Loss of Venezuelan oil exports won’t leave huge gap in global market
There is ample spare capacity in other oil producers and strategic reserves to compensate for a loss of Venezuela’s crude exports, helping explain the tepid reaction of global oil prices to U.S. sanctions announced a week ago. Venezuela exports around 1 million barrels of oil per day, about 1 percent of global production, of which half heads to the United States. Many U.S. refineries are designed to run heavier, sour grades of crude, a good portion of which comes from Venezuela. Top oil exporter Saudi Arabia could replace this volume from spare capacity of about 1.8 million bpd, and other members of the Organization of the Petroleum Exporting Countries such as the United Arab Emirates and Kuwait are also able to pump more after an OPEC-led supply cut began in January. Venezuela is one of the founding OPEC members and was once a top three producer but production has been in decline for years following the collapse of the country’s economy. Together with Libya and Iran, it is exempt from the latest OPEC-led supply cut. That earlier decline makes the potential loss of Venezuelan exports less significant. Brent crude, the global benchmark, was trading below $63 a barrel on Tuesday compared to $61 on Jan. 29, the day after the United States imposed sanctions on Venezuelan state oil firm PDVSA. “Cutting out Venezuela from the global oil markets would provide a short term positive strength to oil prices, but its significance would be limited,” said Mihir Kapadia, chief executive of Sun Global Investments. “The U.S. would look elsewhere for oil imports, and refiners will adapt to it.” In contrast, a 2002-2003 strike against former President Hugo Chavez’s government cut supplies and boosted prices to then outrageous levels above $30 a barrel, prompting Saudi Arabia to step in to avert a supply shortage. In addition to other producers being able to pump more oil, the United States holds about 650 million barrels of crude in its Strategic Petroleum Reserve, which oil executives expect President Donald Trump would tap if prices spiked. Two-thirds of the total volume in the SPR is sour crude. “The market reaction is quite subdued,” a senior oil industry official said. “There is plenty of spare capacity plus the SPR if needed. Trump will not allow prices to rise sharply.”
In squeezed oil industry, some rethink hunt for new barrels
New partnerships are emerging in the global hunt for oil discoveries, with some explorers essentially offering an outsourcing service for the riskiest part of the energy business. Central to this new strategy are efforts to find an ally earlier in the process of discovering new fields, and on a larger scale, in order to save money as budgets remain tight after the oil price slump of 2014. While giants such as Total and Eni revamp exploration in-house, BP and Royal Dutch Shell have been more open to having partners do the heavy lifting of exploration in certain geographies. Kosmos Energy and BP, for example, joined forces to hoover up exploration licenses in the northern part of the African Atlantic, rather than competing against each other. In October, Kosmos entered a similar partnership with Shell to search for new oil off southern Africa. “Having a built-in partner with a supermajor from the beginning is very different and allows us to share cost and share risks from the inception of a project,” said Kosmos’ exploration chief Tracey Henderson. “That differs from what used to be a traditional model where a company like Kosmos would pick up acreage in frontier and emerging basins and take more risk upfront … Then we would spend a year and a half identifying and maturing that prospectivity and then go through a farmout process (to sell a stake).” In such partnerships, responsibilities are clearly defined. Kosmos is in charge of exploration and BP of developing discoveries into producing fields. BP gets a nimble partner with a proven frontier-basin track record in Kosmos, which employs around 350 people. This compares to BP’s 74,000 employees in hundreds of sites around the globe, all vying for budget allocation and embedded in complex decision-making structures. “We can make decisions at lightning speed because we’re all within two floors in the same building,” Henderson said. “What vendors or what contractors we can use … It can be as simple as taking a piece of paper to another person’s office.” Exploration projects move between two and three years faster in full-cycle partnership, Henderson said. “I wouldn’t be surprised to see other sorts of joint ventures announced as the year progresses,” Andrew Latham, vice president for global exploration at research firm WoodMac, said of partnerships targeting acreage together from the outset. INDUSTRIAL APPROACH Other oil firms are partnering early at a different point in the exploration cycle, but the aim is the same – to cut costs. Private equity firm Seacrest and technology provider iPulse, backed by a sovereign wealth fund and private equity, founded oil exploration venture Seapulse. The three entities combined employ only about 60 people. Seapulse in December teamed up with Maersk Drilling in a contract worth several hundred million dollars to drill 12 wells. Such an all-in services contract, Maersk estimates, can shave at least 10 percent off the cost of drilling. Seapulse says its portfolio targets 11 billion barrels of gross prospective resources, according to an external estimate, stretching across the North Sea, the Mediterranean, the Caribbean, Latin America, southern Africa and Latin America. Over the next two years, its 12 wells will hone in on 4 billion barrels of prospective resources – a volume which, if realised, would rival Exxon’s gargantuan oil find offshore Guyana. Oil majors BP, Chevron, Eni, Equinor, Exxon, Shell and Total, on average, drilled and operated around 15 offshore wells over the last two years, WoodMac data shows. “Imagine it as an industrial approach to exploration,” said Seapulse chief Scott Aitken, adding he put the cumulative chance of success of the campaign at over 90 percent with schedule control to streamline the use of rigs, teams and vessels. “Maersk is the single contractor in the alliance and they manage all the supply chain. So many overlaps are eliminated.” The venture also leaves behind the traditional day-rate model that contributes to gyrations in drilling costs, whereby low rates hurt services firms when prices slump, and high rates hit operators. With Seapulse, Maersk gets more money for drilling faster and shares in the upside of a discovery. Global exploration spending fell from more than $90 billion in 2014, when crude oil sold for over $110 a barrel, to under $30 billion last year when it fell below $55 a barrel, according to WoodMac. Costs per well also slumped as service companies scrambled for contracts. But the number of wells and companies drilling them have shrunk since 2014 and success rates stagnated following a brief spike in 2017, which stemmed largely from a focus on low-risk wells near existing discoveries, Westwood Energy data shows. “Lots of smaller exploration companies have disappeared since $100 a barrel. New players are emerging, often private equity-backed,” Rob Stevens from Westwood said. U.S. companies such as Marathon, Chevron and ConocoPhillips have shifted away from conventional exploration to focus on shale at home. In the North Sea, Faroe Petroleum was bought by DNO, while Dyas and ONE merged in recent months. “Finding new partnerships to make everyone’s budget go further is really a big priority for everyone in the sector. The slump has forced companies to consider change in the way business is done, existentially,” Seapulse’s Aitken said.
Egypt to renew contract for Iraqi crude: Minister
Egypt is looking to renew its contract to purchase Iraqi crude oil for another year and for the same quantity, Petroleum Minister Tarek El Molla said on Tuesday. Egypt had said it would import 12 million barrels of Iraqi crude oil over the course of 2018.
Centrica, Tokyo Gas sign deal to purchase Mozambique LNG
British energy supplier Centrica and Tokyo Gas have agreed to jointly purchase 2.6 million tonnes of liquefied natural gas (LNG) a year from Mozambique LNG Company, the firms said on Tuesday. Centrica LNG Company Ltd, a subsidiary of Centrica, and the Japanese energy company said the LNG will be delivered ex-ship from Mozambique LNG from the start-up of production until the early 2040s. Mozambique LNG1 is owned by U.S. oil and gas producer Anadarko Petroleum Corporation and partners in a consortium which is developing the project aimed at serving both the Asia-Pacific and European markets. It will consist of two liquefaction trains with the capacity to produce 12.88 million tonnes per year in its initial phase and is expected to be completed by 2023-2024. A final investment decision is expected this year. Separately, Anadarko said Mozambique LNG1 Company has signed an agreement with Shell International Trading Middle East Ltd. for 2 million tonnes of LNG a year for 13 years.
India becomes world’s second-largest LPG consumer
The government’s push to provide clean cooking fuel to every household has turned India into the world’s second-largest LPG consumer whose demand is projected to rise 34 per cent by 2025, Oil Secretary M M Kutty said on Tuesday. Speaking at the Asia LPG Summit here, he said active LPG consumers have grown at a compounded annual growth rate (CAGR) of 15 per cent – from 14.8 crore in 2014-15 to 22.4 crore in 2017-18. “Rapid increase in population combined with LPG penetration in rural areas has resulted in an average growth of 8.4 per cent in LPG consumption, making India the second largest consumer of LPG in the world at 22.5 million tonnes. “As per (oil) ministry’s projections and forecasts, LPG consumption is expected to grow to 30.3 million tonnes by 2025 and 40.6 million tonnes by 2040,” he said. The government, he said, has taken a number of initiatives to promote usage of LPG across the country especially in rural households which otherwise depend on traditional fuels that are hazardous to health and polluting in nature. Under Pradhan Mantri Ujjwala Yojana (PMUY) of providing free cooking gas (LPG) connection to poor, over 6.31 crore connections have been provided since the launch of the scheme on May 1, 2016. “Before March 31, 2020, we will provide LPG connections to 8 crore households under PMUY,” he said, adding that “LPG connection is issued in the name of the women member of the household.” Speaking at the summit, Oil Minister Dharmendra Pradhan said the Pradhan Mantri Ujjwala Yojana was launched in May 2016 with the objective of providing free LPG connections to 5 crore women belonging to poor households over a period of three years. “With the successful implementation of this programme, this scheme has been revised to target 8 crore LPG connections by the financial year 2020. With the revised targets, the scheme now covers all the vulnerable and disadvantaged sections of the society having no LPG connections,” he said. He said the coverage of LPG in the country has now reached close to 90 per cent, rising from about 55 per cent in 2014. “We are confident to meet our target of 8 crore connections in the pursuit of tackling health and environmental problems and driving social change through women empowerment.” LPG is supposed to replace traditional cooking fuels in rural kitchens such as firewood and cow dung which not only contribute to environmental degradation but also have serious health implications on users. “With estimated imports of above 12 million metric tonnes in the financial year 2018-19, India stands as world’s second largest importer of LPG, after China. The country’s LPG imports have registered remarkable trend in the last five years, growing at a healthy CAGR of 12.5 per cent, surpassing import volumes of Japan in the financial year 2017,” he said. Also, the government has started transferring the LPG subsidy directly into bank accounts of the beneficiaries, thereby eliminating duplication and fake users. “So far, more than Rs 96,625 crore has been transferred into the bank accounts of consumers,” he said. Under the Direct Benefit Transfer, rather than supplying LPG cylinders at subsidised rates, the government now supplies cylinders at market prices and transfers the subsidy amount into bank accounts. “This has helped to cut subsidy leakages by curbing diversion of subsidised LPG and ensuring that the actual intended beneficiaries receive the benefits of subsidies. Through this scheme, the government has generated savings of about Rs 50,000 crore,” he said.
BRIEF: India oil firms boost LPG infrastructure for rural households – secy
* Oil companies are boosting infrastructure to provide liquefied petroleum gas (LPG) to rural areas, M. M. Kutty, Secretary of the Ministry of Petroleum and Natural Gas, said on Monday. * A government scheme has provided 61 million rural households with subsidised cooking gas connections, Kutty said.
Anadarko signs long-term deal with CNOOC for Mozambique gas
Anadarko Petroleum Corp said on Friday a long-term agreement had been signed with the trading division of China’s state-owned offshore oil and gas producer CNOOC Ltd to supply liquefied natural gas (LNG) from Mozambique. The deal will bring it one step closer to making a final investment decision for its East African LNG project, with the decision expected in the first half of this year. Mozambique LNG1 Company, the jointly-owned sales entity of the Mozambique Area 1 co-venturers, had signed a sales and Purchase Agreement (SPA) with CNOOC’s gas and power Singapore Trading and Marketing unit, Anadarko said. The SPA is for 1.5 million tonnes per annum (mtpa) for a period of 13 years. “This deal gives China’s largest LNG importer access to Mozambique LNG’s world-class gas resources, which are strategically located off the East Coast of Africa, and will provide China with a clean source of energy for years to come,” said Mitch Ingram, executive vice president of Anadarko’s International, Deepwater and Exploration division. The agreement demonstrates the progress the company is making towards its goal of taking a final investment decision in the first half of this year, he said, adding that the company is expected to announce further SPAs in the near future. The Anadarko-operated Mozambique LNG project will be Mozambique’s first onshore LNG development, initially consisting of two LNG trains with total capacity of 12.88 mtpa to support the development of the Golfinho/Atum fields located entirely within offshore Area 1. Anadarko Mocambique Area 1, Lda, a wholly owned subsidiary of Anadarko Petroleum Corporation, operates Offshore Area 1 with a 26.5 percent interest. Other stakeholders include ENH Robuma Area Um, Mitsui E&P Mozambique Area1, ONGC Videsh, Beas Rovuma Energy Mozambique Ltd, BPRL Ventures Mozambique, and PTTEP Mozambique Area 1 Ltd.
Petronet in talks to use natural gas as feedstock for power
Petronet LNG Limited Saturday said talks were being held with officials of two power plants in Kerala on using natural gas as feedstock in place of diesel and naphtha. Chairman and managing director of Petronet Prabhat Singh said at a meet-the-press programme that the company has offered gas at affordable price to BSES power plant powered by diesel and to NTPC’s Rajiv Gandhi combined cycle power plant powered by naphtha to generate electricity. The company has set up south India’s first LNG receiving, regasification and re-loading terminal with nameplate capacity of 5 MMTPA (million metric ton per annum) here. The terminal area is situated in the special economic zone (SEZ) of Puthuvypeen near the entrance to the Cochin Port.
Kerala: Petronet to introduce LNG buses and trucks for state roads soon
Petronet LNG is mooting a proposal to introduce LNG buses and trucks in the country and first batch of such buses will ply in Kochi. As a pilot project, LNG buses will transport employees of Petronet LNG in Kochi in March or April. To facilitate the rolling out of LNG buses, four LNG outlet stations will be set up in Kochi, Thiruvananthapuram, Edappally and Kannur. Speaking at a news meet in Kochi on Saturday, Petronet LNG CEO Prabhat Singh said the state government and transport department have evinced special interest in using LNG buses in Kerala. Compared to CNG, LNG has a 2.5-fold energy density (can carry 2.5-fold volume of fuel in the tank compared to CNG) and this would facilitate the running of long-distance buses and trucks on LNG. “We have imported four LNG buses. Two of them would be used in Kochi for transporting our employees,” Singh said. The remaining two would be used for transporting employees of Petronet LNG in Dahej in Gujarat. He also said that talks have already been held with the manufactures of buses and trucks in the country to bring out LNG buses and trucks. LNG is 20-22% cost effective compared to fossil fuels, he said. CNG buses are being used for operating city services and short distance services as the fuel tank can contain only less quantity of the fuel due to low energy density. If fuel tank of a vehicle can carry a maximum of 10kg of CNG, the same tank can accommodate 25kg if the fuel is LNG. On an experimental basis, Petronet LNG would convert one of the fishing boats owned by Central Marine Fisheries Institute (CIFT), Kochi to LNG-powered, Singh said.
China’s LNG imports reach another record amid high stocks
China’s imports of liquefied natural gas (LNG) rose to another monthly record in January, even as the country grapples with high gas inventories amid a warmer-than-usual winter, according to shipping data and industry sources. The world’s second-largest LNG importer took 6.55 million tonnes of LNG in January, beating the previous record hit in December by nearly 2 percent, according to Refinitiv Eikon shipping data. China’s imports last year surged 41 percent from 2017 after gas shortages the previous winter prompted Chinese companies to stock up on supplies and pre-order cargoes, with Beijing continuing to push millions of households to switch to gas from coal for heating. But the import growth is not wholly due to a rise in demand, said an industry source familiar with the Chinese market. “When people see these numbers, they think Chinese demand is up … but actually it is causing a headache (for importers) as (they) have overbought and can’t find demand to absorb the cargoes,” the source said, declining to be identified as he was not authorised to speak with media. China National Offshore Oil Corp (CNOOC) resold at least one LNG cargo in January and possibly another, an unusual move during what is typically a peak demand period and highlighting this year’s warmer weather, industry sources said. Chinese traders are offering LNG cargoes to international buyers or selling into their domestic market at lower-than-expected prices, the first source said. The Lunar New Year holiday has also made the situation worse because factories are shutdown for a least a week, he said. Wholesale LNG from small, land-based liquefaction plants fell to 3,500-3,950 yuan ($519-$586) a tonne on Feb. 2, less than half levels of last year, according to Chinese gas-price monitoring agency yeslng.com. Quotes at receiving terminals in East China’s Shandong and North China’s Tianjin last stood at 4,500 yuan ($667) a tonne, down 17 percent and 5 percent, respectively, from late November, shortly after heating season started. China’s gas demand growth should decelerate from the past two years, said James Taverner of energy consultancy IHS Markit. “Coal-to-gas switching mandates are moderating due to … security of supply concerns, and weakening economic growth,” Taverner said. There is also limited capacity in North China for further LNG ramp-up after big increases the past two years, he said. Trade tensions between the United States and China have also tightened financial conditions, dragging China’s growth last year to its weakest in 28 years.