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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, 24 April 20
CHINA COAL PRODUCER YANZHOU COAL POSTS 9.6 PCT RISE IN 2019 NET PROFIT - XINHUA
China’s major coal producer Yanzhou Coal Mining Co., Ltd. said Thursday that its net profit saw a 9.6 percent rise in 2019.
Th ...
Tuesday, 21 April 20
INDONESIA ACCOUNTS FOR 19% OF JAPAN'S TOTAL COAL IMPORTS - BANCHERO COSTA
Coal trade in Asia is proving remarkably resilient this year, despite the global economic impact from COVID-19.
We have seen China&r ...
Tuesday, 21 April 20
COVID-19: CHARTERPARTY MATTERS FOR SHIPOWNERS - SKULD
KNOWLEDGE TO ELEVATE
Whilst the plight of cruise ships, stranded off shore with sick passengers and crew, may be dominating media headlines, t ...
Monday, 20 April 20
SUPRAMAX: A 52,000DWT SHIP FIXING AN INDONESIA COAL RUN TO CHINA AT $4400 - BALTIC BRIEFING
Capesize
This week was the strongest period seen for the Capesize market in several months. All routes globally succumbed to improved sentiment ...
Friday, 17 April 20
PANDEMIC TO BRING ASIA'S 2020 GROWTH TO HALT FOR 1ST TIME IN 60 YEARS - IMF: REUTERS
Asia’s economic growth this year will grind to a halt for the first time in 60 years, as the coronavirus crisis takes an “unprecedented ...
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- Jaiprakash Power Ventures ltd
- Iligan Light & Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Directorate General of MIneral and Coal - Indonesia
- Sical Logistics Limited - India
- Electricity Authority, New Zealand
- Thiess Contractors Indonesia
- White Energy Company Limited
- Metalloyd Limited - United Kingdom
- Bukit Asam (Persero) Tbk - Indonesia
- Economic Council, Georgia
- Siam City Cement PLC, Thailand
- Meenaskhi Energy Private Limited - India
- Indika Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Gujarat Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- Mercuria Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Bukit Makmur.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- PowerSource Philippines DevCo
- IHS Mccloskey Coal Group - USA
- Larsen & Toubro Limited - India
- PTC India Limited - India
- Simpson Spence & Young - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Singapore Mercantile Exchange
- Anglo American - United Kingdom
- Eastern Coal Council - USA
- Kartika Selabumi Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- CNBM International Corporation - China
- Africa Commodities Group - South Africa
- Ministry of Transport, Egypt
- Georgia Ports Authority, United States
- Standard Chartered Bank - UAE
- GN Power Mariveles Coal Plant, Philippines
- GMR Energy Limited - India
- Kobexindo Tractors - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- OPG Power Generation Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bharathi Cement Corporation - India
- Malabar Cements Ltd - India
- Toyota Tsusho Corporation, Japan
- IEA Clean Coal Centre - UK
- Price Waterhouse Coopers - Russia
- Vizag Seaport Private Limited - India
- Agrawal Coal Company - India
- Gujarat Mineral Development Corp Ltd - India
- Binh Thuan Hamico - Vietnam
- Independent Power Producers Association of India
- Sakthi Sugars Limited - India
- VISA Power Limited - India
- Tamil Nadu electricity Board
- South Luzon Thermal Energy Corporation
- Kalimantan Lumbung Energi - Indonesia
- Salva Resources Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Essar Steel Hazira Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Merrill Lynch Commodities Europe
- Chettinad Cement Corporation Ltd - India
- Carbofer General Trading SA - India
- Coal and Oil Company - UAE
- Indian Oil Corporation Limited
- European Bulk Services B.V. - Netherlands
- Directorate Of Revenue Intelligence - India
- Bayan Resources Tbk. - Indonesia
- Baramulti Group, Indonesia
- Videocon Industries ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Parliament of New Zealand
- Pendopo Energi Batubara - Indonesia
- Kideco Jaya Agung - Indonesia
- Mjunction Services Limited - India
- GVK Power & Infra Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Latin American Coal - Colombia
- Coastal Gujarat Power Limited - India
- Bhushan Steel Limited - India
- Sojitz Corporation - Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Mercator Lines Limited - India
- Orica Mining Services - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Sarangani Energy Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Globalindo Alam Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Maheswari Brothers Coal Limited - India
- Global Business Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Interocean Group of Companies - India
- Therma Luzon, Inc, Philippines
- Formosa Plastics Group - Taiwan
- SN Aboitiz Power Inc, Philippines
- SMC Global Power, Philippines
- Savvy Resources Ltd - HongKong
- Oldendorff Carriers - Singapore
- Sindya Power Generating Company Private Ltd
- Goldman Sachs - Singapore
- Posco Energy - South Korea
- Semirara Mining Corp, Philippines
- Minerals Council of Australia
- Gujarat Sidhee Cement - India
- Orica Australia Pty. Ltd.
- Riau Bara Harum - Indonesia
- Electricity Generating Authority of Thailand
- Karbindo Abesyapradhi - Indoneisa
- Trasteel International SA, Italy
- Grasim Industreis Ltd - India
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- Global Green Power PLC Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Bangladesh Power Developement Board
- AsiaOL BioFuels Corp., Philippines
- Petron Corporation, Philippines
- Romanian Commodities Exchange
- New Zealand Coal & Carbon
- Indogreen Group - Indonesia
- SMG Consultants - Indonesia
- Edison Trading Spa - Italy
- TeaM Sual Corporation - Philippines
- Chamber of Mines of South Africa
- ICICI Bank Limited - India
- Ministry of Mines - Canada
- Ambuja Cements Ltd - India
- GAC Shipping (India) Pvt Ltd
- Madhucon Powers Ltd - India
- Eastern Energy - Thailand
- Lanco Infratech Ltd - India
- International Coal Ventures Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Kaltim Prima Coal - Indonesia
- Port Waratah Coal Services - Australia
- Leighton Contractors Pty Ltd - Australia
- Xindia Steels Limited - India
- The Treasury - Australian Government
- Commonwealth Bank - Australia
- Borneo Indobara - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Attock Cement Pakistan Limited
- Barasentosa Lestari - Indonesia
- Indonesian Coal Mining Association
- Parry Sugars Refinery, India
- Cement Manufacturers Association - India
- Wilmar Investment Holdings
- Banpu Public Company Limited - Thailand
- Siam City Cement - Thailand
- Bhatia International Limited - India
- Star Paper Mills Limited - India
- Indo Tambangraya Megah - Indonesia
- Kumho Petrochemical, South Korea
- Rio Tinto Coal - Australia
- Energy Link Ltd, New Zealand
- The University of Queensland
- Thai Mozambique Logistica
- MS Steel International - UAE
- Meralco Power Generation, Philippines
- London Commodity Brokers - England
- India Bulls Power Limited - India
- Heidelberg Cement - Germany
- Marubeni Corporation - India
- Vedanta Resources Plc - India
- Altura Mining Limited, Indonesia
- ASAPP Information Group - India
- The State Trading Corporation of India Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Central Electricity Authority - India
- Aboitiz Power Corporation - Philippines
- Central Java Power - Indonesia
- Coalindo Energy - Indonesia
- LBH Netherlands Bv - Netherlands
- Maharashtra Electricity Regulatory Commission - India
- Uttam Galva Steels Limited - India
- Billiton Holdings Pty Ltd - Australia
- Asmin Koalindo Tuhup - Indonesia
- Jindal Steel & Power Ltd - India
- Manunggal Multi Energi - Indonesia
- Intertek Mineral Services - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Aditya Birla Group - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Australian Commodity Traders Exchange
- Energy Development Corp, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Power Finance Corporation Ltd., India
- Bukit Baiduri Energy - Indonesia
- Makarim & Taira - Indonesia
- Bhoruka Overseas - Indonesia
- Deloitte Consulting - India
- Sinarmas Energy and Mining - Indonesia
- Medco Energi Mining Internasional
- Indian Energy Exchange, India
- Renaissance Capital - South Africa
- Ministry of Finance - Indonesia
- PNOC Exploration Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Cigading International Bulk Terminal - Indonesia
- Timah Investasi Mineral - Indoneisa
- Dalmia Cement Bharat India
- Antam Resourcindo - Indonesia
- Tata Chemicals Ltd - India
- Australian Coal Association
- Global Coal Blending Company Limited - Australia
- Planning Commission, India
- Ind-Barath Power Infra Limited - India
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