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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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Thursday, 16 April 20
MARKET INSIGHT - INTERMODAL
As everyone anticipated the results of the OPEC + G20 meeting last week, it was very interesting to watch the reaction of tanker rates that were in ...
Monday, 13 April 20
SUPRAMAX: A 56,000DWT SHIP WAS FIXED DELIVERY PARADIP, REDELIVERY CHINA, AT $4,700 - BALTIC BRIEFING
Capesize
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Saturday, 11 April 20
FAQ: COVID-19 AND CLUB COVER - UK P&I
KNOWLEDGE TO ELEVATE
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Saturday, 11 April 20
KOEN POWER PLANTS INVITED BIDS FOR 1.5 -1.62 MMT OF STEAM COAL
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Friday, 10 April 20
INDIA'S BULKS SUPPLY CHAIN TAKES A HIT DURING LOCKDOWN - WOOD MACKENZIE
India is under a three-week lockdown from 25 March to contain the spread of the coronavirus outbreak. Businesses are shut, and the supply chain is ...
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- Singapore Mercantile Exchange
- Oldendorff Carriers - Singapore
- Rashtriya Ispat Nigam Limited - India
- Latin American Coal - Colombia
- Renaissance Capital - South Africa
- Ceylon Electricity Board - Sri Lanka
- Siam City Cement PLC, Thailand
- Asmin Koalindo Tuhup - Indonesia
- GVK Power & Infra Limited - India
- Intertek Mineral Services - Indonesia
- Baramulti Group, Indonesia
- Wilmar Investment Holdings
- Bayan Resources Tbk. - Indonesia
- Larsen & Toubro Limited - India
- Electricity Authority, New Zealand
- Cigading International Bulk Terminal - Indonesia
- Manunggal Multi Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Aditya Birla Group - India
- Economic Council, Georgia
- Electricity Generating Authority of Thailand
- Barasentosa Lestari - Indonesia
- Minerals Council of Australia
- Toyota Tsusho Corporation, Japan
- Jindal Steel & Power Ltd - India
- Essar Steel Hazira Ltd - India
- Medco Energi Mining Internasional
- GMR Energy Limited - India
- Gujarat Sidhee Cement - India
- Kaltim Prima Coal - Indonesia
- Romanian Commodities Exchange
- PetroVietnam Power Coal Import and Supply Company
- Mercuria Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Vedanta Resources Plc - India
- Central Electricity Authority - India
- Ministry of Transport, Egypt
- Indika Energy - Indonesia
- Agrawal Coal Company - India
- Aboitiz Power Corporation - Philippines
- Parry Sugars Refinery, India
- Directorate Of Revenue Intelligence - India
- Chettinad Cement Corporation Ltd - India
- Siam City Cement - Thailand
- PowerSource Philippines DevCo
- Indogreen Group - Indonesia
- Heidelberg Cement - Germany
- Central Java Power - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Wood Mackenzie - Singapore
- South Luzon Thermal Energy Corporation
- Cement Manufacturers Association - India
- ASAPP Information Group - India
- Posco Energy - South Korea
- Sree Jayajothi Cements Limited - India
- Indian Oil Corporation Limited
- Dalmia Cement Bharat India
- Semirara Mining and Power Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Trasteel International SA, Italy
- Indian Energy Exchange, India
- Samtan Co., Ltd - South Korea
- Orica Australia Pty. Ltd.
- Sarangani Energy Corporation, Philippines
- Interocean Group of Companies - India
- Anglo American - United Kingdom
- Rio Tinto Coal - Australia
- White Energy Company Limited
- Simpson Spence & Young - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Standard Chartered Bank - UAE
- PTC India Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Maheswari Brothers Coal Limited - India
- Edison Trading Spa - Italy
- PNOC Exploration Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Formosa Plastics Group - Taiwan
- Coalindo Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Chamber of Mines of South Africa
- Binh Thuan Hamico - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- Energy Link Ltd, New Zealand
- Lanco Infratech Ltd - India
- Eastern Coal Council - USA
- The Treasury - Australian Government
- Marubeni Corporation - India
- Neyveli Lignite Corporation Ltd, - India
- CNBM International Corporation - China
- Indo Tambangraya Megah - Indonesia
- Goldman Sachs - Singapore
- Australian Commodity Traders Exchange
- Karaikal Port Pvt Ltd - India
- Tata Chemicals Ltd - India
- Bharathi Cement Corporation - India
- Borneo Indobara - Indonesia
- IHS Mccloskey Coal Group - USA
- GN Power Mariveles Coal Plant, Philippines
- Independent Power Producers Association of India
- Riau Bara Harum - Indonesia
- Banpu Public Company Limited - Thailand
- Coastal Gujarat Power Limited - India
- Price Waterhouse Coopers - Russia
- Bhoruka Overseas - Indonesia
- Sakthi Sugars Limited - India
- Attock Cement Pakistan Limited
- Eastern Energy - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Thai Mozambique Logistica
- Krishnapatnam Port Company Ltd. - India
- San Jose City I Power Corp, Philippines
- Makarim & Taira - Indonesia
- Metalloyd Limited - United Kingdom
- The University of Queensland
- Mjunction Services Limited - India
- India Bulls Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Georgia Ports Authority, United States
- Sical Logistics Limited - India
- Bhatia International Limited - India
- Miang Besar Coal Terminal - Indonesia
- Salva Resources Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- Xindia Steels Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Jaiprakash Power Ventures ltd
- Sojitz Corporation - Japan
- Deloitte Consulting - India
- VISA Power Limited - India
- Kartika Selabumi Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Coal and Oil Company - UAE
- Indonesian Coal Mining Association
- Meralco Power Generation, Philippines
- Parliament of New Zealand
- IEA Clean Coal Centre - UK
- Bangladesh Power Developement Board
- Vizag Seaport Private Limited - India
- MS Steel International - UAE
- Africa Commodities Group - South Africa
- Semirara Mining Corp, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Mercator Lines Limited - India
- Holcim Trading Pte Ltd - Singapore
- Malabar Cements Ltd - India
- Kumho Petrochemical, South Korea
- Planning Commission, India
- Timah Investasi Mineral - Indoneisa
- New Zealand Coal & Carbon
- Gujarat Mineral Development Corp Ltd - India
- Port Waratah Coal Services - Australia
- Global Business Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Kohat Cement Company Ltd. - Pakistan
- Pendopo Energi Batubara - Indonesia
- Ministry of Mines - Canada
- Ministry of Finance - Indonesia
- Savvy Resources Ltd - HongKong
- SMC Global Power, Philippines
- CIMB Investment Bank - Malaysia
- Leighton Contractors Pty Ltd - Australia
- Madhucon Powers Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Bulk Trading Sa - Switzerland
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Australian Coal Association
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Coal Blending Company Limited - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Bhushan Steel Limited - India
- Petron Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Ind-Barath Power Infra Limited - India
- London Commodity Brokers - England
- Kideco Jaya Agung - Indonesia
- Ambuja Cements Ltd - India
- Star Paper Mills Limited - India
- European Bulk Services B.V. - Netherlands
- Grasim Industreis Ltd - India
- Videocon Industries ltd - India
- ICICI Bank Limited - India
- Therma Luzon, Inc, Philippines
- Commonwealth Bank - Australia
- Jorong Barutama Greston.PT - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GAC Shipping (India) Pvt Ltd
- McConnell Dowell - Australia
- Mintek Dendrill Indonesia
- Altura Mining Limited, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- TeaM Sual Corporation - Philippines
- Tamil Nadu electricity Board
- Orica Mining Services - Indonesia
- Power Finance Corporation Ltd., India
- Bukit Baiduri Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Kobexindo Tractors - Indoneisa
- SMG Consultants - Indonesia
- Antam Resourcindo - Indonesia
- Iligan Light & Power Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Kapuas Tunggal Persada - Indonesia
- LBH Netherlands Bv - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Thiess Contractors Indonesia
- Uttam Galva Steels Limited - India
- Carbofer General Trading SA - India
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