Page 7 - DMEA Week 16 2020

DMEA COMMENTARY DMEA
Some fields enjoy tax breaks, so the actual MET budget revenues per barrel are even lower.
The record-low crude tax levels are alarming for Russia, which gets around 40% of its total revenues from oil and gas, and is facing billions in extra spending to cushion the economic effects of lockdowns around the globe to curb the spread of coronavirus. A reduction in reve- nues is what the Kremlin wanted to avoid when it agreed to make new, unprecedented output cuts as part of the deal with the OPEC and other producers.
President Vladimir Putin, who only in March rejected Saudi Arabia’s proposal to deepen OPEC+ production cuts by 1.5mn bpd, last week agreed to take the overall reductions to almost 10mn bpd.
In a painful climbdown, Russia agreed to reduce its crude output in May and June to a level last seen in 2003. The Russian cuts of 2.5mn bpd will be a “tremendous challenge” for the nation’s oil industry owing to difficult geological condi- tions, Oxford Energy analysts said in a research paper published last Monday.
While the OPEC+ deal will contribute to stabilising the oil market, the fall in demand is so great that there is “no feasible agreement that could cut supply by enough” to offset it, the Inter- national Energy Agency (IEA) said Wednesday in its monthly report. The IEA expects global storage facilities to run out of space by this sum- mer, while demand may experience its biggest annual collapse this month.
The weakness in physical crude markets is putting pressure on the price, and for Rus- sia’s budget it means one thing: it may have to
withstand extra-low oil revenues beyond May.
Saudi spending spree
Earlier this month, the Wall Street Journal reported that Saudi Arabia’s sovereign wealth fund —the Public Investment Fund (PIF) — had been buying stocks in European oil majors, including Royal Dutch Shell, Eni, Equinor and Repsol, with the total price paid for all four stakes coming in at $1bn. The fund, interestingly enough, was supposed to be the primary investment vehicle on Saudi Arabia’s journey to economic diversification away from oil.
In addition, the fund has also bought a stake in cruise operator Carnival and has become a partner in the group that bought English soccer club Newcastle for $375mn (GBP300mn). And it seems its buying spree is far from over.
“The Saudis have been buying every day almost for the past few weeks, especially since the share prices of many of these [oil] compa- nies were in correction territory and dividend yields were very high,” one unnamed source told Reuters.
Saudi Arabia was the country that fired the starting pistol in what everyone came to see as an oil price war between Riyadh and Moscow, after the latter refused to join oil production cuts in early March. In the current context of crippled demand, those deeper cuts would have been a drop in the ocean, as Gazprom Neft’s CEO put it recently, but at the time, Russia’s move sparked Saudi anger, which led to the latter deciding to flood markets with crude. Naturally, oil tanked.™
TRANSPORT
Chinese yard picked for Qatari LNGC order
MOZAMBIQUE
QP will reserve a significant portion of the yard’s capacity.
STATE-RUN China State Shipbuilding Corp. (CSSC) and state-owned Qatar Petroleum have signed a contract that will see the Chinese com- pany build a new fleet of liquefied natural gas (LNG) carriers for the Middle Eastern gas giant.
QP said on April 23 that the agreement, which it noted could be worth more than $3bn, allowed it to reserve a “significant portion” of CSSC Hudong-Zhonghua Shipbuilding’s LNG carrier construction capacity up until the end of 2027.
Qatari Energy Minister Saad Sherida Al-Kaabi, who is also QP’s president and CEO, said the agreement demonstrated the compa- ny’s confidence “that we are on the right track to ensuring that our future LNG fleet requirements will be met in due time to support our increasing LNG production capacity.”
QP said the agreement would meet the com- pany’s future LNG carrier fleet requirements, including those of its ongoing North Field expansion projects. The expansion will increase
the country’s LNG production capacity from 77mn tonnes per year to 126mn tpy.
Al-Kaabi added that the agreement could be worth “well in excess of QAR11bn [$3.02bn], depending on our requirements and the extent of China’s LNG shipbuilding capacity expansion.”
Hudong-Zhonghua was China’s first yard capable of building LNG carriers and has slowly been expanding its capacity for such projects. The company revealed in January that it had signed an agreement with Malaysia’s state- owned Petronas to build two 79,900 cubic metre LNG carriers capable of sailing in coastal areas and rivers.
Commenting on the deal with QP, CSSC chairman Lei Fanpei said his company would build 174,000 cubic metre capacity carriers that had been customised for Qatar.
QP originally launched a tender for the con- struction of 60 LNG carriers in 2019, with the potential for the number of newbuilds to surpass 100 over a 10-year period. ™
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