- The newsfeed this week has been inundated with updates on Aramco’s IPO developments. On the retail side, the Aramco IPO has reached $7.21 billion in subscriptions, bringing the total value for the IPO to somewhere near $25.6 billion. For the institutional side, which was a little slower going, it is possible it is oversubscribed. Abu Dhabi is considering a $1 billion to $1.5 billion stake, and Kuwait is planning to invest $1 billion. Other institutional investors have been less interested, however, with Russia, Petronas, and Norway’s trillion-dollar government pension fund either not interested in taking a big stake, or not interested in taking any stake at all.
- The biggest market mover will soon be Iraq, where the situation is spiraling out of control, quickly. On Wednesday, protesters set the Iranian consulate in the southern city of Najaf on fire, and on Thursday, at least 44 people had been shot dead by security forces - a dozen of them in Najaf. The Iraqi Prime Minister has since announced he will resign.
- Qatar has had a very strong year despite the blockade, and nothing - including uncomfortably close ties to Iran and even rumors that it knew of the pending attacks by Iran on oil tankers in the Gulf before they happened - will halt its progress forward. Now, it’s finished drilling appraisal work at its giant gas fields and will be producing 126 million tonnes of LNG a year by 2027, up from the current 77 million tonnes. Reserves at Qatar mega North Field now exceed 1,760 trillion cubic feet, and work will now commence immediately on two more LNG mega trains that will have 16 million tonnes of annual capacity.
- New LNG supplies in the US (Cameron in Louisiana, Freeport in Texas) and Australia have sunk LNG prices in Asia by 43% from a year ago, to $5.70 per million British thermal units. A year ago, prices were over $10. Typically prices heading into the winter months are higher, but the increases in production and slowing demand is keeping prices low. While the current round of projects have come online recently, these were commissioned years ago when LNG prices were higher. But today’s low prices make new projects going forward particularly unattractive.
- Kurdistan may begin deliveries by early next year of around 250,000 bpd of crude oil to the federal government in Baghdad for exports, after two sides reached an agreement on the oil and budget disputes. The federal government and the KRG agreed that Erbil would start submitting 250,000 barrels of oil to Baghdad daily from January onwards. According to the Iraqi Oil Ministry, Erbil will begin to hand in oil to Baghdad on January 1st next year. The oil-sharing deal is part of a broader agreement between Baghdad and Erbil that the two have been discussing for months amid growing protests in some parts of Iraq. Related: Is Big Oil Wasting Its Time in The US Shale Patch?
- Gazprom said it raised nearly $3 billion by selling a 3.59% stake on the Moscow exchange at a price of $3.45 per share. Media reported that nearly 500 investors applied to purchase the shares but the stake was purchased by a single undisclosed buyer. This is not the first time that Gazprom has sold shares via a subsidiary this year. In July, the Russian gas giant sold a 2.9 percent stake, again to just one bidder, raising the equivalent of $2.2 billion in the process.
Deals, Mergers & Acquisitions
- Now bankrupt Philadelphia Energy Solutions Inc oil refiner is seeking $2.5 million in bonus payments for its top executives amid a company reorganization.
- Chevron has confirmed the sale of its 43% stake in a JV with Colombia's state-run Ecopetrol.
- Only a quarter of the blocks on offer attracted bids in Colombia's second licensing round this year. Fifteen out of 59 onshore and offshore blocks on offer received bids. The country’s hydrocarbons regulator, ANH, said the auction attracted initial total investment more than $500 million, with 17 bids for 15 blocks from only 10 companies, mostly domestic, less than half of the number which pre-qualified for bidding. Six companies won 11 contracts in the previous round.
Discovery & Development
- Norwegian DNO has announced a light oil and sour gas discovery at the Baeshiqa-2 exploration well in northern Iraq after drilling for nine months. No further details of the find were released. This is a geopolitically tricky find because it is in a block that Exxon was forced to give up due to the conflict over oil resources between the Iraqi central government and the government of the autonomous Kurdistan region in northern Iraq. The discovery lies not in the Kurdistan Regional Government (KRG) area, rather in a disputed area between the official boundary between the KRG and territory controlled by Baghdad. This territory is nominally controlled by the Kurds, but makes development difficult for foreign operators.
- In an anti-development story, Senegal’s first offshore deepwater project, the Sangomar Block, has been pushed back two years, with operations now expected to launch in 2023. This discovery was heralded as one of the biggest conventional discoveries in the world back in 2014 and was expected to go online in 2021. That was first postponed to 2022, and has now bee postponed to 2023.
Politics, Geopolitics & Conflict
- Iran’s parliament says it may move forward with plans to impeach oil minister Bijan Zanganeh over the 50% gasoline price hike that has caused massive civil unrest, and led the authorities to shut down the internet to avoid the world watching how it handles this unrest. That unrest, according to the Iranian authorities, has led to the torching of over 730 banks and 140 government sites. Parliament so far has 72 lawmakers onboard - plenty to start impeachment proceedings. Zanganeh has already faced questions over the 50% price hike, and more questions are coming on December 8. And it’s not just the gasoline hikes that Zanganeh is finding himself in the hot seat over. Zanganeh will also have to answer for the privatization of some national companies, faulty development and construction of refineries and petrochem plants, and contracts of shared oil and gas fields. Related: The Race To Develop A 50 Billion Barrel Oilfield
- Violent protests continued this week in Chile over inequality. The protesters have not been appeased by the president’s concession to rewrite the Pinochet-era constitution, and our intelligence on the ground suggests that far-left fringe groups are mixing in with the protesters to attack police and further intensify the situation. A second general strike, called on November 27th, has paralyzed ports.
- Bolivia’s government has ordered a halt on oil exploration in its Tariquia national reserves over local opposition to Petrobras’ activity in the San Telmo Norte and Astilleros blocks on the border with Argentina. Bolivia’s state-run YPFB had signed a deal in 2017 with Petrobras to explore for gas in the blocks, with production expected to come online in 2020 or 2021. Bolivia has been unable to keep up with its LNG demand, and in March Petrobras fined YPFB for failing to deliver LNG volumes it was contractually entitled to receive through the Bolivia-Brazil pipeline. YPBF said at the time that it was unable to deliver the volume it had promised due to reduced exploratory investments in recent years. In the meantime, following the resignation of Morales on November 10, the interim administration has managed a political compromise with Morales supporters for new elections around April next year.
By Josh Owens for Oilprice.com
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President Trump’s bizarre behaviour and his reneging on what he says from day to day are behind the volatility of oil prices.
One day he talks about progress in the trade talks with China and the global economy gets excited with oil prices starting to surge and the following day he is threatening to slap new tariffs on Chinese exports so the global oil market gets deflated. Another day he praises Chinese President Xi Jinping and the Chinese people to be followed almost immediately with signing a legislation supporting the demonstrators in Hong Kong. This is the behaviour of somebody with limited intellect and inability to see the wider picture.
His support of Hong Kong opposition is not only a blatant interference in China’s internal affairs but is also a crude ploy to shift global media focus away from his impeachment proceedings. In so doing he is playing with fire because China will retaliate. This will harden China’s attitude towards ending the trade war. Having already won the war, China could afford to outwait the US on the trade war. China’s calculations are that the adverse impact of the war on the US economy coupled with the impeachment proceedings could cost President Trump the 2020 presidential elections.
Until a deal to end the trade war is reached, the war and by extension the oil glut which it has widened to an estimated 4.0-5.0 million barrels a day (mbd) and growing, will continue to cause uncertainty in the market and volatility in oil prices.
Still, all is not lost. President Trump may still swallow his pride and end the trade war against China if only to improve his chances of getting 4 more years in the White House.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London