Coronavirus creates repair headache for oil and gas industry
The coronavirus pandemic has disrupted maintenance at oil and gas projects and refineries from Russia’s Far East to the coast of Canada, storing up problems for an industry already reeling from slumping prices, analysts say. Lockdowns to stop the spread of COVID-19, the flu-like infection caused by the virus, have snarled the supply of spare parts and have prevented maintenance workers from doing their job. Regular repairs are needed to keep wells pumping, pipelines and refineries functioning and ships moving. Without maintenance, the risk of glitches or unplanned outages increases and delays risk driving up the cost of work later – partly because there will be a rush to do maintenance when lockdowns ease, and partly because plants have lost the optimal timing and weather for work during the northern hemisphere spring. “When the virus and the quarantine measures have been eased and it is safe to get back to work, it doesn’t mean the same work can be done with the same intensity because the weather windows could be missed and that can push maintenance even to the next year,” said Matthew Fitzsimmons, Vice President of the Oilfield Service team at research firm Rystad. In the meantime, companies which service the oil industry are being hit by the lack of work. “A lot of service companies are not getting the revenues they had otherwise expected in 2020. That is going to have a huge impact on the health of the service industry,” said Fitzsimmons. A MAJOR HEADACHE Oil and gas companies involved in exploration and production spent an average of $80 billion a year on maintenance between 2015 and 2019, according to Rystad. The industry typically takes advantage of periods of slow demand to do repair work but with oil prices nearly halved since the start of the year, this is no ordinary trough. Companies, many of them lumbered with high debts, are slashing all but the most essential work. Some units were shut down for maintenance but the work never started according to Amanda Fairfax, downstream oil market analyst at Genscape, a firm that monitors refineries activities with cameras. “They don’t want either to invest the capital expenditure into the maintenance project or they don’t want to have as many contract workers on sites as the additional influx of workforce might compromise people who have to remain at the refinery as essential personnel,” she said. A large maintenance programme in Russia’s Far East Sakhalin-2 project faces delays as the firm could not get pre-ordered pieces of machinery, two sources told Reuters. “There was a major headache with parts manufactured in China. After the coronavirus outbreak there, the supplier told us it couldn’t deliver our order. There are attempts to replace it, but the time has been lost,” an industry source told Reuters. Sakhalin Energy told Reuters that the company operates according to a long-term maintenance plan, which is being constantly revised. “All works will be carried out in accordance with up-to-date plans, safety instructions and quarantine measures required by the state authorities,” the company’s representative said in an email. Its neighbour, Sakhalin-1 project, operated by ExxonMobil , also said earlier this month that it was adjusting the schedule and scope of work at the plant. “To ensure the safety of our personnel … we are focusing on those activities, which can be executed safely in the current COVID-19 situation and are essential for our continued economic and operational resilience,” ExxonMobil said. Reuters has identified nearly a dozen companies whose maintenance and development plans have been affected by lockdowns. THE ITALIAN CONNECTION The lockdown in Italy, which has suffered one of the worst virus outbreaks globally, has reverberated across the energy sector because the country is a leading valve manufacturer. An industry source in Milan told Reuters that until recently less than 10 percent of Italian producers remained active, struggling to supply even strategic valves to overseas clients. Italy eased its coronavirus lockdown early in May, giving factories the green light to restart production lines. One energy company in Nigeria said it was hoping to receive valves from its Italian supplier soon as they had been first in line when the shutdown began, the source said. But others are less optimistic. A maintenance and development operation at an onshore field in Nigeria was delayed for months as the local oil firm could not receive equipment on time, a company source told Reuters. Oil companies across Nigeria have also struggled to move workers to where they are needed due to lockdowns that vary by state, and regulations from the petroleum regulator limiting the number of workers at any oil site is also complicating operations. Rivers state, home to the oil hub of Port Harcourt, is under a lockdown so strict that the governor arrested 22 oil workers who landed there, despite federal government permits allowing them to travel. The Rivers movement restrictions have also trapped pipes and other needed materials that are needed at oil fields outside the state, industry sources told Reuters.
Google backs off on AI for oil and gas extraction
Google says it will no longer build custom artificial intelligence tools for speeding up oil and gas extraction, separating itself from cloud computing rivals Microsoft and Amazon. The announcement followed a Greenpeace report Tuesday that documents how the three tech giants are using AI and computing power to help oil companies find and access oil and gas deposits in the U.S. and around the world. The environmentalist group says Amazon, Microsoft and Google have been undermining their own climate change pledges by partnering with major oil companies including Shell, BP, Chevron and ExxonMobil that have looked for new technology to get more oil and gas out of the ground. But the group applauded Google on Tuesday for taking a step away from those deals. “While Google still has a few legacy contracts with oil and gas firms, we welcome this indication from Google that it will no longer build custom solutions for upstream oil and gas extraction,” said Elizabeth Jardim, senior corporate campaigner for Greenpeace USA. Google said it will honor all existing contracts with its customers, but didn’t specify what companies. Greenpeace’s report says Microsoft appears to be leading the way with the most oil and contracts, “offering AI capabilities in all phases of oil production.” Amazon’s contracts are more focused on pipelines, shipping and fuel storage, according to the report. Their tools have been deployed to speed up shale extraction, especially from the Permian Basin of Texas and New Mexico. Some of the contracts have led to internal protests by employees who are pushing their companies to do more to combat climate change. Amazon declined to comment on the Greenpeace report, but pointed to wording on its website that said “the energy industry should have access to the same technologies as other industries.” Microsoft did not immediately respond to a request for comment.
Asian jet fuel refining margins turn positive first time in a month
Asian refining margins for jet fuel turned positive for the first time in a month, bolstered by deep supply cuts and an uptick in domestic flights in regional markets such as China and Vietnam after governments eased in-country travel restrictions. The jet fuel refining margin in Singapore flipped to $1.83 per barrel above Dubai crude on Tuesday, in the positive territory for the first time since April 20. Measures imposed to curb the spread of the coronavirus have caused jet fuel demand to plunge since February, leading to refining losses of as much as $7.23 a barrel on May 5. “The jet fuel market in Asia has already hit a bottom, with some airlines even filing for bankruptcies… I think the countries easing or removing their lockdowns would definitely help the market a bit,” a Singapore-based trader said. “But I’m not so optimistic that it can turn the market around or bring it to pre-pandemic level.” Planned refinery turnarounds and run cuts at regional refineries have helped curb excess supplies from the market, while domestic demand in China kindled hopes for a gradual recovery, trade sources said. China Aviation Oil (CAO) has been actively bidding for jet fuel cargoes in the Singapore physical trade window this month, lapping up 245,000 barrels of the fuel in the last one week, which represents half of the traded volumes in an otherwise subdued market. Aviation data provider Cirium showed six of the top ten airlines ranked by number of scheduled flights operated with passenger jets last week were Chinese. Vietnam Airlines with a little over 1,150 scheduled services operated last week ranked 21st, Cirium said, as the country tries to boost domestic tourism. Still, the aviation market is expected to take years to recover to pre-crisis levels as passengers continue to shy away from travelling to avoid quarantine even after countries have reopened their borders.
India’s IOC ramps up runs faster than expected
India’s biggest refiner state-controlled IOC has boosted capacity utilisation to 74pc from 60pc last week, raising rates more quickly than had been expected after lockdown relaxations increased fuel demand. The company said on 11 May that it plans to boost runs to 80pc by the end of May but may achieve the target this week, an IOC official said. IOC processed 1.56mn b/d of crude across its 10 refineries in March. Higher throughputs will help to restore purchases of term crude from the Middle East in June, after Indian refiners halved imports in May. They may take 50-70pc of their committed term crude volumes next month. IOC is also boosting runs at its naphtha cracker and MEG plant at its 300,000 b/d Panipat refinery in northern India because of stronger demand for chemicals. India’s fuel demand will reach 80pc of usual levels by the end of May, oil minister Dharmendra Pradhan said. Over 80pc of India’s agricultural markets have reopened, from fewer than half early last month, and this has bolstered diesel sales. Gasoline demand averaged 746,000 b/d in May 2019 and diesel use averaged 1.87mn b/d, according to the oil ministry. India extended a nationwide lockdown by two weeks to 31 May but offered several relaxations to factories, agriculture services and offices. Easing restrictions amid a surge in Covid-19 cases will further encourage transmission of the virus, according to medical experts. There have been over 101,000 cases in India so far. State governments are prioritising revenues because the extended lockdown has drained finances and consumption, leaving over a hundred million people unemployed.
IOC eyes hydrogen-based fuel to shape India’s energy transition: chairman
State-run Indian Oil Corp. is working on a long-term energy transition strategy, which would involve producing hydrogen in a cost-effective way as well as developing technology to combine compressed natural gas with hydrogen, its chairman Sanjiv Singh told S&P Global Platts in an interview. In addition to refining and fertilizers, hydrogen provides a huge opportunity for the transportation sector, and in other commercial applications, but one of the biggest challenges to overcome is to make it commercially viable, he added. “I see a lot of potential and lots of opportunities for hydrogen. There are three parts to the story — hydrogen production, hydrogen fuel cells and how we use hydrogen in the transportation sector,” Singh said. “We see ourselves as a company to provide the answers for producing hydrogen in an economical way.” India is joining other Asian countries, such as China, South Korea, Japan, in speeding up research on how to embrace hydrogen in its energy mix and cut dependence on fossil fuels. In addition, while Australia has set aside funds for research on the sector, a few companies from Singapore have tied up with some Japanese firms to study the prospects for hydrogen. Singh said IOC is working on technology to develop hydrogen-spiked CNG — or H-CNG — which would involve partly reforming methane and CNG. “Under this process, the entire CNG of a station passes through this new reforming unit and part of the methane gets converted into hydrogen, with the outlet product having 17%-18% hydrogen,” Singh said. “So if you are using this product, the emission level from a Euro-4 equivalent vehicle comes down to that of a Euro-6 level vehicle.” Singh said IOC had set up this unit at a bus station in the Indian capital and there were plans to expand in to other cities in the future. “We have done the base line survey of 50 buses using this technology. We are waiting for the statutory approval for starting the unit. Once it is approved, we will have another field trial for about four months or so and then we may scale up this concept to other bus depots in many other cities,” Singh said. As part of the hydrogen vision, IOC, in coordination with vehicle manufacturers, will take up lab-scale development of H-CNG engines. Other projects identified include the development of hydrogen-powered three-wheeler and bus engines in association with the Society of Indian Automobile Manufacturers, the conversion of CNG three wheelers and buses to H-CNG, and the development of hydrogen conversion kits for portable generators. According to Roman Kramarchuk, Platts head of Scenarios, Policy and Technology Analytics, the transportation sector provides ones of the best opportunities in Asian countries to expand the use of hydrogen. Hydrogen fuel cells Commenting on the prospects of hydrogen fuel cells, Singh said there is a need to develop technology that would help bring down the cost of production. This would eventually help in speeding up the process of embracing it. “In hydrogen fuel cells, you can have all the benefits of EVs but at the same time eliminate all the bottlenecks of using batteries,” Singh said. Indian energy industry officials said the major concern with battery vehicles going forward would be the dependence on lithium and cobalt, and the issues around its pricing and availability, besides the environmental challenges during mining. The shift to battery electric vehicles would also require charging infrastructure to be developed. Battery electric vehicles would likely have limited range and would also require a much longer time for charging batteries, according to Ravinder Kumar Malhotra, president of the Hydrogen Association of India. He added that hydrogen can be re-fueled much faster, in 2-3 minutes like natural gas at dispensing stations, and the vehicles would likely also have longer range. “In addition to ensuring energy security to the nation, the environmental benefits of using hydrogen in a fuel cell vehicle could be significant,” Singh added.