The Week in Review (Feb 8 – 14)

The Monitoring Team: Michael Roh, Pierre Jouvellier

 India is Looking for More LNG, Australia is Ready to Flood the Market

Due to cheap LNG prices, India will increase its imports from Australia under long-term contracts. The aim of these agreements is to take the control of the gas value chain and to take advantage of low LNG prices. It would allow India to produce electricity using gas-fired power plants instead of coal-fired plants, which are currently the most important source of energy in India, along with petroleum coke. Moreover, Australia aims to be the world’s largest LNG supplier by 2020. This development of Australian’s gas would increase the global glut for gas supply and thus, could drastically threaten the price of natural gas. As a result, India’s Petronet LNG ltd has already renegotiated its supply contract with Qatar, decreasing the price by almost half.

Djebit Chakraborty, 2016. India Eyes more LNG purchases from Australia in Cheap Energy Age, Bloomberg Business, 09 February 2016.

 South Pars: A Top Priority for the Iranian Government

The development of the South Pars offshore gas field will have major influence on the Iranian economy. Several phases have already begun to produce natural gas for the national gas distribution network. Since the price of natural gas has fallen, the government has decided to switch liquid-fueled power plants into gas-fired power plants. The aim is to take advantage of the price by increasing output using liquid fuels for petrochemical plants. However, even if Iran is planning to launch several new phases for gas production in South Pars, such production will require an investment of 30 billion USD. Besides, they are also increasing crude oil production during the last term of Iranian President Rouhani. At the end of 2017, the oil production from West Karoun should reach 300,000 b/d.

Shana, 2016. South Pars development tops Gov’t agenda. The Iran project, 09 February 2016.

 Low Oil Price and Bunkers are Reducing OPEX for Shipping Operations

Low oil prices inevitably mean low bunkers’ price, threatening bunkers traders and investment. In fact, the lower capital requirements needed for purchasing bunkers encourages ship owners to buy bunkers with physical suppliers instead of traders. However, low bunker prices also mean clear cost savings for vessels’ voyages. The normal price for a bunker is usually 600 USD per metric tonne, but for now the current price is between 100 and 150 USD per metric tonne for HFO. With this low price, vessels are able to increase speed in order to save time and make more deliveries. It is good news for smaller vessels like Panamax because now they can compete with larger vessels by using less fuel, meaning sellers can make more round-trips with less vessels, improving overall efficiency.

Ship&Bunker News Team, 2016. Low Bunker Prices Mean “clear cost saving” from increasing Vessel Speed. Ship&Bunker World News, 09 February 2016.

 Brunei Keeps Investments High to Survive the Low Oil Price Environment

Long-term views for investment have kept Brunei ahead, allowing the country to keep under control the problem brought forth by oil price volatility. The upstream sector remains the key solution to survive the low oil price period. With low technical costs, high productivity and advanced technology for drilling and production, Brunei is increasing exploration and development activities. Cognizant that the oil and gas sector is at the heart of Brunei’s economy, it has successfully managed its investment strategy in order to adjust to the low oil price environment by strengthening upstream and downstream activities.

Bandar Seri Begawan, 2016. Long term investments keep oil and gas sector resilient. The Brunei Times, 10 February 2016.

 Natural Gas: the Key Issue for Environmental Concern in Europe

With the current price of oil and gas commodities, natural gas is becoming a good substitute to coal for power generation. Notwithstanding that coal remains the less expansive commodity to generate power, natural gas’s low prices allow Europe to switch from coal-fired plants to gas-fired plants reaching climate goals. Contrary to coal, natural gas does not generate sulphur emissions. Besides, natural gas is not only related to power generation and heating. It also allows to diversificate bunkers for transportation by converting tankers from running on fuel oil to reliance on LNG and CNG for trucks. Therefore, natural gas, which is already the most used fuel in Asia for power generation, is going to play a significant role in the world. This could help to reduce greenhouse gases but also the industry by creating new types of engines. Maybe in the future we could substitute oil with natural gas.

John Roberts, 2016. Europe’s climate goals depends on gas: Statoil. Natural Gas Europe, 10 February 2016.

Russia Appeals Once More to the United Nations For Arctic Continental Shelf

In an effort to gain control of territory in the strategically important Arctic, Russia has filed another claim to the United Nations. Sergei Donskoy, Russia’s minister of natural resources, presented on Tuesday, a revised claim to the UN committee on sea boundaries, that Russia’s continental shelf extends to the seabed beyond the North Pole. If the claim is accepted, it is likely Russia will pursue oil drilling in this territory in the future. Other countries to file claims include Canada, Norway, and Denmark, who have all introduced military presence on the territory. Environmental groups like Greenpeace are opposed to Russia’s claim, fearful of the consequences of oil and gas exploration on the environment.

Andrew E. Kramer, 2016. Russia Presents Revised Claim of Arctic Territory to the United Nations. The New York Times, 09 February 2016.

Giant Gas Leak in California Finally Plugged After 16 Weeks

In California, thirty miles from Los Angeles at the Aliso Canyon Storage Facility, a gas leak persisting for the past 16 weeks, emitting roughly 96,000 metric tons of methane, has finally been stopped. The amount of methane leaked is roughly equivalent to half a million cars driving for a year. Aside from the effects on the local population, methane is 84 times more efficiency at trapping heat than carbon dioxide. The gas leak has made history as the largest single release of methane ever recorded, and is being referred to as the worst environmental disaster since the 2010 BP Gulf oil spill. Over 6,000 families were evacuated from their homes due to the health concerns associated with exposure to the methane, and possibly benzene. SoCalGas faces a number of lawsuits from residents and businesses of Southern California. While the leak is under control, it is only plugged temporarily until it is permanently sealed with cement.

Natasha Geiling, 2016. After 16 Weeks, The Massive Methane Leak In California Is Finally Plugged. Climate Progress, 12 February 2016.

 LUKOIL Has Its Eyes on Russian State-owned Bashneft

Amidst President Vladimir Putin’s push toward privatisation in response to Russia’s budget crisis, oil major LUKOIL has expressed interest to the Russian government in buying Bashneft, of which the state owns 75 percent of the company. Earlier expectations were that Rosneft would absorb Bashneft, but Rosneft’s large debt makes this prediction unlikely. Currently, Bashneft is Russia’s sixth-largest oil company, valued at 4.5 billion USD, a steep decline considering its value in 2014 at 13 billion USD, before the oil price and ruble tumbled. Russia’s dismal economic situation will likely accelerate these privatisation deals, expected to bring in between 500 and 800 billion RUB.

Darya Korsunskaya and Dmitry Zhdannikov, 2016. Exclusive: Russian state’s oil asset sale attracts LUKOIL interest. Reuters, 12 February 2016.

Iran Sends First Oil Shipment to Europe Post-Sanctions

After sanctions against Iran were lifted in January, the world has been anticipating Iran’s reintroduction into the global oil market. Iranian President Hassan Rouhani initiated a business delegation to tour Europe last week to sign deals. In an effort to regain market share, Iran is planning on increasing output to a million barrels a day, at a time of global oversupply. The first shipments to Europe will go to French Total with 2 million barrels, and the rest to Spanish Compania Espanola de Petroleos and Russian Lukoil PJSC.

Anthony Dipaola and Hashem Kalantari, 2016. Iran Sends First Oil Shipment to Europe Since Sanctions Ends, 14 February 2016.

Angelo Young, 2016. Iran Oil Heads To Europe In First Major Delivery Since End of Western Sanctions, International Business Times, 13 February 2016.

U.S. Rapidly Pulls Oil Rigs

Last week the U.S. pulled 48 oil rigs, and this week another 30 rigs have been pulled. There are now 541 active oil and gas rigs in the U.S., the lowest number since 2010. Since the start of 2016, a total of 157 rigs have been pulled. Despite this drastic decrease, the U.S. sits comfortably on a massive amount of oil inventories. The rapid decrease in active oil rigs is partly due to moves toward greener energy sources, but a more likely explanation is the low oil price, making drilling unprofitable. And it’s not just the U.S. For example, Ecuador is down to just one rig. Surprising, given that half of its export earnings depend on oil.

Charles Kennedy, 2016. Rig Count Plunges Yet Again, Down Another 30. Oil Price, 12 February 2016.

Akin Oyedele, 2016. Oil rig count falls for 8th straight week. Business Insider, 12 February 2016.












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