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Can Saudi Arabia Save Oil Markets?

Politics, Geopolitics & Conflict

- The Saudis are claiming that they can keep crude oil flowing normally by redirecting it through the Red Sea. What the Saudis are talking about here is Aramco’s 5MMbpd pipeline that carries crude across the country, to either the Gulf or the Red Sea. So there are options for diverting one way or the other, but not fully. This capacity leaves 2 MMbdp unaccounted for. Nor is the pipeline safe these days: It was targeted by the Houthis recently and temporarily halted flow. Once it gets to the Red Sea, there are other risks. In the Red Sea, Saudi crude goes through the Bab al-Mandeb shipping lane. In July last year, shipments through this lane were halted as well due to Houthi attacks on oil tankers.

- Militants bombed the Cano Limon pipeline in Colombia for the 19th time this year, which resulted in an oil leak.

- Venezuela’s embattled President Maduro claimed that the country’s security forces had stopped an assassination attempt that aimed to replace him with a former defense minister, whom he has accused of being a “slave” to the US and working with opposition figures to kill not only Maduro, but his wife and other officials. Maduro’s spokesman also claims that a plot was foiled for an invasion by a coalition of Israeli, American and Colombian agents to seize military bases and raid the central bank. The claims followed the publication by the Washington Post of an interview with Maduro’s former head of intelligence, General Manuel Ricardo Cristopher Figuera.

- Turkish president Erdogan has suffered a major blow over the Istanbul mayoral elections. On Sunday, the opposition candidate won the re-run of the vote, after having won by a small margin in March against an Erdogan AKP party candidate. Erdogan misplayed this one, as he tends to do when he suffers from bouts of paranoia that cloud his judgement. It was a mistake to claim that opposition candidate Imamoglu won the Istanbul mayoral election in March through fraud. Those highly controversial claims turned Imamoglu into a martyr and a major household name, leading to a solid re-run victory on Sunday. Losing Istanbul is a major defeat for Erdogan. Istanbul is the economic capital of Turkey, the country’s largest city, and a long-time bastion of Erdogan’s conservative power base. For the first time, Erdogan has been humbled by the people, and there is now a gaping hole in the one-man dictatorship. The AKP’s loss of Istanbul has also emboldened the opposition CHP to call for the scrapping of the presidential system, after the role of PM was abandoned and presidential powers expanded for and by Erdogan.

- Tensions across the Middle East and North Africa as a result of Syria and the Iran-US escalation. This has resulted in attacks in Iraq in recent weeks, and this week, in at least two major incidents in and near oil-rich Kirkuk, as tensions over an oil deal simmer between the Iraqi Kurds and Baghdad, while ISIS seeks to take advantage of the chaos. On Thursday, a bomb ripped through central Kirkuk, killing 17 people after it struck a passenger bus. There was no claim of responsibility. Also on Thursday, Tunisia was hit by two suicide attacks in the capital, with at least one person dead and several others wounded.
Deals, Mergers & Acquisitions

- Exxon is gauging the market for a potential sale of its exploration and production assets in Norway. The assets, according to Norwegian media, could be worth as much as $4 billion. The supermajor earlier this year announced it plans to divest assets worth $15 billion, so the news about the Norwegian business makes sense given it is not considered core business by Exxon.

- Qatar Petroleum and ConocoPhillips have teamed up on a petrochemicals plant that will be located in Qatar and should be completed by 2025 as Qatar Petroleum diversifies away from natural gas and LNG. The new facility will receive raw material from the emirate’s largest gas field—and the largest in the world—the North Field. Qatar last year lifted a moratorium on further production increases in the field as it began ceding ground in the LNG market to Australia.

- French Total and Enel have dropped out of the race for Dutch energy player Eneco, leaving more space for A Shell-led consortium with a Dutch pension fund. Total and Enel were also a ream with a Dutch pension fund, which is now looking for replacements in its bid for Eneco. The deal, according to analysts, could fetch $3.4 billion.

- Canadian Pieridae Energy announced purchase of Shell’s gas assets in Alberta for $145 million. Midstream and upstream assets in the southern Alberta Foothills area, which produce 29,000 barrels of natural gas, natural gas liquids, and condensate. Pieridae Energy says the $190-million deal with Shell will give it a supply of 119-million cubic feet per day of natural gas.

- The Refinery and Petrochemical Integrated Development (RAPID) refinery in Malaysia, a joint project of Petronas and Saudi Aramco, is due to come online by the end of this year. The greenfield refinery complex cost around $27 billion and includes a deepwater terminal, co-generation plant and regasification terminal.

Tenders, Auctions & Contracts

- Exxon and Linde inked a long-term deal for the expansion of a joint petrochemicals facility in Singapore. At $1.4 billion, the deal will see Linde expand the gasification complex part of the petrochems facility and increase supplies of hydrogen and synthesis gas, which is used for specialty chemicals, among other products. The Jurong Island project will be completed by 2023 and will be the only such complex in the world that has a steam cracker that can process crude oil.

- The UK wind power industry will get a $127-million investment fund to support growth over the next 10 years. The government-funded vehicle will invest in companies along the whole supply chain as part of the government’s strategy to boost wind power generation capacity to at least 30 GW, to be installed by 2050.

- The Iranian parliament passed legislation that will allow private investors to build refineries for crude oil and gas condensates as part of efforts to curb the adverse effects of U.S. sanctions on its oil exports. With more refining capacity Iran would be able to process more of its crude at home and export petrochemicals.

- Exxon and Qatar Petroleum are jointly bidding for the construction of the first onshore LNG terminal in Bangladesh, vying for the contract with Shell, Total, and Samsung, as well as several large Japanese commodity traders. The terminal will have a capacity of 7.5 million tons of LNG annually. The project will be awarded on a build-own-operate basis for a period of 20 years.

- Saudi Aramco signed 12 contracts worth several billion dollars with South Korea as part of its diversification and downstream expansion plans, in which South Korea, one of the world’s top oil and gas importers plays a crucial role. The contracts are in various industries, ranging from crude oil and petrochemicals to shipbuilding and engine manufacturing, according to Aramco.

- Colombia is expected to award 10 exploration and production contracts next week to six companies, mostly Canada and Colombia based, that have each won at least one block at the recent auction. The blocks will add more than a billion barrels of oil to the country's reserves. Colombia expects to receive some $1.5 billion in oil investments over the coming months from this round of bidding as well as a recently launched permanent bidding process. Companies including Shell, Noble Group, Exxon Mobil, and Repsol SA have already signed on to operate new blocks this year.

- Toyota is getting ready to pump $2 billion into EV development in Indonesia--a major EV production hub. The massive investment is intended over the span of the next four years.

Discovery & Development

- Mexico’s National Hydrocarbons Commission has approved a $97-million drilling plan submitted by BP for a prospect in the southern part of the Gulf of Mexico. BP partnered with Total on the project which it won the rights to last June. The approval comes amid an extensive review of current oil contracts with foreign companies operating in Mexico with all earlier scheduled tenders suspended until the reviews are completed.

- Equinor will be the new operator of OMV’s Wisting offshore project in the Arctic after the Austrian company gave up on the challenging field, but only temporarily. The Norwegian company will work on the field until it begins producing and then OMV will re-assume operatorship. The Wisting field contains an estimated 440 million barrels of oil but is in a difficult location, and the European oil industry has been nervous about such locations after Eni’s cost overruns and project delays with the Goliat field in the Barents Sea.

- Iran has delivered the first crude oil to a Chinese refinery since the United States removed as of May all sanction waivers for Iranian oil customers. A vessel owned by the National Iranian Tanker Company (NITC) loaded with around 1 million barrels of crude oil from Iran arrived on June 20 at Jinxi Refining, which is owned and operated by state giant China National Petroleum Corporation (CNPC).

Company News

- Activist investor Carl Icahn is looking for ways to replace four members of the board of directors of Occidental Petroleum arguing the current board messed up the acquisition of Anadarko, which cost Oxy $38 billion. According to Icahn, the change in the makeup of the board is necessary for Occidental to take full advantage of the cost savings inherent in the deal.

- PDVSA officials have filed a suit with a Delaware court to restore control of the Venezuelan energy company over Citgo, its U.S. business that Washington gave over to opposition leader Juan Guaido earlier this year. PDVSA is also suing several of the directors appointed to Citgo’s board by Guaido.

- The Saudi Crown Prince is still working towards that elusive Aramco IPO. The most recent indication of this being the Kingdom’s move to have Aramco cut its spending on the oil ministry in an attempt to show potential investors that there are, in fact, boundaries between company and state. Investors will not be keen to pay the exorbitant expenses of oil ministry officials.

- Glencore - the increasingly embattled miner-trader - saw its Kamoto Copper mine in DRC collapse on Thursday, killing 36 people at last count. Glencore owns a 75% stake in the copper and cobalt mine. The collapse was said to be caused by illegal digging from artisanal miners. The collapse has boosted copper prices on supply concerns and caused Glencore’s stock to shed 7% in the aftermath of the news.

Regulatory Updates

- Kinder Morgan has scored a point against a group of landowners who opposed its Permian Highway gas pipeline after a judge ruled the Texas Railroad Commission did not have to approve the route of the project in advance. The company can use eminent domain to acquire land for the project, the judge ruled.

- Iraq has suspended Petrofac from bidding on any new contracts in the country while it is under investigation by the UK’s Serious Fraud Office (SFO) for bribery. In February, the former global head of sales for Petrofac, David Lufkin, was convicted on 11 counts of bribery in relation to oil deals in Iraq and Saudi Arabia. This has left Petrofac scrambling to insist to shareholders that it has not effectively been banned from any country, and that it has not itself been convicted of any wrongdoing.

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