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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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Tuesday, 07 April 20
COAL INDIA'S DISPATCHES DROP, OUTPUT INCREASES - THE HINDU
India’s largest coal producer Coal India Ltd. (CIL) has seen a 10% fall in dispatches in March 2020 due to a sharp fall in demand from the po ...
Tuesday, 07 April 20
CORONAVIRUS AND LOCKDOWNS DRAG DOWN THE INDONESIAN COAL PRICE REFERENCE IN APRIL
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down the benchmark price of the Indonesian ther ...
Monday, 06 April 20
A 52,000DWT SHIP FIXING DELIVERY SINGAPORE TRIP, VIA INDONESIA, REDELIVERY TAIWAN, AT $3,100 - BALTIC BRIEFING
Capesize
The Capesize market this past week looks to have come off life support and found some improved sentiment. The week began rather ordina ...
Monday, 06 April 20
INDIA'S 21-DAY LOCKDOWN - IMPACT ON COMMODITIES? - WOOD MACKENZIE
India is under a three-week lockdown from 25 March, to contain the spread of the coronavirus outbreak. Wood Mackenzie analysts discuss what this me ...
Friday, 03 April 20
CHINA'S BENCHMARK POWER COAL PRICE DROPS SLIGHTLY - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
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- Aditya Birla Group - India
- Energy Development Corp, Philippines
- Mercator Lines Limited - India
- Kumho Petrochemical, South Korea
- New Zealand Coal & Carbon
- Minerals Council of Australia
- Tata Chemicals Ltd - India
- Indian Energy Exchange, India
- Bulk Trading Sa - Switzerland
- Electricity Generating Authority of Thailand
- OPG Power Generation Pvt Ltd - India
- Indonesian Coal Mining Association
- Oldendorff Carriers - Singapore
- Merrill Lynch Commodities Europe
- Cigading International Bulk Terminal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Vizag Seaport Private Limited - India
- Energy Link Ltd, New Zealand
- McConnell Dowell - Australia
- PowerSource Philippines DevCo
- Tamil Nadu electricity Board
- Uttam Galva Steels Limited - India
- The State Trading Corporation of India Ltd
- GMR Energy Limited - India
- Chamber of Mines of South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Meralco Power Generation, Philippines
- Africa Commodities Group - South Africa
- Kartika Selabumi Mining - Indonesia
- South Luzon Thermal Energy Corporation
- SN Aboitiz Power Inc, Philippines
- Ministry of Mines - Canada
- Orica Australia Pty. Ltd.
- Coastal Gujarat Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Aboitiz Power Corporation - Philippines
- Ministry of Transport, Egypt
- Straits Asia Resources Limited - Singapore
- Malabar Cements Ltd - India
- Globalindo Alam Lestari - Indonesia
- Singapore Mercantile Exchange
- European Bulk Services B.V. - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Dalmia Cement Bharat India
- Ministry of Finance - Indonesia
- Semirara Mining Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Siam City Cement PLC, Thailand
- Bukit Makmur.PT - Indonesia
- Indika Energy - Indonesia
- London Commodity Brokers - England
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IEA Clean Coal Centre - UK
- Bangladesh Power Developement Board
- Sinarmas Energy and Mining - Indonesia
- Simpson Spence & Young - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Romanian Commodities Exchange
- Trasteel International SA, Italy
- Global Green Power PLC Corporation, Philippines
- Carbofer General Trading SA - India
- Makarim & Taira - Indonesia
- Ind-Barath Power Infra Limited - India
- Parliament of New Zealand
- Samtan Co., Ltd - South Korea
- GVK Power & Infra Limited - India
- Bhoruka Overseas - Indonesia
- Marubeni Corporation - India
- Wilmar Investment Holdings
- Videocon Industries ltd - India
- Posco Energy - South Korea
- Wood Mackenzie - Singapore
- PNOC Exploration Corporation - Philippines
- Siam City Cement - Thailand
- Australian Commodity Traders Exchange
- Deloitte Consulting - India
- Port Waratah Coal Services - Australia
- Barasentosa Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sindya Power Generating Company Private Ltd
- Binh Thuan Hamico - Vietnam
- Commonwealth Bank - Australia
- GAC Shipping (India) Pvt Ltd
- Jindal Steel & Power Ltd - India
- Bayan Resources Tbk. - Indonesia
- Eastern Energy - Thailand
- Ceylon Electricity Board - Sri Lanka
- Anglo American - United Kingdom
- Xindia Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- Borneo Indobara - Indonesia
- Latin American Coal - Colombia
- Parry Sugars Refinery, India
- Iligan Light & Power Inc, Philippines
- Ambuja Cements Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Sarangani Energy Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- India Bulls Power Limited - India
- Riau Bara Harum - Indonesia
- Kaltim Prima Coal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Sical Logistics Limited - India
- Bhatia International Limited - India
- Pendopo Energi Batubara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Orica Mining Services - Indonesia
- Sojitz Corporation - Japan
- Gujarat Sidhee Cement - India
- Metalloyd Limited - United Kingdom
- Miang Besar Coal Terminal - Indonesia
- Heidelberg Cement - Germany
- Power Finance Corporation Ltd., India
- Economic Council, Georgia
- Vedanta Resources Plc - India
- Salva Resources Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Formosa Plastics Group - Taiwan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Grasim Industreis Ltd - India
- Rio Tinto Coal - Australia
- Asmin Koalindo Tuhup - Indonesia
- ASAPP Information Group - India
- Vijayanagar Sugar Pvt Ltd - India
- Agrawal Coal Company - India
- Coalindo Energy - Indonesia
- Central Java Power - Indonesia
- Georgia Ports Authority, United States
- Billiton Holdings Pty Ltd - Australia
- Savvy Resources Ltd - HongKong
- IHS Mccloskey Coal Group - USA
- Indian Oil Corporation Limited
- Meenaskhi Energy Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Coal and Oil Company - UAE
- San Jose City I Power Corp, Philippines
- Antam Resourcindo - Indonesia
- Thiess Contractors Indonesia
- PTC India Limited - India
- Alfred C Toepfer International GmbH - Germany
- Mercuria Energy - Indonesia
- Toyota Tsusho Corporation, Japan
- TeaM Sual Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Mintek Dendrill Indonesia
- Larsen & Toubro Limited - India
- Bukit Baiduri Energy - Indonesia
- The Treasury - Australian Government
- Intertek Mineral Services - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Baramulti Group, Indonesia
- Kideco Jaya Agung - Indonesia
- Petron Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Independent Power Producers Association of India
- Timah Investasi Mineral - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Banpu Public Company Limited - Thailand
- ICICI Bank Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- VISA Power Limited - India
- Attock Cement Pakistan Limited
- Electricity Authority, New Zealand
- Global Business Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Sree Jayajothi Cements Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Lanco Infratech Ltd - India
- Medco Energi Mining Internasional
- CIMB Investment Bank - Malaysia
- Edison Trading Spa - Italy
- SMG Consultants - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Australian Coal Association
- Sakthi Sugars Limited - India
- CNBM International Corporation - China
- Karaikal Port Pvt Ltd - India
- Renaissance Capital - South Africa
- Altura Mining Limited, Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- LBH Netherlands Bv - Netherlands
- Standard Chartered Bank - UAE
- Essar Steel Hazira Ltd - India
- Global Coal Blending Company Limited - Australia
- Semirara Mining and Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- Interocean Group of Companies - India
- SMC Global Power, Philippines
- Thai Mozambique Logistica
- Bhushan Steel Limited - India
- Therma Luzon, Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Planning Commission, India
- The University of Queensland
- AsiaOL BioFuels Corp., Philippines
- Goldman Sachs - Singapore
- Madhucon Powers Ltd - India
- Indogreen Group - Indonesia
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- International Coal Ventures Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Bharathi Cement Corporation - India
- MS Steel International - UAE
- Eastern Coal Council - USA
- White Energy Company Limited
- PetroVietnam Power Coal Import and Supply Company
- Central Electricity Authority - India
- Cement Manufacturers Association - India
- Maheswari Brothers Coal Limited - India
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