Reigniting Operations and Reemerging Post-Pandemic Where does the Americas energy sector stand amid a global pandemic? The Americas Petroleum and Energy Virtual Conference provides comprehensive coverage of the entire energy slate: oil, natural gas, and petrochemicals. We’ll bring together an established community of petroleum players to network and discuss how the energy sector will reignite […]
Jan 26, 2021
Where does the Americas energy sector stand amid a global pandemic? The Americas Petroleum and Energy Virtual Conference provides comprehensive coverage of the entire energy slate: oil, natural gas, and petrochemicals. We’ll bring together an established community of petroleum players to network and discuss how the energy sector will reignite operations, reboot business models, and eventually reemerge post-pandemic.
Community, content, and conversation, all at your fingertips.
— Diving down the barrel: Where are traders finding value?
— U.S. upstream: Driving cost efficiencies, finding access to capital
— Brazilian supply: Fuel market impacts of Petrobras’ refinery divestments
— Chinese demand: Trade deal dynamics; evolving Chinese choices of crude suppliers
— India demand: Is India the long-term growth market for oil demand?
— Refining: Reformatting for renewable fuels amid a sustainability shift
— Petrochemicals: A long road ahead for aromatics; trajectory for recovery
— Shipping: Floating storage and marine fuel price dynamics
— LNG: Global demand doldrums; are Atlantic cargoes a bright spot?
— O&G and the energy transition: Achieving synergies between carbon-efficient E&P, renewables, and hydrogen
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Nov 04, 2020
Chris Midgley, Global Director of Analytics, discusses the global energy outlook in these very uncertain times. This video was produced in collaboration with the 22nd annual S&P Global Platts Global Energy Awards which will be broadcast on Thursday, December 10th. For further details about this gala and how to attend, please visit https://www.spglobal.com/platts/global-energy-awards/attend.
Nov 19, 2020
The West’s top nine oil majors alone are sitting on more than 28 billion barrels of oil equivalent of undeveloped resources, according to company filings, and low prices in 2020 have already sidelined about a third of global oil and gas investments, raising concerns on the potential for future “stranded assets”.
Resources held by Western energy majors could be the tip of the iceberg. According to the International Energy Agency, some 250 billion fewer barrels of oil and 30 Tcm less gas will need to be developed by 2040 for the world to hit its Sustainable Development Scenario (SDS), an outlook compliant with the Paris Agreement to hold the rise in global temperatures to below 2 degrees.
But despite mounting concerns over climate change, most companies are counting on prices that are inconsistent with global warming targets, according to climate think-tank Carbon Tracker.
Last year alone, 15 projects sanctioned by IOCs with a combined $60 billion in investment risk become stranded assets under the IEA’s SDS demand scenario, according to a recent Carbon Tracker study. These include ExxonMobil’s $10 billion Golden Pass US LNG project, Chevron’s $6.3 billion deepwater Anchor US oil project, and Shell’s $3.9 billion deepwater Mero Sepetiba project in Brazil.
In Europe, BP and Eni have already laid out plans to shrink their upstream portfolio, largely by shedding higher-cost resources to focus on their lowest-cost barrels.
Last month, Shell acknowledged for the first time that its oil production has likely already peaked, as the pursuit of “value over volume” accelerates for its upstream assets. Like many of its oil major peers, Shell has prioritized lower-cost upstream assets in recent years, selling off parts of its legacy portfolio and investing in large-scale gas assets and higher-margin deepwater and US tight oil acreage.
Often referred to as portfolio “high-grading”, the sale of more costly, carbon-intensive assets by the oil majors will likely ramp up in the coming years as players prioritize developing of resources most resilient to lower future oil prices.
On the flip side, spending on low-carbon projects by European majors is starting from a low base but is set to rise sharply. In the case of Shell, upstream capex will shrink to around 35%-40% of the total by 2025, down from 50% currently, with about a quarter of spending going on a “growth portfolio” of marketing, power, biofuels and hydrogen.
Despite a flurry of new green spending pledges this year and ambitious low-carbon investment targets, oil and gas absorb the biggest share of oil majors spending by some distance.
Europe’s three biggest oil majors, for example, plan to spend on average about 8% of their total capex on renewables and low-carbon investments this year. The US majors, which lag their European peers on green investments, have yet to even quantify their spending on renewables and low-carbon projects.
Collectively, oil majors are poised to spend just over $18 billion on wind and solar projects until 2025, according to Norway’s Rystad Energy. The total, however, pales in comparison to the $166 billion they are forecast to spend on greenfield oil and gas projects during the same period.
Portfolio exposure is highly linked to demand outcomes and future prices under different scenarios. Under a faster shift to low-carbon energy, projects with the lowest production costs will be most competitive while high-cost projects run a greater risk of becoming stranded assets.
“The majors are focusing on the advantaged resources – high margin, low cost, low carbon risk,” said Luke Parker, the vice president of energy consultants Wood Mackenzie, noting this also means “getting rid of the barrels and molecules that don’t work — the resource that will be stranded in a 2-degree future.”
The threat to reserves and stranded capital varies widely by company and country. European energy majors are prioritizing lower-carbon gas resources and this means their upstream spending is least at risk from weaker demand under the IEA’s “Beyond 2 Degrees Scenario” (B2DS). The picture changes, however, under the less stringent SDS, with US majors benefitting from the high degree of price sensitivity for shale assets, according to Carbon Tracker.
Eni and BP are amongst the best-prepared companies under the B2DS scenario, although up 60% of their respective portfolios are still uncompetitive, the report finds. By contrast, a higher exposure to short-cycle US shale plays sees Exxon and Chevron rank much better overall in the SDS outlook.
“I think if you start a shale well now you know it’s going to be off your books much sooner than if you do an offshore platform,” said Dan Klein the head of scenario planning at Platts Analytics. “Shale is the paragon of short-cycle oil supply and can step in if there is a shortage of supply, so it is a reasonable risk-reward at this point.”
Meanwhile, big-ticket, multi-decade offshore oil developments are most at risk as there’s a limited number of companies that have the resources and expertise to make them work efficiently.
Company outlooks on oil demand will also be informed by the prevailing policy climate, factoring in the likelihood of curbs such as the carbon-intensity of specific oil projects and gas flaring.
“In an efficient market there has to be sufficient return to bring on new supply and probably the divergence between European and American majors is the fact that American majors think that demand might be a bit stronger in the near term at least,” Klein said.
It remains unclear, however, whether the energy transition will force Big Oil to leave billions of barrels that were previously assumed to be recoverable left in the ground.
Unwanted reserves held by oil majors could be sold and developed by smaller producers or privately-held companies less encumbered by shareholder ESG concerns.
Typically majors produce reserves on their books over a 20-30 year horizon. With average production decline rates from existing fields of about 8% per year, the risk to them of large-scale stranded assets could be relatively small given that oil and gas is expected to remain a key part of the global energy mix for decades.
Upstream resources that are written off as impairments as companies lower their future oil price assumptions are also being rapidly revalued by the market, feeding expectations of a surge in industry consolidation through mergers and acquisitions.
European oil and gas companies alone have shed more than $400 billion in market value this year as investors turn away from fossil fuel producers amid weaker oil price expectations.
With that in mind, perhaps the bigger threat to the sector in the near term is the potential for stranded value rather than stranded upstream assets.
It’s Election Day in the US, and at a lot is at stake in the energy sector for the next four years. We’re revisiting three key policy areas that could shift direction depending on today’s vote: * US policy in the Middle East and Washington’s relationship with OPEC, with Amy
Nov 03, 2020
It’s Election Day in the US, and at a lot is at stake in the energy sector for the next four years.
We’re revisiting three key policy areas that could shift direction depending on today’s vote:
* US policy in the Middle East and Washington’s relationship with OPEC, with Amy Myers Jaffe, research professor and managing director of the Climate Policy Lab at Tufts University’s Fletcher School.
* US oil sanctions toward Venezuela and Washington’s so-far failed attempts to remove the Maduro regime from power, with Raul Gallegos, director of Control Risks and author of Crude Nation.
* Expected climate policy in the next presidential term, with Jeff Berman, director of emissions and clean energy analytics at S&P Global Platts Analytics.
Sep 17, 2020
“You’re cordially invited to the 22nd Annual Global Energy Awards. For 21 years, we have gathered in New York to celebrate the best of the energy industry, and this year is no exception. While we won’t be able to meet in person, we will be hosting the first-ever virtual Global
Sep 29, 2020
“You’re cordially invited to the 22nd Annual Global Energy Awards. For 21 years, we have gathered in New York to celebrate the best of the energy industry, and this year is no exception. While we won’t be able to meet in person, we will be hosting the first-ever virtual Global Energy Awards ceremony. Jason Alexander, Tony and Emmy award winner and most known for his role as George on Seinfeld, will keep you entertained as this year’s host”
The US oil and gas sector is facing several huge transitions all at once: the immediate crisis brought on by the pandemic and a longer-term energy transition away from fossil fuels. Today we’re looking at a third shift confronting the US upstream: digital transformation and the need for the oil and gas workforce to catch […]
Nov 16, 2020
The US oil and gas sector is facing several huge transitions all at once: the immediate crisis brought on by the pandemic and a longer-term energy transition away from fossil fuels.
Today we’re looking at a third shift confronting the US upstream: digital transformation and the need for the oil and gas workforce to catch up in this area.
A new survey by Ernst & Young found a major digital skills gap among the oil and gas workforce, and the pandemic is increasing the urgency to close it.
About 92% of oil and gas executives surveyed believe their companies need to change the way they operate coming out of the downturn, but less than half said they have a robust plan to reskill staff and capture the value of digital transformation.
Tim Haskell, EY’s US oil and gas people advisory services leader, tells us some other findings from the survey and how the industry’s response to this challenge will determine future growth.
Stick around after the interview for the Market Minute, a near-term look at oil market drivers.
Monitoring committee to meet online Nov. 17. Delegates review 3- or 6-month cut extension. Analysts say weak cut compliance could cost $7/b.
Nov 16, 2020
Recent promising results from coronavirus vaccine tests have provided some optimism that the global economy could return to normal by perhaps the back half of 2021, but the OPEC+ alliance must first tackle a likely challenging winter and possibly spring.
Renewed lockdown measures to contain the spread of COVID-19 in Europe continue to weigh on oil demand, even as economic activity in Asia appears robust. Meanwhile Libya’s surprise oil industry revival following months of political and military turmoil is another damper on prices.
OPEC+ ministers are weighing whether to relax their current 7.7 million b/d in collective production cuts to 5.8 million b/d as originally scheduled, maintain them at the same level for a few months, or even deepen them.
The coalition will convene online Nov. 30-Dec. 1 to hammer out an agreement, but the Joint Ministerial Monitoring Committee, a nine-country panel co-chaired by Saudi Arabia and Russia, could provide the first signals of a decision when it meets Nov. 17.
Saudi energy minister Prince Abdulaziz bin Salman has previously said the deal could be “tweaked” as market conditions warrant. An advisory delegate-level technical committee met Nov. 16, reviewing scenarios in which the current cuts were extended for three months or six months, sources told S&P Global Platts.
Such an extension would help bolster the market as it awaits the mass availability of a COVID-19 vaccine, but many members are weary of having sacrificed so much production for so long already.
Traders appear to have already baked in a cut extension through at least the first quarter of 2021. Front-month Brent futures have risen above $44/b, after having hit a five-month low of $37.86/b on Oct. 30.
“The odds are overwhelming that there will be a postponement on putting oil back on the market,” one top oil trader said at an industry conference, asking not to be named, while another said expectations are that the “market will not be burdened with 2 million b/d from January in one go.”
Beyond the decision on cuts, compliance remains a sore spot among many members, OPEC+ sources said. Thirteen out of the 19 OPEC+ members with quotas have breached their caps since May and only the UAE has made significant progress in implementing its “compensation cuts” owed for overproduction, according to internal documents seen by Platts.
Full conformity would have helped speed the market’s rebalancing from the pandemic, and OPEC+ delegates said they expect more contentious discussions around the issue, given Prince Abdulaziz’s avowed drive for compliance.
Platts calculates OPEC+ quota compliance at a perfect 100% for October, but that was juiced by the UAE’s catch-up volumes and traditionally strong performance from Saudi Arabia.
Market watchers will be monitoring how closely OPEC+ adheres with its quotas – as well as Saudi Arabia’s patience with a lack of follow-through on compensation cuts – as the alliance manages supply in 2021.
Analysts with the Oxford Institute of Energy Studies calculate that oil prices could slide as much as $7/b for the year if OPEC+ discipline deteriorates.
“A shift in expectations of improved fundamentals in the second half of 2021 following the positive news on the vaccine may render the option of withholding barrels today and releasing them when the better times arrive attractive,” the analysts said in a note. “Whatever decision OPEC+ takes, maintaining high compliance is key.”
Nov 24, 2020
The glut in the oil market could prove stubborn to shift. Potential changes in OPEC+ and US policy won’t solve the industry’s demand problem, while the world’s key oil producers will be hard pushed to cut supply further. Only a vaccine can cure COVID-19-induced consumption ills. Record coronavirus cases, a new wave of lockdowns across […]
Nov 17, 2020
The glut in the oil market could prove stubborn to shift. Potential changes in OPEC+ and US policy won’t solve the industry’s demand problem, while the world’s key oil producers will be hard pushed to cut supply further. Only a vaccine can cure COVID-19-induced consumption ills.
Record coronavirus cases, a new wave of lockdowns across Europe and a stagnant road-use trend in the US have forced oil forecasters to scale back their recovery scenarios. The major European economies have seen mobility drop to its lowest since mid-June, signaling a renewed collapse in gasoline and diesel demand.
S&P Global Platts Analytics slashed its 2021 oil consumption outlook by 700,000 b/d recently and now predicts oil demand growth of 5.8111 million b/d in 2021, putting any revival well below pre-COVID-19 levels.
China has almost single-handedly carried oil in recent months and is the only country expected to see year-on-year growth, albeit just 0.3%, according to Platts Analytics, but there are limits to its support.
Indian mobility has tentatively started to pick up but, nevertheless, remains extremely weak given the country has been the second-worst hit after the US, in terms of COVID-19 infections.
Progress over a vaccine has given the oil market hope, but there are still more questions as answers. When will a vaccine be approved? When will it be available to be rolled out on a mass scale?
Time ticks away and, with it, the demand recovery.
The task ahead remains a challenging one despite global crude stocks coming down from lofty highs in the summer. US crude stocks, for example, remain well above their five-year average and the trajectory lower has been slow.
There is a long way to go.
OPEC and its non-OPEC allies led by Russia are having to rethink their plans. The so-called OPEC+ producer pact meets at the end of November and there is a growing consensus the alliance will no longer be able to release almost 2 million b/d of crude back into the market early next year as it had intended. The most likely scenario is a rollover of the current 7.8 million b/d production cut deal for three months, but there is even chatter that OPEC+ may consider something more drastic to bolster prices.
The oil outlook has been complicated by the return of Libya, which has surpassed all output expectations. The crisis-torn North African nation went from pumping less than 100,000 b/d in September to 1 million b/d in early November after a delicate truce was struck between warring political factions.
OPEC also has the added headache of compliance. If serial offender Iraq, OPEC’s second-largest oil producer, continually fails to live up to its end of the bargain, it risks damaging the goodwill from all other members.
Iraq upped its production to 3.79 million b/d in October, according to the latest Platts survey, an amount which met its monthly quota but did not make up for previous violations.
The US oil industry has been hit hard by weak demand and low oil prices, which have obliterated around 3 million b/d of production. But ultimately the 2020 spike in exploration and production companies filing for bankruptcy and high-profile consolidations–such as ConocoPhillips snapping up Concho Resources and Chevron buying Noble Energy–will eventually leave the shale patch in better shape.
Risks that a Biden presidency will hurt the US fossil fuel industry are also likely overdone in the near term, at least. Joe Biden, who is set to be the new US president, has vowed to make a significant policy shift to clean energy but could be hampered by an unsupportive US Senate and the task of getting COVID-19 under control and the economy back on track.
US oil and gas producers may have slowed drilling to a bare minimum but operators holding federal permits have kept drilling wells ahead of any potential ban to build up a healthy reserve.
Biden has said he would halt issuing new federal drilling permits, meaning operators could continue to bring their drilled but uncompleted wells, or DUCs, into production. He has not promised to end drilling on federal lands completely or impose a national fracking ban. Platts Analytics believes around 1.1 million b/d of production could be hit by 2024.
But the net result of a Biden presidency for oil may still be bearish over his time in office. New US international diplomacy could see 2 million b/d of sanctions-hit Iranian barrels returning to the market at some point.
That said, there remain huge challenges in brokering a new deal, especially given elections in the OPEC member next year and the risk of hardliners returning to power. Platts Analytics doesn’t see more than 750,000 b/d of additional crude from Iran before 2022.
While there is sure to be a reduction of the oil glut next year, net importers, such as China and India, should find they will still be spoilt for choice at reasonable prices. As demand picks up, OPEC+ members will be itching to turn on the oil spigots. Platts Analytics doesn’t see prices going beyond $50/b by the end of 2021 after hovering close to $40/b for the past few months.
The old oil market adage is that the cure for low oil prices is low oil prices. Whether these low prices can trigger demand this time around has its doubters.
One thing is more certain: The world’s biggest suppliers–the US, Russia and Saudi Arabia–will be very much the support act, with the oil demand recovery saga the only show in town.
Hussain Sultan Al Junaidy founded Emirates National Oil Company, ENOC, in 1975, and was group CEO of the company until 2007. He maintains a link with the oil industry through a number of oil-related companies including oil trading companies Neptune Energy Trading and Dominion Petroservices where he is chairman. In this interview with S&P Global […]
Nov 05, 2020
Hussain Sultan Al Junaidy founded Emirates National Oil Company, ENOC, in 1975, and was group CEO of the company until 2007. He maintains a link with the oil industry through a number of oil-related companies including oil trading companies Neptune Energy Trading and Dominion Petroservices where he is chairman.
In this interview with S&P Global Platts” head of news for EMEA, Andy Critchlow, and Middle East oil pricing editor, Tahani Karrar, Al Junaidy looked back at the history of Dubai’s oil sector and ENOC itself. He also shared his outlook for Middle East oil demand post-coronavirus and the continued push towards diversification and self-sufficiency in the United Arab Emirates. Al Junaidy spoke with S&P Global Platts on August 8.
I”m a chartered civil engineer, I graduated from Glasgow University and trained in the UK. I was headhunted by Caltex, which is now Chevron, and I started working for Caltex in 1966. Caltex trained me well, I think, for the job that they wanted me to do. And the job was to open Caltex in the then Trucial States, starting in Dubai.
In 1969, Caltex were in Bahrain, they had a joint venture with the Bahrain government and jointly owned the Bapco [Bahrain Petroleum Co.] refinery in Bahrain, which was and still is one of the largest in the region. But they had no marketing facility, they had nothing at all south of Bahrain. So they wanted to start a total marketing setup in Dubai and they asked me to help them do it. There was nothing in Dubai at that time, the so-called service stations in Dubai were then one pump, probably maximum two pumps, out in the open, and a small shack behind it, where some poor guy sat with no air conditioning.
When I started building the first service stations, Caltex service stations, they were the most modern you would see anywhere. They compare with the service stations you see today with beautiful two-pump islands and a whole canopy over the pump islands, a convenience store, and also each station had a car wash and a lube oil bay.
Then, after setting up six stations in Dubai, I went to Abu Dhabi in late 1969 to do the same thing as in Dubai. But unfortunately, in 1973 they were nationalized by ADNOC in Abu Dhabi. I was then sent to the United States with Caltex to train at their headquarters in New York and also to study at the University of Pittsburgh, Graduate School of Business, and returning to Dubai as CEO in 1975.
Dubai started booming after 1969 as offshore oil started to be exported and revenues started to come in from the new oil production. Money started coming in and the oil price shot up in 1972, and the whole Gulf, particularly Dubai, started to boom. Sheikh Rashid wanted gas because people had now started to live in Dubai and a lot of people wanted gas cylinders. There is no gas in Dubai so they used to load up all these cylinders on dhows, take them to Bahrain or Ras Tanura, fill up there and bring them back to sell in Dubai. This took time and you had delays, and sometimes they would even run dry.
So we went to Bapco and arranged for pressurized gas to be supplied through a new pipeline to their loading jetties.
My team and I quickly built a small bottling plant along the Creek, with only 200 tons at that time, and I bought a small LTG tanker, a second-hand one, but in good condition, from Europe. I got it here quickly and started the first company, called Emirates Gas.
From 1975-1982, we were supplying the entire requirements of LPG, for the whole of what became the UAE, no longer the Trucial states, but also in the Sultanate of Oman. And that was one of our most successful companies ever.
We also formed a joint venture with an Indian company to manufacture LPG cylinders, structural steelwork and storage tanks, and also formed the Dubai Maritime Transport Company to own the LPG tankers.
In 1980, we started Emirates Bunkering and Bitumen Company, EBBCO, which started selling bitumen for the first time in the UAE and also bunker fuels and diesel. From then onwards, it just went one company after another.
EBBCO was 60% Dubai government and 40% Caltex. We later invested, built and ran service stations. Caltex was at that time in the lube business and also in aviation at the airport, but my companies couldn”t be part of their operations so I said, “Listen, you want to join me, but you won”t let me join you? Then I’m going to go on my own.” They said, “Are you serious?” And I said, “Of course I”m serious.” And that’s how I started. In 1993, I formed the holding company, ENOC, Emirates National Oil Company.
EBBCO changed from Emirates Bunkering and Bitumen company to EPPCO, Emirates Petroleum Products Company. And we started to go into everything humanly possible downstream. We formed Horizon Terminals Limited, now a major company, and our first oil storage was built in Jebel Ali. Later we expanded by bringing in shareholders, who were the first users of the terminal, such as oil traders and oil companies. We said to them, “Instead of leasing apartments why don”t you lease storage tanks?” And that’s what they did.
When I decided to call it a day, in about 2007, ENOC had grown to over 32 companies.
We wanted ENOC to become a fully-integrated oil company. We needed to buy an upstream company and by chance we found Dragon Oil, which is listed on the London Stock Exchange but established in Dublin. It had a small oil production in the Eastern part of the Caspian, in Turkmenistan. The technical report said that the P2 reserves of the country had 650 million barrels of oil reserves and 3 Tcf of gas.
After the Soviet Union collapsed, Dragon Oil”s production was only 6,500 b/d, [and] declining. The oil price was $11 a barrel, but it was a calculated risk. By 2005, it was already producing 45,000 b/d and more, and the oil price started going up. The production and market value of Dragon Oil kept rising and the market value reached over GBP3.5 billion.
Dubai”s oil production started in 1969, and at that time everyone knew that the offshore wells would be depleted soon. Production started at up to 400,000 b/d and then started with the decline. Dubai never relied on the money coming from the oil, it decided a long time ago that it should diversify from oil and go into other things, such as trading, business and tourism.
I think that serves Dubai right because you look at what happened to the oil pricing over the years. I mean, the oil price has been under pressure for some time, for a variety of reasons. Also, the minute shale price came in at $60 a barrel, shale became a big competitor. And of course, think of the other alternatives that came in into the market, whether it is the solar, wind or nuclear – which has started already in the UAE and has already been connected to the grid.
When the coronavirus came in, that was a shock because everything closed down. The global economy nearly shut down for a while and there was less demand for not only the gasoline but for everything. People soon realized that the days of oil dependence are soon over and most of the countries in the Gulf are now suffering.
Many countries are now borrowing money. We are lucky in the UAE – Abu Dhabi, which contains 95% or more of the country”s oil and 92% of the gas, has invested its money very wisely.
I think in 20 or 30 years we are really going to see less and less dependence on oil and more on the alternatives of oil – look at gasoline now, we have electric cars everywhere. We”re living in a world where everything is changing fast.
I’m not sure whether Fujairah will benefit from an even bigger refinery… demand has gone down, for products, for everything. And there are more refineries in Saudi and everywhere, existing refineries are also expanding. Even the condensate refinery in ENOC has upgraded to increase its production to over 200,000 barrels a day.
I think what Dubai will probably focus on is developing more industries here locally – even producing food supply here. We are not talking about just vegetables and fruits but also fish and livestock. Dubai is now doing wonderful things in terms of being self-sufficient as far as food supplies. Coronavirus is forcing policymakers to rethink how they trade and how much they rely on other countries for food security. What is needed is to be really self-reliant.
Recently, an announcement was made about gas development in Dubai, on the border of Jebel Ali and Abu Dhabi. What do you think the potential for that is?
That was announced jointly by Abu Dhabi and Dubai, and we expect that the field will be developed jointly. We’re waiting to hear more, it’s just a matter of time, as it takes time to develop a field.