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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, 31 March 20
COAL POWER REMAINS IN GLOBAL DECLINE, DESPITE CHINESE SURGE - SYDNEY MORNING HERALD
The impact of coronavirus has prompted a surge in coal-fired power plant construction permits in China, with the Chinese government issuing more pe ...
Monday, 30 March 20
CORONAVIRUS - IMPLICATIONS FOR SHIPS AND CREW - GARD
KNOWLEDGE TO ELEVATE
Countries around the world are strengthening their border control measures in order to prevent the further spread of COVI ...
Monday, 30 March 20
LAY-UP AND RE-ACTIVATION REVISITED - GARD
KNOWLEDGE TO ELEVATE
The COVID-19 pandemic has affected the maritime industry in previously unthinkable ways. Ports around the world are denyi ...
Monday, 30 March 20
PANAMAX: INDONESIA LACKED VOLUME, PARTLY DUE TO FORCE MAJEURE IN INDIAN PORTS - BALTIC BRIEFING
Capesize
As Covid-19 continued to ratchet up tensions across the globe, the Cape market dealt with the change to remote working. Most regions o ...
Saturday, 28 March 20
ASIA'S COAL MARKETS DIVERGE ON QUALITY LINES AS CORONAVIRUS HITS INDIA - REUTERS
Asia’s seaborne coal market is increasingly diverging between higher-quality Australian coal, where prices are holding up despite the economi ...
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- Sindya Power Generating Company Private Ltd
- Kepco SPC Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Orica Australia Pty. Ltd.
- Offshore Bulk Terminal Pte Ltd, Singapore
- Baramulti Group, Indonesia
- SMG Consultants - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Electricity Generating Authority of Thailand
- Rashtriya Ispat Nigam Limited - India
- Bharathi Cement Corporation - India
- Billiton Holdings Pty Ltd - Australia
- AsiaOL BioFuels Corp., Philippines
- Tata Chemicals Ltd - India
- Madhucon Powers Ltd - India
- OPG Power Generation Pvt Ltd - India
- Mintek Dendrill Indonesia
- Port Waratah Coal Services - Australia
- Coastal Gujarat Power Limited - India
- Malabar Cements Ltd - India
- Africa Commodities Group - South Africa
- Petron Corporation, Philippines
- Parliament of New Zealand
- GMR Energy Limited - India
- Posco Energy - South Korea
- Planning Commission, India
- Larsen & Toubro Limited - India
- Singapore Mercantile Exchange
- Dalmia Cement Bharat India
- ASAPP Information Group - India
- IHS Mccloskey Coal Group - USA
- Independent Power Producers Association of India
- Minerals Council of Australia
- Thiess Contractors Indonesia
- Deloitte Consulting - India
- Commonwealth Bank - Australia
- Xindia Steels Limited - India
- Cement Manufacturers Association - India
- Vedanta Resources Plc - India
- Straits Asia Resources Limited - Singapore
- Global Business Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- European Bulk Services B.V. - Netherlands
- Price Waterhouse Coopers - Russia
- Karbindo Abesyapradhi - Indoneisa
- Sakthi Sugars Limited - India
- Edison Trading Spa - Italy
- PetroVietnam Power Coal Import and Supply Company
- Bhoruka Overseas - Indonesia
- McConnell Dowell - Australia
- GVK Power & Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- TeaM Sual Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Vizag Seaport Private Limited - India
- Globalindo Alam Lestari - Indonesia
- Siam City Cement - Thailand
- Kumho Petrochemical, South Korea
- Jaiprakash Power Ventures ltd
- Coalindo Energy - Indonesia
- Videocon Industries ltd - India
- Binh Thuan Hamico - Vietnam
- Star Paper Mills Limited - India
- Savvy Resources Ltd - HongKong
- White Energy Company Limited
- Merrill Lynch Commodities Europe
- Bahari Cakrawala Sebuku - Indonesia
- Interocean Group of Companies - India
- Gujarat Mineral Development Corp Ltd - India
- Carbofer General Trading SA - India
- Borneo Indobara - Indonesia
- South Luzon Thermal Energy Corporation
- San Jose City I Power Corp, Philippines
- Grasim Industreis Ltd - India
- Australian Coal Association
- Maheswari Brothers Coal Limited - India
- Global Green Power PLC Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Orica Mining Services - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Semirara Mining Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- The State Trading Corporation of India Ltd
- Antam Resourcindo - Indonesia
- Lanco Infratech Ltd - India
- Standard Chartered Bank - UAE
- PNOC Exploration Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Development Corp, Philippines
- Riau Bara Harum - Indonesia
- Makarim & Taira - Indonesia
- Eastern Energy - Thailand
- India Bulls Power Limited - India
- Kaltim Prima Coal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Power Finance Corporation Ltd., India
- Indian Energy Exchange, India
- Karaikal Port Pvt Ltd - India
- SMC Global Power, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Rio Tinto Coal - Australia
- Parry Sugars Refinery, India
- Georgia Ports Authority, United States
- Ministry of Finance - Indonesia
- Chettinad Cement Corporation Ltd - India
- Renaissance Capital - South Africa
- Trasteel International SA, Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Attock Cement Pakistan Limited
- Heidelberg Cement - Germany
- Economic Council, Georgia
- Bayan Resources Tbk. - Indonesia
- SN Aboitiz Power Inc, Philippines
- Gujarat Sidhee Cement - India
- International Coal Ventures Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Bhushan Steel Limited - India
- Banpu Public Company Limited - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- Ind-Barath Power Infra Limited - India
- Indogreen Group - Indonesia
- Central Electricity Authority - India
- IEA Clean Coal Centre - UK
- Anglo American - United Kingdom
- Jorong Barutama Greston.PT - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
- Therma Luzon, Inc, Philippines
- Altura Mining Limited, Indonesia
- Eastern Coal Council - USA
- Pendopo Energi Batubara - Indonesia
- The Treasury - Australian Government
- CNBM International Corporation - China
- Tamil Nadu electricity Board
- Mercator Lines Limited - India
- Mercuria Energy - Indonesia
- Ministry of Mines - Canada
- Ministry of Transport, Egypt
- Bank of Tokyo Mitsubishi UFJ Ltd
- Thai Mozambique Logistica
- Central Java Power - Indonesia
- Energy Link Ltd, New Zealand
- Electricity Authority, New Zealand
- Latin American Coal - Colombia
- Sarangani Energy Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Kideco Jaya Agung - Indonesia
- Wood Mackenzie - Singapore
- MS Steel International - UAE
- Kartika Selabumi Mining - Indonesia
- Samtan Co., Ltd - South Korea
- Metalloyd Limited - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PowerSource Philippines DevCo
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Wilmar Investment Holdings
- Romanian Commodities Exchange
- Siam City Cement PLC, Thailand
- Krishnapatnam Port Company Ltd. - India
- Simpson Spence & Young - Indonesia
- Indian Oil Corporation Limited
- Indonesian Coal Mining Association
- Indo Tambangraya Megah - Indonesia
- Goldman Sachs - Singapore
- GAC Shipping (India) Pvt Ltd
- London Commodity Brokers - England
- Oldendorff Carriers - Singapore
- Essar Steel Hazira Ltd - India
- Sree Jayajothi Cements Limited - India
- ICICI Bank Limited - India
- Meralco Power Generation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- CIMB Investment Bank - Malaysia
- PTC India Limited - India
- VISA Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- New Zealand Coal & Carbon
- Barasentosa Lestari - Indonesia
- Medco Energi Mining Internasional
- Chamber of Mines of South Africa
- Manunggal Multi Energi - Indonesia
- Agrawal Coal Company - India
- Cigading International Bulk Terminal - Indonesia
- Kobexindo Tractors - Indoneisa
- Mjunction Services Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Aditya Birla Group - India
- Uttam Galva Steels Limited - India
- Bhatia International Limited - India
- Holcim Trading Pte Ltd - Singapore
- Indika Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Coal and Oil Company - UAE
- Sojitz Corporation - Japan
- Meenaskhi Energy Private Limited - India
- Sical Logistics Limited - India
- Alfred C Toepfer International GmbH - Germany
- Ceylon Electricity Board - Sri Lanka
- Formosa Plastics Group - Taiwan
- The University of Queensland
- Marubeni Corporation - India
- Gujarat Electricity Regulatory Commission - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Australian Commodity Traders Exchange
- Bangladesh Power Developement Board
- Intertek Mineral Services - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Ambuja Cements Ltd - India
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