Last Week in World Oil: 

Prices

–       Last week’s price rally sputtered out at the start of the week, with Brent at nearly US$52/b and WTI at US$48/b. However, with signs that the global market was rebalancing from chronic oversupply, oil prices have been edging upwards, though a rally towards US$60/b is unlikely.

Upstream

–       American offshore upstream is back. Bids at the recent deepwater Gulf of Mexico auction attracted bids totalling US$121 million, almost seven times the US$18 million generated at the Outer Continental Shelf auction last year. Shell and Chevron led the way, placing US$25.1 million on 19 high bids and US$27.9 million on 15 high bids, respectively. It is a sign that the moribund atmosphere in the Gulf may be lifting, as aggressive cost-cutting lifts projects back towards necessary profitability levels.

–       Energy reforms in Mexico have not only succeeded in inviting foreign investment, but is also stimulating domestic business as well. Mexico’s Cotemar, an oilfield services provider, is making the move to operate fields on its own, as Pemex’s decades-long production monopoly fades. Cotemar has announced plans to invest at least US$200 million in the Paso de Oro and Cuichapa onshore blocks in Veracruz state, eventually bringing them to output levels of 20,000 bpd. Originally discovered by Pemex, the fields remained unexploited due to the state firm’s chronic budget constraints, but have now had new life breathed into them.

–       The US lost another 3 rigs last week, with two gas gains offsetting a loss of five oil rigs. The losses have been taken as a sign that American production is rebalancing in the face of stubborn oil prices.

Downstream & Midstream

–       Canada’s Husky Energy is buying the 50 kb/d Superior refinery in Wisconsin from Calumet Specialty Products for US$435 million. The all-cash deal, which includes the refinery’s associated logistics assets, will increase Husky’s refining capacity to 395 kb/d as it seeks to diversify downstream away from Western Canada, as well as manage exposure to depressed global crude prices from its heavy oil sands assets. In other North American consolidation news, pipeline operator Andeavor Logistics (formerly Tesoro) has bought Western Refining Logistics for US$1.5 billion as it makes a further push into the Permian Basin.

–       Chevron has announced plans to enter Mexican downstream, planning to open its first retail station in Hermosillo in the northwest, fed by imported products. The move will be in partnership with a local network, rolling out to the states of Sonora, Sinaloa, Baja California and Baja California Sur over the rest of 2017. Glencore also clarified its plans for Mexico fuel retailing, importing fuel through a terminal in Tabasco to be distributed by 1,400 fuel stations operated by the Corporacion G500.

Natural Gas and LNG

–       Egypt is hungry for foreign gas no more. As it prepares for a domestic flood of natural gas, the Egyptian government announced that it will be reducing LNG imports from 118 to 80 cargoes for the 2017/18 financial year. Imports were originally projected at 154 cargoes for 2016/17, but was reduced to 118 as domestic production growth accelerated.

Last Week in Asian Oil: 

Downstream & Midstream

–       Puma Energy, partially owned by Trafigura, is planning to acquire a stake in Pakistan’s Admore Gas, a fuel retailer with 471 stations in the fast-growing country. Trafigura’s entrance into Pakistan via Puma Energy will the second by a major trader, after Vitol acquired a 10% stake in Hascol Petroleum in 2015 and increased it to 25% last month. The appeal of the deal is to feed Pakistan’s rising consumption – gasoline demand more than tripled between 2010 and 2016 – and the appalling state of local refining infrastructure means most of those volumes have to be imported.

–       In a sign of how Asian refiners are overcoming OPEC’s supply freeze, Thai Oil has purchased 1 million barrels of North Sea Forties crude to replace volumes that used to come from Saudi Arabia and Abu Dhabi. It is also an indication that the build up in North Sea oil in storage may have reduced the differential between the Brent and Dubai benchmark to make Atlantic-Asia arbitrage viable, which would be an unusual occurrence.

–       A fire at PetroChina’s 410 kb/d Dalian refinery has been extinguished with no casualties. The refinery’s crude distillation units were not affected, but gasoline production may be reduced for a short time while repairs at the 1.4 mtpa catalytic cracking unit are completed.

Natural Gas & LNG

–        China is making a fresh attempt to unlock shale gas volumes in the country, hoping that growing demand will induce gas players to overcome high costs and geological complexities. The development rights for the 695 sq.km Zheng An block in Guizhou was awarded to Guizhou Industry Investment for CNY1.29 billion (US$193 million), in an auction that only attracted four local firms. Guizhou Industry Investment is an industrial conglomerate with no major gas expertise, which highlights the challenges China faces in attracting investment in its shale gas arena. China’s Ministry of Land Resources has stated that more shale gas block auctions outside of Guizhou will be take place over the next few years, while the provincial governments of Xinjiang and Sha’anxi are preparing to auction off some natural gas blocks and coal-bed methane blocks.

–       Petronas is not letting the collapse of its LNG export project in Canada deter it from making strategic investments in LNG. Indian Oil announced that Petronas is seeking a stake in its Ennore LNG import terminal in Tamil Nadu, a 5 mtpa terminal that should begin operations by 2019. Petronas has quietly built a large LNG portfolio, aided by the arrival of its FLNG unit earlier this year, and this investment would be in line with its stated objective to grow LNG sales to South Asia.

–       Cheniere has set up an office in Beijing in an attempt to clinch supply deals. This would be a first for a US LNG player, aided by an agreement in May to boost LNG trade between the two countries. Cheniere’s direct presence in China may now give it more leverage to embark on long-term deals beyond its current shorter-term contract focus.

–       Petronas is committed to lead the Block CA-2 deepwater gas development in Brunei, which would bring it and its partners Shell, ConocoPhillips, Murphy Oil and PetroleumBrunei new LNG riches. Tying together the Kelidang, Keratau, Kempas and Keratau SW discoveries, the project is in very early days, with Petronas aiming to tie it with a projected upswing in LNG prices in 2021.

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