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Global Energy Advisory May 18th 2018

Refinery

Asian economies are facing higher inflationary pressure as their crude oil import bill expands in line with benchmark prices. Although some analysts have argued that even oil at $100 a barrel won’t affect global demand in any negative way, a tab of $1 trillion for total Asian crude imports with Brent at $80 might do just that.

Soaring demand in China and India will be responsible for the higher expenses but both countries are likely to double down on their efforts to cut their dependence on imports, or at least imports priced in dollars as a stronger greenback is adding to their oil bill.

Imports from Iran, to be paid for in other currencies, could be a way out of the trap. Indeed, some analysts believe that the return of U.S. sanctions against Tehran will actually be a boon for China as it seeks to expand the international clout of its currency, as Iran seeks to reduce already low reliance on the global oil currency.

India has not yet made public any plans to change the terms of its import deals with Iran but it did report record-high Iranian crude imports for April, at 640,000 barrels daily. Besides, India already pays for Iranian crude in euro and unless European countries decide to comply with the sanctions, its imports from Iran will not be affected.

Deals, Mergers & Acquisitions

• ConocoPhillips is considering the divestment of its North Sea operations—a deal that could fetch $2 billion for the company, if all assets are sold. Conoco is increasingly focusing on business at home, particularly in the shale patch. In the North Sea, it has stakes in a number of fields, and its share of their production comes in at an average daily rate of 75,000 barrels.

• Exxon and Saudi Sabic have inked a joint venture for the construction of a $10-billion petrochemicals complex in Texas. The facility will comprise a 1.8-million-ton-annually ethylene cracker, two polyethylene production units, and a unit for the production of monoethylene glycol. The project is part of Exxon’s $20-billion expansion plan for the Gulf Coast.

Tenders, Auctions & Contracts

• Total and Shell have signed a preliminary agreement with the government of Oman for the development of several newly discovered gas fields. Shell has a 75% stake in the project and Total holds the remainder. The undertaking will seek to turn Oman into a regional LNG hub, with initial production from the fields estimated at 500 million cu ft daily, to rise to 1 billion cu ft daily eventually. The LNG to be produced under the project will be used for bunkering.

• Nigeria’s National Petroleum Corporation has issued new, two-year oil contracts to 30 oil trading companies, including the top three commodity traders globally Glencore, Trafigura, and Vitol, as well as French Total, Spanish Cepsa, and Lukoil. NNPC has so far issued only one-year oil contracts. The final list of traders for this year could include another 20 to 30 companies.

• KBR Inc. has secured a contract from Basra Oil Company for the development of the Majnoon oil field, including engineering, procurement, and construction, plus project management at the field. BOC took over the development of Majnoon this year after Shell announced it was quitting it. The Iraqi company plans to boost production from it to 450,000 bpd of crude.

• UK-based Ophir Energy might lose its stake in Equatorial Guinea LNG if it doesn’t make good on promises to invest $1.2 billion in the project by the end of the year. The country’s government has suggested it already has a replacement for Exxon’s partner in the project in mind.

Discovery & Development

• Inpex plans to ship the first cargo of Ichthys LNG by the end of September at the latest. Ichthys, with an annual capacity of 8.9 million tons of LNG is one of two LNG megaprojects off the coast of Western Australia to start commercial production this year. The other is Shell’s Prelude, which could produce 3.6 million tons of LNG annually. Ichthys and Prelude share the gas deposit they will be drawing on to produce LNG.

• Chinese CNPC is ready to take over the Phase 11 development of Iran’s South Pars gas field from Total, should the French company fail to secure a sanction waiver from the U.S. Department of Treasury. Total and CNPC were partners in South Pars but the French company said it will have to exit the project if the U.S. Treasury refuses it a sanction waiver, which is the most likely outcome considering it refused to grant a Russian sanction waiver to Exxon.

• Lukoil and Basra Oil Company have inked an agreement to boost production from the West Qurna oil field first to 480,000 bpd by 2020 and to 800,000 bpd by 2025. Production expansion activities will include drilling new production and injection wells as well as the construction of oil treatment, storage, and transportation installations as well as gas processing and power generation facilities.

• Venezuela’s PDVSA is preparing to shut a Caribbean refinery that is running out of crude amid threats by ConocoPhillips to seize cargoes sent to resupply the facility. Last week ConocoPhillips began legal actions in the Caribbean to enforce a $2 billion arbitration award by the International Chamber of Commerce (ICC) over the 2007 nationalization of its projects in Venezuela.

Regulatory Updates

• The European Commission will announce its final decision in the anti-monopoly case against Gazprom by next week, after a seven-year investigation. Official charges were leveled in 2015 and ran along the lines of unfair gas pricing practices in eight EU members from Central and Eastern Europe and a monopoly position on the market. Gazprom has denied the charges but sources close to the proceedings say that the Russian company has agreed to change its pricing models and open up some market space for competitors.

• A corruption trial against Eni and Shell linked to the acquisition of an offshore oil block in Nigeria has been delayed for a month after a brief hearing. Italian prosecutors allege the two companies bought the field, OP 245 for $1.3 billion but a lot of the funds were illegally transferred to accounts personally controlled by then-oil minister Dan Etete.

• Alberta has passed legislation that would allow it to stop crude oil shipments to neighbor British Columbia in response to B.C.’s opposition to the expansion of the Trans Mountain pipeline. B.C. has threatened to take Alberta to court if it does turn off the taps.

• Petrofac Ltd, which is being investigated by Britain’s Serious Fraud Office (SFO), said it was awarded more than $1.7 billion of new orders so far this year as tendering activity remained high. Earlier this month, the company has hired investment banks to help with the sale of its oil fields in Mexico, as it prepares to scale back its oil and gas production operations.

Politics, Geopolitics & Conflict

• Saudi Arabia said earlier this week Houthi rebels in Yemen fired another ballistic missile at an Aramco facility but it didn’t reach its target, landing in the desert.

• Moqtada al-Sadr surprisingly won the Iraqi vote on Sunday, beating an Iran-supported militia leader and incumbent PM Haider al-Abadi. Al-Sadr has indicated he is open to coalition talks with other parties.

• Palestinian protests against the moving of the U.S. embassy in Israel to Jerusalem that the IDF quashed violently will most likely be followed by a Tribunal for War Crimes. Both sides are already preparing for court proceedings.




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