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.
India plans to top up strategic tanks with cheap Saudi, UAE oil
India plans to take advantage of low prices for oil from Saudi Arabia and the United Arab Emirates to top up its strategic petroleum reserves (SPR), two sources familiar with the matter said on Monday. Global oil prices have fallen around 40 per cent in March as the impact of the coronavirus pandemic has destroyed demand, while supplies are growing following Moscow’s refusal to back deeper output cuts at a meeting of the Organization of the Petroleum Exporting Countries and its OPEC+ allies. Leading OPEC producers Saudi Arabia and Abu Dhabi have said they will increase output while cutting prices, giving big consumers the chance to fill up at discounted prices. “It is an opportune time for us and for them (Abu Dhabi National Oil Company and Saudi Aramco) to finalise the deals and fill the SPRs…If there is any delay, we might fill the SPRs on our own,” said an official familiar with the matter, asking not to be named. A second source, who also requested anonymity, said the oil ministry has written to the finance ministry to release about 48-to-50 billion rupees ($673.7 million) to buy oil in 8-9 very large crude carriers for filling the storage. Indian Strategic Petroleum Reserves Ltd (ISPRL) and India’s oil and finance ministry had no immediate comment, while ADNOC and Saudi Aramco declined to comment. India, the world’s third biggest oil importer and consumer, imports about 80 per cent of its oil needs and has built strategic storage at three locations in southern India to store up to 36.87 million barrels of oil or about 5 million tonnes to protect against supply disruption. ISPRL, a company charged with building of strategic storage, has signed a memorandum of understanding (MOU) with the UAE’s national oil company ADNOC for the lease of half of its 2.5 million tonnes Padur facility. Last year it signed an MoU with Saudi Aramco for the lease of a quarter of Padur SPR. The leases allow the national oil companies to store their oil, some of which will cater for India’s strategic needs, while they can sell the rest to Indian refiners. Padur has four compartments that hold about 4.6 million barrels each. The ISPRL has received 1 VLCC with Arab Mix to fill one compartment and will get a second VLCC in April, a third source said. The ISPRL has already leased half of the 1.5 million tonnes capacity in Mangalore storage to ADNOC, which has stored about 5.5 million barrels of Das oil in the cavern, while ISPRL has retained the remainder. “This is the right time to fill the SPRs before prices start moving up,” a third source said. India has also filled its 1.03 million tonnes Vizag facility with Basra oil from another OPEC producer Iraq. While India is primarily taking advantage of low prices as a consumer nation, U.S. President Donald Trump aimed to help U.S. energy producers struggling to cope with the price fall by announcing he would take advantage of low prices to fill up the nation’s emergency reserve.
ONGC starts pumping gas from KG block
Oil and Natural Gas Corp (ONGC) has begun gas production from its most promising block in the Krishna Godavari basin in the Bay of Bengal and is planning a ramp up production in coming weeks, officials said. ONGC’s KG-DWN-98/2 or KG-D5 block, which sits next to Reliance Industries’ flagging KG-D6 area, holds key to the company’s output profile that is constrained by aging fields. Officials said the company began production from the first well on the KG-D5 block and is currently producing around 0.25 million standard cubic meters per day. It is doing a build-up mapping and the production is likely to rise to 0.75 mmscmd within next few weeks. ONGC is investing USD 5.07 billion in developing the oil and gas discoveries in the block. The project will cumulatively produce around 25 million tonne of oil and 45 billion cubic meters of gas with peak production of 78,000 barrels per day of oil and 15 million standard cubic meters per day. After successfully commissioning its first deepwater project S1 Vasishta in eastern offshore in March 2018 (which would be yielding about 4.3 mmscmd of gas), ONGC is now concentrating on the flagship project from NELP block KG-DWN-98/2 in the deepwater of eastern offshore. Thirty-four wells are to be drilled under this project. Of these 34 wells, 15 are oil-producing, 8 are gas producing and 11 are water injecting wells. The discoveries in the block are divided into three clusters- Cluster-1, 2 and 3. Cluster 2 is being put to production first. The Cluster 2 field is divided into two blocks namely 2A and 2B, which are expected to produce 23.52 million metric tonnes of oil and 50.70 billion cubic meters (bcm) of gas. Oil production is likely to start shortly, they said. Associated natural gas from Cluster 2A of this project will have a peak production of 3 mmscmd of gas and 78,000 bopd of oil with a 15-year profile; non-associated natural gas from Cluster 2B will have a peak free gas production of 12.25 mmscmd with a 16-year profile. Officials said the KG-DWN-98/2 involves some of the most advanced oil field technologies in drilling and completion of 34 sub-sea wells, laying about 425 km of pipeline and 150 km of control umbilical in water depths varying from 300 to 1,400 metres. An Offshore Process Platform for processing and evacuating 6.5 mmscmd of gas has been built. Balance 5.75 mmscmd gas will be transported through ONGC’s existing sub-sea infrastructure and facilities, created at onshore terminal of Odalarevu at the Andhra coast. Floating Production, Storage and Offloading Vessel (FPSO) will also be deployed in water depth of 413 meters to process the oil and gas. The KG-DWN 98/2 block is situated offshore the Godavari River delta in the Bay of Bengal. It is located 35-km off the coast of Andhra Pradesh in water depths ranging from 300-3,200 metres. The Cluster 2A is estimated to contain reserves of 94.26 million tonnes of crude oil and 21.75 bcm of associated gas, while Cluster 2B is estimated to host 51.98 bcm of gas reserves. The Cluster 2A is anticipated to produce 77,305 barrels of oil per day (bopd) and associated gas at a rate of 3.81 million metric standard cubic meters per day (mmscmd). The Cluster-2B is expected to produce free gas of 12.75 mmscmd from eight wells and has a 16-year life.
Russia faces $39 bln budget revenue shortfall in 2020 as oil price drop
Russia’s budget revenues from selling oil and gas are set to be 3 trillion roubles ($39.01 billion) lower than previously expected due to the slump in crude prices, Finance Minister Anton Siluanov said on Wednesday. Siluanov’s previous estimate was for a 2 trillion rouble budget revenue shortfall, with a budget deficit that could reach 0.9% of gross domestic product (GDP) this year.
Shell Energy ties up with Inox India for LNG delivery at doorstep
Royal Dutch Shell’s Indian arm Shell Energy India Private has signed a pact with Inox India for door-step delivery of liquified natural gas (LNG) from its terminal in Gujarat through road to customers who are not connected to pipelines. Shell Energy owns and operates an LNG terminal in Hazira, which has a capacity of five million tonne per annum. INOX India, which specialises in cryogenic liquid storage, distribution and re-gasification solutions, will create distribution infrastructure, including logistics and receiving facilities to deliver LNG from this unit to customers. “We will together work on developing a larger market for LNG in India. We will focus on the automotive sector to promote LNG as a transport fuel for long-haul heavy-duty trucks and buses. Our second focus area will be hydrocarbon-based industry, where we would help LPG users convert to LNG, which is cleaner and cheaper,” Siddharth Jain, executive director, Inox India, told ET. Typically, LNG is gassified at terminals and supplied through pipelines, which operate at high pressure. The door-step delivery model will reduce the dependence on pipelines and give companies access to a larger market. Power and fertiliser units are increasingly using LNG as natural gas availability remains muted. “There is a growing demand for gas, the cleanest-burning fossil fuel, from the city gas distribution sector, commercial and industrial customers and as a fuel for heavyduty transport. We are excited to explore this new segment and develop other such partnerships which will enable us to continue playing a key role in meeting India’s longterm need for more and cleaner energy,” Ashwani Dudeja, country head, Shell Energy India, said in a statement. Inox, under its brand ‘GoLNG’, has a fleet of 20 transport tankers that have collectively logged more than 6.5 million kilometres and distributed around 100,000 tonnes of LNG, primarily from state-run oil marketing companies, to its consumers spread all over the country. With the tie-up with Shell, it aims to scale up this capacity. “We will initially start with at least 300,000 tonnes per annum and ramp that up to at least a million tonnes per annum. We are already in talks with potential customers and we hope to have confirmed contracts in the next 3-6 months,” Jain said. Under the arrangement, a customer would have two agreements — one with Shell Energy for buying LNG, the other with Inox for getting the LNG using its network, referred to as “virtual pipeline. Energy majors are looking at door-step delivery of fuel to expand their market and overcome infrastructure models. On one hand, bigger players like Reliance Industries and state run-OMCs are eyeing this segment, on the other, there are startups, which have entered this space, primarily for sale of diesel.
Aramco to cut capital spending over coronavirus; 2019 profit plunges
Saudi Aramco on Sunday said it plans to cut capital spending in the wake of the coronavirus outbreak, and also posted a plunge in profit for last year, missing forecasts in its first earnings announcement as a listed company. Saudi Arabia’s decision last year to float shares in its state oil company – the most profitable company in the world – was one of the central elements in Crown Prince Mohammed bin Salman’s program for economic and political reform. The record-setting IPO was touted as making the world’s biggest energy exporter more professional and transparent. The 21 per cent decline in net profit for last year means it fell short of analysts’ forecasts for the period that culminated in the share sale, months before the coronavirus pandemic became a factor for oil prices. In recent weeks, Riyadh has announced that it is ramping up production in an oil price war with Russia that has sent global prices plunging and contributed to the coronavirus rout on international financial markets. The company said it expects capital spending for 2020 to be between $25 billion and $30 billion in light of current market conditions and recent commodity price volatility, compared to $32.8 billion in 2019. Aramco has already taken steps to “rationalize” its planned 2020 capital spending, CEO Amin Nasser said in a statement. “The recent COVID-19 outbreak and its rapid spread illustrate the importance of agility and adaptability in an ever-changing global landscape,” he said. Aramco listed its shares in Riyadh in December in a record $29.4 billion initial public offering that valued it at $1.7 trillion. Its shares fell below the IPO price last week for the first time, as oil prices crashed after the collapse of an output deal between OPEC and non-OPEC members. Oil prices have fallen nearly 50 per cent from highs reached in January and had their biggest one-day decline on March 9 since the 1991 Gulf War. Brent crude futures last traded at $33.85 per barrel on Friday, down from about $64 when Aramco listed its shares. CASH FLOW Saudi Arabia’s strategy to gain market share by flooding the markets with cheap oil has revived investor concerns that the profitability of the company would come second to government-led strategies to influence oil markets. “Foreign investors may view recent events as confirmation that the strategic direction of Aramco is driven by its majority shareholder, driven by national development and geopolitics, not simply value maximization of this company’s returns,” said Hasnain Malik, head of equity strategy at Tellimer. Despite a drop in income, Aramco said it paid a dividend of $73.2 billion in 2019 and intends to declare a cash dividend of $75 billion in 2020, paid quarterly. Aramco, which is 98 per cent owned by the Gulf kingdom, reported a net profit of $88.2 billion in 2019, down from $111.1 in 2018. Analysts had expected Aramco to post a net profit of 346.6 billion riyals ($92.6 billion) in 2019, according to an estimate of 15 analysts polled by Refinitiv. Aramco said the drop in earnings was mainly due “lower crude oil prices and production volumes, coupled with declining refining and chemical margins, and a $1.6 billion impairment associated with Sadara Chemical Co.” “Assuming the price of $35 per barrel, Aramco’s revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization) could contract by 20-30 per cent compared to our previous forecasts and to the company’s performance in 2018-2019,” said energy analyst Dmitry Marinchenko at Fitch Ratings. Biraj Borkhataria, a London-based energy analyst at RBC Capital Markets, said a $10 a barrel change in prices hits Aramco’s cash flow from operations (CFFO) by $15 billion, while each 100,000 barrels change in output impacts CFFO by $1.1 billion, assuming a price of $60 per barrel. “Lower price more than trumps higher production volumes,” he said. Saudi Arabia has long acted as the global oil market’s swing producer, the only country capable of substantially and rapidly cutting or raising output to match demand and prop up prices. Aramco could easily fund the dividend for minority shareholders, which own 1.7 per cent of the company, even if oil prices slump to $10-$20 a barrel as the share of minorities is about $1.3 billion, said RBC’s Borkhataria. Aramco remains the world’s most profitable company, beating Western oil majors such as Exxon Mobil Corp, and Apple Inc, which made $55 billion in its last financial year that ended in September. Mazen al-Sudairi, head of research at Al Rajhi Capital, said that despite the economic headwinds and low oil prices, Aramco will be able to maintain “good dividends” at a Brent crude price of $40 or even $20 per barrel. Aramco said it had total hydrocarbon production of 13.2 million barrels per day of oil equivalent in 2019, compared to 13.6 million barrels per day of oil equivalent in 2018. Aramco shares were flat at 29 riyals at 0845 GMT, 9 per cent below the IPO price if 32 riyals.