Global Energy Advisory - March 9th 2018

Oil & Gas
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Saturday, March 10, 2018  09.32AM / OilPrice Intel 

The United States would single-handedly be able to meet as much as 80% of growth in global oil demand over the next five years, the International Energy Agency has said. This could very well wipe out any price gains that OPEC is hoping for as a result of its production cuts.

Adding insult to injury, the IEA said that the remaining 20% of global demand growth would be covered by three other non-OPEC countries: Brazil, Canada, and Norway. OPEC hasn’t shown it’s worried for the time being. At this year’s edition of CERAWeek, Saudi Arabia’s energy minister Khalid al-Falih said OPEC is not worried about oil demand forecasts but he did add that Saudi Arabia is planning to pay more attention to developing its mineral resources.

OPEC apparently has different forecasts for global demand. Aramco’s chief executive Amin Nasser said economic growth in emerging economies would boost oil demand along with the increase in energy consumers by two billion by 2050. Demand for petrochemicals and other oil productions different from fuels will also contribute.

All these are forecasts, of course--all of them assigning top priority to U.S. shale. But there are industry insiders that are warning against too much optimism. Analyst Art Berman, a notorious contrarian, has been joined by Continental’s Harold Hamm and, most recently, the former CEO of EOG Resources, Mark Papa, who believe the second shale revolution is overhyped, with producers already facing problems such as frac sand shortages, not to mention shareholders’ insistence they start returning some more cash rather than putting it into more production.

Deals, Mergers & Acquisitions

•    France’s Total has bought from Marathon Oil a 16.33% interest in the Waha oil field in Libya. The acquisition took markets by surprise given the persistent political and social instability in the North African country, which has made it generally unattractive for investors. With the move, which cost it $450 million, Total will be able to tap reserves estimated at up to 500 million barrels of oil equivalent.

•    Chevron is considering the sale of a minority stake in its Kitimat LNG project in Canada. Interestingly, one of the possible buyers is Malaysian Petronas, which last year shelved permanently its own $36-billion LNG project in Canada. Chevron partners in Kitimat LNG with Australian Woodside Petroleum in a 50/50 joint venture.

•    CNPC will buy a 30% interest in Brazilian oil product distributor TT Work as part of its international expansion. TT Work is a private company and the fourth-largest oil product trader in Brazil. It manages 13 storage facilities and serves 2,200 fuel stations across the country.

•    UAE’s Mubadala has tapped Goldman Sachs for funding for its joint bid with Global Energy Partners for Petrobras’ natural gas pipeline network serving northeastern Brazil. The company’s enterprise value could reach $8 billion including debt. For now, there are three potential suitors, including, besides the Mubadala partnership, one led by France’s Engie and another, led by Australian Macquarie.

•    Devon Energy has agreed to sell gas assets in the Barnett shale to an unnamed buyer for $553 million. The assets produce some 200 million cubic feet of gas equivalent. The company will keep assets producing 680 million cu m of gas equivalent in the play.

Tenders, Auctions & Contracts

•    A consortium of 11 Japanese companies that includes carmakers and energy firms has plans to build a network of 80 hydrogen fueling stations across the country by 2022 as part of efforts to make hydrogen fuel cell technology more popular. There are currently 90 hydrogen fueling stations in Japan and another ten are in the process of construction or awaiting the start of construction.

•    India’s ONGC has partnered with Iranian IDRO Oil to bid for an oil field in southern Iran. The partnership is in its early stages and it has yet to be determined how the stakes in the field will be divided. The Susangerd field’s development price tag is set at $1 billion. The field is a new discovery, with production estimated at 30,000 bpd from two phases of development.

•    Chinese, Russian, and Chilean energy companies have expressed interest in bidding for oil fields in Ecuador. The South American country has plans to carry out two tenders this month, offering a total 12 fields, all onshore. The first tender will focus on untapped deposits while the second will offer mature fields. The government is upbeat, expecting all fields on offer to find suitors.

Discovery & Development

•    Norway’s Aker BP announced an oil discovery in the central North Sea, with prospective reserves estimated at between 5 and 10 standard cubic meters of oil. This is an already producing area. Production began in 2008 and, so far, yields have exceeded expectations.

•    Greek Energean has closed a financing agreement with Morgan Stanley for the development of two offshore gas fields in Israel. Most of the gas from the Karish and Tanin fields will be sold in Israel and the rest will be exported, the Greek company said. First gas should start flowing from Karish in 2021.

•    Shell’s gas production could grow to be three times higher than its crude oil output by 2050 as part of the company’s efforts to tackle climate change by reducing the carbon emissions from its business. At the moment, gas production is about half of its total hydrocarbons production.

Company News

•    The trial against Eni and Shell on allegations of corruption has been delayed for mid-May. The supermajors have been charged with graft in the acquisition of an offshore oil and gas block in Nigeria. The companies bought the now infamous block OP245 back in 2011 and prosecutors allege that they bribed the then energy minister of the country to secure the sale at this low price.

•    Devon Energy will buy back shares worth $1 billion and up its cash dividend in the latest indication that the U.S. oil industry has survived the 2014 price collapse and is once again in growth mode. Yet the announcement also highlights a shift away from growth-only at all costs with companies being pressured by shareholders to improve their returns.

•    Exxon Mobil Corp. outlined plans to more than double earnings and cash flow by 2025. The plan projects double-digit rates of return in all three segments of XOM’s business - upstream, downstream and chemical.

•    Royal Dutch Shell, the world’s top LNG trader, said that more than $200 billion of investment in liquefied natural gas is needed to meet a boom in demand by 2030. The LNG market is set to continue its rapid expansion into 2020 as facilities approved for construction in the first half of the decade come on line. However, decline in spending in the sector since 2014 as a result of weaker energy prices will create a supply gap from the mid-2020s unless new investments emerge

Politics, Geopolitics & Conflict

•    The European Union’s Economic and Financial Affairs Commissioner Pierre Moscovici has warned that the EU is well equipped to strike back if the Trump administration goes ahead with plans to impose hefty import tariffs on steel and aluminum.

•    Andres Manuel Lopez Obrador, the leftist candidate for Mexico’s presidential elections has a 13.6% lead to his nearest rival and an even bigger advantage over the candidate of the ruling party. Obrador has vowed to revise all oil and gas contracts of the Pena-Nieto government if he wins the election.

•    Saudi Arabia’s Crown Prince Mohammed has arrived in London as part of a tour in the UK and the U.S. ahead of Aramco’s listing. NYSE and LSE are on the short list of international listing venues, along with the Hong Kong and Tokyo exchanges.

•    Venezuelan state oil company PDVSA has sued a group of oil trading companies through a U.S. trust over a multi-billion-dollar corruption scheme to buy petroleum products below market value. The lawsuit accuses a small Miami-based company called Helsinge Inc of obtaining inside information and rigging bid proceedings by bribing PDVSA officials including current Vice President Ysmel Serrano in a scheme that yielded billions of dollars in illicit gains.

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