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Global Energy Advisory 3rd August 2017

Pipeline

European oil majors are turning to offshore wind power projects in the United States. Earlier this year, Shell bid for an offshore wind power lease off the North Carolina coast and Danish DONG Energy set up an office in the U.S. and is taking part in a consortium focused on wind energy off the Massachusetts coast. Now, Norway’s Statoil has joined the wind power party in U.S. waters after winning a license for one such project offshore New York.

The wind power industry in the U.S. is in the nascent days of development, while in Europe the market is 25 years old and saturated, so the energy companies from the continent are looking for new opportunities abroad, despite the Trump administration’s shift away from renewables and back into fossil fuels.

Companies like Shell and Statoil can leverage their deep-water drilling and project operation experience, and they have both reoriented themselves towards renewables. Statoil has more extensive experience in wind power than Shell--but both seem to be determined to diversify steadily into renewable energy.

According to government estimates, in the U.S., there is offshore wind power potential of up to 2,000 GW. This compares to planned European offshore wind capacity expansion to 25 GW by 2020.

Wind power has now overtaken hydroelectric as the largest single source of clean energy in the United States. With 82,000 MWs of total installed capacity at the end of 2016, wind turbines exceeded the 80 thousand MWs generated by the nation’s hydroelectric dams.

Wind power development in the U.S. continental shelf, however, could prove challenging because of a pending expiration of federal subsidies for such projects in 2019. Although these could be renewed by Congress, nothing is certain, and without subsidies offshore wind energy will likely be non-competitive unless the energy companies working on such projects find a way around this.

Deals, Mergers & Acquisitions

• Shell has made an investment in Singapore-based private solar power company Sunseap Group. The deal is part of Shell’s diversification into renewables, where the Asia-Pacific is a priority region. The Singaporean company has about 160 MW in distributed solar power capacity, is a licensed electricity retailer, and has a portfolio of future utility-scale solar projects in the region. Meanwhile, the company also completed the divestment of its Kapuni gas field in New Zealand to local Todd Energy.

Tenders, Auctions & Contracts

• Iran said it is ready to resume oil swaps with Russia, Kazakhstan, and Turkmenistan. The country quit the swaps in 2010 on the grounds that it wasn’t profiting adequately from the deals but now things have apparently changed. Under the swap deals, Iran receives Russian, Kazakh, and Turkmen oil via a Caspian Sea terminal in the North, and sends crude oil back from the Persian Gulf.

• TransCanada has issued a call for bids from oil producers and traders who would like to use the Keystone XL pipeline to ship oil from the Alberta oil sands to refiners. There are doubts there will be enough clients for the planned pipeline—one of the most controversial in the history of U.S. oil—so TransCanada is tapping the potential client pool for early indications of interest or lack thereof. It is possible that the Canadian company might delay or cancel the project if there is no sufficient interest in it.

• Shell has moved closer to signing a major contract with Iran to develop the country's oilfields of South Azadegan and Yadavaran in Khuzestan province. Azadegan, a giant oil reservoir at the Iran-Iraq border, looks set to be the first oilfield to be tendered within the framework of Iran Petroleum Contract. (Incidentally, in case you missed it because it was done so quietly, the Trump administration actually thinks the deal with Iran is working and are no longer seeking to reverse it. So all that harsh rhetoric was just for public consumption.)

Discovery & Development

• China’s CNOOC said it has started extracting natural gas from the BD field in Indonesia. At the moment, there are two producing wells in the field, yielding about 7,200 barrels of oil equivalent in gas condensate daily. Peak production is seen at 25,500 boepd, to come in 2018.

• Shell has shut down Europe’s biggest refinery, Pernis, in the Netherlands, after a fire last weekend affected its operations. According to the company, it would take about two weeks to restore normal operation at the facility. Pernis has a daily capacity of 400,000 bpd.

• Private energy company Talos Energy announced it has successfully completed drilling of an exploration well in an offshore block in the Mexican sector of the Gulf. This is the first well drilled by a private oil field operator in Mexican waters. Estimated resources in the well range between 1.4 and 2 billion barrels of crude.

• Nova Scotia may become the next LNG hotspot in Canada after Petronas pulled out of its huge Northwestern LNG project in British Columbia. Bear Head LNG Corp. has been planning to build an LNG terminal on the Nova Scotia coast for a year and is now seeing an increase in interest from Western Canadian gas producers who are eager to tap international markets.

• French Total SA has invested $10 billion in Nigerian oil and gas over the last five years and plans to continue operating in the West African country in the future, too. A company official speaking to Nigerian media earlier this week said the oil industry in the country remains viable and will improve with initiatives aimed at boosting investor confidence.

• Malaysia’s Petronas has won back its license for the shallow-water Block 6 in the Gulf of Mexico, in the Salina Basin. This is the third block that the Malaysian company will operate in the Mexican sector of the Gulf.

• The gas supply to Armenia has been suspended as of 4 August for 30 days because of construction work on the North Caucasus-Transcaucasia main gas pipeline. Authorities informed consumers that they will continue to be provided with gas supply without interruptions.

Company News

• Devon Energy reported a net profit of $425 million for the second quarter of the year, with operating cash flow growing to $810 million from $345 million a year earlier. Net oil production reached 536,000 boepd in the period, beating forecasts by 6,000 boepd.

• Marathon Oil reported a net loss of $139 million, down slightly from a loss of $170 million a year earlier. The company said it will reduce its capital spending for the rest of the year, joining a number of other shale players who announced similar plans earlier this week after the announcement of their second-quarter financial results.

• Occidental Petroleum booked a net profit of $507 million for the second quarter, up from a loss in the year-earlier period. Revenues came in at $3.60 billion. Production stood at 601,000 barrels of oil equivalent daily.

• Pioneer Natural Resources reported a net profit of $233 million for the second quarter of the year, versus a loss of $268 million for the same period a year earlier. The company, which is among the top producers in the Permian, said that it would trim its capex for the rest of the year, however, adding it would rather conserve cash than drill more wells.

• Toshiba America has announced the formation of Toshiba America LNG a new operating company that will focus on the liquid natural gas (LNG) market. Japanese company hoped to supply LNG to power generators, utilities and industry.

Regulatory Updates

• More than 50 business leaders including the heads of Halliburton, ConocoPhillips, ExxonMobil, and the U.S. chief of BP, have written to the Texas governor stating they are against the “bathroom bill” that is being discussed in the lone-star state. The leaders said they support diversity and will oppose a bill that requires transgender people to use the bathrooms in accordance with the gender named on their birth certificate.

Politics, Geopolitics & Conflict

• Congress passed a new sanction bill against Russia, which has sparked worry in the European Union as the sanctions will likely affect companies such as Shell, Wintershall, and OMV, who have business with Russian energy companies in Europe.

• South Sudan’s security services have arrested a senior official from the country’s state oil company on allegations of illicit fuel sales.

• The political crisis in Venezuela may spill over into to neighboring Colombia, where the situation is still tense between the government and the militants of the Revolutionary Armed Forces of Colombia (FARC) despite efforts to forge a lasting peace. Last year, thanks to the combined effect of low oil prices and militant attacks, Colombia’s production fell to 885,000 bpd, from over 1 million bpd in the previous year. Also last year, Colombian President Juan Manuel Santos sealed a peace deal with FARC, which would allow new investments in the oil industry. However, some other smaller militant groups are still attacking oil infrastructure and causing interruptions in oil production.

• The U.S. and China are at an impasse over North Korea. China continues to be restrained despite urges from the White House to take more decisive steps against its neighbor.

• Germany and Vietnam have found themselves in the middle of a diplomatic row after the disappearance last month of a former Vietnamese oil executive. Germany claims that Trinh Xuan Thanh was kidnapped at gunpoint by Vietnamese intelligence agents in Berlin Zoo. Thanh is wanted in Vietnam on charges of mismanagement that resulted in $150 million in losses at the state-run oil company PetroVietnam. However, Vietnam authorities claim that he turned himself in.




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