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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, 17 April 20
OPEC BRACES FOR OIL MARKET'S "HISTORIC SHOCK"
OPEC released its much anticipated April monthly report.
Crude Oil Price Movements
Crude oil prices collapsed in March 2020, rec ...
Friday, 17 April 20
SAUDI ARABIA'S MAY 2020 OSPS FOR CRUDE EXPORTS BODE WELL FOR ASIAN REFINERS - WOOD MACKENZIE
On 13 April, Saudi Arabia announced the Official Selling Prices (OSPs) for its May crude oil exports. The new OSPs speak volumes about Saudi Arabia ...
Friday, 17 April 20
SEABORNE COAL PRICES UNDER PRESSURE AS DEMAND SOFTENS IN CHINA, INDIA - CLYDE RUSSELL
Worrying signs are emerging for coal exporters to the world’s biggest markets in Asia, as top buyers China and India move to favour domestic ...
Thursday, 16 April 20
THERMAL POWER SECTOR FACES BLEAK SCENARIO POST-COVID SITUATION - THE HINDU BUSINESS LINE
The centre should take a fresh look at coal-energy value chain as the sector tops the chart on loan defaults.
Covid-19 may have serv ...
Thursday, 16 April 20
CHINA'S BENCHMARK POWER COAL PRICE FALLS 5 YUAN PER TONNE - XINHUA
China’s benchmark power coal price fell by 5 yuan (about 70 U.S. cents) per tonne during the past week.
The Bohai-Rim Steam-Co ...
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- Bharathi Cement Corporation - India
- Chamber of Mines of South Africa
- Wilmar Investment Holdings
- Intertek Mineral Services - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- ASAPP Information Group - India
- Price Waterhouse Coopers - Russia
- Billiton Holdings Pty Ltd - Australia
- Directorate General of MIneral and Coal - Indonesia
- Salva Resources Pvt Ltd - India
- Parliament of New Zealand
- Energy Development Corp, Philippines
- MS Steel International - UAE
- Altura Mining Limited, Indonesia
- Independent Power Producers Association of India
- Agrawal Coal Company - India
- Holcim Trading Pte Ltd - Singapore
- Central Electricity Authority - India
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- Manunggal Multi Energi - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mjunction Services Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Parry Sugars Refinery, India
- Singapore Mercantile Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Australian Commodity Traders Exchange
- Globalindo Alam Lestari - Indonesia
- Interocean Group of Companies - India
- Indogreen Group - Indonesia
- Bhoruka Overseas - Indonesia
- Deloitte Consulting - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Directorate Of Revenue Intelligence - India
- Heidelberg Cement - Germany
- Siam City Cement - Thailand
- Orica Australia Pty. Ltd.
- Kaltim Prima Coal - Indonesia
- The State Trading Corporation of India Ltd
- Simpson Spence & Young - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Miang Besar Coal Terminal - Indonesia
- ICICI Bank Limited - India
- Sindya Power Generating Company Private Ltd
- GN Power Mariveles Coal Plant, Philippines
- Cement Manufacturers Association - India
- Therma Luzon, Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Wood Mackenzie - Singapore
- Oldendorff Carriers - Singapore
- Aditya Birla Group - India
- Meralco Power Generation, Philippines
- Kobexindo Tractors - Indoneisa
- Makarim & Taira - Indonesia
- Petron Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Coastal Gujarat Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Eastern Coal Council - USA
- Energy Link Ltd, New Zealand
- Mercator Lines Limited - India
- Attock Cement Pakistan Limited
- CIMB Investment Bank - Malaysia
- GVK Power & Infra Limited - India
- Kepco SPC Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Meenaskhi Energy Private Limited - India
- International Coal Ventures Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Mercuria Energy - Indonesia
- White Energy Company Limited
- Rashtriya Ispat Nigam Limited - India
- Global Coal Blending Company Limited - Australia
- Ind-Barath Power Infra Limited - India
- Carbofer General Trading SA - India
- Essar Steel Hazira Ltd - India
- Indonesian Coal Mining Association
- South Luzon Thermal Energy Corporation
- PowerSource Philippines DevCo
- SMG Consultants - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Sojitz Corporation - Japan
- Port Waratah Coal Services - Australia
- Pendopo Energi Batubara - Indonesia
- Xindia Steels Limited - India
- Thiess Contractors Indonesia
- The Treasury - Australian Government
- Ministry of Finance - Indonesia
- Sakthi Sugars Limited - India
- India Bulls Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Latin American Coal - Colombia
- Sinarmas Energy and Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Marubeni Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Timah Investasi Mineral - Indoneisa
- Bukit Asam (Persero) Tbk - Indonesia
- Bukit Baiduri Energy - Indonesia
- Romanian Commodities Exchange
- Georgia Ports Authority, United States
- Madhucon Powers Ltd - India
- Ministry of Transport, Egypt
- Asmin Koalindo Tuhup - Indonesia
- IHS Mccloskey Coal Group - USA
- Dalmia Cement Bharat India
- Posco Energy - South Korea
- Maheswari Brothers Coal Limited - India
- Eastern Energy - Thailand
- Sical Logistics Limited - India
- Kideco Jaya Agung - Indonesia
- Tamil Nadu electricity Board
- Gujarat Sidhee Cement - India
- Grasim Industreis Ltd - India
- Indian Energy Exchange, India
- San Jose City I Power Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Authority, New Zealand
- Gujarat Electricity Regulatory Commission - India
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- Commonwealth Bank - Australia
- Samtan Co., Ltd - South Korea
- Chettinad Cement Corporation Ltd - India
- Kumho Petrochemical, South Korea
- Semirara Mining Corp, Philippines
- Trasteel International SA, Italy
- Barasentosa Lestari - Indonesia
- Coal and Oil Company - UAE
- Cigading International Bulk Terminal - Indonesia
- Antam Resourcindo - Indonesia
- Bhatia International Limited - India
- Indo Tambangraya Megah - Indonesia
- Edison Trading Spa - Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Anglo American - United Kingdom
- Bahari Cakrawala Sebuku - Indonesia
- Vizag Seaport Private Limited - India
- Jindal Steel & Power Ltd - India
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- McConnell Dowell - Australia
- Kohat Cement Company Ltd. - Pakistan
- Larsen & Toubro Limited - India
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- Iligan Light & Power Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Sree Jayajothi Cements Limited - India
- AsiaOL BioFuels Corp., Philippines
- Electricity Generating Authority of Thailand
- Global Business Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- Toyota Tsusho Corporation, Japan
- Tata Chemicals Ltd - India
- Africa Commodities Group - South Africa
- CNBM International Corporation - China
- Borneo Indobara - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Alfred C Toepfer International GmbH - Germany
- Ministry of Mines - Canada
- Indika Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Mintek Dendrill Indonesia
- SN Aboitiz Power Inc, Philippines
- The University of Queensland
- Bhushan Steel Limited - India
- GAC Shipping (India) Pvt Ltd
- Standard Chartered Bank - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Lanco Infratech Ltd - India
- Riau Bara Harum - Indonesia
- Semirara Mining and Power Corporation, Philippines
- London Commodity Brokers - England
- Minerals Council of Australia
- Merrill Lynch Commodities Europe
- TeaM Sual Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- GMR Energy Limited - India
- Thai Mozambique Logistica
- Malabar Cements Ltd - India
- Bangladesh Power Developement Board
- Star Paper Mills Limited - India
- Central Java Power - Indonesia
- Renaissance Capital - South Africa
- SMC Global Power, Philippines
- Baramulti Group, Indonesia
- Kartika Selabumi Mining - Indonesia
- Planning Commission, India
- Banpu Public Company Limited - Thailand
- Videocon Industries ltd - India
- PTC India Limited - India
- Australian Coal Association
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- European Bulk Services B.V. - Netherlands
- Siam City Cement PLC, Thailand
- New Zealand Coal & Carbon
- Bulk Trading Sa - Switzerland
- Formosa Plastics Group - Taiwan
- Straits Asia Resources Limited - Singapore
- Vedanta Resources Plc - India
- Orica Mining Services - Indonesia
- Uttam Galva Steels Limited - India
- Bukit Makmur.PT - Indonesia
- Indian Oil Corporation Limited
- Coalindo Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Ambuja Cements Ltd - India
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