Tuesday, December 31, 2019

Oil sector may be entering final decade of growth

The spread of electric vehicles could help bring a peak to oil demand in the next decade.
The spread of electric vehicles could help bring a peak to oil demand in the next decade.
Photo: Will Waldron, Staff Photographer / Albany Times Union

If the decade coming to a close will be remembered for a shale drilling revolution that transformed the United States into the world’s biggest oil producer, the oncoming 2020s may well go down in history as the decade when the world’s demand for crude peaked for good.

As concerns about climate change mount, electric vehicles are projected to gain ever-larger shares of auto markets, while the fuel efficiency of internal combustion is only expected to improve — all cutting into the demand for transportation fuels, oil’s primary product.

Virtually everyone agrees peak oil demand is coming. OPEC predicts demand will rise into the 2040s, but the European energy major Royal Dutch Shell and others say global oil demand could peak before 2030. So what will this mean to oil-centric Houston, the reigning energy capital of the world?

“We’re entering a decade that could be the beginning of the end in some ways,” said Jennifer Rowland, an energy analyst with Edward Jones. “You can paint a pretty bearish picture that oil demand is going to plateau before 2030.”

Sour outlook on oil

The debate over peak demand highlights the remarkable shift that global energy markets have made in less than 20 years. As recently as 2008, analysts and investors argued over the timing of a phenomenon known as peak oil — when the world would begin to exhaust its reserves of crude.

Now, concerns are mounting in the oil and gas industry that peak demand is not only coming, but coming faster than anticipated, all as the shale boom begins to slow, companies slash jobs and Wall Street turns its back on the energy sector after years of generating lackluster returns.

While the S&P 500 Index is up more than 25 percent in 2019, Standard and Poor’s index of oil and gas producers has plunged more than 15 percent. The energy sector now represents just 4 percent of the S&P 500 after peaking at 14 percent just over a decade ago.

Earlier this year, Exxon Mobil fell from the ranks of the S&P 500’s 10 biggest companies for the first time, underscoring that investors are hesitant to put money into a mature industry that is barely growing, Rowland said.

“We’re in this vicious negative feedback loop,” she said. “It feeds on itself as the energy sector becomes less relevant.”

Ryan Lance, chief executive of the largest Houston-based oil and gas producer, ConocoPhillips, acknowledges that his company is operating in a mature industry. The solution, he says, is tight spending and steady growth, while consistently returning money through dividends and stock buybacks to shareholders to build loyalty.

“Our industry faces a flight of sponsorship by investors,” Lance said during a recent presentation. “This sector will struggle for relevance unless the industry can create value on a sustained basis.”

Where Houston stands

Houston has worked to diversify its economy, but it’s still an oil town. Crude prices and production reverberate through every facet of the economy.

The industry already is contending with flat U.S. demand for gasoline because of improved vehicle fuel efficiency. Next up: the anticipated wave of electric vehicles.

“That will have a major impact and a bottom-line impact on Houston,” said Praveen Kumar, executive director of the Gutierrez Energy Management Institute at the University of Houston.

For now, the United States is producing record volumes of oil that only continue to rise. The Houston and Corpus Christi areas are evolving into larger export hubs to supply the world with more oil, refined fuels, chemicals and plastics.

“The major story for Houston right now is not a lack of oil supply, but how well it can be exported to prevent a domestic glut,” Kumar said.

Indeed, Houston’s role as an export hub will rise in importance in the years to come, said Sarp Ozkan, director of analytics at the Austin energy research firm Enverus. As global oil demand plateaus, U.S. crude will need to compete intensely for market share worldwide, he said.

“Peak demand is an issue we need to accept as an eventual reality, but that doesn’t mean Houston is going to lose its luster,” Ozkan said. “It really is more of an evolution.”

Most analysts say oil demand will peak, then plateau for a prolonged period before it begins to decline. Few expect a sharp peak and rapid downfall.

Varied global views

For now, there are more questions than answers. Electric vehicles and renewable power are butting up against the need for more energy as global population grows, incomes rise and middle classes expand in developing nations, particularly in Asia.

Oil and other fossil fuels will hold smaller shares of the overall energy mix, but the total energy pie will keep growing for decades, analysts said. Crude oil represents more than 30 percent of global energy demand.

How quickly demand peaks and at what level will depend largely on how governments worldwide respond to global warming. The latest report from the Paris-based International Energy Agency gives a mid-range scenario — governments doing more than they are now without being extremely aggressive — in which oil demand slows to a crawl after 2025, but doesn’t peak until the 2030s at 106 million barrels per day or so.

Under that scenario, global fuel demand for passenger vehicles would peak before 2030, but crude demand would continue to increase from supplying long-distance freight, shipping, aviation and petrochemicals, the IEA said.

That means the oil sector still has decades ahead of it, said Muhammed Ghulam, an energy analyst at Raymond James in Houston. Even global coal demand is growing slightly, he noted, and coal is much easier to displace with natural gas and renewable energy than crude oil, he said.

“Oil demand growth is slowing significantly, but it’s still rising,” Ghulam said. “Energy transformations take a long time.”


Monday, December 30, 2019

Kuwait commmitted to OPEC production quota

Kuwait’s Minister of Oil and Minister of Electricity and Water Dr. Khaled Al-Fadhil has reaffirmed his country’s commitment to OPEC Plus agreement on production cut.

In statements to KUNA on Tuesday, he assured that Kuwait would remain adherent to its production quota as per the OPEC Plus agreement even after the resumption of production of the oilfields in the Divided Zone with Saudi Arabia.

He emphasized the importance of OPEC’s production cut.

The minister hailed Kuwait’s signing today on an agreement and a memorandum of understanding with the Kingdom of Saudi Arabia regarding the resumption of oil production from the Divided Zone.

He voiced great confidences in the Kuwait Gulf Oil Company (KGOC)’s staff, hoping the production would back to normal levels soon.

Earlier in the day, Kuwait Foreign Minister Sheikh Ahmad Nasser Al-Mohammad Al-Sabah and Saudi Minister of Energy Prince Abdulaziz bin Salman signed an agreement to divide the neutral zone between both countries.

Kuwaiti Minister of Oil Al-Fadhel and his Saudi counterpart Prince Abdulaziz inked a memorandum of understanding pertaining to the measures of resuming the output between the two sides.

The KGOC represents Kuwait in the neutral zone and is responsible for exploring and producing oil in several fields in this area.

Saudi Arabia’s Chevron Company carries out the output operations in the zone in partnership with the KGOC.

Friday, December 27, 2019

Islamic State in Nigeria 'beheads Christian hostages'

Screen grab from previous Iswap video (2015)
One faction of Islamist group Boko Haram now fights under the banner of "Islamic State West Africa Province"

The Islamic State group has released a video claiming to show the killing of 11 Christians in Nigeria.
IS said it was part of its recently declared campaign to "avenge" the death of its leader Abu Bakr al-Baghdadi during a US raid in Syria in October.

No details were given about the victims, who were all male, but IS says they were "captured in the past weeks" in Nigeria's north-eastern Borno State.

The 56-second video was produced by the IS "news agency" Amaq.

It was released on 26 December and analysts say it was clearly timed to coincide with Christmas celebrations. 

President Muhammadu Buhari has condemned the apparent killings and urged Nigerians not to let themselves be divided along religious lines.

"We should, under no circumstance, let the terrorists divide us by turning Christians against Muslims because these barbaric killers don't represent Islam and millions of other law-abiding Muslims around the world," he said in a statement.

He did not mention the identity of the victims.

The aid agencies whose staff are being held by the "Islamic State West Africa Province" (Iswap) have not yet commented.

What do we see in the video?

The footage was filmed in an unidentified outdoor area.

One captive in the middle is shot dead while the other 10 are pushed to the ground and beheaded.

"We killed them as revenge for the killing of our leaders, including Abu Bakr al-Baghdadi and [IS spokesman] Abul-Hasan al-Muhajir," said a member of the group's media unit, according to Ahmad Salkida, a journalist who was first sent the video. 

How active is Islamic State in Nigeria?

One faction of Nigerian Islamist group Boko Haram broke away in 2016 and now fights under the banner of Iswap.

Earlier this month, the group said it had killed four aid workers it had abducted in north-eastern Nigeria. 

It is also active in neighbouring countries, including Burkina Faso, Cameroon, Chad, Niger and Mali.

Dozens of hostages still being held

Ishaq Khalid, BBC News, Abuja

The video once again highlights the brutal tactics of Iswap, while the timing of the release - over the Christmas period - is also designed to get maximum attention. 

This video may be intended to increase tension between Christians and Muslims in Nigeria, as well as put more pressure on the government to respond to their demands, says security analyst Kabiru Adamu. 

Earlier this month, the group released a video of the captives, appealing to the Nigerian authorities and the Christian Association of Nigeria (CAN) to intervene. 

Iswap has used hostage-taking as a bargaining tool - either for ransom or in exchange for their arrested members, although the authorities have never confirmed carrying out a prisoner swap.

The militant group has previously killed a number of hostages, including members of the security forces and aid workers but this is the largest group to be killed at one time.

It is not clear how many captives Iswap is currently holding in Nigeria, but there are believed to be dozens - mainly security forces, aid workers and those perceived to be associated with government institutions.

Thursday, December 26, 2019

Venezuela’s currency so worthless it’s mostly being used for making crafts

View image on Twitter

Venezuela – once one of the more prosperous countries in Latin America – has been driven into such economic and political turmoil that its currency is no longer of any use.

However, that has not stopped Venezuelan bolivares from becoming a commodity elsewhere.

“These bolivares soberanos notes are worth nothing,” Cordero, who is from Caracas, told Al Jazeera. “These notes I use are not circulating any more since last year.”

The report says Cordero uses about 70 notes of 100 bolivares to handcraft a small coin purse or at least 100 notes to weave a larger wallet. A handbag, he says, can take upwards of 1,200 notes to produce.

The technique he uses is called “origami venezolano” and he told Al Jazeera that he learned the technique by studying videos on YouTube and watching others in the streets of Caracas.

"When I run out of bolivares, my brother goes to Venezuela and brings more notes," Cordero said. "People have a lot of these notes and we buy them. We give them what they ask for."

He said people in Venezuela will exchange the worthless bills for other currency – most commonly U.S. bills – or for food.

Data from the opposition-controlled National Assembly shows the inflation rate for October 2019 was 20.7 percent and the cumulative inflation for 2019 was 4,035 percent. The International Monetary Fund (IMF) estimates Venezuela’s inflation this year will reach 200,000 percent - and that the economy will contract by 35 percent, Al Jazeera reported.

Since January, the Venezuelan people have been thrust into a political push-and-pull between embattled leader Nicolas Maduro and opposition leader Juan Guaido, who took the role of interim president earlier this year and created a parallel government.

Juan Guaido, head of Venezuela's opposition-run congress, declares himself interim president of Venezuela, during a rally demanding President Nicolas Maduro's resignation in Caracas, Venezuela, Wednesday, Jan. 23, 2019. (AP Photo/Fernando Llano)
Juan Guaido, head of Venezuela's opposition-run congress, declares himself interim president of Venezuela, during a rally demanding President Nicolas Maduro's resignation in Caracas, Venezuela, Wednesday, Jan. 23, 2019. (AP Photo/Fernando Llano)
The United States and dozens of other nations threw their support behind the youthful congressional leader, recognizing him as the country's legitimate president. They argued that Maduro's re-election was invalidated by fraud and a ban on most opponents.

However, cracks have appeared in Guaidó's base of support in the National Assembly and his re-election as congressional president is no longer assured.

Despite sitting atop the world's largest proven oil reserves, gasoline shortages plague the nation, most homes don't have reliable drinking water or electricity, and there are shortages of food, medicine, and spare parts. Roughly 4.5 million people have left the country, figures that rival mass migration from war-torn Syria.

Maduro, whose approval ratings in the other polls have dipped closer to 10 percent, has proven more resilient than many expected.

Venezuela's oil production has inched up for the second consecutive month after crashing to a seven-decade low under U.S. sanctions, and shoppers are increasingly pulling U.S. dollars from their wallets — a sign the economy is bouncing back, or at least stabilizing, due in part to an easing of currency controls that the government had earlier resisted.

In January, the National Assembly must decide whether to extend Guaidó's tenure, and he said he is confident he has the backing to be re-elected. Analysts say appointing any alternative would be devastating for the opposition.

The Associated Press contributed to this report.

Tuesday, December 24, 2019

Shuttered Philadelphia Refinery May Get New Life After Fire

 Credit...Matt Rourke/Associated Press

PHILADELPHIA — It’s not often that 1,300 acres of industrial land become available on the edge of a major city center, especially not with good road, rail and water links to the outside world. But the shutdown and bankruptcy of a major refinery have put the site and its infrastructure into play.

More than a dozen entities are interested in buying all or part of the South Philadelphia Refinery, which was shut down in June after an explosion caused an extensive fire. Before its closing, the refinery produced more gasoline, diesel, jet fuel and other refined products than any other refinery on the East Coast.

The large size of the parcel, its location in the heart of the Northeast and its proximity to transportation make it an attractive proposition to energy companies that want to restart all or part of the refinery, or combine its previous output with biofuels or renewable energy such as solar.

“For this mass of ground to become available is extraordinary,” said J. Eustace Wolfington, the senior managing director in the Philadelphia office of Newmark Knight Frank, a real estate firm.
Continue reading the main story
But the refinery’s future is clouded in part by questions over viability. Its current owner, Philadelphia Energy Solutions, filed for bankruptcy protection twice in less than two years, citing the rising cost of crude oil and the high expense of buying biofuel credits to meet federal requirements. In its latest filing in July, the company blamed its woes on damage caused by the explosion.

The plant’s ability to survive was also called into question in September by an industry report from the consulting firm IHS Markit, which projected declining demand for gasoline and other refined products over the next 30 years because of increased fuel efficiency and greater use of electric vehicles.

Refineries, especially those on the East Coast, are expected to respond to the projections by cutting production by two-thirds by 2050, IHS said in the report, which examined the future of the refinery for the City of Philadelphia.

Still, a refinery could be reopened on the site, IHS said, or the plant could be overhauled to make biofuels, renewable energy, petrochemicals or heavy manufacturing. The size and location of the site could also make it suitable for a new logistics and warehousing center, the report suggested.

Continue reading the main story
Other refineries have been repurposed, it noted, including the Imperial Oil Refinery in Nova Scotia, which became a port terminal after closing in 2013, and a Shell Haven refinery in Britain that closed in 1999 and was converted to a container port with distribution facilities.
Refinery Explosion 
The blast at Philadelphia Energy Solutions shook homes miles away.
Demand for the site may be limited by heavy contamination from some 150 years of refining, which left behind a cocktail of hazardous chemicals such as benzene and toluene. Contaminants are being cleaned up by a contractor for Sunoco, an oil company that owned the site until 2012, overseen by state and federal environmental regulators.

Potential buyers may consider the site’s vulnerability to a possible rise in the sea level, given that it is bordered by a tidal section of the Schuylkill. The river has already flooded some sections of the complex and is expected to inundate it further in coming decades.

Another challenge is the densely populated sections of South Philadelphia, where residents, many of them impoverished, blame decades of air pollution from the refinery for high rates of asthma and other illnesses.

Still, Mr. Wolfington of Newmark Knight Frank said the site offered a rare opportunity for redevelopment.

“The site’s gold. It’s right on the Schuylkill River, you have incredible infrastructure for rail and waterway freight, you have great highway access and plenty of natural resources,” he said. “So it could be industrial, retail, residential, office. The real estate possibilities are endless.”

Continue reading the main story
The environmental issues are “not insurmountable,” Mr. Wolfington added. As an example, he pointed to the nearby Philadelphia Navy Yard, a formerly contaminated site covering about the same amount of land as the refinery. That site has been successfully redeveloped as a mixed-use business hub and now has about 170 tenants from different industries and institutions, occupying around 7.5 million square feet of new or refurbished space.

Not everyone agrees on the site’s reuse possibilities. 

Its contamination would make a mixed-use development implausible, said Kevin C. Gillen, a real estate economist and senior research fellow at Drexel University’s Lindy Institute for Urban Innovation in Philadelphia. Instead, he said, its size and location make it more suitable as a logistics center. 

“Cheap land, lots of it, access to plenty of infrastructure and a significant circumscribing of alternative uses all pretty much point in one direction,” he said in an email.

Any purchase agreement will have to be approved by a bankruptcy court in Delaware, where Philadelphia Energy Solutions filed for reorganization. In November, Judge Kevin Gross set an auction date of Jan. 17 for bids by 15 parties, most of them unidentified, that have expressed an interest in the company’s assets.

The company said in court documents that the sale of some or all of its assets would be the “best alternative” for all stakeholders, but it has also proposed a debt-for-equity swap as an option.

But the court, which has scheduled a bankruptcy confirmation hearing for Feb. 6 and 7, might decide that the sale of the site, rather than the business on it, would be the best way to pay creditors, said Bruce Grohsgal, a professor of bankruptcy law at Widener University’s Delaware Law School.

Continue reading the main story
Although such a ruling is rare, “this might be an example of where that’s the case because the going concern of a refinery has been lost from the fire, and the real estate might very well be worth more than the enterprise,” he said.

One possible buyer that has announced its interest is Philadelphia Energy Industries, a new company set up by Philip Rinaldi, a former chief executive of Philadelphia Energy Solutions. Mr. Rinaldi retired in 2017 but wants to restart the refinery in cooperation with a partner that would also make renewable diesel and build solar cells on the site.

The City of Philadelphia has avoided taking sides, saying it has limited authority over the privately owned site. But in late November, it issued a 45-page report that concluded any future use should protect public health, be economically beneficial and establish “openness, transparency and trust” with local residents.

The city is aiming to cut carbon emissions by 80 percent by 2050, and it would like to see renewable energy production on the site, said the city’s managing director, Brian Abernathy. But it is unlikely to be able to stop refining operations there despite calls by environmental and residents’ groups for it to do so.

Still, the bankruptcy suggests that any new refiner will have to make significant changes to run a viable business, Mr. Abernathy said.

“This was a difficult financial model to make work as an independent refiner,” he said. “Those economics would still be challenging even with a new buyer.”

Mr. Abernathy said a restarted refinery would have the best chance if it was bought by a larger company with the resources to add a fuel-blending capacity, which would enable it to avoid the heavy costs of buying credits to comply with federal renewable fuel rules.

Continue reading the main story
Another option is a hybrid of refining and renewable fuel production, reflecting both market signals and policy goals, said Mark Alan Hughes, the faculty director of the University of Pennsylvania’s Kleinman School for Energy Policy and a member of the city’s advisory committee on the site.

“They’re predicting a steadily declining place for things like the refinery that was,” Mr. Hughes said, referring to lower projections for gasoline demand. “The kind of mix that tries to lower the profile of fossil fuel activity is, I think, the most likely outcome.”

Monday, December 23, 2019

Oil Markets Brace For Another 500,000 Bpd Oil Field To Come Online

Kuwait and Saudi Arabia could be days from agreeing the restart of oil production from the two fields they share in the so-called neutral zone.

Bloomberg quoted Kuwait’s Oil Minister, Khaled Al-Fadel, as saying during a news conference on Sunday that “We hope that by the end of the year things will be cleared out and things will go back to normal.”
The report is the latest in a series about Kuwait and Saudi Arabia trying to resume production from the neutral zone despite the latest extension and deepening of the OPEC+ oil production cuts.

Two fields in the partitioned zone—Khafji and Wafra—pumped half a million barrels daily until 2015. Operational differences and a worsening in bilateral relations led to the suspension of production during that year. The worsening came as Saudi Arabia renewed Chevron’s concession for Wafra. According to the Kuwaiti side, Riyadh did that without consulting it.

Last year, there was talk about restarting joint production after the United States called on its Gulf allies to increase production to keep rising oil prices from going too high. In September 2018 the Financial Times reported that the two countries were mulling over a restart amid rising oil prices and the matching rise in worry among large oil buyers.

This year reports emerged that negotiations had restarted, with media outlets quoting Saudi Arabia’s then-oil minister Khalid al-Falih as saying he hoped all issued to be settled by the end of the year.
According to a source who spoke to Bloomberg, the resumption of oil production from Khafji and Wafra will not add to global supply because both Kuwait and Saudi Arabia comply with their production quota under the OPEC+ agreement. Even so, any news about the restart of the neutral zone fields would punish prices as all reports so far have.
By Irina Slav for Oilprice.com

Saturday, December 21, 2019

Nord Stream 2: Trump approves sanctions on Russia gas pipeline


President Donald Trump has signed a law that will impose sanctions on any firm that helps Russia's state-owned gas company, Gazprom, finish a pipeline into the European Union. 

The sanctions target firms building Nord Stream 2, an undersea pipeline that will allow Russia to increase gas exports to Germany.

The US considers the project a security risk to Europe. 

Both Russia and the EU have strongly condemned the US sanctions.

Congress voted through the measures as part of a defence bill last week and the legislation, which described the pipeline as a "tool of coercion", was signed off by Mr Trump on Friday.

Why is the US against the pipeline?

The almost $11bn (£8.4bn) Nord Stream 2 project has infuriated the US, with both Republican and Democratic lawmakers opposing it.

The Trump administration fears the pipeline will tighten Russia's grip over Europe's energy supply and reduce its own share of the lucrative European market for American liquefied natural gas.
President Trump has said the 1,225km (760-mile) pipeline, owned by Russia's Gazprom, could turn Germany into a "hostage of Russia".

The US sanctions have angered Russia and the European Union, which says it should be able to decide its own energy policies.

Earlier this week German Chancellor Angela Merkel said she was "opposed to extraterritorial sanctions" against the Nord Stream 2 project. 

German foreign minister Heiko Maas struck a more combative tone, saying the sanctions amounted to "interference in autonomous decisions taken in Europe".

Allseas, a Swiss-Dutch company involved in the project, said it had suspended its pipe-laying activities in anticipation of the sanctions.

The US sanctions also target TurkStream, a Russia-Turkey pipeline, and include asset freezes and revocation of US visas for the contractors.

How have Russia and the EU reacted?

On Saturday, the EU voiced its clear opposition to the US sanctions.

"As a matter of principle, the EU opposes the imposition of sanctions against EU companies conducting legitimate business," a spokesman for the trading bloc told AFP news agency.

Russia's foreign ministry also strongly opposed the move, with ministry spokeswoman Maria Zakharova accusing Washington of promoting an "ideology" that hinders global competition.

The consortium behind Nord Stream 2 confirmed that it would build the pipeline as soon as possible, despite the sanctions.

It said: "Completing the project is essential for European supply security. We, together with the companies supporting the project, will work on finishing the pipeline as soon as possible."

Why is Nord Stream 2 so controversial?

For years EU member states have been concerned about the bloc's reliance on Russian gas.

Russia currently supplies about 40% of the EU's gas supplies - just ahead of Norway, which is not in the EU but takes part in its single market. The new pipeline will increase the amount of gas going under the Baltic to 55 billion cubic metres per year.

Disagreements among EU nations were so strong that, earlier this year, they even threatened to derail the project entirely.
The bloc eventually agreed to strengthen regulations against Nord Stream 2, rather than stop it completely, and to bring it under European control.

Businesses in Germany, meanwhile, have invested heavily in the project. Chancellor Merkel has tried to assure Central and Eastern European states that the pipeline would not make Germany reliant on Russia for energy.

There is concern in other quarters, too. In May, climate activists opposing the use of fossil fuels occupied part of the Nord Stream 2 gas pipeline in Germany.

The demonstrators, who said the project would be more detrimental to the environment than the authorities had claimed, began skateboarding inside the pipes.

Police said at least five people had occupied the pipes near Wrangelsburg in northern Germany.

Thursday, December 19, 2019

Saudi Arabia's Crude Exports Rise 5.8% in October

A gas flame is seen in the desert near the Khurais oilfield, about 160 km from Riyadh, Saudi Arabia June 23, 2008. REUTERS/Ali Jarekji/File Photo


Saudi Arabia’s crude oil exports in October rose 5.8 percent to 7.06 million barrels per day (bpd), from 6.67 million bpd in the previous month, official data showed on Wednesday.

The country’s total crude output climbed by 1.17 million bpd to 10.30 million bpd in October.

Crude stocks rose by 15.60 million bpd to 168.08 million bpd while domestic refinery crude throughput dipped by 387,000 bpd to a 34-month low of 2.20 million bpd, the data from the Joint Organizations Data Initiative (JODI) showed.

Saudi Energy Minister Prince Abdulaziz bin Salman had said the Kingdom’s oil production would recover in October and November to levels above those seen before attacks on its energy installations in September.

Earlier this month, oil producers led by Saudi Arabia and Russia agreed to cut output by an extra 500,000 barrels a day in the first quarter of 2020.

Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries provide monthly export figures to JODI, which publishes them on its website.

Wednesday, December 18, 2019

Oversupply of oil and demand for gas expected in 2020

news item image

Multinational law firm DWF has highlighted a number of trends for the global energy sector for 2020, with global head of energy Slava Kiryushin offering various insights.


Commenting on the global oil trade in 2020, Kiryushin expects there to be an oversupply: "Many oil traders have predicted a bullish 2020 for the global oil industry, with some going as far as speculating the revival of a $100 [€90] per barrel [bbl] price tag. However, recent market analysis demonstrates that this is unlikely to happen and the market will be in a position of oversupply. My view is that this will primarily be due to increased shale production and a slower than expected growth of the global economy. The International Energy Agency's latest reports support the view that there will a global oversupply.

"Even the new shipping fuel regulations set to be implemented in January 2020, known as IMO 2020, are not expected to change this trend despite potentially leading to an increased demand for low-Sulphur gasoil and diesel. No doubt that the growth of the oil supply is a sensitive topic for OPEC+ members as 500,000 bbl/day were agreed to be cut from OPEC's supply. Overall, the market is less optimistic over the ‘revival’ of the oil price."

Natural gas

Natural gas is likely to experience growing demand in 2020, according to Kiryushin: "Unlike its hydrocarbon counterpart, natural gas is likely to experience growing demand in 2020 and beyond. Whether this is due to IMO 2020, the demand for chemical products (which require gas) or the environmental push to cut greenhouse emissions, is arguable.

"The biggest influencer on gas demand is likely to be China. Its growing appetite for gas (which is higher than the next 10 countries combined) will remain constant in 2020.

"A change in climate also has a significant impact on the demand for natural gas. Whether used as fuel to keep the northern hemisphere warm during the colder winters or converted into electricity to power air conditioning during hotter summers, gas will remain at the forefront of the energy sector in 2020.

"The only real question is whether the oil-linked gas price is competitive enough against alternative fuels. If it is deemed not to be, this is likely to further increase the ongoing price review negotiations and disputes in the Asian market.


As for renewables, Kiryushin said: "2020 is unlikely to be any different from the previous years for the renewables market. The key operating term is going to be "growth". Some commentators are forecasting that renewable energy generation growth will outpace gas growth by a factor of four. While this sounds optimistic, the rise in new technology, availability of funding and emerging markets may make this a reality. Whether this takes place in 2020 remains to be seen, but there is absolutely no stopping on the horizon for renewables.

"If further technology is developed to improve energy storage, it is likely that the renewable sector will thrive beyond current predictions, which are already promising. According to the IEA estimations, offshore wind has a technical power production potential of 36,000 TWh per year. In contrast, the US potential is roughly a third of this amount. We expect wind generation to continue thriving and a number of EPC contractors are already making adjustments to their businesses to supply offshore jackets instead of their traditional offshore oil and gas construction projects.

"Like wind, solar has tremendous potential and will remain a growing market. However, in order to ‘shine’ brighter, solar energy generation will require further support from governments and policymakers. By way of example, the uptake of solar energy in Africa could have a significant impact on the global market. Currently, Africa generates only around 5GW of solar power (i.e. less than 1% of global capacity). However, if 2020 hails a change in policy and funding for solar in Africa, the current power generation figure will change rapidly."


The global power market will continue to witness a growing demand, according to Kiryushin. He said "Whether generated by gas, coal, oil or renewable sources, power will continue to witness growing demand. There is no doubt that demand in growing markets such as China, India and the Middle East will increase steadily. The ongoing urbanisation of Africa is also likely to have an impact on demand in 2020. The main question for most commentators is not 'whether' Africa demands more power but 'how quickly and by how much' this demand will rise.

"Finally, the rise of EVs, living standards in China and India (dictating more demand for HVAC systems) and industrial consumption is expected to further increase the demand. 2020 is unlikely to be any different from the previous years as more power projects will be funded, constructed, commissioned and upgraded."

Tuesday, December 17, 2019

Goldman Sachs is first big US bank to rule out loans for Arctic drilling

The Prirazlomnaya offshore ice-resistant oil-producing platform is seen in the Pechora Sea, Russia, on May 8, 2016. It is the world's first operational Arctic rig that processes oil drilling, production, storage, end product processing and loading. 
 The Prirazlomnaya offshore ice-resistant oil-producing platform is seen in the Pechora Sea, Russia, on May 8, 2016. It is the world's first operational Arctic rig that processes oil drilling, production, storage, end product processing and loading. Getty Images


Golddman Sachs (GS) is the first big US bank to say it won't finance new oil projects in the Arctic.

On Sunday, the bank announced a raft of changes to its environmental policies, including a pledge not to finance drilling in the Arctic. The restrictions also rule out projects in Alaska's Arctic National Wildlife Refuge, which President Donald Trump has sought to open to development.
The funding freeze extends to new thermal coal mine and power plant development around the world, as well as projects that "significantly convert or degrade a natural habitat," Goldman Sachs said on its website.
The bank also announced a commitment to invest $750 billion over the next 10 years into areas that focus on climate transition and inclusive growth.
Goldman Sachs' move comes as activists and scientists decried the global climate agreement reached Sunday at a UN summit in Madrid, saying its watered-down language fails to deliver clear carbon-cutting commitments. 
Goldman Sachs won praise from environmental groups. 
The Rainforest Action Network said in a statement that Goldman's commitments are the "strongest fossil finance restrictions of any major US bank."
It still lags behind global competitors though, the environmental organization said.
According to The Sierra Club, more than a dozen of the world's largest banks have made similar commitments to stop drilling in the Arctic, including UniCredit (UNCFF), Royal Bank of Scotland (RBS) and Barclays (BCS).
The Arctic is warming at a rate of almost twice the global average, leading to rising sea levels, changes in climate and rainfall patterns and more severe weather events, according to the World Wildlife Fund.
Caribous are seen at the Arctic National Wildlife Refuge in Alaska.
"Goldman Sachs is right to recognize that destroying the Arctic Refuge would be bad business. We hope other American banks will follow their lead," Ben Cushing of The Sierra Club said in a statement. 
David Solomon, the CEO of Goldman Sachs, meanwhile called on governments to put a price on the cost of carbon in a Financial Times op-ed.
"There is not only an urgent need to act, but also a powerful business and investing case to do so," Solomon said. 
The company said it will "phase out" financing of thermal coal mining companies that do not have plans to diversify away from coal.
In October, the Sierra Club and Rainforest Action Network were part of a wider coalition that urged Goldman Sachs, JPMorgan Chase (JPM) and other leading investment banks to withdraw financial support for the Saudi Aramco IPO. 
According to the coalition, the state-owned oil company, which listed Goldman as a joint financial adviser on its public market debut, is "the world's largest corporate emitter of carbon dioxide."

Monday, December 16, 2019

WPX Energy buys Permian firm for $2.5 billion


Oklahoma's WPX Energy will pay $2.5 billion to buy a Permian Basin producer backed by a Houston private equity firm as the consolidation of the still-booming Permian heads into a new year.

WPX, which focuses on the Permian and North Dakota's Bakken shale, will acquire Denver-based Felix Energy, which is supported by the Houston private equity player, EnCap Investments.

WPX is specifically interested in scooping up Felix's acreage in Texas' Loving, Winkler and Ward counties in Texas near the New Mexico border. That position of part of the core region of the Permian's more active western lobe, the Delaware Basin.

The Tulsa-based producer will pay $900 million in cash and $1.6 billion in WPX stock, including handing over two board seats to EnCap.

"This is an exciting day for both Felix Energy and EnCap. Over the past four years, the Felix team has worked tirelessly to build what we consider to be a world-class Delaware Basin asset," said Doug Swanson, EnCap managing partner. "Given the current market environment, we are strong believers in consolidation and feel that the Felix asset base is a clear strategic fit for WPX."

In an environment with more modest oil pricing, more Permian consolidation is anticipated. However, contrary to that trend, Wall Street has of late punished the acquiring companies, arguing they are overspending at a time when investor sentiment is valuing conservatism and reduced spending. As such, until this deal, big Permian deals had slowed down since the massive acquisition of Anadarko Petroleum by Occidental Petroleum.

Felix Energy brings with it 58,500 net acres in the Delaware Basin, including an estimated 1,500 remaining drillable locations.

The deal is expected to close early in the second quarter of 2020.

Friday, December 13, 2019

Tullow Oil Stock Stages a Recovery. But for How Long?

Tullow Oil: What does boardroom blitz mean for small cap partners?

Shares in Africa-focused Tullow Oil rose nearly 6% on Wednesday just two days after the oil producer slashed its production outlook for the fourth time this year and said it had ousted its chief executive and head of exploration, after weak performance of its main producing assets in Ghana.

The back story. The London-listed company (ticker: TLW.UK), which was founded in 1985 by Irish businessman Aidan Heavey, has suffered a series of setbacks in Ghana, Uganda, and Kenya. Demand for Jubilee field gas from the Ghana National Gas Company has been much lower than expected, and Tullow has experienced technical problems on two new wells at one of its other fields. The company also failed to sell a $900 million stake in a Ugandan project to Total and Cnooc in August. 

Tullow now expects production for 2020 will be a third lower than previously forecast, averaging between 70,000 and 80,000 barrels of oil a day, down from around 87,000 barrels in 2019.

What's new. Shares in Tullow have recovered for a second day in a row—a welcome reprieve for shareholders after the stock experienced a 70% crash and hit a 16-year low Monday, valuing the company at just £560 million. On Wednesday, shares had recovered slightly and were trading almost 6% higher in London at 48.32 pence, valuing the company at around £676 million. Still, that’s a long way from the £13 share price in 2012.

Looking Ahead. Tullow has started a strategic review of the business, with the aim of cutting the cost base to match the production profile and boost execution on existing operations. Dorothy Thompson, Tullow’s interim executive director, will give investors a full financial and operational update at Tullow’s full-year results on Feb. 12, 2020. 

However, the company’s lower output will have a knock-on effect on the company’s free cash flow, which it now anticipates will be $150 million next year. To pay down its debt load of around £2.3 billion, management may have to sell some parts of the business—or indeed put the whole company on the block.

IEA: An Oil Glut Is Inevitable In 2020

Sohar oil tanks


Despite the OPEC+ cuts, the oil market is still facing a supply surplus in 2020, according to a new report from the International Energy Agency (IEA).

OPEC+ announced additional cuts of 500,000 bpd, which sounds more impressive than it is because the group was already producing under its limit. In November, for instance, OPEC was producing 440,000 bpd below the agreed upon ceiling.
Saudi Arabia agreed to shoulder an additional 400,000 bpd of voluntary cuts. But the deal also exempts 1.5 million barrels per day (mb/d) of Russia’s condensate production, allowing Russia to actually increase condensate output by 0.8 mb/d.

Still, the deal should take supply off the market. “If all the countries comply with their new allocations and Saudi Arabia delivers the rest of its voluntary cut of 0.4 mb/d, the fall in production volume versus today will be about 0.5 mb/d,” the IEA said.

OPEC said in its own report that the oil market would be largely in balance in 2020, albeit with a temporary glut in the early part of the year. The IEA sees inventories building at a rate of 0.7 mb/d in the first quarter.

The IEA cut its forecast for non-OPEC supply growth from 2.3 mb/d to 2.1 mb/d, due to weaker growth from Brazil, Ghana and the United States. The U.S. typically gets all of the attention, but disappointing news from Brazil and Ghana also led the IEA to revise forecasts lower.
Notably, Tullow Oil revealed a major disappointment from its Ghana operations, causing a complete meltdown in its share price this week. Its stock fell nearly 70 percent in a single day as investors overhauled their valuation of the company. Tullow admitted that its production from Ghana would decline in the years ahead.

But even the combined effect of slower non-OPEC production growth and the OPEC+ cuts is not enough to erase the glut entirely. “[W]ith our demand outlook unchanged, there could still be a surplus of 0.7 mb/d in the market in 1Q20,” the IEA said.

“Even if they adhere strictly to the cut, there is still likely to be a strong build in inventories during the first half of next year,” the IEA warned. Related: Can Argentina Replicate The U.S. Shale Boom?

But the forecasted glut largely depends on ongoing production growth from U.S. shale drillers. The IEA admits that there will be a slowdown, but is still optimistic on production growth, with gains of 1.1 mb/d in 2020, compared to 1.6 mb/d this year.

The agency has consistently been at the optimistic end of the spectrum regarding shale growth, even as major investment banks long ago slashed their forecasts. The IEA cut its U.S. supply forecast by 110,000 bpd from last month’s report, but at 1.1 mb/d, its figure still seems generous. The IEA is betting that the oil majors, who are less responsive to lower prices and problems with cash flow, will continue to scale up drilling.

Meanwhile, a new report from IHS Markit highlights the accelerating rate of decline among the U.S. shale complex, a decline rate that grows in tandem with production increases. “Oil and gas operators in the Permian Basin, the most prolific hydrocarbon resource basin in North America, will have to drill substantially more wells just to maintain current production levels and even more to grow production, owing to the high level of recent growth,” IHS said in a statement. The base decline rate in the Permian has “increased dramatically” since 2010.

“Base decline is the volume that oil and gas producers need to add from new wells just to stay where they are—it is the speed of the treadmill,” said Raoul LeBlanc, vice president of Unconventional Oil and Gas at IHS Markit. “Because of the large increases of recent years, the base decline production rate for the Permian Basin has increased dramatically, and we expect those declines to continue to accelerate. As a result, it is going to be challenging, especially for some companies with cash constraints, just to keep production flat.”

The firm sees U.S. production growth of only 440,000 bpd in 2020, before flattening out in 2021. If this proves accurate, OPEC+ might not need to worry as much.

By Nick Cunningham of Oilprice.com

Thursday, December 12, 2019

The world has its first $2 trillion company. But for how long?

 Saudi Crown Prince Mohammed bin Salman aka MBS: Since his father became king in early 2015, MBS has made powerful enemies. Photograph: Fayez Nureldine/AFP/Getty Images
 Saudi Crown Prince Mohammed bin Salman aka MBS: Since his father became king in early 2015, MBS has made powerful enemies. Photograph: Fayez Nureldine/AFP/Getty Images

London (CNN Business)Saudi Aramco shares zoomed higher on Thursday, turning the massive state oil producer into the world's first $2 trillion company and achieving the valuation long sought by Crown Prince Mohammed bin Salman.

The stock gained 10% for a second consecutive day, reaching 38.70 riyals ($10.32) per share before giving up some of its gains.
Saudi Aramco has gained roughly $300 billion in value since its shares debuted on the Riyadh stock exchange on Monday in the biggest initial public offering on record. It's by far the most valuable company in the world, dwarfing runner up Apple, which is worth around $1.2 trillion.
The vast majority of buyers for the stock are in Saudi Arabia. Samba Capital, which managed the IPO, said Tuesday that 97% of retail investors who received shares were from the country. And more than 75% of shares sold to institutional investors went to Saudi companies, funds and government institutions.
The $2 trillion valuation was a priority for the crown prince ever since he first touted the partial privatization in 2016, but many analysts considered the figure a stretch despite Aramco's monopoly on oil production in Saudi Arabia, the world's largest exporter of crude.
Analysts at Bernstein Research said Thursday that the $2 trillion valuation was "too much, too soon" given weak expected earnings growth and little upside for global oil prices. The company looks expensive, they said, compared to peers such as Exxon (XOM) and Royal Dutch Shell (RDSA)
"Aramco should trade at a discount rather than premium to international oil majors," the analysts said. More than 98% of the company is still owned by the kingdom, they noted, suggesting that investors should be concerned about corporate governance. Bernstein reckons the company is worth as little as $1.4 trillion.
"Aramco could trade in a league of its own for some time, but the stock market is a weighing machine in the long term and the laws of economic gravity will eventually apply," said the Bernstein analysts. They recommended that investors sell Aramco shares now.

The long road to an IPO

International skepticism over the valuation, combined with low oil prices, the climate crisis and geopolitical risk, forced Saudi Arabia to scale back its initial ambitions for the flotation. 
The IPO was supposed to usher in a new era of economic liberalization and foreign investment in Saudi Arabia. The Saudi government discussed floating 5% of the company in 2018 in a deal that would raise as much as $100 billion. It was looking at international markets such as New York or London, as well as Riyadh.
But the deal was hampered by concerns about the valuation and potential legal complications in the United States. It was shelved after the murder of journalist Jamal Khashoggi in a Saudi consulate in Turkey sent a chill through business ties with the kingdom. 
Yet the listing was revived earlier this year, and Aramco moved ahead despite receiving muted interest from international investors. Aramco ultimately raised $25.6 billion by selling 1.5% of the company at a valuation of $1.7 trillion. 
Gianna Bern, an energy expert who teaches at the University of Notre Dame's Mendoza College of Business, said the local offering was able to attract a "friendly audience" of Saudi nationals. International investors will watch how the company handles disclosure and regulatory requirements before considering whether to buy into a potential future international listing.
"The real test will be a global offering, in another jurisdiction, such as London or Asia with more stringent regulatory requirements," said Bern, who is also the founding principal of energy consultancy Brookshire Advisory and Research.