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COVID-19 Outbreak; Oil Prices & the US Shale Industry
May, 2020
The energy market has been hit on two fronts: both the demand shock as a result of the COVID- 19 pandemic and also the supply shock caused by Saudi Arabia’s market share policy and free market strategy followed by the failure of OPEC+ to extend or deepen the output curtailment. The 1998 oil crisis where the recovery was led both by rising demand, but also an agreement to curtail production by both OPEC and non-OPEC producers, is the closest historical comparison to the post COVID-19 outbreak market reactions. The 1998 oil crisis caused a large scale of underinvestment in the energy sector as well as consolidation across the industry, which eliminated huge amounts of capital and drastically changed the global oil industry. This could perhaps be the same scenario for 2020. Upon the demand shock, oil prices dropped so significantly that international energy companies have faced serious issues with regard to their cashflow, equity, and debt balances. Global oil supplies are set to plunge by a record 12 mb/d in May, after OPEC+ forged a historic output deal to cut production by 9.7 mb/d from an agreed baseline level. As April production was already high, the effective cut is 10.7 mb/d. Additional reductions are set to come from other countries, with the US and Canada seeing the largest declines. Total non-OPEC output decreases could reach 5.2 mb/d in the fourth quarter of 2020, and for the year as a whole, output may be 2.3 mb/d lower than last year. Most energy companies have adjusted their budgets and spending plans. Companies’ expenditures outlook is an indicator of decline in global oil preproduction, particularly from the high cost fields. The production decline in the US will most likely accelerates toward 2021. Spending cuts have been swift across the globe: international spending is tracking about 15% lower; US Capex cuts are much more severe, but they are consistent with a more flexible spending structure. US E&P spending has been declined about 40%. To complete this report, we had discussions with major US E&P companies to have a better understanding of their strategies and scenarios, to tackle and survive the low oil price environment.
Iran Natural Gas Report 2020
January, 2020
Iran has one of the largest proven natural gas reserves in the world, hosts about 17% of the world’s proven natural gas reserves. Iran is also the world’s third–largest dry natural gas producer after the United States and Russia. About 80% of Iran’s gas reserves are from non-associated gas fields. Based on Iran’s 6th Five Year Economic Plan (2016-2021), Iran’s rich gas production should reach 474.5 bcm a year or 1300 mcm a day by March 2021. This is almost twice its production of 250.7 bcm in 2016. Despite the upward natural gas output trend, due to sanctions, Iran will not hit its planned production target. In March 2019, Iran’s processed about 889 mcm/d of rich gas that was produced from independent gas and form oil fields. Rich gas in Iran is processed by NGL factories, gas refineries and dehydration units. The largest share of refined gas production capacity belongs to gas refineries in South Pars. Despite the fact that Iran is the world’s third largest producer of natural gas, its exports only constitute less than 1% of global gas trade. This is primarily due to its large domestic demand and then because of sanctions on its exports, and lack of investment and access to required technologies. Iran’s condensate and gas liquid output has soared over the past decade. Most gas liquids are produced in the previously described NGL plants. Nevertheless, the actual production of these units has been less than 50% of their nominal capacity. This was significantly low during the nuclear sanctions and newest round of US sanctions. As a result, Iran has had to offset its oil production and adjust its ability to export. Lower crude oil production had additionally limited overall NGL production volumes, which is the byproduct of crude oil production in Iran. Tighter US sanctions on Iran energy industry have had a significant and undeniable impact upon Iran’s gas development projects. If US sanctions against Iran continue in the long term, and Iran does not succeed in accessing international capital and technology, it will not increase its natural gas production. In, fact its production levels may start to decrease due to natural decline in South Pars production. Unlike President Obama’s nuclear sanctions, the current sanctions include condensate export alongside the crude oil export in order to put “maximum pressure” on Iran. As a result of limitations on its condensate export, Iran is struggling to maintain its gas production particularly from South Pars.
Mexico Energy Reform 2018
May, 2018
In 2013, Mexico embarked on an ambitious reform of its energy industry. For nearly 80 years – since Mexico nationalized its oil industry in 1938 – the energy sector had been a nearly exclusive preserve of the Mexican state. Mexico’s state owned oil-company, Petróleos Mexicano (“PEMEX”), maintained a monopoly over hydrocarbon exploration, production, refining, and sale, while the state-owned Federal Electricity Commission (“CFE”) handled electricity generation and transmission (with limited avenues available for private sector contracting in the downstream gas sector since 1995). The grip of the Mexican state on the energy industry was so tight that its exclusive right to own, produce, and sell hydrocarbons had been enshrined in the Mexican constitution since 1938. By 2013, Mexico’s position as a top global producer of oil had begun to falter under the weight of weak investment and declining natural production. Despite total domestic energy demand growing by a quarter since 2000, and electricity consumption increasing by half, production slackened. Since 2004 Mexico’s oil production has fallen by 1 million barrels per day (“mb/d”) from 3.4 mb/d to 2.5 mb/d. Natural gas production peaked in 2010 at 5.1 billion cubic feet per day (“bcf/d”) and was estimated to decline to 3.2 bcf/d in 2017, against a total demand of 8.0 bcf/d. Refinery capacity likewise remained low, with Mexico exporting crude to foreign refineries, largely in the U.S, and then reimporting many refined products. Growing demand and declining production saw Mexico, one of the world’s largest energy producers, become increasingly dependent on imported gas and refined petroleum products. the Mexican state’s ownership of hydrocarbon resources in the ground, greatly opened up Mexico to private sector participation in every level of the hydrocarbon industry from exploration to production, refinement, and sale. By December 18, 2013, Pena Nieto secured the necessary approval from a majority of Mexican states, and on December 20, he signed the constitutional amendment into law. To reverse this trend, the Mexican energy industry desperately needed an influx of investment and technology to explore and develop new fields. In 2013, President Enrique Pena Nieto set out to make this a reality. On December 11, 2013 Mr. Pena Nieto published a proposed constitutional amendment that, while preserving the Mexican state’s ownership of hydrocarbon resources in the ground, greatly opened up Mexico to private sector participation in every level of the hydrocarbon industry from exploration to production, refinement, and sale. By December 18, 2013, Pena Nieto secured the necessary approval from a majority of Mexican states, and on December 20, he signed the constitutional amendment into law.