McDermott International, Inc. (NYSE:MDR) announced on Monday, June 27, it has been awarded a $454 million USD contract from PEMEX Exploracion y Produccion for engineering, procurement, construction & installation (EPCI) for the Abkatun-A2 platform.
McDermott will provide a vertically integrated, turnkey EPCI solution to build and commission the platform and associated structures utilizing its project management and engineering team in Mexico. The Abkatun-A2 platform is McDermott’s largest project in size and total value to-date for PEMEX. The platform will be located in Mexico’s Bay of Campeche in 124 feet of water and will provide replacement and expansion capabilities to the existing Ku-Maloob-Zaap, Cantarell and Ayatsil facilities.
McDermott will manufacture structures for the Abkatun-A2 project at the Altamira, Mexico fabrication facility, shown here during the successful load out of the PB Litoral A project. Photo credit: McDermott
“McDermott provided the most efficient and technically compliant solution leveraging our capabilities in Mexico and our recent experience with PEMEX on the successful completion of the complex PB Litoral project,” said Scott Munro, McDermott Vice President for Americas, Europe and Africa. “Our fully-integrated solution will be led by our team in Mexico, including project management, procurement, engineering, fabrication and installation. This allows us to optimize all phases of the project.”
McDermott will manufacture structures for the Abkatun-A2 project at the Altamira, Mexico fabrication facility. The yard is strategically positioned as a free trade zone and provides fabrication services for the Gulf of Mexico and Americas. The yard is known for its high-quality craftsmanship and exemplary safety standards. McDermott is expected to utilize the Derrick Barge 50 and the Intermac 650, the world’s second largest float-over installation vessel.
“McDermott has focused on several initiatives to lower costs and increase operational effectiveness to become more competitive in the market,” added Munro. “Those efforts, coupled with key strategic decisions that maximize operations and execution in Mexico, directly contributed to the positive outcome of this award and will differentiate McDermott from our competitors for continued growth and success.”
The contract award will be reflected in McDermott’s second quarter 2016 backlog. Engineering and procurement activities will commence immediately with fabrication scheduled to begin in late 2016 followed by offshore activities in 2018. Handover to Pemex is scheduled for fourth quarter of 2018.
On July 2015 Qatar Petroleum (QP) invited a number of international oil companies to participate in a competitive tender process regarding the future development of the Al Shaheen oil field in Qatar. Presently Maersk Oil is the operator of the field and the current 25 year production sharing agreement expires in July 2017.
Earlier this year Maersk Oil submitted its bid in the tender. QP has today communicated that they have selected another oil company as partner for the future development of the Al Shaheen field.
Photo courtesy: Maersk Oil
“Maersk Oil presented a highly competitive technical and commercial proposition based on more than 20 years of technical knowledge and experience working with the Al Shaheen field,” says CEO in Maersk Oil, Jakob Thomasen.
During the past 24 years Maersk Oil and QP have together developed the Al Shaheen Oil field into Qatar’s largest off-shore producing oil field. Under the terms offered by Qatar Petroleum, a minority shareholding for Maersk Oil in the new joint venture would have created a marginal impact on the Maersk Group earnings in the years ahead.
Maersk Oil will continue to operate Al Shaheen until the end of the current license in July 2017. Leading up to the expiry of the existing production-sharing agreement Maersk Oil will work together with QP to support a safe and efficient transition of the existing operations to the new operatorship. “Maersk Oil is growing as a result of improved operating performance and with major projects like Culzean in the UK and Johan Sverdrup in Norway, we continue adding new production through to the end of the decade. We will continue to deliver in the years ahead based on a strong operational performance and cost focus and ensure that our major projects are executed on time and on budget,” says Jakob Thomasen.
Maersk Oil will be redeploying a number of its employees which today are based in Qatar elsewhere in its global organization. The majority of remaining employees in Qatar are expected to be offered employment by the new operator. A.P. Møller - Mærsk A/S’ financial outlook for 2016 remains unaffected and no need for write-downs will occur. The Group’s reserves and resources (by end of 2015 2P + 2C of 1,141 million boe) will not be impacted by the expiration of the agreement.
Wood Group has been awarded a multimillion dollar contract to provide detailed engineering and design, and procurement services to South Atlantic Holding (owned by Statoil and partner Sinochem) for the development of the Peregrino field wellhead platform C, offshore Brazil. Wood Group Mustang will perform the work for Kiewit Offshore Services (KOS), a leading fabricator for the oil & gas industry. Wood Group Mustang completed the front-end engineering and design for wellhead platform C in 2015 and previously designed wellhead platforms A and B.
Peregrino field. Photo courtesy: Statoil
Michele McNichol, CEO of Wood Group Mustang, said: “Wood Group Mustang’s proven ability to deliver cost-effective and efficient solutions was a key enabler to obtaining the contract.”
This contract adds to Wood Group’s portfolio of services provided to Statoil. The two companies recently signed a master services agreement for Wood Group to support the lifecycles of Statoil’s onshore and offshore facilities. Wood Group Mustang is currently delivering maintenance and modification services to four Statoil installations on the Norwegian continental Shelf (NCS). Wood Group PSN is also supporting the Peregrino field, providing operations, maintenance and modification services for the existing wellhead platforms, and modification services for the floating production storage and offloading facility.
Global Maritime Consultancy & Engineering, a provider of marine warranty, dynamic positioning and engineering services to the offshore sector, has completed an offshore deadweight survey and inclining experiment at the same time as ongoing drilling operations for Seadrill’s deep water semi-submersible drilling vessel West Pegasus.
The successful project is the first time an inclining experiment has been conducted for a DNV GL-classed drilling vessel in parallel with ongoing drilling operations. According to Global Maritime’s Houston team that carried out the project, the experiment’s successful completion has saved the client at least US$10-15 million in downtime and transit costs and incurred less than half a day of official down time.
West Pegasus. Photo credit: Tom Burns, Global Maritime
Inclining experiments are typically conducted in an inshore area sheltered from wind and waves, with the vessel at least partially unloaded in order to ensure measurements of sufficient accuracy. This project, coordinated by Global Maritime, however, took place with the semi-submersible fully loaded 160 kilometers offshore Mexico and with end of well activities still underway.
David Sutton, CEO of Global Maritime Consultancy & Engineering, said: “Against the backdrop of a challenging market, it’s more important than ever to demonstrate innovation, value and improved efficiencies for our customers. That is what we are committed to at Global Maritime and that is what we have demonstrated with this project.”
His words were backed up by Global Maritime’s Chief Naval Architect, Tom Burns: “Careful planning, hard work and innovative solutions were necessary to complete the scope of work within the extremely aggressive schedule and logistical limitations. Such enhancements improved the accuracy of the results and delivered for the client.”
Other solutions that Global Maritime developed as part of the project included the design and fabrication of customized measurement instruments as well as a temporary system to allow the recording of vessel drafts from within the hull, eliminating the need to read the external draft marks from a small boat.
A deadweight survey determines the lightship weight, which directly affects how much a ship can carry. An inclining test determines the coordinates of its vertical center of gravity, which is required to determine a vessel’s stability. The International Maritime Organization (IMO) specifies inclining test requirements and procedures.
BHP Billiton has outlined its value-focused approach to exploration which will see the Company target opportunities across copper and oil to enhance its long-life, tier 1 portfolio.
Speaking at Citigroup’s Mining Exploration Day in Sydney, BHP Billiton Head of Geoscience, Laura Tyler, said the Company is focusing its exploration approach through targeted analysis and the establishment of a Geoscience Centre of Excellence.
Ms. Tyler said exploration is seen as a key source of value creation for BHP Billiton.
Laura Tyler, Chief of Staff, Head of Geoscience. Photo credit: BHP Billiton
“We are investing at a time when most in our sector continue to reduce discretionary spend,” she said.
“Next financial year, we intend to invest approximately US$900 million dollars in exploration, which represents 18 per cent of our overall capital budget.
“We are also challenging existing paradigms with a scientific based and disciplined approach to exploration. We have reduced exploration operating costs by 70 per cent since 2013, and this year we have increased the targets tested by 44 per cent.”
“Over the last four years we have developed a new approach to Petroleum exploration that is much more focused,” Ms Tyler said.
“We have commenced drilling in Trinidad and Tobago and have secured an additional rig which will soon commence drilling in a prospective block north of our Shenzi operations in the Gulf of Mexico.”
BHP Billiton’s Copper exploration program is targeting tier 1 greenfield mineral deposits, with a particular focus on:
copper porphyry and skarn deposits in Chile, Peru and the south west of the United States,
sedimentary hosted copper deposits in the north of Canada, and
Iron Oxide Copper Gold deposits in South Australia’s Stuart Shelf, adjacent to Olympic Dam.
“We execute our Copper exploration both directly and through investment in joint venture opportunities and we continue to seek partnerships with junior explorers,” Ms. Tyler said.
The Company’s regionally based exploration teams are supported by a globally integrated geoscience team to facilitate a faster adoption of best practice and new technology.
“Internal collaboration is very important and we are leveraging our Petroleum business geoscience to identify prospective sediment hosted copper deposit basins,” Ms. Tyler said.
“Similarly, we are adopting technology from Petroleum and applying directional drilling techniques to copper exploration.”
Fugro has deployed multi-purpose offshore survey vessel Fugro Gauss to join the Fugro Brasilis offshore Mexico, to help complete the world’s largest seep-hunting survey for multiclient geoscience data company, TGS. Both vessels are using hull-mounted multibeam echosounders (12 kHz and 30 kHz respectively) and sub-bottom profiler systems to map an area of approximately 625,000 square kilometres in the deep waters of Mexico. The data acquired will assist in identifying sites where deep hydrocarbon-rich fluids are escaping to the seafloor and will be used to target hundreds of sites for coring and geochemical analysis.
Fugro Gauss. Photo credit: Fugro
“Fugro has a dedicated centre of excellence in Houston for seep-hunting,” explained Jim Gharib, Fugro’s Global Product Line Manager for Seep Studies. “The team includes several of the world’s leading geoscience experts responsible for bringing seep-hunting to the offshore industry. Our recent successes include nine seep data collection and geochemical analysis projects in the Gulf of Mexico, the Caribbean and Southeast Asia.”
The survey is being conducted for TGS as part of its industry-funded, multiclient “Gigante Survey” which also includes a regional 2D seismic survey of approximately 186,000 kilometres, gravity and magnetic data and a regional seismic structural interpretation. TGS aims for this project to be the most comprehensive and modern offshore Mexico dataset which ties into its existing U.S. Gulf of Mexico regional 2D grid. The survey is designed to assist exploration and production companies in their evaluation of prospectivity offshore Mexico during forthcoming licence rounds. Interest in this area is high following the denationalisation of Mexico’s oil and gas market after seven decades of government control.
Subsea Innovation, one of the world leading subsea equipment suppliers with over 25 years’ experience delivering projects into the offshore industry, has announced the securing of a multi-million pound order from engineering, construction and service experts Subsea 7 i-Tech Services.
Photo credit: Subsea Innovation
The order which is one of the largest of its type in the world is to provide 5 ROV installed Structural Pipeline Repair Clamps which will form part of an Emergency Pipeline Repair Systems (EPRS) supporting pipelines off the North and Northwest coasts of Australia. The systems will act as contingency in the event that the main trunk lines transporting the gas need to be repaired. The 5 systems cover pipes across a range of diameters between: 20” and 44”. The project is a significant award for the company and follows on from a successful 2015 which delivered a record turnover of over £11m. The designs will be tested to DNV pipeline tolerances at up to 328 bar.g and are suitable for operating temperatures ranging from 0 - 75°C. The design and build process will be monitored and certified to the exacting standards of the internationally recognized body DNV.
In addition to clamps Subsea Innovation also offer a full range of structural pipeline connectors suitable for EPRS amongst other offshore tie in operations and have earlier this year delivered a pair of 16” Connectors to RasGas in Qatar as part of another significant order. Past projects have seen these products successfully deployed off the coasts of the Middle East, USA, Europe and also in Trinidad.
Finance Director Phil Heathcock said “Securing this contract from Subsea 7 i-Tech Services demonstrates our capability to secure one of the largest EPRS orders available in the world and we look forward to working with our client and the operators to deliver this project on time, on spec and in budget”.
Subsea Innovation will deliver the project from its recently built headquarters, Innovation House, ideally situated on the Faverdale Industrial Estate near Darlington, which provides excellent transport links by road, rail and air. The office building and 40,000 ft2 manufacturing facility, originally opened in November 2014 by HRH The Duke of Gloucester, boasts world class facilities for a business of this type which includes manufacturing bays serviced by overhead cranes of up to 60 tonnes, on site machining, a PU manufacturing facility and a floodable test pit to provide indoor wet testing of subsea systems.
Woodside announces that with Joint Venture participant Mitsui E&P Australia, the Greater Enfield Project has been approved for development.
Located 60 km off Exmouth in Western Australia within Commonwealth waters the project will develop the Laverda Canyon, Norton over Laverda (WA-59-L) and Cimatti (WA-28-L) oil accumulations. These reserves will be produced via a 31 km subsea tie-back to the Ngujima-Yin floating production storage and offloading (FPSO) facility, located over the Vincent oil field.
Photo credit: Woodside
Woodside CEO Peter Coleman said that monetizing Greater Enfield was made possible by breakthroughs in the development concept, technology and contracting.
“We have achieved investment spend at the low end of our guidance range by leveraging the latest technologies and using existing FPSO infrastructure. This allows us to accelerate the development of previously stranded resources.
“Greater Enfield is a demonstration of our phased and sustainable approach to growth,” he said.
The Greater Enfield Project requires development of six subsea production wells and six water injection wells. Production will be supported by subsea multiphase booster pumps in the Laverda area and gas lift in the Cimatti area.
The project is targeting development of gross (100%) 2P reserves of 69 MMboe (net Woodside share of 41 MMboe) from the Laverda Canyon, Norton over Laverda and Cimatti oil accumulations. Woodside reserves will increase by 41 MMboe in conjunction with the approval of the project for development.
The total investment for the project is approximately US$1.9 billion total cost (approximately US$1.1 billion Woodside share) with first oil expected in mid-2019.
The Greater Enfield Project is a joint venture between Woodside Energy Ltd (Operator, 60%) and Mitsui E&P Australia Pty Ltd (40%).
Reserves and Resources as at 31 December 2015
In conjunction with this release, the Woodside reserves presented in the Reserves Statement dated 31 December 2015 (included in the 2015 Annual Report) will increase by 41 MMboe at the 2P confidence level to 1549 MMboe. Woodside Best Estimate Contingent Resource (2C) will decrease by 41 MMboe to 4439 MMboe as a result of booking the new reserves.
Reporting of Laverda Canyon, Norton over Laverda and Cimatti (oil) reserves
1. At the date of this release, the Laverda Canyon, Norton over Laverda and Cimatti oil accumulations reserves (at the 2P confidence level) are gross (100%) 69 MMboe recoverable oil, of which Woodside’s net economic interest is 41 MMboe. The reserves estimate has been calculated using probabilistic methods and based on a deterministic development scenario (a subsea tie-back to the Ngujima-Yin FPSO facility utilising existing technology).
2. Woodside holds a 60% interest (Operator) in Petroleum Production Licences WA-59-L and WA- 28-L covering the three accumulations.
3. The reserves for the three accumulations are undeveloped and the reserves estimate has been calculated on the basis of statistical aggregation of uncertainty distributions for the three accumulations, as part of the technical and assurance work undertaken to support the final investment decision to proceed with the project.
4. First oil via the Ngujima-Yin FPSO facility is expected in mid-2019. Marketing arrangements as part of the existing operations on the FPSO facility will be utilised for the project. Primary environmental approval for the Greater Enfield (Vincent) Development is in place. Secondary environmental approvals will be obtained by Woodside (as Operator) in due course to support project activities.
Det norske oljeselskap ASA has awarded two new frame agreements to DNV GL covering the wide range of services DNV GL provides in the field of verification, Inspection and HSEQ. The contract period is for four years with potential to extend.
Ivar Aasen, Det Norske
“This is a good news for DNV GL and we are delighted to be extending our relationship with Det norske. I believe DNV GL’s experience of over 40 years in the oil and gas industry and our technical know-how will contribute to Det norske becoming the leading independent E&P company on the Norwegian Continental Shelf,” says Kjell Eriksson, regional manager for DNV GL – Oil & Gas in Norway.
“We will assist Det norske by giving advice and support in decision making, stand-alone assessments, and working in an integrated way in Det norske's organization. The proximity to Det norske at all four locations in Norway (Stavanger, Trondheim, Harstad and Oslo) makes it even easier to be readily available whenever needed.” Eriksson further adds.
Seventy one accounts of incidents that took place in 2014 on 54 vessels were submitted for the annual ‘Dynamic positioning station keeping incidents: Incidents for 2014’ (M 231) report produced by the International Marine Contractors Association (IMCA). These accounts have been analysed, made anonymous and detailed in the report which is online and freely downloadable here.
Thruster/propulsion issues proved to be the main cause for dynamic positioning (DP) incidents in 2014 accounting for 36% of such events; followed by computer issues at 18% and power and references both at 13%. Following these as the main cause are human error (10%); external factors (3%) and environment (also at 3%). There were no recorded main causes attributed to electrical failings.
IMCA's Technical Director, Richard Benzie
“The level of reporting when compared to 2013 has been maintained; but there is awareness that events are still occurring and not being reported,” says IMCA’s Technical Director, Richard Benzie. “Analysis on the 71 reports submitted by 54 vessels gives an average of 1.31 reports per vessel. As in previous years, the average remains between one and two. If this rate was to be repeated throughout the DP fleet, there should be a much higher number of reported events.”
The reports that were received are categorised within the document as: ‘DP Incident’; ‘DP Undesired Event’; and ‘DP Downtime’. There were 32 DP Incidents, 25 DP Undesired Events; and 14 DP Downtime reports submitted.
The spreadsheet “IMCA 2014 DP Station Keeping Event Summary” is available here. It invites input from key DP personnel to consider whether the recorded events of 2014 could potentially affect their own vessel by asking the following questions ‘Could this happen on your vessel?’; ‘What, if any, additional safe guards need to be taken?’; ‘Is this covered in the vessel FMEA?’. The spreadsheet further allows for the recording of corrective actions taken such as ‘Recommendations to improve vessel, DP procedures, FMEA and DP drills’.
On 22 June 2016, Statoil and JX Nippon completed their previously announced transaction whereby Statoil has acquired JX Nippon’s 45% equity share in, and operatorship of, the UK license for the Utgard field.
leipner field North Sea. (Photo: Øyvind Hagen / Statoil)
Through this transaction Statoil now has a 100% interest in UK Continental Shelf license P312 which, with Norwegian Continental Shelf license PL046, comprises the Utgard field. Statoil previously acquired stakes in P312 from First Oil in October 2015 and Talisman Sinopec in December 2015. Statoil is the operator in PL046 with a 62% holding.
A final investment decision for Utgard is planned before end-2016 with production start-up in 2020.
When warping analysis is required during design of certain types of beam offshore structures, it can involve many costly hours of manual calculations by senior engineers. With the new release of Sesam GeniE software, the most common methods of performing such analyses can be done automatically, saving time and resources.
Automatic warping analysis “With the new release of Sesam GeniE, we have included automatic calculation of warping using the three most commonly used methods,” says Ole Jan Nekstad, Product Director for Sesam, DNV GL - Software. The software will free up engineering resources, as senior engineers will be freed up from the rote task of performing manual warping analysis. The number of total engineering hours will be reduced, as the calculation of one beam with an open section can often take many hours to calculate manually.
SesamGeniE – Tubular joints Image credit: DNV GL
These new capabilities, significantly increasing the efficiency of beam design, come alongside meshing technology enhancements that strengthen Sesam’s leading position for topside local design. With the new Sesam GeniE, jacket design reanalysis including code check and report update can take up to 50 percent less time for engineers to complete. The code check modeling technique is flexible, combining multiple methods.
Leaders in offshore engineering “With this release we confirm our position as a leading provider of the industry’s most efficient engineering solution,” says DNV GL - Software CEO, Are Føllesdal Tjønn. “In times where everyone is chasing cost reduction we enable this by continuously working closely with users, creating efficient solutions and implementing best practices for engineering tasks. Sesam is used across asset types such as ships, MOUs, jackets, subsea and topsides, allowing engineering activities to be organized in the most cost-efficient way,” he says.
“With Sesam, engineers have flexibility,” says Nekstad. “The new warping analysis capabilities can save the cost of having a senior engineer do manual calculations, which can mean days of work, depending on the project. Manual calculations are complex and also more subject to error. With automatic warping analysis, the results will be the same every time.” he says.
The American Institute of Steel construction (AISC) Torsion guide book includes nine rules for calculating warping torsion, where extra loads are added. Sesam GeniE now supports rules 3, 4 and 7, which are the most commonly used rules. In addition the new Sesam GeniE, version 7.3, has significantly improved calculations for marine growth, making fatigue analysis and load calculation more accurate.
Since 2008 the Maersk Group has successfully gone through a phase of operational optimization in each of its businesses to the point of top quartile performance in most units.
In order to leverage this position the Board of Directors have initiated a process to further develop the strategic options for the Maersk Group.
To lead this phase the Board of Directors has appointed Søren Skou as new Chief Executive Officer of A.P. Møller - Mærsk A/S, replacing Nils S. Andersen, who will leave the Maersk Group. The changes are effective as of July 1, 2016.
Søren Skou. Photo credit Maersk Group
The Board of Directors acknowledges Nils S. Andersen’s dedicated and persistent contribution to A.P. Møller - Mærsk A/S since 2005, first as Member of the Board of Directors and subsequently as Chief Executive Officer since December 2007, where he has been a driving force in building a focused and lean global conglomerate of five core businesses within shipping, logistics and energy.
“On Behalf of the Board of Directors I thank Nils S. Andersen for considerable results in fronting the Group’s international growth, strengthening the customer focus and competitiveness of the businesses, as well as simplifying governance and increasing transparency and communication with our stakeholders,” says Chairman of the Board of Directors, Michael Pram Rasmussen.
”I am proud of the results we as a team have achieved in the Maersk Group during my leadership and after 8 years as CEO of the Group and 15 years as CEO altogether, I find it is the right time for both me and A.P. Møller - Mærsk to make a change. Søren has all the qualities it takes to take the Group through to the next strategic step and I wish him and the whole management team all the best of luck,” says Nils S. Andersen and continues:
“I've been incredibly happy and proud to work for A.P. Møller – Mærsk and it has especially been a privilege and a daily joy to work with so many very competent colleagues around the world. On a personal level I am at a point in my life where I look forward to having a bit more time with my family after many years of constant work and I look forward to entering a new phase in my life.”
Søren Skou has been employed with A.P. Møller - Mærsk since 1983 and member of the Executive Board of A.P. Møller - Mærsk since 2006. In 2012 he was appointed CEO of Maersk Line. Søren Skou will remain in this position in addition to his position as CEO for the Maersk Group.
“Søren has strong business acumen and thorough knowledge of the Group’s various businesses and has successfully restructured the businesses he has led. The Board of Directors knows Søren as a respected and knowledgeable leader with the ability to adapt quickly to market changes in close collaboration with the Board of Directors, the executive management and his employees,” says Michael Pram Rasmussen.
The Board of Directors has tasked the new management to investigate the strategic and structural options to further increase agility and synergies. The Board of Directors will communicate on the progress before end of 3rd quarter 2016.
“I am excited about the opportunity to lead A.P. Møller – Mærsk into the next phase of our strategic development. The fast-paced changes of this world demand that we can adapt quickly, easily and at a minimal cost while retaining the focus on each Business Unit. Our future set-up must effectively respond to these challenges” says Søren Skou, CEO of Maersk Line.
Overall U.S. Stocks Build While Crude Draw Disappoints
Commercial oil stocks built 5.2 million barrels this past week, sharply contrasting with last year’s 6.7 million-barrel inventory draw for the same week. The entire build was in NGLs but the expected large crude stock decline did not materialize onshore as crude imports were bloated by a drawdown of floating stocks. Floating crude and even onshore stocks in major entrepot areas pose a challenge to estimating onshore stocks in key price-setting markets. There is a huge surplus of inventory which will take time to eliminate. So while crude stocks are undoubtedly declining, declines might not show up in the weekly onshore data in a given week.
1Q16 U.S. Producer Survey Harkens Back to Better Times
In response to a fleeting improvement in market conditions, U.S. gas producers grew production once again in 1Q16. Appalachian producers led the change, delivering an additional 1.2 BCF/D versus 4Q15 through the utilization of infrastructure that had been built towards the end of last year. Yet, the combination of stronger production and weaker heating demand gave rise to record inventories by end March, necessitating a subsequent reversal in production as a means for rebalancing. Thus far, the trend in 2Q16 production data suggests that U.S. producers are taking heed of this requirement, establishing a definitive change in course for PIRA’s Survey Group.
Brexit Clouds Demand Outlook, Dark Spreads to Hold on Bearish EUAs
The Brexit vote starts a highly uncertain transition period for the U.K. and the rest of the European Union. This transition period will likely mean weaker economic growth, especially in the U.K., and with that, downside risks for demand. However, U.K. winter prices should be largely unaffected by the Brexit decision. We assume for now that a political contagion will remain in check, but the major risk to Continental power prices resides now in an even more bearish EU ETS. While the EU ETS could be severely wounded in the current environment, domestic carbon initiatives – the French carbon floor or the like – are likely to move forward.
Brexit Vote Stops Coal Pricing Rally
Global equity, currency, and commodity markets were dominated by the Brexit vote last week, coal included. Before the vote, coal prices has been volatile, although with a general upward trajectory. The decline in prices on Friday sent Atlantic Basin Prices into negative territory for the week, if only marginally, while FOB Newcastle (Australia) prices were able to manage to rise in the prompt, although deferred prices faded. With the vote kicking off a likely two-year negotiation period between the U.K. and the E.U., there are limited fundamental changes to the coal market over the short-term, aside from a prevailing sense of unease and a lower appetite for risk.
Fed-Centric Financial Markets Now Roiled by Brexit
Since March, Fed policy communications have generally supported market sentiment and kept the dollar’s value in check. However, U.K. voters unexpectedly chose to leave the European Union in the June 23 referendum, and this has placed financial markets in a new, uncertain phase. PIRA’s expectation is that the Fed will reassert its control over markets after the initial Brexit shock wears off. During previous episodes of financial stress and a stronger dollar, the Fed adjusted its message to alleviate market pressure; it should not act differently this time around.
Volatility to Remain High
After a trading week that included a limit down move in corn along with all the uncertainty of the Brexit vote, grain/oilseed markets should be staring at yet another volatile week as corn pollination inches closer and the “final” 2016 acreage numbers are released on Thursday, along with the 3Q16’s stocks of grain.
Latest Assessment of Nigerian Oil Supply Disruptions
The situation in Nigeria remains highly fluid. Reports of a 30-day ceasefire are conflicting, but at the very least suggest some kind of dialogue is taking place between the government and militants. Even if there is an agreement, disrupted volumes will not return immediately and the situation is likely to remain fragile. Fiscal problems will make it difficult for the Buhari administration to revive an amnesty program for Niger Delta militants, and it will be difficult for the government to go back on its anti-corruption campaign.
Ethanol-Blended Gasoline Manufacture Surges to Near Record
Inventories fell slightly the week ending June 17. Stocks in PADDs I and III increased.
Japanese Crude Runs Ease with Higher Crude and Product Stocks
Crude runs eased on the week as Hokkaido entered full turnaround. Crude imports rose and crude stocks built 2.7 MMBbls. Finished product stocks also rose by 0.7 MMBbls, with about half being kerosene. Gasoline demand was soft and stocks built slightly. Gasoil demand was stronger and stocks resumed drawing. Kerosene demand was seasonally low and the stock build rate remained about 50 MB/D. Refining margins have remained soft in June.
Supply Tempers Breadth of Rally Across Regions
The rebound in Henry Hub has buoyed all regional cash prices — but to considerably varying degrees. Indeed, the regional dispersion of CDDs accounts for some of the relative strength and weakness in prices/basis, but supply trends have also played a key role. The standout feature of this month’s regional price action is the need of further assistance from weather as the market awaits larger supply losses.
When Will LNG Balances Hit the Tipping Point?
The temporary loss of existing LNG production is masking the rise of new LNG production in much the same way that oil production disruptions around the world in 2014 delayed the bearish price effect of the rise of shale in the U.S. In late 2014, that tipping point on oil was reached when global disruptions crested even though U.S. shale production continued to rise. For LNG markets, the tipping point will occur late in the first quarter of 2017.
Energy Efficiency Puts Downward Pressure on U.S. Power Demand and Gas Growth
PIRA downgraded its latest long-term U.S. power demand forecast from a 0.83% compound annual growth rate (CAGR) between 2015 and 2035 to a 0.54% CAGR. A significant portion of this downgrade is due to anticipated load destruction from end-use electricity savings arising from recent developments in energy-efficient technologies, product efficiency standards, and state-level efficiency programs, as well as a lack of weather-adjusted load growth in essentially five years. These developments suggest additional headroom for savings beyond previously modeled energy efficiency potential, particularly in areas like lighting and space cooling in the commercial and residential sectors. PIRA expects this load destruction will be most acute for gas burn and new gas plant builds, which are also under increasing pressure from renewables.
Freight Rates Hold Steady as Cape Fleet Growth Picks Up
While the Brexit vote has added significant uncertainty regarding dry bulk demand growth in Europe and potentially elsewhere, there have been some fundamental developments in the sector of late, such as Winning International hauling 15 MMmt of Guinean bauxite to China this year using Capes loaded by floating transfer equipment. Continued growth in fleet supply will keep rates in check over the next several months, although PIRA has a tighter outlook going into 2017.
U.S. Ethanol Production Reaches All-Time High
The output of ethanol reached a record the week ending June 10. This essentially ended the rally in prices that began in February.
Old Crop Soybean Supplies in Focus
Validated moisture events will have a negative effect on new crop prices, so PIRA is bullish old crop/bearish new crop at the moment, after being bearish beans for a few weeks. As July heads into first notice day next week, focus will shift to the August/November spread as an indication of dwindling old crop supplies.
Global Equities Decline on Brexit Outcome
Global equities were broadly lower on the week. The U.S. market was down 1.6%, Friday-to-Friday. The growth indicator underperformed, and banking was the weakest single sector, down 3.4%. Consumer staples and utilities faired the best, while energy also outperformed, down only 0.5%. Internationally, many, but not all, the tracking indices were lower. Europe was the weakest. Latin America managed to post a gain, while China and the BRICs also outperformed and only posted modest changes for the week.
Energy Implications of the Brexit Vote
The IMF has recently developed two scenarios to gauge the economic impact of Brexit. PIRA estimates that in the "Limited" scenario, world oil demand in 2017 would be about 100 MB/D lower than in the IMF's Base Case, with the largest impact in Western Europe. In the "Adverse" scenario, world oil demand in 2017 would be 200 MB/D lower than the IMF Base Case. There would also be noticeable impacts on gas and coal demand. These impacts on energy demand might slow, but not reverse, the oil price recovery PIRA projects.
Can Norway Step in to Take Rough's Role this Winter? Will It?
Centrica’s decision to shut the Rough storage facility until August 3rd caused a huge spike in winter ‘16 prices and a weakening in the spot/front month pricing. The opportunity cost of injection over this period is around 1 BCM and will need to be made up whether from Rough itself or somewhere else. PIRA suggested that with a Rough maintenance coming up in September, a shortening or cancellation of this maintenance may be possible and would help relieve some of this pressure. Looking to the power side for some demand relief this winter seems to be a lost cause. While power demand tends to be very sensitive to price, recent strong developments in gas prices have been outperformed by spark spreads for this winter. Another way some or potentially all of this lost storage volume can be made up is by higher Norwegian volumes, which are very tied to NBP-TTF spreads.
Shale Rig Activity Has Likely Bottomed, But Production Declines To Continue
Production declines accelerated in the first quarter but output still came in above guidance. Shale operators raised 2016 production guidance to a 6.1% year-on-year decline (up 1.7% points from guidance given during 4Q15 calls). And with the increase in prices from February lows, operators began to detail plans to increase activity. Many operators indicated that at $45-50/Bbl rigs will be added in the Permian, while the Bakken and Eagle Ford will require $50-60/Bbl. In line with this guidance, the horizontal oil rig count appears to have bottomed in mid-May; rigs are up 7% in the past five weeks. Despite this, PIRA still expects production to decline for the remainder of the year as it will take time for the slowdown in activity to show up in production. 1Q16 costs continued to decline (down 25-30% since the downturn), but the pace slowed markedly. Much of the savings were attributed to service price concessions, and are likely to reflate as activity ramps up.
Supply Glitches Keep Legs Under Spot Prices for Now
LNG markets remain balanced at relatively high spot prices of $5/mmBtu thanks to supply disruptions from existing producers and delays emerging from new supply. The quality of buyer is dropping when it comes to bearable price, which is a sure sign that the overhang may be delayed, but it is inevitable.
Brexit Rattles Markets
The UK’s vote to leave the EU rattled financial markets on June 24th, setting back gains that had been made Monday through Thursday. While many weekly averages were higher, Friday-to-Friday data showed a steep drop in most key indicators.
Freight Market Outlook
Tanker markets are starting to suffer from the influx of new vessels with few offsetting deletions and the anticipated start of the slow drawdown of excess inventories which have built up over the past two years. The drip feeding of new tonnage and the withdrawal of excess stock from the supply chain will result in a pattern of lower peaks and deeper troughs in tanker rates as the year progresses.
Amid the Chaos, LPG Markets Strengthen
LPG traded on fundamental supply and demand factors last week, leading to strong gains across the complex. July Mt Belvieu propane futures added a solid 3.7% to bring its value to 47% of WTI. Butane outperformed, adding 5.1% to settle near 69¢ /gal Friday. Ethane futures ripped 7% while natural gasoline prices managed to hold near unchanged despite weaker broader markets.
Ukraine Confirms Default Industrial Gas Prices
Naftogaz Ukraine has published quotations for natural gas for industrial consumers and other economic entities, which will operate from July 1, 2016 as stated in the press release of the company. “The proposed price of natural gas from the resource companies can vary depending on the volume of purchases, payment terms and the status of previous calculations of “Naftogaz”. Levels of the final price for industrial consumers and other economic entities, depending on the specified conditions, compared to June prices remained unchanged (taking into account tariffs for transportation via trunk and distribution pipelines and VAT).”
The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets.
The decision by 52% of the voters in the EU referendum last week to vote to leave the EU has had far-reaching impact across the globe. The oil and gas sector, bruised from nearly two years of low oil prices, is bracing itself for the fall out.
The immediate impact of the referendum outcome was a plunge in the value of the pound to a thirty-year low of $1.34, significant falls in all of the world’s stock exchanges and the price of Brent tumbling 5% to $48/bbl.
The greatest risk to the energy industry is surely a global economic slowdown, which would suppress oil prices for longer and delay investment in exploration and production. In the short-term, however, UK-listed oil companies such as Shell, BP and Tullow have fared (comparatively) well since the decision was announced – with a large proportion of dollar-denominated revenue from abroad the devaluation of Sterling actually benefits these companies and they will see in a boost in reported revenues as a result. The end-user at the pump in the UK will, of course, see the opposite effect for the same reason – we import a significant proportion of the oil we consume and prices will rise as a result of the exchange rate movement.
For now, we are left with a perception of risk generated by uncertainty over what ‘Brexit’ actually means. The negotiations on our exit are yet to happen and the timetable and extent of the UK withdrawal are yet to be seen. The Prime Minister has made it clear he will not trigger Article 50 of the Lisbon convention himself and will leave it for the next leader. Despite the outcome of the vote it remains entirely possible that the government (largely pro-Europe) will deliver a ‘Brexit-lite’ outcome or even no Brexit at all.
Steve Robertson, Research Director, Douglas-Westwood
LQT Industries, LLC, a full-service provider of high quality accommodation facilities, design-build construction services, and support services to the oil and gas industry, has been awarded projects to fabricate and outfit modular buildings and specialty equipment for customers in the petrochemical and offshore Gulf of Mexico markets.
“LQT is pleased to announce these awards especially since 2 of the 3 awards are from first time customers,” said Blake Boudreaux of LQT Industries. “LQT continues to expand their customer base, both domestic and internationally. LQT’s industrial focus is gaining momentum with work in fire and safety, new build construction, and building and equipment rentals.”
The first project was awarded by an engineering group based in Asia consisting of a steel blast rated control building that will be located inside a major petrochemical facility. The project is scheduled to be completed in 2016.
LQT was also awarded a project for the construction and outfitting of multiple modular living quarters for an offshore platform in the Gulf of Mexico.
Finally, LQT has been awarded a contract for the fabrication of specialized equipment that will be utilized by a major offshore production company. The project will be complete in the 3rd quarter 2016.
All of the projects will be completed at LQT’s Fabrication Facility in Abbeville, LA, which specializes in designing and fabricating various types of modular structures including blast rated buildings, MCC buildings, and accommodation buildings.
Aqueos Corporation, a ‘World Class Subsea Service Provider℠’, is pleased to announce it has achieved the ISO 9001:2008 (Quality Management System), ISO 14001:2004 (Environmental Management System), and OHSAS 18001:2007 (Occupational Health and Safety Management System) standards as certified by the ISO accredited certification body, Det Norske Veritas (DNV).
“Only a few companies in the world have ever completed an integrated, triple audit and received all certifications in their first year of evaluation, a significant accomplishment for the team at Aqueos. These certifications serve to recognize our quality management system, while enabling us to streamline our processes and ensure they are in line with international standards and client expectations” comments Aqueos President and CEO, Ted Roche.
Roche further commented, “We are truly proud of achieving the integrated ISO 9001, ISO 14001, and OHSAS 18001 certifications. Even in these difficult market conditions, the team at Aqueos continues its mission to become a ‘World Class Subsea Service Provider℠’ through continuous improvement and remaining focused on our core value of safety.”
Aqueos Corporation, with offices in Broussard, LA and Ventura, CA, provides marine construction and specialty subsea services, including a complete range of commercial diving, remotely operated vehicles (ROV’s) and vessel-related services primarily to the offshore oil and gas markets.
As part of MacArtney’s continuous global commitment to bring underwater technology, service and products to the local marine communities around the world, MacArtney Inc. is expanding its Northeast operations in Massachusetts, US to larger office space and adding new workshop capacity.
In response to the ever-growing customer demand for local sales support and services, MacArtney is expanding the existing operations in Northeast USA with workshop services. The new workshop will feature moulding and termination capabilities designed to support customers and empower MacArtney’s ability to provide custom cable assemblies and turn-key connectivity solutions with short lead times to the local marine community in North America.
Lars F. Hansen, President of MacArtney Inc.
To MacArtney, being close to the customer is paramount. According to the President of MacArtney Inc. Lars F. Hansen, being able to provide effective local service and support to present and potential customers, is the overarching incentive for the continuous expansion in North America, which recently also led to the inauguration of a new MacArtney operation on the east coast of Canada.
"As the leader in providing turnkey solutions for interconnect cabling and cable handling systems, MacArtney is committed to supporting our customers with quick, efficient and superior solutions to their connectivity requirements, says Lars F. Hansen and continues: Availability, quick turn-around time and high quality is key to our customers, and our new moulding and termination workshop together with our substantial connector inventory will accommodate this".
Jennifer A. Stewart, General Manager of MacArtney Inc., Northeast Operations, expresses her profound contentment with the strengthening of the Northeast Operations: - Expanding our operations by adding new workshop capacity to our current portfolio is a guarantee of MacArtney’s customer focus – at all times – and a token of our ambition to offer optimal value to the end users.
Local sales and service support across North America
MacArtney Inc., a member of the international MacArtney Underwater Technology Group, was founded in 1995 and is headquartered in Houston, Texas. Today, MacArtney Inc. operates a number of separate sales offices in strategic locations across North America offering an extensive product portfolio focusing on system solutions, after-sales service and maintenance to the offshore oil & gas, ocean science, marine renewables and navy and defense markets.
MacArtney Underwater Technology has supplied products and engineering solutions for almost four decades.
Beier Integrated Systems (Beier) has purchased South Coast Electric Systems (SCES) of Bay St. Louis, Mississippi, from American Electric Technologies (AETI). The acquisition expands Beier’s manufacturing capabilities in the marine market and strengthens Beier’s position as a global leader in integrated, turnkey technology solutions.
Beier will acquire SCES’s operations, including a manufacturing plant and equipment in Bay St. Louis, MS. SCES is a marine and industrial electrical switchgear manufacturer and service provider. The company has been in business for 14 years and is recognized in the industry as a high quality, cost effective provider of switchgear solutions to the marine and industrial industry.
Additionally, 13 highly-‐qualified and committed employees of the South Coast Electric operation will be added to the Beier team. South Coast Electric Systems will now operate under a new name -‐ South Coast Electric, LLC.
“We are very excited about refitting existing vessels and engineering new vessels with our new power and control products from South Coast Electric, ”says Beier Integrated Systems President Karl Beier. “This acquisition will allow Beier to add the only missing component -‐ the switchgear -‐ to our fully integrated packages in order to provide a complete turnkey electrical solution to shipyards and ship owners. We are confident this will result in a better engineered and integrated equipment package, reducing cost and eliminating risk for our customers.”