Commodities outlook improves

Commodity prices are rising and new projects are being approved around the world as energy majors, having driven down costs, begin to invest some of their cash stockpiles, writes David Kershaw.

Commodity prices strengthened in the first quarter of 2018, supported by both demand growth and restricted supply.

The outlook painted by the World Bank’s latest Commodity Markets Outlook sees oil prices rising by 22 percent, from an average of USD53 in 2017 to USD65 per barrel in 2018 through to 2019.

Global demand and continued production restraint by OPEC and non-OPEC producers should serve to prop up prices. Higher oil prices are expected to eventually feed into higher natural gas prices, which the World Bank expects to increase by 8 percent in 2018.

Coal prices will continue to decline to an average USD85 per tonne in 2018, as energy demand shifts towards cleaner energy sources.

Rising oil prices and limited supply are telltale indicators that the energy majors will reach into their pockets and start investing in new exploration and production (E&P) activities. Offshore suppliers have been busy in recent years streamlining operations and reducing their cost base.

The current tailwind in the oil market is likely to propel 100 new offshore projects to be sanctioned in 2018, with a value of approximately USD100 billion, according to Rystad Energy. This compares with only 60 projects in 2017 and below 40 in 2016.

“The offshore suppliers have created their own comeback,” said Audun Martinsen, vice president of oilfield service research at Rystad Energy. “Their constant search for cost reductions and streamlining of operations has enabled them to cut offshore project costs by almost 50 percent compared with the heights of the last cycle.”

Shortening lead times

“Not only are the suppliers charging less for their services, they have also improved the efficiencies of their operations, thus shortening lead times from project sanctioning to first oil. As an example, the time required to drill and complete a well has fallen by 30 percent in the North Sea, the Gulf of Mexico and Brazil over the past four years,” Martinsen added.

Rystad forecasts that about 30 project approvals would come through in Asia this year, including Pegaga in Malaysia and D6 in India. Some 30 projects could come online in Europe, including Neptune Deep in Romania and the already sanctioned Penguins redevelopment in the UK.
Africa should approve nearly 20 projects, including Zinia 2. A similar number is predicted in the Americas, where major schemes like Vito and Mero 2 are maturing.

“E&P companies have more free cashflow at hand in 2018 than they did during the recent peak years of 2008 and 2011. In fact, 60 percent of the companies looking to finance their project development costs can do so through their cash flow. Supported by strong oil
prices, we see a very small risk of these projects not materialising,” Martinsen said.

However, Wood Mackenzie’s second annual State of the Upstream Industry survey, published in April, states that financial health rather than growth remains the priority for upstream oil and gas companies, with low-risk growth still preferred by the sector.

Mergers and acquisitions

Wood Mackenzie did suggest that asset mergers and acquisitions (M&A), as well as frontier exploration, are more attractive options this year than in 2017.

Martin Kelly, Wood Mackenzie’s head of corporate analysis, said: “The industry’s growing confidence is evident in spending expectations, too. More will be spent globally and in each region this year compared with last year. Capital investment, exploration investment and M&A spending will all increase by at least
10 percent year-on-year.”

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The Transocean Spitsbergen drilling rig. (Photo- Kenneth Engelsvold)
The Transocean Spitsbergen drilling rig. (Photo- Kenneth Engelsvold)

Saudi Aramco: Arabiah EPC deal, denies profits

Bloomberg has reported that Saudi Aramco made a net profit of USD33.8 bn in the first six months of 2017, making it the world’s most profitable company.

It is almost totally free of debt and enjoys production costs running at a fraction of the industry standard. The eye-catching numbers, if accurate, mean that the secretive Saudi energy giant is more profitable than Microsoft, JP Morgan and ExxonMobil combined.

Saudi Aramco said in a statement: “This is inaccurate, Saudi Aramco does not comment on speculation regarding its financial performance and fiscal regime.”

Saudi Aramco selects Arabiah contractor

Meanwhile, the Dhahran-based petroleum and natural gas company has selected SNC-Lavalin to install additional facilities for a major gas processing facility in Saudi Arabia’s Eastern Province. SNC-Lavalin will construct the Arabiah condensate handling facility and sour water disposal unit project at the Wasit gas plant. Work is already underway with a target completion date of late 2019.

saudi aramco. SNC lavalin

The Capital Projects and Contracts (CapProCon) e-newsletter, distributed every Monday, includes dozens more updates and developments. To learn more, click here.

Capital Projects – news in brief – April 18, 2018

A quick round up of major capital projects and industry developments witnessed this week. To learn more about the CapProCon e-newsletter, click here.

New Zealand’s Prime Minister Jacinda Ardern said her government “has a plan to transition towards a carbon-neutral future, one that looks 30 years in advance”. In a bid to hit this target, New Zealand will grant no new offshore oil and gas exploration permits.

The ban applies only to new permits and will not affect the existing 22 offshore exploration blocks in the energy-rich Taranaki region. The move by New Zealand comes weeks after Shell sold its final oil and gas permits and producing assets to Austrian firm OMV.

Oil capital projects

Also the oil and gas arena, BP said it has approved the development of Ghazeer, the second phase of the giant Khazzan gas field in Oman, in cooperation with Oman Oil Company Exploration & Production. The final investment decision (FID) for Ghazeer follows the successful start-up of Khazzan’s first phase of development in September 2017.

BP also revealed that it has established a strategic alliance with Petrobras committing to exploring potential commercial agreements in upstream, downstream, trading and across low carbon initiatives, inside and outside Brazil.

In the civil infrastructure field Reliance Infrastructure (RInfra) and Tata Projects have won five contract packages for the Mumbai Metro line-4 project. Meanwhile, construction of the 473 km-long four-lane highway between Nairobi and Mombasa, Kenya, will be delayed amid concerns that the country is taking on too much debt.

The Capital Projects and Contracts (CapProCon) e-newsletter, distributed every Monday, includes dozens more updates and developments. To learn more, click here.

New Zealand capital projcts
New Zealand has banned all new offshore oil and gas exploration permits. Source: Wikimedia Commons – Wikikiwiman

Capital Projects in brief

Here’s a taster from our most recent Capital Projects and Contracts e-newsletter.

The Arab Petroleum Investments Corporation (APICORP) has published its annual MENA Energy Investment Outlook. The report forecasts that the Middle East and North Africa (MENA) region will see a number of critical oil, gas and power projects pushed through over the next five years, despite the uncertain geopolitical backdrop.

Around USD345 bn has been committed to projects under execution while an additional USD574 bn worth of development is planned. According to the development bank, the overall economic outlook remains similar to the forecasts estimated this time last year, with GDP growth of around 3.2 percent forecast for both 2018 and 2019.

Capital Projects: updates

In North America, Flatiron, together with partners Aecon, Dragados Canada, and EBC, signed a USD1.2 bn contract to deliver civil works for BC Hydro’s Site C hydroelectric power station in Canada. In the downstream oil and gas sector, ExxonMobil has started detailed engineering work on a potential US Gulf coast project to expand polypropylene manufacturing capacity by up to 450,000 tonnes a year.

Meanwhile, in Southeast Asia, Shell, Petronas and Mubadala Petroleum unveiled plans to develop the Pegaga offshore gas field in Central Luconia province, Malaysia, with an investment estimated at approximately USD1 bn.

In the mining arena, Rio Tinto has entered into a binding agreement with Whitehaven Coal for the sale of its entire 75 percent interest in the Winchester South coal project in Queensland, Australia, for AUD200 mn (USD154.7 mn). Rio Tinto will also sell its interests in the Hail Creek coal mine and the Valeria coal development project, also in Queensland, to Glencore for AUD1.7 bn (USD1.32 bn).

The Capital Projects and Contracts (CapProCon) e-newsletter, distributed every Monday, includes dozens more updates and developments. To learn more, click here or email

hail creek mine rio tinto capital projects Queensland Australia
Rio Tinto’s Hail Creek mine in Queensland, Australia. Source: Rio Tinto.

Renewable energy projects take off

This renewable energy project news was first reported in the CapProCon e-newsletter. To learn more, click here.

Vattenfall has been awarded the permit for the first non-subsidised wind farm in the Netherlands, the 700-750 MW Hollandse Kust Zuid project.

This is the company’s second offshore wind project in the Netherlands. Vattenfall previously announced that it intends to invest EUR 1.5 bn in growth investments in the wind power sector between 2017 and 2018.

vattenfall renewable energy ofshore netherlands

Bayerische Warenvermittlung (BayWa) will enter the Dutch solar market and acquire a 70 percent stake in a project pipeline of around 2,000 MW of solar plants from a consortium of GroenLeven Group, which will retain a 30 percent stake.

In the Middle East, Dubai Electricity and Water Authority (DEWA) has broken ground at the 700 MW fourth phase of the Mohammed bin Rashid Al Maktoum solar power plant.

The project, which features the world’s tallest solar tower measuring 260 m-tall and the world’s largest thermal energy storage capacity, will reduce 1.4 million tonnes of carbon emissions a year, says DEWA.

This development will use two technologies for the production of clean energy: the 600 MW parabolic basin complex and the 100 MW solar tower over a total area of 43 sq km. Approximately AED14.2 billion (USD3.86 bn) will be invested in the project.


CapProCon – update

A couple of updates from the latest CapProCon e-newsletter can be seen here.

ExxonMobil has outlined an aggressive growth strategy to more than double earnings and cash flow from operations by 2025 at today’s oil prices. In the upstream sector, ExxonMobil expects to significantly increase earnings through a number of growth initiatives and investments in US tight oil, deepwater and LNG projects.

Meanwhile, Engie, in its latest annual report, highlighted the renewable energy projects it has invested in. They include the acquisition of a wind energy portfolio of more than 400 MW with the takeover of La Compagnie du Vent in France. The company also launched a joint venture with Abraaj Group to develop a 1 GW-plus portfolio of wind energy projects in India.

Clean TeQ

In the mining arena, Clean TeQ completed an underwritten institutional placement which has raised AUD150 mn (USD118.1 mn). Proceeds raised will be used to fund early works and long lead items to accelerate the development of its Sunrise nickel/cobalt/scandium project, located 350 km west of Sydney.

In Europe, Skanska will invest EUR41 mn in the first phase of a new office development in Gdansk, Poland. The first-phase of the project will be 14 stories high with two levels of underground parking.

The Capital Projects and Contracts (CapProCon) e-newsletter, distributed every Monday, includes dozens more updates and developments. To learn more, click here.

exxon mobil oil and gas capprocon

Capital projects update – Feb 28th 2017

In BP’s latest Energy Outlook, published last week, the energy major said that by 2040, oil, gas, coal and non-fossil fuels will each account for around a quarter of the world’s energy supply. More than 40 percent of the overall increase in energy demand will be met by renewable energy sources.

In the renewable energy arena, Siemens Gamesa inked a deal last week with F.L. Wind to supply 18 turbines to the Jelovaca wind farm in Bosnia and Herzegovina.

Meanwhile, Utah-headquartered Rocky Mountain Power has revealed plans to build four wind farms across Wyoming, USA.

oil projects return

The general consensus is that projects are slowly returning in the oil and gas sector. The standout deals seen recently were for the Duqm refinery on Oman’s Al-Wusta coast. Three EPC packages have been awarded for the development of the 230,000 bpd refinery.

The Capital Projects and Contracts (CapProCon) e-newsletter, distributed every Monday, includes dozens more updates and developments. To learn more, click here.

simens gamesa capital projects wind farm onshore turbines

Oil project awards in brief

Various oil projects were announced over the past several days. To receive these updates, plus dozens more, directly to your inbox, please subscribe to the CapProCon newsletter.

Last week Total, Borealis, and Nova Chemicals said that affiliates of the three companies will form a joint venture focusing on petrochemicals on the US Gulf Coast.

The joint venture will include the under-construction 1 mn tonne per year ethane steam cracker in Port Arthur, Texas; Total’s existing polyethylene 400 kilotonne per year facility in Bayport, Texas; plus a new 625 kilotonne per year Borstar polyethylene unit at Total’s Bayport site, following a decision on the outcome of an acceptable EPC contract.

LTHE and Saipem deals

Meanwhile, L&T Hydrocarbon Engineering (LTHE) secured a USD341.79 mn EPC contract from Al Dhafra Petroleum Operations Company for field development in Abu Dhabi. The scope of the contract includes EPCC of flow lines, gathering facilities and pipelines to transfer crude oil and gas from Haliba fields to a processing facility at Asab. It also includes the installation of 132 kV and 33 kV overhead electrical transmission lines.

Finally, Saipem won a contract valued at approximately USD750 mn for the EPCC of new facilities at Duqm refinery in Oman.

duqm refinery oil projects

Mexico: as hot as a habanero

Majors, national oil companies (NOC) and independents are all scrabbling to get a slice of Mexico’s burgeoning oil and gas industry, according to analyst Wood Mackenzie.

Simon Flowers, chairman and chief analyst, said Mexico is ”as hot as a habanero, the spiciest of Mexican chillies”. The country is vying alongside the top drawer of proven oil provinces for scarce investment capital, such as Brazil and Iran.

Mexico’s proven reserves of 64 bn barrels of oil equivalent (boe) in fields discovered so far, is similar in scale to global giants like Norway, Brazil and the UK.

In the northern part of the Gulf of Mexico, in the deepwater Sabina Rio Grande play, Pemex has already made a series of discoveries in the Perdido area. Each may hold up to 400 mn barrels of oil. Further south in the Salinas Sureste basin, US independent Talos last year found 500 mn barrels at Zama.

Also in the south of the country in the Tampico Basin, explorers are attracted by structures offshore, similar physically to recent onshore discoveries, which could make for giant light oil or gas finds.

“Investment in recent decades has been comparatively modest, barely scratching the surface of many plays. There may be much more oil and gas yet to be found,” said Flowers.

Mexico attracts FDI

Mexico has recognised that it needs external investment capital for its oil and gas industry to flourish. Flowers said oil exports’ contribution to Mexico’s GDP has halved from 6 percent in 2004 when production peaked at 3.8 mn bpd to just three percent today. Oil production this year will be 2.1 mn bpd and will still be in decline into the early 2020s. NOC Pemex was not in shape to turn things around on its own.

The Mexican government has taken bold steps to create a favourable regulatory and fiscal environment, in bid to draw investments. The 2013 Energy Reform was a critical step, opening up Pemex’s monopoly to private investment. One measure of success is the number, quality and range of companies now active in the country’s upstream space.

“Over 80 E&Ps, including all the majors, numerous NOCs, independents, and a growing cadre of domestic small-caps have entered the sector in successive licence rounds. The integrated players see opportunities beyond upstream, in the gas value chain and downstream.”

Wood Mackenzie suggests that domestic political stability under President Pena Nieto has also been a key factor in the progress achieved.

This article was first published in CapProCon. To subscribe, click here.

habanero Mexico
The Mexican oil and gas market was described “as hot a habanero”.

Power projects approved in Southeast Asia

The Capital Projects and Contracts e-newsletter contains dozens of project updates. See below two notable projects approved in the last week.

Mitsubishi Hitachi Power Systems (MHPS) has received a full-turnkey order for the EPC of a 5,300 MW natural-gas-fired power plant. The project is planned by a joint venture of Thailand’s Gulf Energy and Mitsui & Co. The units will be installed at two plants located near Bangkok, with commercial operations due to begin in 2021 and 2023, respectively.

The plans call for two 2,650 MW gas turbine combined cycle (GTCC) power plants incorporating eight M701JAC gas turbines.

Meanwhile in South Korea, GE Power has been awarded a USD320 mn contract through its joint venture, KAPES, by Korea Electric Power Corporation (Kepco). It will provide equipment and expertise for a 4 GW HVDC transmission link from a power complex located in South Korea (pictured).

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