Big Oil keeps brakes on spending even with crude rally windfall

US shale producers have promised investors they will keep a tight rein on spending in 2021. (AP)
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Updated 12 July 2021

Big Oil keeps brakes on spending even with crude rally windfall

  • Benchmark crude oil prices more than doubled in the second quarter of 2021 from a year earlier and have risen further in recent weeks to close to $78 a barrel

LONDON: Leading international energy companies are resisting the temptation to rush and spend an unexpected windfall from rallying oil and natural gas prices as they focus on longer-term energy transition challenges, executives and analysts said.
Benchmark crude oil prices more than doubled in the second quarter of 2021 from a year earlier and have risen further in recent weeks to close to $78 a barrel, their highest in almost three years as OPEC and other major producers failed to strike an agreement to lift output.
That, along with higher global natural gas prices because of supply issues, will boost the coffers of oil companies after firms like Exxon Mobil, Royal Dutch Shell and BP sharply cut costs in the wake of the coronavirus pandemic last year.
“The cash flow for majors is looking very strong, they’re certainly firing on the oil and natural gas cylinders,” Redburn analyst Stuart Joyner said, adding that things could improve further once demand for refined products fully recovers.
The companies are expected to provide updates on their spending plans in second quarter earnings reports over coming weeks, but are unlikely to significantly shift tack with investors laser-focused on securing higher returns from the sector after a disappointing decade.
While the heads of top energy companies said last month $100-a-barrel oil was achievable again in coming years, they added prices would be volatile, meaning there is little incentive, at least for now, to commit billions to projects that could take a decade or more to show a return on investment.
Also dampening the bullish mood is huge uncertainty over near-term energy demand due to the resurgence of COVID-19 in parts of the world and longer-term with the shift to lower carbon fuels to fight climate change.
“The international oil companies are still rebuilding their balance sheets,” Brian Gilvary, CEO of INEOS’ oil and gas division INEOS Energy and a former BP chief financial officer told Reuters.
Shell said last week it will increase returns to shareholders earlier than expected thanks to higher revenue, holding its annual capital expenditure at no more than $22 billion.
For companies such as BP and Shell, France’s TotalEnergies and Spain’s Repsol, the coronavirus crisis has already accelerated the roll-out of new strategies aimed at lowering carbon emissions and growing renewables businesses.
So, unlike previous cycles when rising oil prices loosened purse strings, executives will likely stick to their spending discipline and focus on their energy transition strategies.
“Higher oil prices allow us to extract more value from our existing businesses, which in turn will generate more resources for our spending on transformation in line with our energy transition roadmap,” Repsol Chief Executive Josu Jon Imaz told Reuters in a statement.
BP will stick to its plan to reduce oil output by 40 percent, or roughly 1 million barrels per day, by 2030, including through the sale of oil and gas assets, CEO Bernard Looney said at the Reuters Energy Transition conference last month.
“Strong oil prices are very positive for our strategy,” Looney said. “Those assets that we sell, will be selling in a much higher price environment, potentially, and therefore will generate more proceeds.”
A commodity price rally in the late 2000s drove oil prices to record highs above $140 a barrel and sparked a wave of investments including in huge, complex deepwater oilfields, giant gas liquefaction plants and a US shale drilling boom that upended oil supplies.
Capital spending by the majors is likely to edge up from next year as companies pay down debt and fully recover from the pandemic, Redburn’s Joyner said.
“There will be more capex, but not much of the increase will go into upstream (oil and gas production), it’s going to go into renewables.”
US shale producers have also promised investors they will keep a tight rein on spending in 2021.
In contrast, smaller international oil and gas drillers are expected to slowly ramp up spending in response to the higher prices, INEOS Energy’s Gilvary said.
“Smaller exploration and production companies will increase spending but in a more measured way because they tend to be more focused on the short- to medium-term.”


Saudi mining portal received 4,073 license applications since launch

Updated 25 September 2021

Saudi mining portal received 4,073 license applications since launch

  • The Kingdom plans to launch a comprehensive geological survey to map the country’s mining potential

RIYADH: Saudi Arabia’s Ministry of Industry and Mineral Resources has received 4,073 applications through its online portal since it was launched earlier this year, it said in a statement on Saturday.

The ministry has issued 1,092 licenses to investors seeking opportunities in the Kingdom’s mining sector, and is processing a further 1,446, it said.

The sector is witnessing a rapid transformation and attracting investors from around the globe since the launch of a new mining law earlier this year.

According to geological surveys dating back 80 years, the Kingdom has an estimated reserve of untapped mining potential valued at $1.3 trillion.

Saudi Arabia’s mining industry has already attracted some major foreign investors. American industrial corporation Alcoa has a 25.1 percent stake in two companies, Ma’aden Bauxite and Alumina and Ma’aden Aluminum, as part of $10.8 billion joint venture with the Saudi Arabian Mining Co., Ma’aden, located in Ras Al-Khair Industrial City in the Eastern Province.

The Kingdom plans to launch a comprehensive geological survey to map the country’s mining potential.

The five-year program will conduct geophysical and geochemical surveys and create detailed mapping of more than 700,000 sq. km of the mineral-rich Arabian Shield area in Saudi Arabia.

The Vision 2030 reform plan identified the mining sector as a potential third pillar of the Kingdom’s industrial growth, alongside petroleum and petrochemicals. The country is investing SR14 billion to develop the sector.

About $45 billion in private and public sector investments have gone into the mining sector over the past decade, mainly in phosphate and aluminum production.

The Kingdom also plans to auction two major mining licenses in 2022 for commodities including gold, copper and zinc, as the Kingdom aims to triple the mining sector’s contribution to the national gross domestic product to SR240 billion ($64 billion) and double the number of jobs to 470,000 by 2030.


Egypt extends natural gas exploration auctions to end of September

Updated 25 September 2021

Egypt extends natural gas exploration auctions to end of September

  • Nine new exploration licence awards announced

CAIRO: Nine international natural gas exploration auctions that were announced in March have been extended until the end of September, said the Magdy Galal, chairman of the Egyptian Natural Gas Holding Company.

Galal also announced that nine new natural gas exploration agreements have been signed with international companies, bringing the total number to 44. The new exploration licenses will lead to investment of nearly $1 billion with signature grants amounting to $24 million, he said during the company’s general assembly headed by the Minister of Petroleum.

Last year witnessed eight new discoveries of natural gas, two discoveries in the Mediterranean and six in the Western Desert, adding an estimated 600 billion cubic feet of new reserves.

Four projects were implemented for the development and production of gas from the discovered fields with investments of more than $4 billion, and 15 new wells were placed on the gas production map, with an average daily production of 1.4 billion cubic feet of gas and more than 25,000 barrels of condensate.

The total average production of natural gas amounted to more than 6.8 billion cubic feet, covering the entire needs of the local market. The average daily local consumption of natural gas amounted to more than 6 billion cubic feet.

The electricity sector consumed the most gas, accounting for more than 60 percent of production, followed by the industrial sector with more than 22 percent and the petrochemical and gas derivatives industry with about 11 percent. Domestic home and vehicle use took and 6 percent.

Exports of natural gas were made to Jordan through pipelines, and liquefied natural gas has been exported to global markets with a total of 71 shipments from the Idku and Damietta facilities.

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China crypto crackdown reveals scale of digital yuan ambitions

Updated 25 September 2021

China crypto crackdown reveals scale of digital yuan ambitions

  • All crypto trading and mining deemed illegal in China
  • China's central bank digital currency could launch as soon as 2022

LONDON: If there’s one thing the Chinese Communist Party likes it is control.

A raft of edicts from President Xi Jinping this year have asserted the government’s control over ever larger swathes of the Chinese economy and the everyday life of Chinese people.

The financial cost of these measures is difficult to accurately gauge, but billions of dollars have been wiped off the value of tech companies, including Alibaba, Didi and Tencent, following a squeeze on their activities, including limits on how long children can spend playing online games.

There have been considerable financial costs too from China’s crypto crackdown, which intensified yesterday with a blanket ban on all crypto transactions and mining. Ten agencies, including the central bank, financial, securities and foreign exchange regulators, vowed to work together to root out “illegal” cryptocurrency activity, the first time the Beijing-based regulators have joined forces to explicitly ban all cryptocurrency-related activity.

That represents a major escalation from May this year, when China banned financial institutions and payment companies from providing services related to cryptocurrency transactions. It had issued similar bans in 2013 and 2017.

Despite an initial drop in the value of cryptocurrencies on Friday, they stabilized on Saturday and most analysts don’t see the measures having a long-term effect on the value of crypto assets.

“For the institutional crypto industry, it won’t change much as those who could leave already left and those who couldn’t have either closed or gone under the radar,” said George Zarya, CEO at digital asset prime brokerage and exchange BEQUANT. “The retail market most likely has gone under the radar and will continue to support market volumes.”

The biggest financial cost is to Chinese businesses involved in trading and mining cryptocurrencies.

Virtual currency mining had been big business in China before May, accounting for more than half the world’s crypto supply, but miners have been moving overseas.

“[China] will now lose around $6 billion worth of annual mining revenue, all of which will flow to the remaining global mining regions,” said Christopher Bendiksen, head of research at digital asset manager CoinShares, citing Kazakhstan, Russia and the United States as beneficiaries.

Crypto exchanges OKEx and Huobi, which originated in China but are now based overseas, are likely to be the worst affected since they still have some China users, analysts said. Tokens associated with the two exchanges plunged over 20 percent on Friday.

Despite all this disruption and loss of wealth, there is a major upside for China.

The Chinese government has repeatedly raised concerns that cryptocurrency speculation could disrupt the country’s economic and financial order, one of Beijing’s top priorities.

Most of all, cryptocurrencies are a threat to China’s sovereign digital yuan, which is at an advanced pilot stage. The People’s Bank of China, the country’s central bank, plans an official launch of the digital yuan as soon as 2022, following testing at the Winter Olympics.

Widespread use of the digital yuan would give Chinese policy makers greater visibility into how money flows around China’s economy.

This would help them track any illicit flows of funds, such as money laundering or terrorist financing, and it would also allow them to experiment by targeting monetary policy interventions on specific economic classes, regions or other groups.

However, by killing off independent cryptocurrencies, China closes off a huge area of financial innovation and risks reducing the dynamism of its economy in the future.


Under US sanctions, Iran and Venezuela strike oil export deal — Reuters

Updated 25 September 2021

Under US sanctions, Iran and Venezuela strike oil export deal — Reuters

  • Venezuela has agreed to swap its heavy oil for Iranian condensate that it can use to improve the quality of its tar-like crude

CARACAS/HOUSTON/WASHINGTON: Venezuela has agreed to a key contract to swap its heavy oil for Iranian condensate that it can use to improve the quality of its tar-like crude, with the first cargoes due this week, five people close to the deal said.
As the South American country seeks to boost its flagging oil exports in the face of US sanctions, according to the sources, the deal between state-run firms Petroleos de Venezuela (PDVSA) and National Iranian Oil Company (NIOC) deepens the cooperation between two of Washington’s foes.
One of the people said the swap agreement is planned to last for six months in its first phase, but could be extended. Reuters could not immediately determine other details of the mwpact.
The oil ministries of Venezuela and Iran, and state-run PDVSA and NIOC did not reply to requests for comment.
The deal could be a breach of US sanctions on both nations, according to a Treasury Department email to Reuters which cited US government orders that establish the punitive measures.
US sanctions programs not only forbid Americans from doing business with the oil sectors of Iran and Venezuela, but also threaten to impose “secondary sanctions” against any non-US person or entity that carries out transactions with either countries’ oil companies.
Secondary sanctions can carry a range of penalties against those targeted, including cutting off access to the US financial system, fines or the freezing of US assets.
Any “transactions with NIOC by non-US persons are generally subject to secondary sanctions,” the Treasury Department said in response to a question about the deal. It also said it “retains authority to impose sanctions on any person that is determined to operate in the oil sector of the Venezuelan economy,” but did not specifically address whether the current deal is a sanctions breach.
US sanctions are often applied at the discretion of the administration in power. Former US President Donald Trump’s government seized Iranian fuel cargoes https://www.reuters.com/article/us-usa-iran-cargo-idUSKCN25A2AH at sea bound for Venezuela for alleged sanction busting last year, but his successor Joe Biden has made no similar moves.
In Washington, a source familiar with the matter said the swap arrangement between Venezuela and Iran has been on the radar screens of US government officials as a likely sanctions violation in recent months and they want to see how far it will go in practical terms.
US officials are concerned, the source said, that Iranian diluent shipments could help provide President Nicolas Maduro with more of a financial lifeline as he negotiates with the Venezuelan opposition toward elections.
Sanctions on both nations have crimped their oil sales in recent years, spurring NIOC to support Venezuela — including through shipping services and fuel swaps — in allocating exports to Asia.
In a meeting at the UN General Assembly in New York on Wednesday, the foreign ministers of Venezuela and Iran publicly stated their commitment to stronger bilateral trade, despite US attempts to block it.
Trump’s tightening of sanctions contributed last year to a 38 percent fall in Venezuela’s oil exports — the backbone of its economy — to their lowest level in 77 years and curtailed sources of fuel imports, worsening gasoline shortages in the nation of some 30 million people.
A US Treasury spokesperson said the department was “concerned” about reports of oil deals between Venezuela and Iran, but had not verified details.
“We will continue to enforce both our Iran and Venezuela-related sanctions,” the spokesperson said. Treasury “has demonstrated its willingness” to blacklist entities who support Iranian attempts to evade US sanctions and who “further enable their destabilizing behavior around the world,” the official added.
The swap contract would provide PDVSA with a steady supply of condensate, which it needs to dilute output of extra heavy oil from the Orinoco Belt, its largest producing region, the people said. The bituminous crude requires mixing before it can be transported and exported.
In return, Iran will receive shipments of Venezuelan heavy oil that it can market in Asia, said the people, who declined to be identified as they were not authorized to speak publicly.

CARGOES THIS WEEK
PDVSA has boosted oil swaps to minimize cash payments since the US Treasury Department in 2019 blocked the company from using US dollars. Washington has also sanctioned foreign companies for receiving or shipping Venezuelan oil.
Since last year, PDVSA has imported two cargoes of Iranian condensate in one-off swap deals to meet specific needs for diluents, and it has also exchanged Venezuelan jet fuel for Iranian gasoline.
The new contract would help PDVSA secure a source of diluents, stabilizing exports of the Orinoco’s crude blends, while allowing its own lighter oil to be refined in Venezuela to produce badly needed motor fuel, three of the people said.
The first 1.9 million barrel cargo of Venezuela’s Merey heavy crude under the new swap set sail earlier this week from PDVSA’s Jose port on the very large crude carrier (VLCC) Felicity, owned and operated by National Iranian Tanker Co. (NITC), according to the three people and monitoring service TankerTrackers.com.
NITC, a unit of NIOC, did not reply to a request for comment.
The vessel was not included in PDVSA’s monthly port schedules for September, which lists planned imports and exports. However, TankerTrackers.com identified it while at Jose this month.
The Venezuelan crude shipment is a partial payment for a cargo of 2 million barrels of Iranian condensate that arrived in Venezuela on Thursday, according to the three sources and one of PDVSA’s port schedules.

LITTLE ENFORCEMENT
Last year, the previous Trump administration seized over 1 million barrels of Iranian fuel bound for Venezuela and blacklisted five tanker captains, as part of a “maximum pressure” strategy, but the United States has not interdicted recent Iranian supplies to Venezuela.
The US State Department declined to comment on the deal. A Treasury spokesperson did not respond to a Reuters question on how concerned the government might be that Iran-Venezuela deals would allow PDVSA to step up exports.
US government officials have insisted they do not plan to ease sanctions on Venezuela unless Maduro takes definitive steps toward free and fair elections.
Trump’s curbs on established companies doing business with PDVSA prompted the socialist-ruled nation to turn to swaps with Iran and other countries, while trading with a series of little-known customers.
PDVSA’s new customers and swaps have allowed it to keep exports stable around 650,000 barrels per day (bpd) this year, after they zigzagged in 2020.
However, a worsening shortage of diluents has recently limited oil exports, placing the Orinoco Belt production in an “emergency,” according to PDVSA documents from August and September related to its output status that were reviewed by Reuters.
PDVSA plans to mix the Iranian condensate with extra heavy oil to produce diluted crude oil, a grade demanded by Asian refiners that it has struggled to export since late 2019 when suppliers halted diluent shipments due to sanctions, the three sources said.


UAE announces ministerial changes including finance, environment

Updated 25 September 2021

UAE announces ministerial changes including finance, environment

  • Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum has been appointed finance minister and deputy prime minister

RIYADH: United Arab Emirates Prime Minister and Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum announced ministerial changes on Saturday, including new finance and environment ministers.
Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum has been appointed finance minister and deputy prime minister and Maryam Al Muhairi becomes the minister of climate change and environment.
Sheikh Mohammed announced the changes on Twitter, along with several structural changes.