OPEC will cut output as required to stabilize market

Category : News

By Mohammed Aly Sergie, Anthony DiPaola and Mahmoud Habboush on 11/14/2018

ABU DHABI (Bloomberg) — OPEC and allied oil producers will cut or adjust production as needed to balance the market, the group’s president, United Arab Emirates Energy Minister Suhail Al Mazrouei, said Wednesday.

If OPEC+ needs to reduce output, it will do so, he said in a Bloomberg TV interview in Abu Dhabi. The producers will take whatever steps are necessary to keep the market stable and keep crude inventory levels where they are, Al Mazrouei said. Oil production is above expectations, and OPEC+ needs to change its strategy, he said.

“We have cut in the past to reach the market balance, and if we need to cut production to keep the market balanced, we will,” Al Mazrouei said. “The group will reach consensus on whatever is required to adjust the market.”

Oil has barely recovered from a record 12-day decline as investors fled a market battered by swelling supplies and a darkening demand outlook. Futures in New York were 0.8% higher after plunging 7.1% in the previous session in the biggest one-day drop in more than three years.

Crude inventories in industrialized nations have increased for four consecutive months and are set to jump by 2 MMbpd in the first half of 2019 if current output is maintained, the International Energy Agency said Wednesday in its monthly report. OPEC, in a report on Tuesday, said it sees demand for its own crude falling faster than expected next year as a slowing global economy crimps demand and rival supplies surge.

Unjustified Sell-Off

Oil market fundamentals “are still reasonable” and don’t justify the sell-off on Tuesday, Al Mazrouei said. OPEC+ isn’t targeting a price but is seeking instead to keep crude inventories in line with their five-year average, he said. OPEC plans to gather next month in Vienna to assess the market.

“In December when we meet, if there’s a requirement to curtail, whatever the required cut, we will cut in accordance to what we agree on,” Al Mazrouei said. “Whatever price that we end up with, the market will decide the price, not us.”

OPEC’s biggest producer Saudi Arabia has expressed the need for oil producers to cut 1 MMbpd, reversing a June decision to boost supply to contain a price rally. OPEC, Russia and other suppliers agreed to limit their production starting in January 2017 to drain a global glut.

Saudi Energy Minister Khalid Al-Falih told reporters on Sunday in Abu Dhabi that the kingdom will pare its exports by 500,000 bpd in December.

“OPEC and non-OPEC countries are committed to continuing to ensure that this balance that we fought very hard in the last two years to restore is sustained,” the group’s Secretary-General Mohammad Barkindo said in an interview in Abu Dhabi that underscored Al Mazrouei’s remarks. “The volatility is not in the interest of anyone, neither producers nor consumers nor the industry.”


ADNOC to extend long-term gas supply agreement for LNG production

Category : News

11/14/2018

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Photo: LNG taker – ADNOC.

ABU DHABI — The Abu Dhabi National Oil Company (ADNOC) has agreed, in principle, to extend to 2040 its gas supply agreement with ADNOC LNG, in coordination with ADNOC LNG’s joint venture partners, Mitsui, BP and Total. The new gas supply agreement is scheduled to take effect from April 1, 2019, replacing an existing agreement, due to expire on March 31, 2019.

The extension announcement follows the Abu Dhabi’s Supreme Petroleum Council (SPC) approval of ADNOC’s new integrated gas strategy that will sustain LNG production to 2040 and allow ADNOC to seize incremental LNG and gas-to-chemicals growth opportunities where they arise from the UAE’s dynamic demand/supply position and evolving energy mix.

Abdulaziz Alhajri, director of ADNOC’s downstream directorate, said, “The LNG market is projected to grow at a robust pace, fueled by demand from Asia and developing countries who want access to a clean and affordable source of energy. With over four decades of experience in the LNG market, ADNOC LNG is well-positioned to leverage this opportunity and is now modernizing its commercial approach to transition from a single-customer to a multi-customer business that includes a number of global utilities as well as portfolio players and traders.”

As it moves to diversify its customer portfolio, ADNOC LNG has signed seven term contracts for the supply of more than 4.2 MMtpa of liquefied natural gas (LNG).

The contracts, which cover the supply of LNG on a mid-term basis starting April 2019, have been signed with various international well-established LNG buyers, including Japan’s JERA Co., which announced, in August, it plans to purchase up to 8 cargoes per annum of LNG from ADNOC LNG, for a period of three years, starting in April 2019.


Canada’s oil industry to spar over forced output cuts

Category : News

By Josh Wingrove and Kevin Orland on 11/14/2018

CALGARY (Bloomberg) — Canada’s oil sector is divided over whether to force a temporary cut to production, with some major producers pushing the controversial idea in a bid to ease a supply glut and halt a steep plunge in prices, according to seven people familiar with the matter.

Executives from Canadian Natural Resources Ltd. and Nexen Energy ULC are among those who made the pitch to Alberta’s premier last month, the people said, speaking on condition of anonymity as the meeting was private. Cenovus Energy Inc. is also publicly advocating for a forced cut.

The producers called on Rachel Notley to invoke a provincial government power to force “curtailment,” the people said, at a time when Canadian heavy crude is selling for a near-record discount from U.S. benchmark prices, costing Alberta billions. Some called for a temporary 10% cut, or about 380,000 bopd, until the market stabilizes, the people said.

But the push is opposed by Suncor Energy Inc.; ExxonMobil Corp.’s Canadian unit, Imperial Oil Ltd.; and Husky Energy Inc., the people say. Each has integrated operations, from production to refineries, that cushion the blow and therefore want to let the market sort out the oversupply issue.

Notley’s government has publicly lowered expectations for intervention. She emerged from the meeting calling for the purchase of more oil-hauling rail cars, but didn’t advocate curtailment. The unusual standoff reflects the dire straits most producers are in.

“At the price that Albertans are getting for their oil, no one is making any money whatsoever in the upstream industry. At the same time, number of producers who are integrated with refineries are making windfall profits,” Cenovus CEO Alex Pourbaix told BNN Bloomberg television Wednesday, declining to name names.

Canadian producers are not only being hit by the global plunge in oil prices, but face severe transport bottlenecks that have caused the northern nation’s customary discount to balloon to near record highs. A barrel of Canadian heavy crude was worth $15.75 on Wednesday afternoon.

Pipelines are full and new ones are almost impossible to build thanks to regulatory and political challenges. Storage facilities and rail cars are also at capacity, but the oil keeps on coming. If sustained, the steep discount will cost government coffers billions while kneecapping the oil sector. Peters & Co. estimated last week Alberta could lose at least $3.78 billion in royalties if current conditions persist.

“What we’re trying to do is see the government take very moderate action in terms of production levels in order to avoid an economic catastrophe,” Pourbaix said.

Price-fixing concern

On Oct. 22, key industry figures gathered in an old downtown Calgary school now used as an office for the premier. The closed-door meeting was chaired by Notley herself and featured top executives from both upstream and integrated oil producers trying to persuade her of their respective positions.

The gathering was so unusual that Suncor’s representative, COo Mark Little, began by warning the meeting itself might violate Canadian competition law, if it amounted to price-fixing, three of the people said. Notley said government action was the focus and discussions continued, those people said.

Upstream producers didn’t suggest firm timelines, but some envision a 10% cut to production for anywhere from three to six months, the people said. The government power they’re asking Notley to exercise was last used under Premier Peter Lougheed a generation ago.

They argue the temporary cut would allow a backlog to be processed and potentially trigger a recovery in prices. Their integrated opponents urged Notley to let the market function and also warned that intervening could jeopardize the new North American trade deal with the U.S. and Mexico, given President Donald Trump’s criticism of the Organization of Petroleum Exporting Countries.

Industry reaction

Suncor confirmed that Little was in attendance but wouldn’t discuss specifics of what was said in the meeting. “Government intervention in a market sends the wrong signal to the investment community about doing business in Canada,” spokeswoman Sneh Seetal said in a phone interview Wednesday.

A Husky spokeswoman referred to comments made by its chief executive on a recent conference call. “We think the right answer to these sort of problems are market-based solutions,” Rob Peabody said Oct. 25.

Imperial Oil declined to comment on the specifics of the meeting but also cited recent comments by CEO Richard Kruger, who said Nov. 2 ”our view is you live with the consequences of your decisions in your investments.”

On the intervention side, Cenovus went public with its support for a price cap on Monday and others are now following suit. “As Canadians we are not getting fair value for our resource and action by the government to temporarily reduce production across the oil sands industry is warranted,” Quinn Wilson, North American CEO, CNOOC International Ltd., said on behalf of Nexen.

MEG Energy Corp. and Devon Energy Inc. were also advocating for a temporary cut, the people said. MEG confirmed Wednesday it favors such a move; Devon advocated for a voluntary reductions but stopped short of revealing what it said in the meeting. A spokeswoman for Canadian Natural declined to comment.

Athabasca Oil Corp.’s chief executive was also at the meeting. “This is an unprecedented situation with significant market constraints and there are companies that are profiting from the market conditions,” Rob Broen said in a phone interview late Tuesday. “The government needs to take some action.”

Government role

Grant Fagerheim, chief executive at Whitecap Resources Inc., didn’t attend but nevertheless supports cutting production for a fixed period of time — and potentially at different levels. The supply glut is because of growth in heavy oil production from Alberta’s oil sands, he said in a phone interview Wednesday, so those companies should cut more than conventional oil producers like his.

“Who’s paying for all of this? Every single Canadian,” Fagerheim said, blaming the current price crisis on government failure to get pipelines built. “Oil sands growth, without sufficient approved takeaway capacity, has caused the problem.”

Pipeline giants TransCanada Corp. and Enbridge Inc. also sat in on the meeting, the people said, but stayed largely neutral to avoid aggravating one group of clients over another. Both companies declined to comment.

‘Bare-bones’ authority

The scene, though, was bizarre to some in the room. Calgary is the heart of Canada’s conservative movement and Alberta considers itself a champion of free-market economics. The province elected the left-leaning, New Democratic Party in something of a fluke of circumstance in 2015, and the notion that oil executives would be pressing a leftist premier to cap their production would have been unheard of only a few years ago.

For now, Notley’s government is downplaying the controversy. She does have the power to cut production but “that bare-bones legal authority” hails from a different era, according Mike McKinnon, a spokesman for her energy minister.

“Modern-day realities such as free trade agreements and integrated oil sands operations would make it far more complicated to simply institute a quota system,” he said in a statement. “Any decision would need be made thoughtfully and respect the orderly regulation of today’s oil and gas sector.”