Sinopec today announced a tender offer for Addax Petroleum of Switzerland. Addax management has okayed and recommended the deal to shareholders. Addax has some valuable assets in West Africa and Iraq, both areas where GET has been extending our business, and so of particular interest to us.
Seems like the dragon's expansion is likely to continue, as predicted in a previous post by Ian Rushby. Will there be a nationalist pushback like the Rio Tinto or CNOOC- Unocal deal, or would the invisible hand of the market triumph?
Wednesday, June 24, 2009
Thursday, June 18, 2009
GET at Oil & Gas Asia 2009 Exhibition
I just got back from attending the 12th Asian Oil, Gas & Petrochemical Engineering Exhibition in Kuala Lumpur last week. I was present there exhibiting at a booth under the auspices of our partner Max Energy. This post outlines some of my impressions and takeaways from speaking to exhibitors and participants at the show.
- The exhibition was pretty extensive, covering 17000 square feet at the Kuala Lumpur Convention Center. Exhibitors covered two large halls that one often got lost in.
- There were almost 900 participating companies and close to 20000 visitors. It’s billed as Asia’s largest O&G show and it was indeed the case. Looking through the business cards I collected, I seem to have met with people from 17 different countries in the short space of a day and a half. Talk about a globalized industry!
- There seemed to be a much higher degree of optimism in the industry at the event. I was at the OTC show in Houston in May, where I noticed a more subdued mood. I bumped into an exhibitor who had showed at OTC as well, and in comparing notes, he mentioned how he felt that the near term business opportunities seemed more real at this show.
- The economic “green shoots” that analysts have recently been talking about seem to have already sprouted in SE Asia, at least in the O&G space. Well, we’ve also had a 20% runup in oil prices in the last month, which may have contributed to the general sense of new horizons.
- There seemed to be quite a few college students who were checking out the show. I got talking to a couple of these students, and there seemed to be a genuine sense of interest in long term careers in the O&G space.
- Finally, a word about the cuisine. I loved the noodle soups, particularly the kari mee, available at the event concession stands. Messy (still trying to get the curry stains off my favorite tie) but absolutely delish.
Thursday, April 23, 2009
Ghana: A New Growth Area for Oil & Gas
In an earlier post we’ve discussed how Africa is becoming a new frontier for oil and gas exploration for western countries as well as new emerging Asian powerhouses like China and India. We review one country – Ghana which is emerging as an oil and gas exploration hub.
Ghana was the first African nation to have gained independence from British rule. Since its independence in 1957, the country is slowly yet surely moving forward with the help of abundant natural resources especially minerals like gold, diamond, bauxite and manganese. What makes Ghana important to the oil and gas industry is the presence of light oil which was discovered recently in 2007.
As demand for energy has increased in Ghana, many projects relating to the importation of gas via pipeline from nearby Nigeria and Cote d'Ivoire have come up. Although as yet, its upstream oil industry has no crude oil production, Ghana is one of four West African countries with an oil refinery. Oil-derived products supply 70% of Ghana's commercial energy needs and the downstream sector is well structured.
Much of Ghana's emerging oil industry is underpinned by the discovery and early development successes of the “Jubilee field” located in an area straddling the West Cape Three Points and Deepwater Tano contract blocs. The development of the Jubilee field is currently in the first phase, involving the drilling of nine production wells and an additional eight support wells.
Currently, exploration and commercial activity is limited to mid cap players. Texas-based oil exploration company E&P outfit Kosmos is amongst the major players in Ghana’s oil and gas sector, although there have been some reports of Kosmos’ interest in divesting some of its stakes in the country. The other big player is UK based Tullow.
Smaller companies are finding it easier to explore in Ghana than in some of its neighbors in West Africa. This is due in part to advantageous terms of the contract which include factors like no front end payments such as signature or production bonuses; negotiable royalties and income tax; no limit on cost recovery, low rental payments, no restrictions on the repatriation of funds and no import duties on exploration and production equipment and materials.
With such advantages for exploration and development coupled with the quality of light crude, Ghana is poised to be one of the new growth economies in the oil sector.
Ghana was the first African nation to have gained independence from British rule. Since its independence in 1957, the country is slowly yet surely moving forward with the help of abundant natural resources especially minerals like gold, diamond, bauxite and manganese. What makes Ghana important to the oil and gas industry is the presence of light oil which was discovered recently in 2007.
As demand for energy has increased in Ghana, many projects relating to the importation of gas via pipeline from nearby Nigeria and Cote d'Ivoire have come up. Although as yet, its upstream oil industry has no crude oil production, Ghana is one of four West African countries with an oil refinery. Oil-derived products supply 70% of Ghana's commercial energy needs and the downstream sector is well structured.
Much of Ghana's emerging oil industry is underpinned by the discovery and early development successes of the “Jubilee field” located in an area straddling the West Cape Three Points and Deepwater Tano contract blocs. The development of the Jubilee field is currently in the first phase, involving the drilling of nine production wells and an additional eight support wells.
Currently, exploration and commercial activity is limited to mid cap players. Texas-based oil exploration company E&P outfit Kosmos is amongst the major players in Ghana’s oil and gas sector, although there have been some reports of Kosmos’ interest in divesting some of its stakes in the country. The other big player is UK based Tullow.
Smaller companies are finding it easier to explore in Ghana than in some of its neighbors in West Africa. This is due in part to advantageous terms of the contract which include factors like no front end payments such as signature or production bonuses; negotiable royalties and income tax; no limit on cost recovery, low rental payments, no restrictions on the repatriation of funds and no import duties on exploration and production equipment and materials.
With such advantages for exploration and development coupled with the quality of light crude, Ghana is poised to be one of the new growth economies in the oil sector.
Tuesday, February 24, 2009
Thirsty Dragon- China’s Energy Security
In little more than a decade China has changed from being a net exporter of oil into the world's second-largest importer, trailing only the United States. Despite the current economic slowdown the country’s oil demand is still forecast to grow by 2.3% this year. With some of the world’s largest and fastest growing cities and an emerging middle-class, demand is coming from both consumer and industrial sectors, including rapidly expanding automobile ownership. This growth in demand cannot be met from domestic production - currently domestic crude oil production supplies only two-thirds of the country’s needs. China’s government estimates that it will need 12 million barrels/day of crude oil by 2020 from the current demand of 7.95 mb/day (IEA).
Securing stable access to oil and gas supplies has become central to China’s economic growth which in turn underpins political stability. So China has been looking outside, in different corners of the world, to find its energy supplies. Until recently the country focused primarily on the Middle East for oil supplies. It was one of the few countries trading with the former regime in Iraq and had large production sharing contracts which were cancelled with the US and allies invasion in 2003. China has also been doing deals in Iran; earlier this year a Chinese state-owned enterprise signed a $2 billion deal to develop the Azadegan field. Nevertheless China recognizes the geopolitical issues and the significance strategically of the Middle East for both the United States and Europe so has set its sights on other areas. China has been prospecting aggressively in the Caspian region and Africa.
Although Africa holds only about 9% of the world’s total proven oil reserves compared to more than 60% in the Middle East, it may hold significant untapped resources. From 2002 to 2003, trade between China and Africa doubled to $18.5 billion; by 2007, it had reached $73 billion – including substantial crude oil imports from Sudan and other African countries. Hydrocarbon rich African countries have decade long relationships with Western oil companies. Wood Mackenzie estimates Chinese companies hold under 2 percent of Africa's known oil reserves – many of these assets were previously held, explored and relinquished by the IOCs. And much of the potential resource growth is in technically challenging deepwater blocks in Angola and Nigeria.
China’s share of Africa’s oil is however growing. Two factors have been driving this. Firstly China’s foreign policy of non-interference in the domestic affairs of its trading partners. Sudan’s government resisted international pressure over its actions in Darfur. How significant was the combination of China’s veto in the UN Security Council and the export of 60% of Sudan’s oil production to China? China also uses aid to provide leverage, supplying easy credit and development knowhow in places as diverse as Gabon and Congo. The Council on Foreign Relations put out a very thoughtful paper last year detailing the growth of Sino-African relations. Oil is the common denominator and China is expected increasingly to use a combination of aid, trade and knowledge transfer to expand its influence in the region and increase its imports. Will the new Obama administration’s clearly stated preferences for reducing its oil import dependency and diversifying to alternative sources of energy give China an opening to construct more deals and expand its presence in Africa in the coming years?
We’ve also recently seen China adopt a model of more direct ownership, fully or partly, of foreign companies. The US congress shot down CNOOC’s attempt to buy into Unocal during the last phase of industry consolidation - but that was in a very different world and has not stopped China’s NOCs from evaluating other options. Will the announcement earlier this month of Chinalco’s proposed massive investment in Rio Tinto be a precursor of similar deals in the oil & gas industry ?
About the author:
Ian Rushby had a 30-year career in BP plc where he held various business leadership, commercial, planning and control positions in BP’s Head Office and Exploration, Finance, Coal and Gas divisions, working in London, the Netherlands, Indonesia, USA and Russia. His most recent assignment was Group General Auditor of BP plc, reporting to the Group Chief Executive, the Board Audit Committee and the Ethics and Environment Assurance Committee. He is also a non-executive Director, Ministry of Defence, UK and Chairman of the Defence Audit Committee.
Securing stable access to oil and gas supplies has become central to China’s economic growth which in turn underpins political stability. So China has been looking outside, in different corners of the world, to find its energy supplies. Until recently the country focused primarily on the Middle East for oil supplies. It was one of the few countries trading with the former regime in Iraq and had large production sharing contracts which were cancelled with the US and allies invasion in 2003. China has also been doing deals in Iran; earlier this year a Chinese state-owned enterprise signed a $2 billion deal to develop the Azadegan field. Nevertheless China recognizes the geopolitical issues and the significance strategically of the Middle East for both the United States and Europe so has set its sights on other areas. China has been prospecting aggressively in the Caspian region and Africa.
Although Africa holds only about 9% of the world’s total proven oil reserves compared to more than 60% in the Middle East, it may hold significant untapped resources. From 2002 to 2003, trade between China and Africa doubled to $18.5 billion; by 2007, it had reached $73 billion – including substantial crude oil imports from Sudan and other African countries. Hydrocarbon rich African countries have decade long relationships with Western oil companies. Wood Mackenzie estimates Chinese companies hold under 2 percent of Africa's known oil reserves – many of these assets were previously held, explored and relinquished by the IOCs. And much of the potential resource growth is in technically challenging deepwater blocks in Angola and Nigeria.
China’s share of Africa’s oil is however growing. Two factors have been driving this. Firstly China’s foreign policy of non-interference in the domestic affairs of its trading partners. Sudan’s government resisted international pressure over its actions in Darfur. How significant was the combination of China’s veto in the UN Security Council and the export of 60% of Sudan’s oil production to China? China also uses aid to provide leverage, supplying easy credit and development knowhow in places as diverse as Gabon and Congo. The Council on Foreign Relations put out a very thoughtful paper last year detailing the growth of Sino-African relations. Oil is the common denominator and China is expected increasingly to use a combination of aid, trade and knowledge transfer to expand its influence in the region and increase its imports. Will the new Obama administration’s clearly stated preferences for reducing its oil import dependency and diversifying to alternative sources of energy give China an opening to construct more deals and expand its presence in Africa in the coming years?
We’ve also recently seen China adopt a model of more direct ownership, fully or partly, of foreign companies. The US congress shot down CNOOC’s attempt to buy into Unocal during the last phase of industry consolidation - but that was in a very different world and has not stopped China’s NOCs from evaluating other options. Will the announcement earlier this month of Chinalco’s proposed massive investment in Rio Tinto be a precursor of similar deals in the oil & gas industry ?
About the author:
Ian Rushby had a 30-year career in BP plc where he held various business leadership, commercial, planning and control positions in BP’s Head Office and Exploration, Finance, Coal and Gas divisions, working in London, the Netherlands, Indonesia, USA and Russia. His most recent assignment was Group General Auditor of BP plc, reporting to the Group Chief Executive, the Board Audit Committee and the Ethics and Environment Assurance Committee. He is also a non-executive Director, Ministry of Defence, UK and Chairman of the Defence Audit Committee.
Friday, February 20, 2009
Biofuels- quo vadis?
There has been a fair amount of hype in the biofuels arena over the last year or two. There were large project announcements on sugar/ corn based ethanol and cellulosic ethanol projects saw more activity beyond the blue print phase. Entrepreneurs also announced a slew of algae based culture for biofuel production. The hype was pretty thick until oil prices slid in late 2008, when a lot of projects started being shelved due to lower oil prices.
So where are we today? Are biofuels programs still going strong? Is the economic platform strong enough to weather the price deflation and volatility of these days? Has the credit crunch affected project financing?
These questions can be answered to a large part by the goverment policies and intervention. Regulatory & energy policies will affect much of the development of this field in the near future. The EU already has a strong set of incentives and program extensions for biofuels development and deployment at the retail end. The US has mandated that by 2022 7% of transportation gasoline come from cellulosic ethanol. The expectation is that the Obama administration will funnel more dollars on R&D in this area. Pure play biofuel companies such as Amyris are already moving along the path to commercialization in anticipation of these incentives.
The market for transportation biofuels is likely to be pretty large. Sandia Labs just released a report this week that found plant and forestry waste and dedicated energy crops could sustainably replace nearly a third of gasoline use in the US by the year 2030.
With those kinds of forecasts, its no wonder there has a steady drip of new venture investments in biofuels. Last year VCs , including a lot of marquee names like Vinod Khosla, funded biofuels startups to the tune of $680 million. Now even the majors are expanding their role. The Wall Street Journal reported yesterday that BP will be developing the world's biggest cellulosic biofuels plant in Florida through its partner Verenium.
The coming months will give a better picture on the investment climate for biofuels projects. The overall trend though is looking positive for the bio fuels industry.
So where are we today? Are biofuels programs still going strong? Is the economic platform strong enough to weather the price deflation and volatility of these days? Has the credit crunch affected project financing?
These questions can be answered to a large part by the goverment policies and intervention. Regulatory & energy policies will affect much of the development of this field in the near future. The EU already has a strong set of incentives and program extensions for biofuels development and deployment at the retail end. The US has mandated that by 2022 7% of transportation gasoline come from cellulosic ethanol. The expectation is that the Obama administration will funnel more dollars on R&D in this area. Pure play biofuel companies such as Amyris are already moving along the path to commercialization in anticipation of these incentives.
The market for transportation biofuels is likely to be pretty large. Sandia Labs just released a report this week that found plant and forestry waste and dedicated energy crops could sustainably replace nearly a third of gasoline use in the US by the year 2030.
With those kinds of forecasts, its no wonder there has a steady drip of new venture investments in biofuels. Last year VCs , including a lot of marquee names like Vinod Khosla, funded biofuels startups to the tune of $680 million. Now even the majors are expanding their role. The Wall Street Journal reported yesterday that BP will be developing the world's biggest cellulosic biofuels plant in Florida through its partner Verenium.
The coming months will give a better picture on the investment climate for biofuels projects. The overall trend though is looking positive for the bio fuels industry.
Thursday, February 12, 2009
CERA Week Brief
I’ve been following what’s going on at CERA Week in Houston, albeit remotely. Seems to be some interesting discussions all around. The general effect of the global downturn has been a key topic. BP’s CEO Tony Hayward mirrors our general thinking for the medium term (from the Houston Chronicle)
“I believe this is a crucial moment… The current maelstrom may interrupt but it will not stop the movement of one-third of the world’s population from a rural way of life to an urban one..We are living through a fundamental shift in the balance between supply and demand. This powerful trend will not be stopped by the turmoil we are now experiencing.”
Most of the super majors have not cut capex, even though there have been some announcement of furloughs and headcount reductions.
Will be interesting to see what the participants think of the US stimulus bill and its effect on oil demand.
Tony's pic courtesy of zimbio
Thursday, January 15, 2009
The expat life in China
Despite the global economic slowdown, China continues to grow, although at a slower pace. To maintain the pace of industrialization requires energy, particularly hydrocarbons. China has acquired E&P interests in in regions as varied as Kazakhstan, Russia, Venezuela, Sudan, West Africa, Iran, Saudi Arabia and Canada. Numbers of downstream and upstream facilities are increasing to keep pace with its rising oil consumption, driven both from industrial demand as well as a burgeoning transportation market (The passenger vehicle market is growing at a 7-10% rate over a base of 15 million cars on the road).
As the energy industry booms in China, so is the number of expatriates working in that industry. The country is undergoing high speed modernization and along with it, many cultural changes.
I lived in Southern China for a year as an expat manager at Schlumberger. It was an eye opening experience for me, both professionally and personally. My wife, who had accompanied me, still feels that it was the best foreign posting location for us. The standard of living was particularly high. We also forged some long term & close knit relationships with other expat families there.
However I would urge any expats to venture out of the “expat ghetto” and get to know the real China. Mandarin is the primary language spoken by a vast majority of people in China. The language can be a bit tricky for someone to pick up initially particularly if you’re not used to East Asian languages. Most taxi drivers do not speak or read English. The best solution is to have the address of your destination written in Chinese. I used to carry cards with common words written on it to help me move around the city. It is not that hard to develop workable Mandarin in a couple of months. However, if you are looking for fluency, I recommend attending a language school.
Finding out about expat life in China is easier these days with various online forums and communities. The new visitor can get some valuable tips through these forums. I recommend Dan Washburn’s blog Shanghaiist . Dan’s a freelance writer but has some interesting stories, and slice of life vignettes, and tips for the recently arrived resident in China.
If you are considering taking up projects in China, my advices is set aside all your preconceptions about the country and discover first hand the exciting, wonderful and the sometimes exasperating experience there.
As the energy industry booms in China, so is the number of expatriates working in that industry. The country is undergoing high speed modernization and along with it, many cultural changes.
I lived in Southern China for a year as an expat manager at Schlumberger. It was an eye opening experience for me, both professionally and personally. My wife, who had accompanied me, still feels that it was the best foreign posting location for us. The standard of living was particularly high. We also forged some long term & close knit relationships with other expat families there.
However I would urge any expats to venture out of the “expat ghetto” and get to know the real China. Mandarin is the primary language spoken by a vast majority of people in China. The language can be a bit tricky for someone to pick up initially particularly if you’re not used to East Asian languages. Most taxi drivers do not speak or read English. The best solution is to have the address of your destination written in Chinese. I used to carry cards with common words written on it to help me move around the city. It is not that hard to develop workable Mandarin in a couple of months. However, if you are looking for fluency, I recommend attending a language school.
Finding out about expat life in China is easier these days with various online forums and communities. The new visitor can get some valuable tips through these forums. I recommend Dan Washburn’s blog Shanghaiist . Dan’s a freelance writer but has some interesting stories, and slice of life vignettes, and tips for the recently arrived resident in China.
If you are considering taking up projects in China, my advices is set aside all your preconceptions about the country and discover first hand the exciting, wonderful and the sometimes exasperating experience there.
Thursday, January 8, 2009
2008: Looking back
The year 2008 will always be remembered for quite a few things, not least of all for the turmoil in the global economy, particularly in the financial sector where giants like Lehman Brothers, Bear Stearns and others tumbled. The same year also saw the extreme gyrations in the spot oil markets which had far reaching impacts across the world. Today, we look at the top energy stories and related developments during the year that went by – events that will affect many aspects of the year ahead.
Unprecedented crude oil price volatility
During the early part of the year, crude oil rose to its highest ever price of almost $150 per barrel. Peak Oil was almost ready to provide an explanation for it when prices slipped into a four year low of around $30 driven by the economic slump. There are many reasons for this – the demand-supply gap , speculation, political risk, etc. As a consequence, there was a fair amount of economic particularly in transportation- the price of gasoline shot up effecting many consumers.
The price rise also contributed to the poor performance of the airline and automobile sectors. contributing to bankruptcy and consolidation of airlines while the automobile industry faced deep financial trouble when people stopped buying low mileage vehicles.. Later, when the oil price tumbled, some non integrated oil companies were affected adversely, particularly those that made large bets on alternative fuels. The retail side was also impacted, companies such as Flying J declared bankruptcy.
Renewable energy took off, but then didn’t
There was renewed interest and impetus in alternative and renewable sources of energy in 2008. This was one of the direct fallouts of the oil price spike in the middle of 2008. Consumers were increasingly looking for sustainable sources of energy. . The US presidential elections put additional spotlight on this issue and the newly elected president Barak Obama has put a major focus on an attempt to shift away from fossil fuel in the long term.
However the opportunistic investments in alternatives haven’t panned out in the short term. Despite production mandates and federal subsidies, ethanol producers are not minting any money. Falling crude and rising corn prices were deleterious to the effort. Renewable energy enthusiasts hit ground reality when second generation ethanol was delayed. Range Fuels, who intended to start producing by 2008 initially delayed to 2009 and now production isn’t forecast to begin until 2010.
Environment,Nature and Politics
Some major oil refineries had to be shut down because of hurricane Gustav followed by hurricane Ike in North America. Though the outages were short termed, many gas stations in the southeast ran out of gas, raising concerns about starting of something more widespread.
Somali pirates proved to be a major threat to oil vessels operating out of the oil rich African continent. Emboldened by recent ransom payments, they hijacked a Saudi supertanker carrying oil worth $100 million. Countries with interest in the continent have stepped up their maritime security in the area which has considerably brought down the number of such incidents.
Political maneuvering in certain hotspots also created short term demand instabilities. Nigeria, Iran and Venezuela continued to have internal upheavals. The end of the year saw some additional volatility in the Middle East and in gas transport issues between Russia and Ukraine.
Record profits by oil companies
Despite the steep fall in oil prices during the later part of the year, integrated oil companies made record profits with the help of high prices during the beginning of the year. Companies like Exxon Mobil posted biggest profit in history during the same year when downstream profits in refining fell along with gasoline consumption.
OPEC went ahead with its big production cut to counter flagging demands, followed by lowered production in other countries like Russia and Mexico. The results are not visible yet, but many hope this together with a recovering economy will stabilize the oil prices in the near future.
Unprecedented crude oil price volatility
During the early part of the year, crude oil rose to its highest ever price of almost $150 per barrel. Peak Oil was almost ready to provide an explanation for it when prices slipped into a four year low of around $30 driven by the economic slump. There are many reasons for this – the demand-supply gap , speculation, political risk, etc. As a consequence, there was a fair amount of economic particularly in transportation- the price of gasoline shot up effecting many consumers.
The price rise also contributed to the poor performance of the airline and automobile sectors. contributing to bankruptcy and consolidation of airlines while the automobile industry faced deep financial trouble when people stopped buying low mileage vehicles.. Later, when the oil price tumbled, some non integrated oil companies were affected adversely, particularly those that made large bets on alternative fuels. The retail side was also impacted, companies such as Flying J declared bankruptcy.
Renewable energy took off, but then didn’t
There was renewed interest and impetus in alternative and renewable sources of energy in 2008. This was one of the direct fallouts of the oil price spike in the middle of 2008. Consumers were increasingly looking for sustainable sources of energy. . The US presidential elections put additional spotlight on this issue and the newly elected president Barak Obama has put a major focus on an attempt to shift away from fossil fuel in the long term.
However the opportunistic investments in alternatives haven’t panned out in the short term. Despite production mandates and federal subsidies, ethanol producers are not minting any money. Falling crude and rising corn prices were deleterious to the effort. Renewable energy enthusiasts hit ground reality when second generation ethanol was delayed. Range Fuels, who intended to start producing by 2008 initially delayed to 2009 and now production isn’t forecast to begin until 2010.
Environment,Nature and Politics
Some major oil refineries had to be shut down because of hurricane Gustav followed by hurricane Ike in North America. Though the outages were short termed, many gas stations in the southeast ran out of gas, raising concerns about starting of something more widespread.
Somali pirates proved to be a major threat to oil vessels operating out of the oil rich African continent. Emboldened by recent ransom payments, they hijacked a Saudi supertanker carrying oil worth $100 million. Countries with interest in the continent have stepped up their maritime security in the area which has considerably brought down the number of such incidents.
Political maneuvering in certain hotspots also created short term demand instabilities. Nigeria, Iran and Venezuela continued to have internal upheavals. The end of the year saw some additional volatility in the Middle East and in gas transport issues between Russia and Ukraine.
Record profits by oil companies
Despite the steep fall in oil prices during the later part of the year, integrated oil companies made record profits with the help of high prices during the beginning of the year. Companies like Exxon Mobil posted biggest profit in history during the same year when downstream profits in refining fell along with gasoline consumption.
OPEC went ahead with its big production cut to counter flagging demands, followed by lowered production in other countries like Russia and Mexico. The results are not visible yet, but many hope this together with a recovering economy will stabilize the oil prices in the near future.
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