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Susty Pros - Nov 13, 2017

Brent crude surged to US$64/b and WTI to US$57/b as instability in Saudi Arabia – ranging from royal arrests of 11 princes, missiles launched from Yemen and a Saudi prince killed as his helicopter crashed – rattled the market. Also supporting stronger prices is Nigeria’s pledge to limit its output, despite being exempt from OPEC’s freeze due to insurgent attacks.

Update: WEEK 30 Oct - 3 Nov OIL AND GAS - Easwaran

In the world oil:

Prices

Upstream

The hits keep coming in Mexico. State oil firm Pemex announced the country’s largest onshore oil discovery in 15 years, with the Ixachi well in Veracruz estimated to have some 350 million barrels of proven, probable and possible reserves. Exploiting the light crude resource should prove straightforward, given that it is located near existing onshore drilling infrastructure.

Papua New Guinea’s Oil Search is expanding into (very) different territory that the equatorial island. The company has bought stakes in Alaska’s North Slope for some US$400 million, acquiring Nanushuk and surrounding fields that are estimated to contain up to 500 million barrels.

The acquisition of the Forties Pipeline System (FPS) by INEOS from BP has been completed, with INEOS now having complete ownership and operation of the FPS, Kinneil gas processing plant, Kinneil oil terminal, Dalmeny storage and export facility, infrastructure sites in Aberdeen and the Forties Unity Platform - a key part of the British North Sea industry.

Greenland will hold an oil and gas concession auction in offshore west coast areas in Davis Strait and Baffin Bay next year in a bit to get its moribund upstream exploration programme back on track. Estimates have suggested Greenland holds some 17 billion barrels of oil equivalent off its west coast, and 32 billion boe off its east coast, but accessing those reserves has been hampered by weak crude prices over the past 3 years.

Insurgent sabotage could be returning to Nigeria as the Niger Delta Avengers issued a ‘bloody and brutal’ warning to energy firms operating in the region, with a specific mention of Total’s Engina FPSO system.

The US lost another eight oil rigs last week, the largest drop since May 2016, causing the overall active American oil and gas rig count to slip below 900. Languishing in the face of recent crude price stagnation, the recent rally in WTI prices may tempt some drillers to restart sites soon.

Downstream & Midstream

Much like US LNG, American crude is starting to pop up in new places. PKN Orlen – Poland’s largest refiner – received its first American crude shipment last week. It adds another dimension to eastern Europe’s desire to wean itself off Russian oil and gas, as a vast majority of crude oil refined in Poland currently comes from Russia.

Natural Gas and LNG

Greece’s Energean has signed three new deals to sell natural gas from Israel’s offshore Karish and Tanin fields to Israeli energy firms Dorad Energy, Ashdod Energy and Ramat Negev Energy. Expected to start production in 2020, gas from the Karish and Tanin fields will be piped onshore to the customers – amounting to 6.75 bcm over 14 years for Dorad, and 2.65 bcm for Ashdod and Ramat Negev over the same period.

Last week in Asian oil

Upstream

As pipeline shipments from Iraq’s Kurdish region resume to Turkey, Baghdad is moving to impose federal will on Kurdistan’s oil assets. Iraq state-oil marketer SOMO is attempting to convince Turkey to see SOMO as the sole seller of Kurdish crude that arrives at Ceyhan. Currently, Turkey recognises independent exports by the Kurdish Regional Government (KRG) as well as SOMO volumes that piggyback on the pipeline.

As Pertamina takes over the Mahakam block from Total and Inpex on January 1, 2018, the Indonesian state oil firm announced plans to spend US$700 million to maintain production levels at the block. Production at Mahakam has been dipping recently, projected to fall to 53,000 bpd of oil and 1.43 bcf/d of gas in 2017, and even maintaining current output levels will require significant investment on Pertamina’s part.

SOCO International has picked up two new offshore blocks in Vietnam. The PSCs for the blocks, located in moderate-to-deepwater in the Phu Khanh Basin, north of the prodigious Cuu Long Basin, are with PetroVietnam and SOVICO Holdings, with SOCO holding 70%.

Downstream

South Korea’s SK Energy will be building a new US$900 million 40 kb/d desulfurisation unit at its 840 kb/d Ulsan refinery, in an attempt to boost its production of low-sulphur fuels. International sanctions on sulphur emissions in the marine section are scheduled to take effect in 2020, pushing refiners to invest in upgrade units. The new unit at Ulsan will also boost production of gasoil and naphtha through reprocessing of fuel oil.

It appears that Saudi Aramco’s involvement in Petronas’ RAPID refinery project is not yet set in stone. Some technical issues are holding up final agreements, which will see Aramco pump in US$7 billion into the refinery in Johor, but the Malaysian government expects things to be smoothed over soon. It is likely to, given that Aramco just bought a US$900 million stake in RAPID-associated petrochemical projects last month.

India’s BPCL has completed the expansion of its Kochi refinery, bringing its capacity up from 190 kb/d to 310 kb/d. A new CDU and coking unit was installed as part of the expansion, delayed from its original projected date of late-2016, with BPCL now ramping up production. The Kochi refinery is currently running at some 84% utilisation, and BPCL intends to move to full capacity over the next two years.

Natural Gas & LNG

As Petronas announced that it will no longer include resale destination clauses in its new Japanese LNG contracts as required by the Japan Fair Trade Commission, Osaka Gas announced plans to raise its LNG resale volumes significantly by 2020. One of the few buyers with some looser clauses, Osaka Gas has been reselling LNG since 2006 – hitting 1.1 mtpa in resales last year – and is pushing to increase that. It targets annual trading volumes of 10 mtpa, of which 3 mtpa would be from resales.

Chevron has exported its first LNG cargo from its Wheatstone project in Australia. Production at the mega-LNG facility started up in early October, with shipments targeted at markets in northeast Asia. The inaugural cargo goes to Japan’s JERA, the world’s largest buyer of LNG.

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