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Global Energy Advisory November 17, 2017


According to the latest World Energy Outlook, released earlier this week by the International Energy Agency, U.S. shale oil will dominate world markets in the next decade, driving 80 percent of global supply growth and displacing OPEC as the market swinger.

The agency said that technological advancements and cost efficiency measures have turned the U.S. shale patch into a dominant market force with which OPEC, dismissive as it has been until now, will have to reckon. After all, the IEA’s forecast is that the United States will turn into a net exporter of crude in the second half of the next decade.

It will also, according to the IEA, become the largest exporter of LNG by the mid-2020s—arguably an even greater achievement given the prowess of Qatar and Australia in this segment.

It will not, however, last forever and the balance of energy power will again shift. Towards the end of the decade, U.S. shale patch production will plateau and the world will return to OPEC oil. But by the time that happens, renewables will have risen further. Demand for oil will not be as high as it is now, with the IEA forecasting a wide-scale adoption of renewable energy systems and, of course, electric vehicles.

These developments will keep prices in a range between $50 and $70 a barrel, the authority estimated, although it studied both a low-price and a high-price scenario to see how it would affect future oil supply and demand trends and renewable energy expansion.

Interestingly, the IEA found that even in a high-price scenario where adoption of EVs is much faster than its base case, oil demand will continue to be robust for the next ten years, driven by petrochemicals and fuels for heavy-duty vehicles and maritime vessels.

Deals, Mergers & Acquisitions

• Shell is selling its stake in Australian Woodside Petroleum for $2.7 billion. The sale is part of Shell’s asset divestiture plan following its $52-billion acquisition of BG Group two years ago, which saddled it with a heavy debt load. For Woodside the news wasn’t so good: its shares fell the most in 16 months after Shell amended its initial decision to offload 8.5 percent of its interest in the company and said it would sell the 4.8 percent remainder as well.

• ADNOC is selling 10 percent in its fuel distribution business as part of region-wide efforts to privatize energy assets in the new lower-for-longer oil price environment. The stake will be floated on a stock exchange, the company said, adding that ADNOC itself will remain the property of the Abu Dhabi government.

Tenders, Auctions & Contracts

• India’s state-owned oil giant ONGC and Vedanta were the biggest bidders in the country’s first oil block tender under a new open acreage licensing regime. The two together placed 41 out of 56 bids. ONGC bid for 41 blocks and Vedanta expressed interest in another 15. The tender is the first step in the drive to exploit oil and gas resources in an area spanning 2.8 million square kilometers. Under the open acreage licensing regime, bidders are able to place their offers after they study the seismic survey data.

• The first new Iranian Petroleum Contract, between NIOC and Total, may need to be reviewed if Washington decides to impose sanctions on Tehran. Total signed the $4.8-billion contract for the development of the South Pars gas field earlier this year, in partnership with China’s CNPC. Total’s CEO said that the company will be in a vulnerable position because it has business in the United States and, in fact, just recently increased its presence there with the acquisition of the U.S. business of Engie, which includes assets on the Gulf Coast.

Discovery & Development

• Russia and China have completed the second leg of the East Siberia Pacific Ocean pipeline that will increase shipments of Russian oil to China by 15 million tons annually to 30 million tons. The second leg is from the Russia-China border to Daqing. The first leg has been pumping crude to the border since 2011.

• BP has plans to boost the oil recovery rates from the fields it operates in Abu Dhabi to 60-70 percent from the current rate of 30-40 percent. BP has developed a number of technology solutions for enhanced oil recovery and will put them to use in Abu Dhabi.

• Ghana is in talks with Exxon for deepwater exploration in the country’s continental shelf, a senior government official said without providing any details. Ghana is a minor oil producer, with daily output averaging about 100,000 barrels, but it has potentially significant reserves, notably in the Jubilee offshore field, which may contain up to 3 billion barrels of crude.

Company News

• Pacific Drilling has filed for Chapter 11 bankruptcy protection, seeking to restructure $3 billion in debt. The company’s chief executive, however, said Pacific Drilling has a strong cash position and plans to continue with its global operations as usual while it restructures and repays its debt.

• Carlyle and the rest of the owners of refiner Varo Energy are planning to list the company in 2018, valuing it at some $2 billion. Varo will most likely list in the Netherlands. In separate news, Carlyle will be setting up a new energy investment fund worth $1 billion, to focus on opportunities outside the United States.

• BP has become the first oil supermajor to begin buying back shares it issued amid the oil price collapse to ensure dividend payouts continue. BP reported a twofold increase in profits for the third quarter and has now signaled that all the cost cuts it undertook over the last three years have finally started to pay off. BP was even worse off than the other supermajor because of the Deepwater Horizon disaster that saddled it with $63 billion in fines, settlements, and cleanup costs.

Regulatory Updates

• Environmentalist groups, including Greenpeace, are suing the Norwegian government for awarding drilling licenses in the Arctic. According to the plaintiffs, this policy is in breach of the Norwegian constitution. The government last year awarded 10 drilling licenses for deposits in the Arctic and, according to the country’s energy minister, there is no legal grounds for challenging the licenses.

Politics, Geopolitics & Conflict

• Clashes between IS militants and Iraqi forces resulted in 14 deaths earlier this week. The clashes occurred near Kirkuk, the northern Iraqi oil industry hub that the Kurdistan Regional Government controlled until recently.

• Venezuela’s Finance Minister met with creditors to discuss the restructuring of the country’s massive debt but the talks ended with no clear result. S&P has rated Venezuela in default.

• Lebanon’s PM Saad Hariri said he’s ready to return home and reconsider his resignation, which he announced last week from Saudi Arabia, blaming it on Hizbollah. Hariri is now saying that he resigned for fear of Arab state sanctions against Lebanon, which is heavily dependent on remittances.

• A military coup in Zimbabwe is close to removing the country’s longest-serving leader, Robert Mugabe. Mugabe is currently discussing his future with senior military leaders. He has been ruling the country almost four decades and lost his grip on power as the country's military leaders and senior officials in his own party turned against him.

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