On Tuesday of last week, the British government announced its long-awaited decision on airport expansion, favoring the option of a third runway at Heathrow. Despite the clear and compelling economic benefits, it has taken nearly twenty years for the government to reach a decision on the now-critical requirement of increased capacity across the UK’s key airports; a decision that the Davies Commission estimates will deliver a GDP boost of $147bn over the next 60 years.
For the energy industry, the politicization of critical infrastructure decisions is nothing new. For decades energy investors’ calls for long term planning have been at odds with the oft short term horizons of political decision making. But the problem is not limited to the UK. It is symptomatic of a wider issue that stretches across the Atlantic to the United States – a lack of long-term, government-led planning on key infrastructure developments. Whilst there is no shortage of private cash ready to be invested into major infrastructure, there is a lack of political will to deploy it. Sanctioning and constructing critical energy infrastructure projects has never been more difficult.
In the United States, the associated challenges are felt particularly strongly among the gas producers of the north-eastern Marcellus mega-basin. Whilst production forecasts for the basin continue to outperform analysts’ expectations, stalling pipeline investment is likely to constrain the extent to which new wells can be connected. Despite the Federal Energy Regulatory Commission’s (FERC) publically-stated concerns about supply security, and President Obama’s positioning of gas as a “bridge fuel” to a low carbon economy as recently as 2014, impassioned opposition from environmentalists has led to major delays and cancellations of pipeline projects (most notably the Constitution project). The FERC has the authority to license pipelines, and has been open in its intentions to expedite key projects, but the strength of environmental and state-level opposition has surprised many, and halted numerous investments.
With the upcoming presidential election looming, it appears unlikely that the investment required to connect the body of new, highly productive wells being drilled in the Marcellus will be passed anytime soon. As energy investments become increasingly politicized, now, more than ever, strong governance is critical to ensure that the debate remains rational – giving due consideration to the interlinked, fundamental aims of adhering to climate change policy and securing economic growth.
Alec Mitchell, Douglas-Westwood London
Aker Solutions has agreed to buy 70 percent of Brazilian C.S.E. Mecânica e Instrumentação Ltda, building on a strategy to expand its services business in key international markets.
The agreement includes an option to purchase the remaining 30 percent of the company three years after the expected close of the transaction by the end of the first quarter of 2017. The parties agreed to not disclose the purchase price.
The acquisition gives Aker Solutions access to Brazil's growing market for servicing existing oil and gas fields. C.S.E., which had revenue of BRL 322 million in 2015, provides maintenance, assembly, commissioning and crane operation services at offshore and onshore facilities.
"Aker Solutions has established a solid presence and reputation in Brazil's oil and gas market over the past 40 years and entry into the country's brownfield segment is an attractive growth opportunity," said Chief Executive Officer Luis Araujo. "Joining forces with a successful local player like C.S.E. fits well with the internationalization of our services business, allowing us to bring our competence, knowledge and experience within this field to this important and growing region."
C.S.E., whose headquarter is in Pinhais in the Parana state, has 2,300 employees located at sites including five service facilities covering the country's different oil and gas basins. It has a strong backlog of BRL 855 million and a track record of delivering consistently high-quality services to customers including state producer Petrobras. The company's fabrication shop in Rio das Ostras is located near Aker Solutions' subsea services facility.
To ensure continuity, the owners of C.S.E., Altair Dietrich, the chief executive officer, and Luiz Joanello, the chief commercial officer, will stay on with the company. C.S.E. will remain a separate legal entity with a management team consisting of personnel from each company.
"By combining the strengths of both companies we will expand our capabilities and create significant value for our customers," said Dietrich. "Teaming up with Aker Solutions is a huge step for the company and puts us in the next league in terms of competing for even larger and more complex contracts." The acquisition is subject to approval by Brazilian competition authorities.
Aker Solutions is a global provider of products, systems and services to the oil and gas industry. Its engineering, design and technology bring discoveries into production and maximize recovery. The company has its main office in Oslo, Norway, and employs approximately 13,000 people in about 20 countries.
Global Maritime Consultancy & Engineering, a provider of marine warranty, dynamic positioning and engineering services to the offshore sector, has been awarded a Master Services Agreement (MSA) by Norwegian operator Statoil. Services covered in the global agreement include platform technology studies; safety studies; marine verification; and warranty surveys.
The MSA replaces several previous frame agreements between Statoil and Global Maritime.
Photo courtesy: Global Maritime
David Sutton, CEO of Global Maritime Consultancy & Engineering, said: “This is an endorsement of the work Global Maritime has carried out for Statoil over the last few years. It is also testament to the strength of our relationship, and our focus on innovation, operational excellence and delivery.”
He continues: We look forward to continuing to leverage our global knowledge and expertise to provide Statoil with the best possible service.”
Global Maritime has a longstanding relationship with Statoil and has provided services on many of the operator’s fields on the Norwegian Continental Shelf (NCS) and globally. The most recent work was the successful disconnection and towing of the Njord A semi-submersible floating production platform from the Njord field to an onshore maintenance facility. Other recent projects include Marine Warranty Surveys for the Hywind Scotland and Dudgeon Wind Farms.
Leading global energy services company entrusts SpeedCast to provide outsourced field engineering services to support their global development operations
SpeedCast has entered into a service agreement to provide field engineering and support services to a leading global energy services company across Europe, Africa, and Asia. Under the agreement, SpeedCast will provide field engineering services to support and maintain remote communications services over fiber, wireless and satellite networks, as well as IT and related technical services to ensure continuity in the company’s remote operations. SpeedCast will leverage its existing global Field Engineering Team throughout these regions to provide technical support expertise and agile field services wherever they are required, enabling the customer to focus on mission critical operations and driving profitability.
“This is an exciting award for us as it is one of several from this same customer over the last year and it validates their confidence in SpeedCast’s ability to provide global managed services and related technical support. With our expanded global team, SpeedCast is well positioned to provide expert support to our customers in key areas of operations for the oil and gas sector around the globe. Our proximity to our customers’ operations sites, the skillset of our engineers and our support and logistics process are all contributing to SpeedCast becoming a partner of choice for the most demanding customers”, said Keith Johnson, Senior Vice President, Energy of SpeedCast.
SpeedCast CEO PJ Beylier added, “It is another important win for SpeedCast that showcases how we leverage our expanding global footprint to service our Energy customers. SpeedCast’s strong global field support capabilities built over the past several years through organic growth and acquisitions are enabling our customers to maximize their network’s uptime. This additional success demonstrates how SpeedCast is evolving as a global communication partner, becoming one of the very few service providers with credibility to support global networks. As the energy sector stabilizes, our strong global field presence is a major differentiator that will fuel our growth momentum.”
SpeedCast International Limited (ASX: SDA), a leading global satellite communications and network service provider, has announced it has entered into a definitive agreement to acquire Harris CapRock in a cash transaction valued at US$425 million. Harris CapRock is a global leader in the Energy and Maritime segments. The acquisition strengthens SpeedCast’s already strong position in the Maritime industry, in which Harris CapRock has a leading position in the fast-growing and bandwidth-hungry Cruise sector, and creates a global leader in Energy, positioning the company for future growth.
The combined entity will service over 6200 vessels, hundreds of rigs and platforms, and enterprise and government customers around the world with a wide portfolio of communications and IT services, and an industry-leading global support network. This expanded global footprint and infrastructure, with over 240 field engineers around the world, will enable SpeedCast to provide best-in-class services and support to our customers in over 100 countries.
“The acquisition of Harris CapRock is a transformational opportunity for SpeedCast. With this acquisition SpeedCast becomes the global leader in the industry, with a scale that enables us to deliver world-class services and support in over 100 countries. Harris CapRock’s industry-leading product and technology portfolio also gives us the ability to deliver innovative new offerings to customers across the Maritime, Energy, Enterprise, Telecom, and Government segments. The acquisition enables us to build a leadership position in the Energy sector at an attractive stage in the market cycle. I am also excited about how the combination of SpeedCast and Harris CapRock will accelerate our position in the Cruise sector, building on our acquisition of WINS Limited earlier in the year,” said SpeedCast CEO Pierre-Jean Beylier. “I am thrilled to welcome the Harris CapRock team to SpeedCast. Together we can expand the portfolio of services that we offer to our customers and position the combined group as an even stronger global provider of state-of-the-art communications and technology services.”
The transaction is expected to complete by the end of Q1 2017 subject to customary closing conditions, including anti-trust and regulatory approval.
CGG announces that it has been awarded a major contract by Pemex to deliver an orthogonal wide-azimuth integrated solution designed to optimize subsalt seismic imaging in the geologically complex deep waters of the Perdido area.
A new wide-azimuth survey, covering approximately 10,000 km2, will be acquired perpendicularly over the existing wide-azimuth seismic data acquired by CGG in 2010. Imaging of this first large-scale combined orthogonal wide-azimuth dataset for Pemex is expected to provide significantly enhanced subsalt imaging results due to the improved illumination of the targets beneath the complex salt canopy.
The survey will commence in early 2017 with delivery of Fast Trax pre-stack depth migration RTM results by the end of the year and full production processing results in 2018. The data will be processed in CGG’s Villahermosa and Houston subsurface imaging centers.
Jean-Georges Malcor, CEO, CGG, said: “CGG is proud to have been selected to conduct Mexico’s first offshore orthogonal wide-azimuth program to address the significant imaging challenges relating to the presence of complex geology and salt structures in the deepwater Perdido area. CGG has historically been a key provider of high-end seismic services to Pemex and has an invaluable 28-year track record of operational experience in Mexico. We are delighted to have the opportunity to continue developing our longstanding partnership with Pemex to support their exploration & development plans.”
The first day of Rio Oil & Gas, at Riocentro, was marked by the presence of president Michel Temer, by the appointment, made by the Minister of Mines and Energy, Fernando Coelho Filho, of the new Director General of the National Agency of Petroleum (ANP), Decio Oddone, who will replace Magda Chambriard, currently in office, and also by the signature of a memorandum of understanding between Petrobras and the French oil company Total, and by authorities and the industry recognizing the need for greater competitiveness of the oil industry in order to attract investments and generate employment and income.
An important step to increase competitiveness in the national oil industry was the approval by the Lower House of the draft bill that ends with the figure of Petrobras as the single operator of the pre-salt. That was acknowledged by President Temer himself, by Petrobras’ CEO, Pedro Parente, and by the president of the Brazilian Petroleum, Gas and Biofuels Institute, Jorge Camargo during the opening of the largest oil and gas event in Latin America.
The event was also the venue for the Memorandum of Understanding signed between Petrobras and the French oil company Total, consolidating a strategic alliance for the Exploration, Production and Gas & Power branches. The announcement was made by Parente and by Total’s Global CEO, Patrick Pouyanné, at a press conference.
According to Parente, the memorandum started to be drafted earlier this year, but it does not imply any legal binding. However, it represents a very sound line of intentions and may include areas in which the partnership is already in force, or in future fields. The idea is that the companies shall remain close both for divestments and for new businesses. The state company shall set until the end of the year the projects in which it will partner up with the French oil company.
Total’s Global CEO, Patrick Pouyanné, highlighted that he appreciates the partnerships with Brazil, both here and abroad, stating that the company intends to extend the projects to other areas, such as exploration and production. "Brazil is a big market. There are many opportunities", he said.
Also at Rio Oil & Gas, Prumo Logística and GranEnergia announced the creation of a new company that will provide integrated logistics solutions and services for the oil and gas industry, which will start operating in November, at the Port of Açu. Dome was created with the purpose of contributing to greater efficiency and optimization of costs in projects and operations of the industry, focused also on integrity management and vessel and equipment modernization. The company will cover an area of 47,000 square meters in the Port of Açu, in a privileged location, at the entrance of the channel.
At a lunch-lecture that addressed Petrobras’ new paths, the executive director of Strategy, Organization and Management System of the company, Nelson Silva, explained that the company's new business plan is primarily driven by the new economic outlook that focuses on generating results. "The strategic plan was widely discussed and is linked to the company’s business plan. We are questioning where the company wants to be in 20 years. The company wants to be an integrated energy company focused on oil and gas that evolves along with society, adding value through its deep technical abilities", he stated.
Silva said that Petrobras considers two metrics with the same weight: to achieve the financial target, which is to reduce the leverage of the net debt (EBITDA) from 5.3 million in 2015 to 2.5 million in 2018 and to mitigate risks, reducing by 36% the rate of recorded casualties (TAR*) from 2.2 in 2015 to 1.4 in 2018. "A US $ 6.3-billion debt is equivalent, for example, to what we refrained from investing in a new production unit. That is the reason for our urgency to speed up the reduction of the debt so we can go back to re-invest in the company’s core business", explained the director.
At a plenary session, Andy Brown, Shell’s Global Vice-President of Exploration and Production, drew attention to the competition for investments in the world, highlighting the billion-dollar decrease in investments this year and the importance of stability and regulatory environments in such a competitive world. To illustrate opportunities in Brazil, he mentioned the work in partnership with Petrobras and the constructive dialogue with the government and regulating bodies.
The importance of Brazil’s global competitiveness was also highlighted by the president of Statoil in Brazil, Päl Eitrheim. The executive emphasized the size of the Brazilian market and the strength of its institutions.
Petrobras’ director of Exploration and Production, Solange Guedes, said the stage that the industry is going through requires cost optimization and she also reported that Petrobras was able to reduce by 28% its extraction costs in the pre-salt in the last two years. "The repetition of the learning cycle leaves a legacy, which is the base of a solid and robust knowledge that allows us to deliver an even more competitive industry to Brazil."
Petrobras’ director of Refining and Gas, Jorge Celestino, estimated supply prospects in the country, according to economic and regulatory aspects. According to Celestino, in recent years there has been a strong growth in fuel demand in Brazil, followed by the increase of import of derivatives. "Brazil has a vocation to export and can count on a privileged geographical position with access to the pre-salt layer, but it faces an external crisis and also the global competition, which renders unfeasible the construction of refineries for exporting”, he said.
Celestino pointed out that, right now, "the encouragement to the operation of other companies in the downstream branch and the partnership with third parties to expand its refining capacity are the milestones of Petrobras’ new approach."
Experts also concluded that Petrobras’ sale of assets paved the way for the development of the Brazilian gas market, which, in order to advance, will need to have its rules changed, in addition to a greater integration between the links of the chain.
Roberto Schloesser, coordinator of the Study Group on Natural Gas at IBP, said the new scenario requires regulation changes and the creation of a central agency to regulate the industry and to develop the foundations of a "true natural gas market in the country "- which should provide for access rules and have liquidity and stability.
Danny Hard, General Manager of Anadarko for Brazil and the Gulf of Mexico, mentioned the project that integrated the fields of the Independent Hub, which brings together 12 offshore areas in the US Gulf of Mexico. "We managed to develop these reserves and start production in an integrated manner, in just 4 years and a half."
Rio Oil & Gas also presented the first edition of the Technology Arena. "For four days, we will have lectures about the fascinating world of technology, startups, strong-base companies, etc. May innovation remain as the fuel for work in the companies", summed up the Secretary General of IBP, Milton Costa Filho. He also pointed out that IBP has collaborated with Lloyd's Register Energy to develop a research focused in Brazil in order to develop enhanced policies for the country.
With the subject "Prospects and Challenges for the Oil and Gas Industry", the Knowledge Arena was opened addressing one of the main current issues of the oil industry worldwide: changes in the energy matrix and its impact on the industry. IBP’s economic analysis manager, Luciana Nunes, opened the debate noting that energy consumption has doubled in the last 30 years, but the discussion today revolves around how the global consumption trends may affect these figures.
It is true fact that the oil industry – which in 2015 accounted for 46% of all investments in energy in the world, while renewable energy were ranked second, with only 17% of the market share - needs to adapt to the new era, warns Luciana. An industry that has been following technological changes that will also affect the demand for energy in the world, as is the case of electric cars. The figures show, however, that even if the world car fleet remains the same, in 2030 electric cars will only account for 11% of the world fleet. Today this share does not even reach 0.2%.
With the expected market opening, experts debated two important issues in the Financial Forum: the arrival of new companies that will demand services and a possible change in the way that projects are funded. "Both the country and the industry must have a reform agenda. However, such reforms have no use if the players are not aware of them. Brazil must absolutely implement a communication program for its players", said Fernanda Custodio, EDC’s manager for Latin America.
The traditional Sustainability Arena - formerly known as Social Responsibility Arena - aimed to show that the oil and gas industry is in line with the sustainability discourse. The event addressed the 17 sustainable development objectives proposed by the United Nations as a replacement to the "Millennium Development Goals", a legacy of Rio + 20, as well as the initiatives proposed by the oil industry to mitigate the impacts.
Seanic Ocean Systems (Seanic) announce the addition of Ray Maza to their business development team. Mr. Maza’s history in the subsea market makes him the ideal candidate to help Seanic enhance their long range growth objectives. With beginnings as an ROV pilot and technician, Mr. Maza has progressed through his career taking leadership roles for global commercial activities that include ROV development, subsea project management, operations management, and strategic sales planning.
The recent move by Seanic to a new facility in Katy, Texas will afford Mr. Maza a unique opportunity to implement business development initiatives to support the firm’s ever expanding cache of capabilities. One of these core abilities that Seanic is currently promoting stems from the construction of a full-service test tank that enables their clients to test their products in a controlled environment. The tank is large enough to wet-test a variety of subsea components using a work class ROV simulating field operations.
“Seanic’s new facility and their engineering capabilities present us with a chance to better serve the needs of current and potential clients,” noted Mr. Maza. Tom Ayars, president of Seanic, said, “We’re excited to bring Ray on board. He has acquired a broad range of field, operational and business development experiences that are important in this time of heightened budget awareness and lean operation strategies. We look forward to a productive future with this partnership.”
Tugboat companies complying with Subchapter M regulations are required to have man overboard (MOB) procedures in place, including a way of retrieving crew who have fallen overboard. C-HERO has put together a package to help tug and barge workers fulfill this mandate, the MOB Total Solution. The system includes the C-HERO Lift™ Portable MOB Davit, C-HERO Reach™ Attachment Pole, and Emerald Marine Products' ALERT2 Man-Overboard Alarm System.
The pioneering ALERT2 system consists of a water-activated transmitter and receiver. When the unit is immersed in water, a piercing wheelhouse alarm alerts crew to the fall. It can be wired to set a waypoint, sound external speakers and/or stop engines. Unlike AIS, the audible response is instantaneous. When every second matters, ALERT2 provides the critical extra time needed for a successful rescue.
Once crew is alerted to a fall overboard, the next step is to pull the victim out of the water. This is the connection that formed the business relationship between Emerald Marine Products and C-HERO. Sharing the same customer base, the companies are working together to provide the commercial marine industry quality lifesaving solutions.
The C-HERO Reach Attachment Pole is designed to attach a lifting strap to an alert or unconscious person in the water (PIW). Connected by the 10mm Samson Warp Speed line to the davit, the strap is cinched and the PIW is lifted.
Weighing only 30 lbs. and deploying in less than 20 seconds, the C-HERO Lift Portable MOB Davit quickly attaches to a quarter bitt and reaches out 5.5'. Built of durable marine-grade aluminum and stainless steel, it features a Harken 20:1 winch, Antal line clutch and Wichard Snap Hook. It's so rugged and easy to use, one person can hoist and bring back on board over 400 lbs.
"The products our companies manufacture are a perfect match with one another," said Robert Linder, Emerald Marine Products president. "Combined, the complete MOB solution will make a significant contribution to helping deckhands stay safe and survive a fall-overboard situation."
Reflex Marine, a global leader in offshore access, showcased its new WAVE-4 marine personnel transfer carrier for the first time to the oil and gas industry at the Offshore Energy 16 exhibition and conference in Amsterdam.
Taking the conference’s theme of ‘entering a new era’ Reflex Marine believes the time is right for the industry to drive a new era in safe personnel transfer, and is urging operators to review their crew transport options, including an evaluation of risks.
WAVE-4 is the company’s latest innovation to support safe transfers and improve the efficiency of operations. WAVE-4 is the only transfer carrier for standing passengers to protect against the four major risks of personnel transfer: vertical impact, lateral impact, falling and immersion.
Other benefits include a small deck footprint, quick and easy entry and exit, buoyancy and self-righting in case of immersion and stretcher capacity for use in an emergency evacuation, with the casualty maintained above the water line. WAVE-4 also has a simple inspection and maintenance schedule, enabling reduced downtime with increased convenience and efficiency.
WAVE-4 is the latest addition to Reflex Marine’s established range of personnel transfer carriers, which includes the industry-leading FROG-XT four, six and 10 person range. Wherever personnel need to be transferred in the marine environment there is now a Reflex Marine carrier to suit the operations and environment, from extreme to calm seas states.
With over 20 years’ experience, Reflex Marine is involved in more than one million safe personnel transfers across the globe every year. All its products focus on reducing risk and improving safety for passengers while the company’s long-term aim is to encourage an increase in safety standards across multiple industries.
Catherine Allinson, Business Manager for Europe, who attended Offshore Energy, said: “The theme of the Offshore Energy conference is very much in line with our desire to see the industry enter a new era in safe personnel transfer. Verified data has shown that the chances of fatality in helicopter transfers are approximately 11 times higher than for crane transfers and we believe it is time for the industry to both act on these risks and consider all transport options.
“Our innovations and technology developments have led to safer methods of crew transfer across the globe, regardless of sea state, and have set new standards and expectations for the industry. Through changing the perspective of crew transfer from being seen as inherently high-risk, to being accepted as a manageable activity that can be performed safely and cost effectively, we can ensure continuity and safety in offshore operations. WAVE-4 is our latest development to support our mission of raising safety standards offshore.”
Subsea 7 S.A. has announced the award of a substantial* contract, offshore Egypt, by Pharaonic Petroleum Company to be executed at water depths of over 900 meters in the Atoll field.
The contract scope includes the engineering, procurement, construction and installation of more than 40 kilometers of rigid pipelines and associated structures for the new Atoll field, tying into the existing Taurt field at a water depth of 100 meters. A 105 kilometer umbilical will also be installed linking the Atoll field to shore.
Seven Borealis. Photo courtesy: Subsea 7
Engineering and procurement services have already commenced. Offshore campaigns will take place in the second half of 2017 and the early months of 2018, using the Subsea 7 vessels Seven Borealis, Seven Eagle, and Seven Arctic.
Subsea 7's Region Vice President for Africa, Gilles Lafaye, said: "We are delighted to strengthen our presence in Egypt. This substantial contract award recognizes our technical expertise and track record of strong execution for Pharaonic Petroleum Company".
* Subsea 7 defines a substantial contract as being between USD 150 million and USD 300 million.
China's Pace of Refinery Capacity Additions Slowed, but the Rest of Asia Still AddingGlobal oil market rebalancing is underway and the process will quicken with any OPEC deal to cut production. The Asian kero/jet market is expected to tighten somewhat in 2017, with healthy demand growth. China’s refinery capacity additions are slowing, but the rest of Asia is still adding. Asia added cracking capacity more rapidly than primary distillation capacity over the past few years, but upgrading capacity additions will slow in 2017. China’s net exports of gasoil, jet fuel and gasoline are expected to increase by over 30% from last year to ~0.57 MMB/D this year, with further increases in 2017. India’s net exports of the three products have been steady this year but are expected to trend somewhat lower next year. Near-term Asian refining margins are to ease due to lighter refinery turnarounds despite stronger seasonal demand.
Poland's biggest gas firm PGNiG said last Monday that the average gas price for its biggest customers will rise by 4% as a result of the energy market regulator's decision on new gas tariff. The new tariff was approved and will be binding by Dec. 31, 2016, PGNiG said. Due to the higher prices of crude oil and natural gas across wholesale markets in Northwest Europe for the fourth quarter of 2016, PGNiG's total cost of gas grew beyond the cost assumed for the calculation of the existing tariff, PGNiG said in a statement.
The recent NYMEX strength that pushed the nearby contract beyond $3.35/MMBtu helped Henry Hub cash prices move decidedly above $3/MMBtu, despite the bearish weather conditions that have unfolded thus far during October. Yet, the possible continuation of the current warm trend appears to be causing the market to retrench back toward the psychological $3/MMBtu mark. U.S. temperatures this month are shaping up to yield the third warmest October on record. Moreover, gas weighted heating degree days will not only be decidedly below normal — by more than 25% — but also ~15% shy of October 2015. As a result, residential/commercial heating demand is on track to decline year-on-year by ~2.3 BCF/D.
China’s third quarter GDP growth matched expectations, but other data contained surprises. For one, manufacturing activity showed resilience, even though the trade sector stayed in a slump. In the housing sector, home sales were very strong, and homes in some cities are fetching New York City-level prices. Consumer spending, meanwhile, remained solid, as gains in jobs and wages lifted households. The European Central Bank deferred a critical decision about quantitative easing until December.
Ahead of the faceoff between the new LNG supplies, the U.S. has been able to eke out margins due to weaker Atlantic Basin flows. Winter heating in Asia, along with nuclear outages proliferating around the world, will support gas demand.
Several bullish factors have emerged for the U.S. coal market over the past month. U.S. natural gas prices have moved higher, and international steam and coking coal markets have surged, brightening prospects of stronger U.S. exports. PIRA takes a bullish outlook relative to current market forwards through the first half of 2017, but with our expectation of falling natural gas prices thereafter, we turn to a more neutral/bearish outlook for 2H17.
CARB’s most recent workshop saw “potential design changes” to the California Cap and Trade program to address AB197 (which encourages direct facility reductions). CARB asserts that AB197 does not preclude Cap and Trade and offers three ways to address concerns that it does not reduce facility emissions: reduce allowed offset use, reduce free allocations to industry, and retire unsold allowances. These can address EJ issues, while sacrificing some flexibility and increasing costs. Changes would take effect post-2020 coordinated with WCI partners. Commenters cautioned that CARB is acting prematurely, as AB197 is aimed at the Scoping Plan process in general. Scoping Plan options, with and without Cap and Trade, will be discussed more on November 7.
Total U.S. propane inventories fell by 1.2 MMB to 102.7 million barrels as seasonal demand improved. The annual surplus narrowed by 669 MB to 1.1 MMB. All PADDs showed declines except for PADD III. Last week’s inventory decline was the largest seen in the reference week in five years.
In the run-up to the November 8 U.S. elections, presidential candidates Hillary Clinton and Donald Trump campaigned on dramatically different energy policy platforms. Even so, PIRA sees little impact to near-term domestic oil and gas production under either candidate. Clinton is unlikely to implement prohibitive new restrictions on fracking, although she has stated she will expand President Obama’s methane strategy. Trump advocates for fewer regulations and increased drilling on federal and offshore acreage, but current legislative and commercial realities will likely be limiting. Longer term, oil demand may be stronger under a President Trump, who is less likely than Clinton to continue Obama’s fuel economy standards and promote energy efficiency. Implications for the power sector could be meaningful, with Trump less supportive of regulating emissions and Clinton promoting renewable-friendly policies and major investments in the grid. Yet neither party appears likely to win a filibuster-proof Senate majority, which will make it difficult for the next president to implement the majority of proposed energy initiatives.
Twice is certainly not a reliable pattern, more of a coincidence, but after gaining 16 cents last Monday, and jumping into a new trading range ($9.70 - $9.90) during last week, November soybeans are back it again this morning with a push towards $10.00. If history repeats itself, this week’s bean range will be $9.90 - $10.10.
U.S. ethanol prices rose the week ending October 14th. Manufacturing margins were relatively flat as corn prices increased, while coproduct DDG values declined. RIN assessments decreased.
Total commercial stocks decline again with this past week falling 3.6 million barrels, narrowing the year-on-year stock excess by another 5.1 million barrels. Distillate stocks drew 1.2 million barrels while gasoline inventories added 2.5 million barrels, but in both cases reported demand was likely substantially depressed by EIA re-benchmarking. Crude stocks surprised with a 5.2 million barrel decline this past week with imports making a new low for the year, while Cushing crude inventories fell 1.6 million barrels because of Basin pipeline maintenance. For this week, crude inventories build modestly (270 MB/D) as imports rebound and runs stay near turnaround season lows, but Cushing crude stocks decline again by 0.8 million barrels from continued low Canadian imports and less-than-full Basin pipeline flows as the pipeline ramps up. Light product stocks show big draws with reported demand rebounding, led by distillate’s 4.8 million barrel decline as farm use accelerates, nearing peak levels.
Between French nuclear reactors producing 8 GW less than last October and power markets favoring gas over coal, a lot more demand for gas has emerged. And yet gas is still fighting an uphill battle in the power sector. Overall thermal generation has been on a steady decline over the last 10 years by around 3% per year. Within that shift lower, a recent countertrend shows gas gaining market share within what’s left of the thermal mix, taking market share from coal and fuel oil. However, several pressing items this winter will be superseding issues tied to coal vs. gas or thermal vs. renewable switching. These issues center on French and British power margins.
The S&P 500 was higher on the week, with volatility noticeably lower, while high yield debt and emerging market debt moved higher in price. The dollar was generally stronger. For commodities, there continued to be a slight upward bias, but ex-energy appears lackluster. The precious metals complex has yet to gain renewed traction, while industrial metals have weakened. The agricultural complex has also shown a bit of strength of late, particularly coffee.
Policy developments over the past quarter were largely negative for the shale industry. The federal government intervened in the construction of the Dakota Access pipeline, adding regulatory uncertainty to the 60% complete project. The EPA’s methane rules went into effect in August, new fracking regulations went into effect in Pennsylvania in October, and a record breaking earthquake struck Oklahoma in September, spurring the OCC and EPA to further curtail injected wastewater volumes. Going forward, there is much uncertainty with the direction of the next administration and Congress. Yet we expect state policies to remain mostly accommodating, although increased seismicity in Oklahoma may spur local action.
With the French Nuclear Regulator imposing a three-month deadline to perform safety checks to five units potentially affected by the steam generator anomaly, the market focus has shifted from November to December and January prices. In fact, France will be facing lower nuclear availability even in the months of high peak demand, between December to mid-January. French January power prices appear aligned with the assumption that the hours of maximum demand, based on historical patterns, could require a full switch of France into a net importer, including the U.K., which is an interesting trading proposition, given the tightness in the U.K. market.
Coal prices continued to move upward rapidly over the past week, despite a midweek stumble. The front of the curve again moved notably higher than the back, making the backwardation in the market even more pronounced, particularly for API#2 and FOB Newcastle forwards. API#4 price forwards generally moved higher, although the gains paled in comparison relative to the other pricing points. Physical tightness in the prompt market continues to dominate price formation, as China's demand strength continues to signal that it is not yet abating. PIRA continues to assert that there is additional upside to the front of the curve, noting weather-related disruptions to supply that have already occurred, and the potential for other seasonal ones to develop (Australia) in light of La Niña conditions returning. We note that the last time there was a La Niña, disruptive flooding in Queensland and New South Wales sent prices soaring. If that were to occur this year, when the market is already tight, prices would certainly jump well beyond $100/mt, perhaps to the point where coal-to-gas switching emerges in several markets. Beyond the prompt, PIRA believes that the backwardation in the market is overstated in light of additional upside to China's import demand into 2017.
The significant increase in earthquake activity in Oklahoma is becoming a growing concern for the state’s oil industry. There appears to be a strong link between increased saltwater disposal and seismic activity, which has caused regulators to impose restrictions on the disposal of produced water. While we do not believe that significant production is threatened, more regulations will likely be imposed if the frequency or magnitude of earthquakes continues to rise. There are multiple solutions (e.g. shallower injection formations, inject saltwater outside of the affected area, etc.) to alleviate the problem and operators are actively pursuing them, but they would add to costs. PIRA estimates that less than 30 MB/D of crude would be impacted, which could continue to be produced but at an additional cost of less than $1 per barrel to find water disposal alternatives.
While not quite “lines in the sand,” these three resistance areas for corn, soybeans, and wheat all turned into support levels this past trading week, made more impressive for corn and soybeans by the fact that harvest weather cooperated for the most part and looks pretty wide open this week as well.
U.S. transportation indicators remain largely bullish. VMT growth remains relatively strong through August, but odds favor slowing over the remainder of the year, while gasoline demand growth also tends to slow. Transportation diesel indicators have shown a degree of slowing, but a pickup is expected for the remainder of the year. PIRA expects distillate demand in transportation to transition from decline to moderate growth over the next several months. The peak in air passenger miles has coincided with the seasonal peak in jet-kero demand. Cargo tonnage performance continues to lag that in the passenger travel segment.
Crude runs began to rise, with a very low crude import level, such that crude stocks drew a strong 2.8 MMBbls. Finished products also drew despite lower aggregate demand and higher runs. Gasoline demand was modestly lower, but stocks still posted a modest draw to another new 2016 low. Gasoil demand was also modestly lower, and stocks drew to their second-lowest level of the year. Kerosene demand was higher, due to a downward revision to the previous week. The initial seasonal draw seen last week was revised to a modest build. Margins and cracks improved on the week. Margins in September and into October have improved nicely from the abysmal levels seen in August. Levels are now judged acceptable and supportive of rising runs as we move out of turnaround.
Pricing for high-value PJM RECs has come down significantly, most recently accompanied by strong trading volumes and open-interest gains. Apart from the PTC extension, bearish factors have included lower loads, capacity additions and higher renewable generation, the veto of MD RPS legislation and the close of true-up periods for certain states’ programs. Given REC oversupply, additional price drops are possible. But stronger loads going into 2017, the unfreezing of the OH RPS and a possible overturn of the MD veto could boost prices. Longer term, the need for additional wind capacity, the phase-out of the PTC, and increasing state requirements can pressure REC prices. Major transmission adds, e.g. the Grain Belt Express, are a major potential bearish factor.
Global equities posted a positive week. In the U.S. the growth indicator had a positive gain, while the defensive indicator was unchanged. Over the last several weeks, growth sectors are outperforming defensive sectors. Banking and materials outperformed this past week, while energy matched the broad market. Internationally, Latin America again moved higher with a nice uptrend appearing to have taken root. The emerging market tracking index also had a good gain.
In the week ending October 14th, ethanol-blended gasoline manufacture was up 89 MB/D (1 %) from 8,986 MB/D at the same time last year. U.S. ethanol inventories drew to the lowest values in almost a year. Production rebounded to a five-week high, 998 MB/D.
PIRA's latest update of major country Asian product demand shows the first signs of demand growth acceleration. Our latest assessment of growth is now 534 MB/D versus year-ago. Our expectation is for demand growth to continue accelerating strongly through year-end (which will cover all of 4Q), with December growth pushing 1 MMB/D, and then growth will ebb in 1Q17. China demand growth remains a key driver, with gasoline demand growth providing fundamental support, while fuel oil demand growth in countries like Korea is also supportive to aggregate performance.
The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets
Petrobras and Total inform that Pedro Parente, CEO of Petrobras, and Patrick Pouyanné, Chairman and CEO of Total, have signed, in Rio de Janeiro, a Memorandum of Understanding which sets the general framework for a Strategic Alliance covering Upstream and Downstream activities in Brazil as well as international potential opportunities.
Through this agreement, the companies undertake to join forces in some key areas of mutual interest and to evaluate opportunities in Brazil and abroad to jointly benefit from their internationally recognized expertise on all segments of the oil and gas value chain.
Petrobras CEO, Pedro Parente, and the CEO of Total, Patrick Pouyanne. Photo courtesy: Petrobras
As a first phase of implementation, the companies intend to focus on Upstream and on Gas and Power.
In Upstream, Petrobras will propose Total to partner in projects in Brazil and Total will propose Petrobras to partner in opportunities outside Brazil. This new partnership will allow both companies to combine their world class experience and expertise in deep water development to optimize the production and jointly develop this strategic area of activity in Brazil and in other high potential oil and gas provinces, as well as sharing costs and risks in projects with high investment and complexity.
In Downstream, the companies will be working to develop joint activities in the gas and power generation in Brazil.
The memorandum also states that the cooperation will be extended, in a second phase, to a broader cooperation in Brazil focused on all downstream segments.
Currently, Petrobras and Total are jointly participating in 15 consortiums worldwide in exploration and production, nine of which are in Brazil and six abroad. In Brazil, the companies are partners in the development of the giant Libra area which is the first production sharing contract in the Brazilian pre-salt in Santos basin. Outside Brazil, Petrobras and Total are partners on the Chinook field in the US Gulf of Mexico, on the deep-water Akpo field in Nigeria and on the gas fields of San Alberto and San Antonio/Itau in Bolivia, as well as in the Bolivia-Brazil gas pipeline.
Leading marine transportation provider and the USA’s largest operator of OSVs, Edison Chouest Offshore (ECO), has teamed up with Damen to build a total of 13 heavy duty mooring assistance and escort tugs. These will be deployed on two major maritime projects for which ECO has recently won contracts, based in part on the use of well-proven Damen tug designs. The vessels will be built using ECO’s highly regarded network of five shipyards and Damen’s support and expertise.
Image courtesy: Damen
The first of these is a contract that ECO won earlier this year with a new Corpus Christi based LNG export terminal. The agreement is for the supply of four escort tugs with a bollard pull of 80 tonnes, to operate at this new LNG terminal in Texas, which is currently under construction. The Damen tugs will be of the well proven escort/mooring ASD 3212 design.
More recently, ECO has won a high profile, long term contract in Alaska. ECO is taking over the ship escort-response duties out of Valdez, Prince William Sound, from July 2018, for which it will require nine, high-powered escort tugs. For this highly environmentally-sensitive project, Damen and ECO will work together to deliver four more ASD 3212 tugs with a bollard pull of 70 tonnes each and five of the most powerful ASD tugs ever built; the ASD 4517 with a bollard pull of 150+ tonnes, is a joint Damen and ECO developed escort tug specifically designed for the sometimes challenging weather conditions in the Prince William Sound.
“Chouest was pleased to have this opportunity to take Damen’s proven hull design and helped create a new, state-of-the-art escort design representing the most powerful ASD tug ever designed or built,” said Gary Chouest, President/CEO of Edison Chouest Offshore.
In total ECO is now investing in the construction of a total of 13 Damen-designed tugs at its shipyards.
In what is a difficult period for the maritime industry, ECO and Damen have teamed up to ensure that the most capable and technologically-advanced tugs are available to meet the needs of both of these challenging, but exciting projects.
The contract has been handled by Damen’s new Area Support office in Houston, which opened on 1 August 2016. Jan van Hogerwou, General Manager New Construction Damen Area Support North America, is delighted to be able to announce this latest success for the Damen Shipyards Group in the United States. “Within just three months Damen has won orders for the construction of 27 tugs at four different US Shipyards, and we have only just begun!”
Endeavor Management and DeepDriver LLC have announced that they have opened industry participation in a Technology Demonstration Project (TDP) for DeepDriver’s breakthrough ROV powered subsea piling hammer.
In today’s oil & gas price environment, the overriding imperative is to seek new ways to lower capital and operating costs. DeepDriver’s innovative technology offers a significantly more cost effective means to install small to medium diameter piles at any water depth with typical savings of 35% to 50% per project. DeepDriver can be used for conventional driven applications such as anchors, moorings, well conductors, etc., as well as enabling uses not currently undertaken such as pipeline route stabilizations and remediation, deepwater pin piles and next generation hybrid mud mats. Key elements of the technology were successfully land tested earlier in 2016.
This TDP proposes to build a full scale system and undertake a series of tests including onshore FAT and land tests, shallow water test and, finally, a deepwater offshore trial in the Gulf of Mexico to demonstrate all aspects of the system’s operations. The TDP will deliver a field proven system to the industry.
Endeavor and DeepDriver are seeking industry participants to contribute to this project from a cross section of the stakeholder segments involved in the global subsea sector: Oil and Gas Operators, Vessel Operators, Service Companies, and Midstream Pipeline Operators. Participants will not only yield benefits to the industry by lowering costs on new projects and repair / maintenance on existing infrastructure, but will receive specific commercial benefits following completion of the TDP.
Bruce Crager, Executive Vice President of Endeavor Management, stated, “The subsea industry is facing huge challenges to reduce costs. With this TDP we expect to deliver an innovative system ready for use by the global industry within 12 months.”
William Zakroff, CEO of DeepDriver, added “DeepDriver was invented and engineered by co-founder and CTO James Adamson P.E., a world renowned technical authority in ROVs and ROV tooling. After completion of the TDP, DeepDriver will initially focus on IRM projects as the subsea industry recovers.”
A sustained low oil price environment is a challenging one, with ‘survival of the fittest’ being an undeniable reality of the sector. Upstream E&P operators, in the past two years, have scurried to re-evaluate their operational Business as Usual (BAU) practices, implementing a myriad of measures ranging from immediate cost cutting steps such as the downsizing of the workforce, the elimination of redundancies as well as the rebalancing of portfolios as they aspire to come out of this battle stronger.
Offshore MMO Expenditure by Region 2012-2021
Whilst complying with legislative standards, an apparent trend that has surfaced is the postponement of non-critical work which otherwise would have been sanctioned in a $100 oil period. For some upstream operators, associated Inspection Repair & Maintenance (IRM) requirements have retracted by some 20-30% relative to pre-downturn levels.
While efforts to reduce bottom line figures have paid off and continue to be in play, E&P operators must acknowledge the inevitable threshold levels of Maintenance, Modifications & Operations (MMO) and IRM spending that are required in the prevention of lost-time incidents. It’s inevitable that a current ‘fix on failure’ attitude is not sustainable and operators need to re-assess the long-term sustainability of their approach given ever growing cost accruals.
As the recent World Offshore Maintenance, Modification & Operations Market Forecast 2017-2021 shows, perhaps the only positive spin on the current trough for the wider industry is a foreseeable wave of upstream MMO and IRM contracts that are due to be awarded in the coming years given existing backlogs that can no longer be postponed.
Michelle Gomez, Douglas-Westwood Singapore
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