Opinion

Your Weekly Update: 31 Jul - 4 Aug


Last week in World oil:

Prices

-       Oil prices remain stuck – at around US$52/b for Brent and US$50/b for WTI – as BP predicts that crude prices will stay in a range of US$45-55/b over 2018. Although signs are pointing to a slight slowdown, high output from the US is holding prices down, as well as improving production from Libya and Nigeria leading overall OPEC output to hit a record in July.

Upstream & Midstream

-       Nigeria's NNPC confirmed that it had signed financing agreements with Chevron and Shell worth at least US$780 million to boost crude production and reserves, in the wake of another spate of insurgent activity and kidnappings. The agreement with Chevron will focus on the Sonam project, targeted at achieving 39,000 b/d of liquids and 283 mscf/d of gas levels. The Shell project will focus on 156 development sites across 12 mining licences in the Niger Delta oil hub, called Santolina.

-       Petronas has been awarded a new shallow water block in Mexico's portion of the Gulf of Mexico, which the Malaysian state player will operate with Colombia's Ecopetrol on a 50-50 basis. This joins the two existing deepwater blocks held by Petronas after Mexico's first auction of deepwater blocks last year, proving that Mexico's drive to restructure its upstream industry is drawing interest from near and wide.

-       The US rig count fell last week, losing one oil rig and three gas rigs, in a sign that analysts are saying is a moderation of drilling activity in response to stagnant prices. Most of the losses, though, are offshore sites in Louisiana waters; major shale players in Texas are still gaining rigs. 

Downstream

-       Shell is reportedly mulling expanding the capacity of its 140 kb/d Wesseling refinery in Germany that would mainly be focused on upgrading secondary units to reduce sulphur content. The move comes as the IMO's requirement to cap sulphur content at 0.5% (from 3.5%) from 2020 looms, and some 3 mmbpd of HSFO must be eliminated.

Natural Gas and LNG

-       The maligned Keystone XL project in the US is facing its final legal hurdles in a bid to begin construction. Though federal approval has been given by President Donald Trump, state-level approval is still required. Hearings are ongoing in Nebraska, where opponents of the project are highlighting the use of eminent domain and environmental concerns to sway the five-person regulatory panel. The process could last up to a year.

-       The 5.75 mtpa Cove Point LNG export project in Maryland has officially entered commissioning phase, set to become the first LNG export site on the US East Coast when operations begin by the end of 2017.

Corporate

-       Russia is supporting the government of Venezuela after fresh US sanctions following a chaotic election. Rosneft has made an advanced payment of US$1.02 billion for future crude supplies, after a US$1.6 billion loan was put through last year to support Russia's ally.

-       US E&P firm Kosmos Energy will be listing on the London Stock Exchange at the end of September in a bid to attract more European investment, as it search for gas with BP in Senegal, Mauritania and Suriname.

Last week in Asian oil

Upstream

-       In response to furious pressure from Beijing, Spain's Repsol has suspended test drills at an oil block off Vietnam that lies within waters that China claims as its own. While Vietnam continues to defend its right to explore in its sovereign areas, drilling was called off at Block 136/3 after a Vietnamese diplomatic delegation visited Beijing.

-       Denmark's Maersk Oil is estimating potential output for the second phase of Iran's South Pars field at 120-140 kb/d, revealed as part of the company's development study. Maersk Oil is in pole position to be named operator of South Pars second phase, after it lost rights to Al Shaheen in Qatar (part of the same geological formation as South Pars) to Total.

-       Regional tensions continue in Iraq as the country's northern province of Kirkuk is refusing to cooperate with the central government's plan to ship crude oil from the semi-autonomous province of Kurdistan to Iran. Kirkuk claims that it was not consulted over the agreements, while Baghdad remains steadfast in its plan to build an oil pipeline to Iran.

Downstream

-       Indian Oil Corp has outlined plans to dramatically expand its refining capacity by 89% to 3 mmb/d through 2030, to meet fast-growing domestic demand. On the cards will be a US$2.4 billion expansion of the Gujarat refinery to 360 kb/d (by 2021) – which will require the four of the five crude units at the aging site (built in 1965) to be combined into a single 300kb/d unit. The expansion is targeted at 2022, and IOC also wants to depend less on imported crude. India's largest downstream player has set a target to supply 10% of its crude requirements from its own oil and gas assets, which has seen it acquire upstream assets in Libya, Gabon, Nigeria, Yemen, Venezuela, Russia, Canada and the USA, though it is facing headwinds in that area as it is largely playing catch-up with China, as well as established East Asian players.

Natural Gas & LNG

-       Indonesia is not ready to give up on monetising East Natuna – the largest remaining natural gas resource in Southeast Asia left unexploited – after ExxonMobil and PTTEP pulled out of Pertamina's plan to develop the field, citing challenging market conditions under existing PSC requirements. Indonesia has been pitching to project around to other potential investors, reportedly including Japan's Inpex, to develop the challenging field, where carbon dioxide levels are at 72%. Foreign participation is required, as Pertamina does not have to financial muscle to undertake the US$40 billion project alone, but strict contractual conditions for domestic supply obligations have already deterred other companies, including Petronas and Total.

-        Australia's Woodside Petroleum has announced a third gas discovery in Myanmar in two years. The Pyi Thit-1 exploration well in Block A-6 confirmed the presence of gas with a potential rate of 50 mscf/d. This adds to Woodside's Shwe Yee Htun-1 (also in Block A-6) and Thalin-1A (Block AD-7) finds in Myanmar's Southern Rakhine basin.


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