cement Corporation - India
- Parliament of New Zealand
- Jindal Steel & Power Ltd - India
- Malabar Cements Ltd - India
- The University of Queensland
- Baramulti Group, Indonesia
- Georgia Ports Authority, United States
- Attock Cement Pakistan Limited
- Directorate Of Revenue Intelligence - India
- GVK Power & Infra Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Savvy Resources Ltd - HongKong
- Timah Investasi Mineral - Indoneisa
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