Your Weekly Update 17- 21 July

Last week in World oil:

Prices

• While OPEC looks at ways to improve coordination among its members over the supply freeze, Saudi Arabia has pledged to cut its exports further in August to help reduce the global glut. Crude prices rose in response to this, hitting US$48/b for Brent and US$46/b for WTI, and increasing further as the UAE pledged further output cuts in September and Russia pushes for a 100% compliance with the current global deal.

Upstream & Midstream

• Deregulation appears to be paying off for Mexico, as Eni announced that its Amoca field contains as much as a billion barrels of oil, joining the massive Zama field discovered last week. The giant new finds confirms that the ‘Mexican side of the Gulf is very prolific’ according to its oil regulator, prompting it to delay its new offshore round by a month to January 2018 to give international bidders more time to evaluate the newly announced assets. The round will also include the first areas from the Cordilleras Mexicanas basin, potentially sparking off a new oil rush.
• Brazil’s oil regulator is mulling allowing more flexible local content rules to existing E&P contracts in a bid to revive crude projects put on ice in Brazil over low oil prices and tough local content rules, which may restart some key projects, including the subsalt region of the Santos basin.
• The UK is hoping to capitalise on the recent spurt of activity in its continental shelf, launching an offshore licensing round that focuses on mature areas. Some 813 blocks over a combined area of 114,426 square kilometres in the Southern, Central and Northern North Sea, the West of Shetland and East Irish Sea are open for bidding until November, including some acreage that has not been available since 1965.
• The US active rig count appears to be reaching saturation point at current price levels, losing two rigs overall last week as drillers held back on activity in an increasingly glutted market.

Downstream

• Independent US refiner Tesoro, which will become Andeavor in August, has reached a new agreement with Pemex to enter Mexico’s terminal and transportation services sector, enabling access to Pemex’s pipelines and storage terminals in an attempt to break into the retail sector.
• BP is reportedly considering spinning off some of its US pipeline assets in the Gulf and Midwest in an IPO, structuring them in a Master-Limited Partnership common to American pipeline companies. It is a revival of a plan first considered five years ago, shelved after oil prices crashed. If it goes through, BP will join other refiners like Valero and Marathon, who have created MLPs for their pipeline assets.

Natural Gas and LNG

• Egypt expects its natural gas output to double by 2020, as the Zohr, North Alexandria and Nooros projects ramp up to ease the country’s current energy deficiency and move it to gas self-sufficiency. Early phases of Nooros and North Alexandria are already in production, increasing output to 5.1 bcf in 2017 from 4.4. bcf in 2016. So much natural gas is expected to come onstream that Egypt is now in talks with its LNG contractors to defer shipments.

Last Week in Asian oil

Upstream

• In an interesting thaw of relations, China’s foreign minister has said that he supports the idea of joint energy ventures with the Philippines in the disputed areas of the South China Sea claimed by both countries. With President Rodrigo Duterte aiming to develop oil fields in the Reed Bank, the overture by China seems to be aimed at diffusing a potential standoff. It could work out to China’s advantage though; if the Philippines agrees to cooperate with China on joint development, it would make future maritime border claims difficult when brought to the International Tribunal for the Law of the Sea.

Downstream

• As the startup of Nghi Son, Vietnam’s second refinery, approaches — the refinery recently bought its first crude cargo, from Kuwait — the country is looking forward to plans to establish a strategic oil product reserve. It would follow the IEA guidelines to have at least 90 days worth of net imports, aiming to having the storage in place by 2020. Vietnam currently requires its refineries to have 15 days of their processing capacity in crude stockpiles and 10 days in oil products — equivalent to 30–35 days of its current level of net imports. The advent of Nghi Son may bump that up to 60–70 days by the end of the year, with the third refinery still far away.
• South Korea is looking at easing blending restriction and rules at the country’s large oil storage terminals in the southern ports of Ulsan and Yeosu, as it aims to become a trading hub in Northeast Asia, and potentially challenging Singapore as Asia’s oil trading centre. Easing the blending rules will allow trading companies the leeway to meet client specifications, a key requirement to establishing a trading hub. South Korea’s proximity to China and Japan could definitely support the idea, but there is still a long way to go for Korea to create the necessary physical and financial infrastructure to displace Singapore.

Natural Gas & LNG

• After what seems like decades of procrastination the Philippines is on the verge on signing on a partner for its US$2 billion LNG receiving and distribution facility. PNOC has shortlisted six countries for six potential partners — China, Japan, South Korea, Singapore, Indonesia and the UAE — which will help construct the facility by 2020, in time to replace the country’s dwindling supplies from the once prolific Malampaya gas field. The facility will likely be in Batangas, as will include new power plant facilities aimed at improving the country’s inconsistent electricity supply.
• Petronas has delivered its first LNG cargo to Thailand, the first under a 15 year contract that will see the Malaysian state oil firm send up to 1.2 mtpa per year. Running short of natural gas from the domestic sources as well as piped natural gas from Myanmar, Thailand’s PTT has increasingly turned to LNG to meet the country’s growing demand for gas.

Corporate

• India’s grand ambitions to merge its numerous state oil companies into a giant entity took one step forward with the sale of the state’s 51.1% stake in HPCL to state upstream company ONGC for US$4.6 billion. This will create the first major India state vertically-integrated company, bringing together the upstream activities of ONGC and the refining and retail network of HPCL, exploiting synergies between the two.

[This article was first published on NrgEdge, a professional network for the Energy, Oil & Gas industry]