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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, 09 April 20
SUSPENSION OF WRONGFUL TRADING IN LIGHT OF COVID 19 - WF&W
KNOWLEDGE TO ELEVATE
DIRECTORS’ PERSONAL LIABILITY FOR WRONGFUL TRADING – RELIEF DURING THE CORONAVIRUS CRISIS
As the UK&rsquo ...
Wednesday, 08 April 20
LESSONS LEARNED FROM SCRUBBER INSTALLATION AND OPERATION - ABS
KNOWLEDGE TO ELEVATE
At the beginning of this year, the IMO’s global sulfur cap on marine fuels entered into force and shipowners who ch ...
Wednesday, 08 April 20
MARKET INSIGHT - INTERMODAL
With lockdown measures around the globe tightening during the last weeks of Q1, there is finally a feeling that most countries are slowly but stead ...
Tuesday, 07 April 20
SHIPPING MARKET ANALYSIS - ALLIED
With the first quarter of 2020 now firmly written in the books, it is worth examining what we have witnessed so far in the tanker market. Undoubted ...
Tuesday, 07 April 20
IS CHINA EMBARKING ON A MAJOR EXPANSION OF COAL-FIRED POWER GENERATION? - WOOD MACKENZIE
As energy companies worldwide grapple with the economic impact of the coronavirus pandemic, long-term planning continues. Ahead of the release of t ...
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- PetroVietnam Power Coal Import and Supply Company
- Metalloyd Limited - United Kingdom
- Mercator Lines Limited - India
- Indo Tambangraya Megah - Indonesia
- CIMB Investment Bank - Malaysia
- Lanco Infratech Ltd - India
- White Energy Company Limited
- Sinarmas Energy and Mining - Indonesia
- Banpu Public Company Limited - Thailand
- Coalindo Energy - Indonesia
- ICICI Bank Limited - India
- Renaissance Capital - South Africa
- Port Waratah Coal Services - Australia
- Bulk Trading Sa - Switzerland
- Chamber of Mines of South Africa
- Eastern Coal Council - USA
- Australian Coal Association
- The Treasury - Australian Government
- Electricity Authority, New Zealand
- Therma Luzon, Inc, Philippines
- Bharathi Cement Corporation - India
- Ministry of Finance - Indonesia
- The State Trading Corporation of India Ltd
- Chettinad Cement Corporation Ltd - India
- Savvy Resources Ltd - HongKong
- Star Paper Mills Limited - India
- Miang Besar Coal Terminal - Indonesia
- New Zealand Coal & Carbon
- Bhoruka Overseas - Indonesia
- Meenaskhi Energy Private Limited - India
- Parry Sugars Refinery, India
- Tamil Nadu electricity Board
- Planning Commission, India
- Interocean Group of Companies - India
- Billiton Holdings Pty Ltd - Australia
- The University of Queensland
- Trasteel International SA, Italy
- Kaltim Prima Coal - Indonesia
- Salva Resources Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Mjunction Services Limited - India
- Dalmia Cement Bharat India
- Barasentosa Lestari - Indonesia
- Larsen & Toubro Limited - India
- Commonwealth Bank - Australia
- South Luzon Thermal Energy Corporation
- Australian Commodity Traders Exchange
- Videocon Industries ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Borneo Indobara - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Leighton Contractors Pty Ltd - Australia
- Economic Council, Georgia
- Binh Thuan Hamico - Vietnam
- Bukit Baiduri Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Cigading International Bulk Terminal - Indonesia
- Aditya Birla Group - India
- GN Power Mariveles Coal Plant, Philippines
- Krishnapatnam Port Company Ltd. - India
- Indian Energy Exchange, India
- Ambuja Cements Ltd - India
- Standard Chartered Bank - UAE
- Thai Mozambique Logistica
- India Bulls Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Energy Development Corp, Philippines
- Malabar Cements Ltd - India
- Georgia Ports Authority, United States
- Bukit Makmur.PT - Indonesia
- Bhushan Steel Limited - India
- Essar Steel Hazira Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- London Commodity Brokers - England
- Indogreen Group - Indonesia
- Globalindo Alam Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Simpson Spence & Young - Indonesia
- Electricity Generating Authority of Thailand
- VISA Power Limited - India
- Coal and Oil Company - UAE
- Semirara Mining and Power Corporation, Philippines
- Parliament of New Zealand
- Eastern Energy - Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kepco SPC Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Kobexindo Tractors - Indoneisa
- Meralco Power Generation, Philippines
- Petron Corporation, Philippines
- McConnell Dowell - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Medco Energi Mining Internasional
- Timah Investasi Mineral - Indoneisa
- Bhatia International Limited - India
- Siam City Cement - Thailand
- Iligan Light & Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- TeaM Sual Corporation - Philippines
- Kapuas Tunggal Persada - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PNOC Exploration Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- Semirara Mining Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- Carbofer General Trading SA - India
- Kumho Petrochemical, South Korea
- Global Business Power Corporation, Philippines
- SMC Global Power, Philippines
- Alfred C Toepfer International GmbH - Germany
- Pipit Mutiara Jaya. PT, Indonesia
- Global Green Power PLC Corporation, Philippines
- ASAPP Information Group - India
- Singapore Mercantile Exchange
- Central Java Power - Indonesia
- MS Steel International - UAE
- GMR Energy Limited - India
- International Coal Ventures Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Coastal Gujarat Power Limited - India
- Orica Australia Pty. Ltd.
- Gujarat Electricity Regulatory Commission - India
- Central Electricity Authority - India
- Grasim Industreis Ltd - India
- Uttam Galva Steels Limited - India
- Bangladesh Power Developement Board
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- SMG Consultants - Indonesia
- Madhucon Powers Ltd - India
- Vedanta Resources Plc - India
- Directorate Of Revenue Intelligence - India
- Attock Cement Pakistan Limited
- Power Finance Corporation Ltd., India
- Wilmar Investment Holdings
- PowerSource Philippines DevCo
- Ministry of Mines - Canada
- Intertek Mineral Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- San Jose City I Power Corp, Philippines
- Makarim & Taira - Indonesia
- Marubeni Corporation - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rio Tinto Coal - Australia
- Baramulti Group, Indonesia
- Tata Chemicals Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Orica Mining Services - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Jaiprakash Power Ventures ltd
- IHS Mccloskey Coal Group - USA
- Merrill Lynch Commodities Europe
- Romanian Commodities Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Straits Asia Resources Limited - Singapore
- CNBM International Corporation - China
- PTC India Limited - India
- Goldman Sachs - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- Independent Power Producers Association of India
- Anglo American - United Kingdom
- Mercuria Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Sical Logistics Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Price Waterhouse Coopers - Russia
- Toyota Tsusho Corporation, Japan
- Edison Trading Spa - Italy
- Latin American Coal - Colombia
- Energy Link Ltd, New Zealand
- Sindya Power Generating Company Private Ltd
- Sakthi Sugars Limited - India
- Sojitz Corporation - Japan
- Kartika Selabumi Mining - Indonesia
- Agrawal Coal Company - India
- Pendopo Energi Batubara - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indian Oil Corporation Limited
- Kalimantan Lumbung Energi - Indonesia
- Minerals Council of Australia
- SN Aboitiz Power Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- GVK Power & Infra Limited - India
- Ministry of Transport, Egypt
- Karaikal Port Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Indika Energy - Indonesia
- IEA Clean Coal Centre - UK
- Gujarat Sidhee Cement - India
- Aboitiz Power Corporation - Philippines
- Posco Energy - South Korea
- Wood Mackenzie - Singapore
- Indonesian Coal Mining Association
- Global Coal Blending Company Limited - Australia
- Maheswari Brothers Coal Limited - India
- Bayan Resources Tbk. - Indonesia
- Antam Resourcindo - Indonesia
- Africa Commodities Group - South Africa
- Thiess Contractors Indonesia
- Heidelberg Cement - Germany
- Deloitte Consulting - India
- Xindia Steels Limited - India
- Sree Jayajothi Cements Limited - India
- Manunggal Multi Energi - Indonesia
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Neyveli Lignite Corporation Ltd, - India
- Formosa Plastics Group - Taiwan
- Jindal Steel & Power Ltd - India
- Siam City Cement PLC, Thailand
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