Opinion

Your Weekly Update: 11 - 15 Sep


Last week in World Oil:

Prices

Oil prices remain close to multi-month highs as the market assesses the impact of two recent major hurricanes, as well as indications that OPEC is considering extending the current supply freeze deal beyond March 2018. Brent is trading at about US$55/b, while WTI stands at about US$50/b.
Upstream

Uganda has signed the first exploration deal from its 2015 licensing round. Australia's Armour Energy will be allowed to explore the Kanywataba block in the Albertine rift valley near the Democratic Republic of Congo. The block had previously been licensed to Total, CNOOC and Tullow Oil, which surrendered the block in 2012. Deals for the remaining five blocks offered at auction have yet to be finalised.

After acquiring exploration rights in Mexico's first-ever deepwater auction in 2016, CNOOC is now searching for partners in a ‘farmout' proposition that will offer a stake in return with drilling and production assistance. CNOOC holds the rights to two Gulf of Mexico blocks in the Perdido Fold Belt, where Mexico estimates the bulk of its untapped oil lies. One of the deepest exploration areas in the world, CNOOC cannot afford to go it alone, and is soliciting potential partners for the projects.

US drillers shut down seven oil rigs last week – the steepest cut since January 2017 – the latest indication that drilling recovery has stalled.  

Downstream & Midstream

The series of earthquakes roiling Mexico over the past two weeks has Wrecked Pemex's refining network, causing fuel shortages and driving up price, which are no longer state-controlled. Output from three of its six refineries has been affected, removing up to 50% of national capacity. With Mexico's nearest source of fuel imports – the US – also recovering from Hurricane Harvey, the tight situation could continue for a while.

Natural Gas and LNG

Nexen is shelving its proposed Aurora LNG export terminal on Canada's west coast, citing a poor market environment and low prices. Owned by CNOOC since 2012, Nexen has been conducting a feasibility study into the project for four years, finally pulling out as global LNG prices do not look likely to gain strength for the foreseeable future. The project, with a capacity of 24 mtpa of LNG, is the third Canadian project to be cancelled, after the Petronas and Shell projects. With the political situation in British Columbia currently unfavourable to LNG projects, it appears that Canada's ambitions to be a major LNG supplier to Asia is diminished.

Nigeria's Shoreline has signed a US$300 million agreement with Shell to develop commercial natural gas infrastructure around Lagos. In line with Shell's objective to focus more on gas than oil in Nigeria, the deal will be the two companies work together on developing distributing and selling piped natural gas to the city's Victoria Island, Ikoyi, Lekki and Epe district, which constitute Lagos' business hub and upscale residential areas.

Premier Oil will be selling off half of its stake in the North Sea's Babbage gas field, as well as a 25% stake in the Cobra field, as it attempts to pare down debt accrued over the past three years. Both assets were gained last year through its US$120 million acquisition of E.ON's North Sea business.
Last week in Asian oil

Upstream

Italy's Eni has signed a cooperation agreement with China's CNPC, a move that could give the firm a greater foothold in the Chinese market. The broad agreement covers joint activities in upstream E&P, as well as LNG, trading, refining and petrochemicals – both within China and abroad. For Eni, this boosts its financial firepower as it looks to expand activities globally, while CNPC will have the benefit of an established partner with a long global history to help expand its international ambitions. This isn't the first time both companies have worked together; in 2013, CNPC bought a 20% stake in Eni's gas field offshore Mozambique – planned to eventually produce LNG for export to Asia – while both firms are also shareholders in Kazakhstan's giant Kashagan oil field.
After a century of producing oil in Iraq, Shell is forsaking oil in favour of gas, citing low-margin production contracts. Shell will relinquish operations at the Majnoon field, after being offered new ‘unfavourable fiscal terms', as well as selling its 20% stake in the West Qurna 1 oil field, which is operated by ExxonMobil. Instead, it will focus on developing and expanding the Basra Gas Company – in which it has a 44% stake - which processes gas from the Rumaila, West Qurna and Zubair fields.
Downstream & Midstream

Chinese refining output increased by 6.5% in August, rebounding from a low of 10.71 mmbpd in July. The rise comes as a new series of crude quotas was issued to China's independent teapot refineries – causing a stampede to increase production – as well as the startup of PetroChina's new 260 kb/d refinery in Yunnan. However, YTD refining output remains down y-o-y – at a -4.6% - as last year's teapot refining bonanza tapers down to a more controlled pace at the state's instigation.

In India, heavy rainfall causing severe flooding across the country has caused oil demand to fall by 6.1% y-o-y in August, to 15.75 million tons from 16.78 million tons. Gasoline and diesel have been particularly hard hit, as heavy waters impeded transportation and industrial traffic. Kerosene usage also shrank severely, by 41%, though this was more to do with the ongoing drive to replace it with LPG as a cooking fuel.

Natural Gas & LNG

Bangladesh has signed its first long-term LNG agreement, agreeing to import fuel from Qatar's RasGas over 15 years. Initial supply will be at 1.8 mtpa for the first five years, followed by 2.5 mtpa for the remaining ten, which is less than the 4 mtpa figure bandied about when the initial Petrobangla and RasGas MoU emerged in 2011. Bangladesh will be looking to fill in that gap with spot purchases, as it battles with dwindling domestic production and the departure of Chevron from its waters.

The quest to build The Philippines' first LNG import terminal continues to hit choppy waters, with the government now asking for ‘unsolicited private sectors proposals', after deeming plans submitted by international players from Singapore, Japan, South Korea, China, Indonesia and the UAE (among others) ‘unsatisfactory'. The stumbling block, it appears, is the estimated price tag of US$2 billion and that state oil company PNOC failed to convince the proposers to accept its share of banked gas from the Malampaya field as equity for the terminal project.



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