Category: Nieuws

Oman Tank Terminal (OTTCO) is likely to award the FEED consultancy services contract for the expansion of the Ras Markaz Crude Oil Import/Export and Storage Terminal, located approximately 70 kilometres south of Duqm, in the first quarter of 2025.

The tender was issued on 21 August 2024, with a bid submission deadline of 6 October 2024.

The contract is expected to be awarded by January 2025, with completion targeted for fourth quarter of 2027, the source close to the project told Zawya Projects.

The expansion project aims to significantly increase the terminal’s crude oil storage capacity, which currently holds 5.2 million barrels. The terminal, built by China Petroleum Pipeline and Engineering Company, has a designed capacity of 26.7 million barrels of crude oil storage with future expansion planned in five phases (1.1 to 1.5) up to 200 million barrels.

The current built capacity of the terminal is 5.2 million barrels of crude oil storage at the completion of Phase 1.1.

The expansion will also include new crude oil storage and handling facilities, pipelines, offshore import/export infrastructure, and provisions for renewables such as green hydrogen and petrochemicals.

The selected FEED consultant will be responsible for concept and feasibility studies, detailed engineering designs, cost estimations (capex and opex), and project execution plans for the expansion as well as modification of existing facilities. The consultancy will also provide technical support throughout the project lifecycle, ensuring optimisation and integration of existing facilities and infrastructure.

 By: Zawya Projects / October 9, 2024

Fujairah’s Oil Industry Zone, a key player in the world oil market, released new data showing changes in its massive refined oil storage, suggesting broader shifts in oil supply dynamics.

Situated in the Middle East, Fujairah has the largest commercial storage for refined oil products globally, highlighting its strategic significance. The recent update for the week ending October 7, 2024, showed Light Distillates rose to 6,687 thousand barrels, Middle Distillates fell to 2,142 thousand barrels, and Residual Fuels dropped to 7,191 thousand barrels. These variations indicate shifts possibly driven by changing supply and demand, geopolitical tensions, or seasonal trends. As a global oil trend indicator, Fujairah’s data is crucial for traders and analysts aiming to predict price movements and adjust supply chain strategies.

The inventory changes from Fujairah provide insights into global supply and demand dynamics. The rise in Light Distillates and declines in Middle and Residual Fuels storage can influence global prices, pushing traders to adjust strategies. Given Fujairah’s strategic influence, these insights might shape investment and trading approaches in the oil industry.

Fujairah’s storage data is a key indicator of global economic health and geopolitical stability. Shifts in storage levels might reflect larger changes, from geopolitical tensions affecting supply routes to economic policies influencing demand. By monitoring Fujairah, businesses and governments can better anticipate changes in the global oil supply chain, potentially driving policy adjustments and strategic decisions.

By: Finimize Newsroom, 09/10/2024

The shipping industry faced significant challenges in the first half of 2024. The sector is responsible for transporting about 90% of global trade, including large quantities of crude oil, iron ore, and grain, and has been essential to the global economy. The volume of seaborne trade, which has more than doubled since 1990, is expected to triple by 2050. However, recent geopolitical conflicts, extreme weather events and logistical bottlenecks have tested the industry’s resilience.

To navigate these challenges, shippers are being forced to adapt their operations in real-time. This has increased the need for innovative solutions that prioritize flexibility and data-driven decision-making to mitigate against ongoing disruptions.

Evolving Supply Chain Capabilities

The evolution of supply chain technology has allowed the shipping industry to enhance its operational capabilities. Automation, real-time tracking and improved throughput have helped manage the heavy volume growth experienced during the pandemic, but recent challenges have highlighted the need for even more robust strategies.

For instance, the ongoing conflict in the Red Sea has forced carriers to bypass the Suez Canal and reroute around the Cape of Good Hope, extending transit times and reducing the overall capacity of container ships. Compounded by extreme weather conditions, such as hurricanes and storms, ships traveling along the Cape have experienced further delays. These factors, alongside congestion at key ports, resulted in global ocean shipments averaging 66 days from initial booking to clearing the final port in Q2 2024. This represents a two-day increase from Q1 and an eight-day year-over-year (YoY) rise from Q2 2023.

Managing the Panama Canal and Geopolitical Strains

One of the most notable chokepoints, the Panama Canal, has been severely impacted by drought conditions, leading to traffic restrictions and water shortages. Shipments from Asia to North America averaged 63 days in Q2 2024, an increase of seven days over the same quarter of the previous year, while Asia-to-Europe shipments saw an increase of 14 days during the same period. While the Panama Canal Authority has announced plans to increase vessel throughput, these changes may take time to alleviate the backlogs caused by water shortages and traffic restrictions.

Further compounding the issue, geopolitical instability and climate-related disruptions have led to prolonged shipping times across major trade routes. Europe-to-Asia shipments averaged 84 days in Q2 2024, an 11-day YoY increase, while South America-to-Asia routes experienced the sharpest rise, averaging 87 days, up 15 days YoY. 

These delays are largely the result of port congestion, extended transit times, and longer booking periods, all of which strain an already burdened system.

Achieving Operational Efficiency 

Given these persistent challenges, shippers must rely on data-driven insights to optimize operations and navigate the volatile logistics landscape. By analyzing historical trends and real-time data, companies can better anticipate delays and adjust their operations accordingly. This proactive approach allows for improved cost-efficiency, enhanced agility, and more effective planning in the face of unpredictability.

At the same time, broader economic factors are also influencing global trade. Food prices, for example, have risen due to a combination of factors stemming from supply chain disruptions. Fuel costs further impact transportation and food supply chains, contributing to higher prices for consumers. While the shipping industry adapts to these pressures, economic slowdowns in major production hubs like China have compounded the situation, leaving end-point retailers with excess inventory and reducing demand for outbound shipments.

As these trends continue, shippers must adopt a proactive, strategic approach to ensure they can mitigate future disruptions. With geopolitical instability, extreme weather and evolving consumer behaviors likely to persist, the future of global trade will depend on the industry’s ability to adapt and innovate.

Embracing Technological Solutions

The future of shipping success depends on flexible, tech-enabled supply chain solutions. Modern advancements in supply chain management technology offer key tools to help navigate the complexities of today’s logistics environment.

To manage these disruptions effectively, supply chains must be flexible and adaptable rather than rigid and prone to breaking under pressure. The solution lies in fully utilizing advancements in supply chain management technology, which can help navigate the complexities of modern logistics, conflicts, and regulations.

Real-Time Tracking: Modern tracking systems provide immediate visibility into the status and location of shipments, allowing companies to quickly adapt to changing conditions. This enables swift rerouting and scheduling adjustments, minimizing delays, and allowing for proactive responses to emerging threats.

Connected Network: A seamlessly integrated network of supply chain participants, all validated and operational, capable of providing alternative solutions when disruptions occur. Rather than relying on ad hoc integration during crises, this system should function as a plug-and-play model, built on a well-defined and carefully curated network, ready to facilitate business continuity efficiently.

Data Analysis: Advanced analytics offer insights into the risks posed by various shipping routes and potential disruptions. By analyzing data from multiple sources, companies can predict and prepare for challenges, allowing for more strategic planning and decision-making in global shipping.

Navigating New Trade Routes: With real-time tracking and data analysis, businesses can assess new shipping routes based on safety, cost and transit time. This allows them to reroute shipments effectively, ensuring goods reach their destinations despite disruptions.

Optimizing Inventory Management: As transit times increase and costs rise due to high-risk areas, effective inventory management becomes crucial. Technology helps monitor inventory across locations, optimizing distribution to prevent stockouts and overstocking, even with extended delivery times.

Efficient Rerouting: Data-driven tools evaluate different routing options, identifying the most cost-effective and efficient alternatives. This capability is critical for maintaining operational continuity in the face of geopolitical and logistical disruptions.

The shipping industry faces unprecedented challenges in 2024, from geopolitical tensions to extreme weather and logistical bottlenecks. As global trade continues to expand, the pressure on shipping operations will only intensify.

In an increasingly unpredictable global market, the ability to adapt quickly and make informed decisions will be key to sustaining efficient operations and meeting growing consumer demand. By adopting these approaches, the shipping industry can better position itself to overcome current obstacles and prepare for future disruptions, ensuring the continued flow of global trade.

By: Supplychainbrain, Karim Jumma / October 9, 2024.

Korea and Singapore signed deals to ensure supply chain resilience in the energy and biotech sectors as the two countries’ leaders held a bilateral summit on Tuesday.
 
President Yoon Suk Yeol and Singapore’s Prime Minister Lawrence Wong held a bilateral summit during the Korean leader’s state visit to discuss strengthening cooperation in trade and investment, artificial intelligence (AI), digital technology and startups.
 
The two countries signed a Supply Chain Partnership Arrangement, or SCPA, the first deal of its kind, agreeing to enhance bilateral cooperation on supply chains for strategic materials in the energy and biotechnology industries, extending beyond raw materials.  
 
Korea, as the world’s third largest importer of liquefied natural gas (LNG), and Singapore, a global logistics hub, also signed a memorandum of understanding (MOU) for cooperation in LNG supplies, a move expected to contribute to the stability of the international supply chain, Yoon said in a joint press conference with Wong.  
 
Through the LNG MOU, the state-run Korea Gas Corp., or Kogas, and Singapore’s Energy Market Authority will be able to swap or jointly purchase gas to lower purchase prices when necessary, depending on each country’s LNG inventory level. Singapore is the world’s fourth-largest LNG re-exporter.  

In the joint press conference after the bilateral summit, Yoon highlighted that the two countries have “strived together towards national development over the past half-century,” calling Singapore “a key partner with whom we will pioneer the future together.”  
 
Under the new SPCA, the two governments will hold an emergency meeting within five days of detecting signs of supply chain disruptions and operate a joint crisis response system. This marks the first bilateral supply chain partnership arrangement signed by either government with another country.
 
It upgrades a multilateral supply chain agreement established through the U.S.-led Indo-Pacific Economic Framework, or the IPEF, initiated by the Joe Biden administration in 2022.
 
The two sides also discussed methods of procuring strategic material from third countries.
The two leaders further agreed to work together in the startup and cutting-edge technology sectors, leveraging Korea’s expertise in semiconductors, batteries and vehicles and Singapore’s strengths in AI, biotech and energy.
 
The two sides also signed MOUs on technological cooperation, food safety, and SMEs and startups.  
 
Korea established a startup center in Singapore in 2020, its first in Southeast Asia, to support Korean companies entering the region.
 
Korea and Singapore also signed an extradition treaty to step up bilateral judicial cooperation and enable the smoother arrest and extradition of fugitives in each other’s countries.  
 
During the joint press conference, Wong referred to the two countries as “Asian tigers” who transformed their economies and share a vision of a “rules-based global order.”  
  
Korea and Singapore are working to establish a strategic partnership next year, which will mark the 50th anniversary of the establishment of diplomatic relations, according to the two countries’ leaders.
 
The two sides further agreed to cooperate on regional security issues, including North Korea’s nuclear and missile threats, ahead of the upcoming Asean meetings in Laos this week.  
 
Korea and Singapore also want to upgrade their bilateral free trade agreement (FTA), which went into force in March 2006.
 
Yoon also met with Singaporean President Tharman Shanmugaratnam and former Prime Minister Lee Hsien Loong.
 
Yoon and first lady Kim Keon Hee were hosted by Prime Minister Wong and his wife for a luncheon at the Singapore Botanic Gardens. The presidential couple also had an orchid named in their honor.

Later Tuesday, Yoon visited Hyundai Motor Group’s Global Innovation Center in Singapore’s Jurong Innovation District, an industrial complex, accompanied by Hyundai Motor Group Executive Chair Euisun Chung.
 
The center, completed in November last year, is a futuristic factory where AI technology and robotics are employed in a cell-based production system to manufacture cars instead of traditional conveyor belts.
 
“Ford’s conveyor belt 100 years ago and Toyota’s just-in-time production 50 years ago were important examples of innovation, and now Hyundai Motor Group’s method of combining AI and robots is leading innovation,” Yoon said during the visit. “The spread of AI has increased the productivity of the Korean manufacturing industry.”  

Yoon later attended the Korea-Singapore business forum with some 250 officials and business executives from the two countries, including the heads of Korea’s top conglomerates, such as Samsung Electronics Executive Chairman Lee Jae-yong and Hyundai Motor’s Chung.
 
The two sides signed a total of 17 MOUs and agreements on the occasion of Yoon’s state visit, the presidential office said. This included 10 MOUs signed through the business forum covering fields such as energy, LNG, joint research and K-pop.
 
The Singaporean presidential couple were set to host a state banquet for Yoon and Kim.
 
On Wednesday, Yoon is scheduled to give an address on his unification vision.  
 
Yoon arrived in Singapore on Monday for a three-day state visit, the second part of a three-country Southeast Asia tour that will take him to Laos for a series of Asean-related meetings and bilateral talks. 
 
Japan’s new Prime Minister Shigeru Ishiba confirmed he is set to make his diplomatic debut with a visit Vientiane in Laos. This could be an opportunity for Yoon to hold his first bilateral talks with Ishida.  

By: Sarah Kim, Koreajoongangdaily / 08 Oct. 2024

Saudi Aramco’s decision to invest in crude-oil-to-chemicals (COTC) refineries could signal a readjustment in the global oil market as the demand for petroleum-based fuels gradually falls.

What happens to an industry that can see a major source of its revenue drying up in the coming years? This is the challenge currently facing the global oil industry, which must move to diversify its refinery capabilities or face a slow, but terminal, decline.

As electric vehicle (EV) use continues to gather pace in many industrialised nations, oil majors can no longer rely on demand from the transportation industry as both diesel and petrol is replaced with batteries, biofuels and hydrogen.

According to the International Energy Agency (IEA), global road fuel use is set to start declining from 2025. As demand falls, total oil consumption by advanced economies is already nearly 10% below 2007 levels and shows no sign of recovering.

At the same time, oil use in China is expected to plateau before 2030, despite the Asian giant being the long-time driver of global demand; its economic growth is slowing, EV usage is growing, and infrastructure and heavy industry are becoming less of a priority.

Shifting demand

The transport trend is a major factor behind the decline in oil demand. EVs and plug-in hybrids are now expected to cut gasoline and diesel consumption by the equivalent of 2.7 million barrels per day (mbbl/d) by 2050, or around 14% of US oil consumption, according to the Environmental Protection Agency.

China’s EV demand is also booming, with 37% of new cars sold in the country being electric last year, according to finance firm Raymond James.

So what are oil majors doing in response to this colossal structural shift? Well, many are looking to enhance their petrochemical production capabilities.

Petrochemicals have a wide range of applications in the production of clothing, tyres, detergents, fertilisers and countless other everyday products. According to Euro Petroleum Consultants, new petrochemical project announcements have increased 30–40% yearly over the past few years.

Daniel Raimi, fellow at Resources for the Future, an environment and energy research institute, told Inside Climate News: “I don’t think people understand quite how embedded petrochemicals are to every aspect of modern life, and that is not going to go away soon, even under the most ambitious climate scenarios.”

Oil companies can either tweak existing processes at refineries to produce more petrochemicals – as a by-product of ongoing gasoline, diesel fuel, fuel oils and heating oil production – or build completely new refineries designed for specific petrochemical production, known as COTC refineries.

Should companies opt for the former, fluid catalytic crackers (FCCs) can be used at existing plants to produce light olefins including propylene, a vitally important compound used in a huge array of films, fibres and packaging. However, yields are often low.

To produce a higher percentage of olefins, catalysts must be used. In 2019, S-Oil, South Korea’s Aramco subsidiary, became one of the first companies to commercialise this technology. Hydrocrackers can also be used at existing refineries to produce diesel, naptha and liquefied petroleum gas.

Examples of tweaks to refinery technology to produce more petrochemicals include Hengli Petrochemicals’ plant project in China, which can now generate 40% petrochemical feedstocks, as opposed to standard refineries that produce around 10%.

Other examples include Zheijang Petroleum and Chemical’s project in China, which recently achieved 45% petrochemical conversion per barrel of oil. The facility came online in 2021 and has the capacity to produce 1.4 million tonnes per annum (mtpa) of ethylene and 2mtpa of paraxylene.

China has been looking to bolster its petrochemical production capacity for two main reasons: as a response to changes in the transport sector, and a desire to reduce dependence on chemical imports for security of supply reasons.

Petrochemicals are also seen as a highly valuable industry by Beijing, and therefore beneficial to an economy that is currently facing structural and long-term concerns such as an ageing population, wage inflation, increasing levels of debt and a downturn in property prices.

The move to COTC refineries

While FCCs and adapting existing processes can lead to petrochemical feedstock eventually accounting for around 40% of a refinery’s output, oil giant Saudi Aramco is working on COTC technologies with the potential to convert up to 80% of feedstocks.

Working with Chevron Lummus Global, Aramco has developed Thermal Crude to Chemicals (TC2C) technology, which will be used at the Shaheen refining petrochemical project, expected to come onstream in South Korea in the first half of 2026.

The Shaheen project will have the capacity to produce a 1.8mtpa mixed feed cracker, a 880,000 tonnes per annum (tpa) linear low-density polyethylene unit and a 440,000tpa high-density polyethylene plant.

In a technical paper, CLG said: “The TC2C™ process deploys deep process intensification to manufacture high-value chemicals with reduced greenhouse gas emissions and optimized energy efficiency and scale.”

Advantages of the TC2C technology over the FCC method – a cyclic process involving intense heat – include the ability to use low-value refinery fuels such as slurry oil and light cycle oil as cracker feedstocks.

It also produces ultra-low sulphur diesel that complies with International Marine Organisation 2020 regulations that stipulate the chemical element’s content in marine fuels. This means TC2C could significantly contribute to the ongoing transition in marine transportation, while ensuring a strong source of demand for oil companies.

Aramco looks to China

Over the past few years, Aramco has also been steadily investing in China’s COTC sector, seemingly attracted to the potential of a growing industry in such a huge market. In October last year, it signed a memorandum of understanding with Shandong Yulong Petrochemical to facilitate discussions about the potential acquisition of a 10% stake in the Chinese petrochemical company.

A month before that, it signed a similar agreement with Jiangsu Eastern Shenghong to invest in its petrochemical subsidiary, Jiangsu Shenghong Petrochemical industry group.

Raj Skekhar, oil analyst at GlobalData, Offshore Technology’s parent company, says that China was one of the leading countries in terms of petrochemical production capacity. While petrochemicals demand growth is only expected to be around 1–3% per year, demand volumes are set to be higher in China following 30 years of booming economic growth, creating a much bigger base of demand.

Beijing’s determination to ensure that this demand is facilitated by domestic production makes Aramco’s decision to invest in the Asian nation seem particularly shrewd.

However, even though investments are being made, refineries are being tweaked or built from scratch and wheels are in motion, when will it become economically worth it for most refineries to switch to petrochemicals?

Shekhar states that this tipping point is still hard to identify, being dependent on the local market dynamics of transport fuels as opposed to petrochemicals.

In a recent report, global consultancy McKinsey noted that although crude oil is predominantly used in the production of transportation fuels, the portion of a barrel of oil that will eventually become naphtha is often used in the production of petrochemicals.

Naphtha pricing is therefore affected by both transportation fuel markets and demand for petrochemicals. Such price dynamics can make it more difficult to predict when the full-scale shift to petrochemicals will occur.

Gradually declining demand for petrol and diesel in the coming years is likely, and oil companies need to decide how they are going to invest to expand petrochemical production.

Moreover, the economics of building fresh COTC refineries are not yet clear, and oil majors may stick to working with existing refineries for the next few years as a way to hedge their bets.

By: Alfie Shaw , October 8, 2024

The world’s largest crude exporter, Saudi Arabia, has raised the price of its flagship grade to Asia by more than expected amid high volatility in international oil prices amid the escalating conflict in the Middle East.

Saudi Aramco in the weekend raised the price of its Arab Light grade loading for Asia in November by $0.90 per barrel to a premium of $2.20 a barrel above the Dubai/Oman benchmark. The Dubai/Oman quotes are the benchmark against which Middle Eastern producers price their supply to Asia.

Refiners and traders in Asia had expected the rise to be more modest, by about $0.65 per barrel.

While it raised the price of its oil to Asia, Saudi Arabia cut the price of all its grades loading for the U.S. and Europe next month.

The cut in prices for markets outside Asia was “possibly in an effort to regain market share in the European market,” ING commodities strategists Warren Patterson and Ewa Manthey wrote in a note on Monday.

“The divergent price views for different regions may also hint at expectations of local imbalances in the oil market,” the strategists added.

Last month, the Kingdom slashed its official selling prices (OSPs) for October to Asia, amid worsening refining margins in China and the wider Asian region and weaker Dubai benchmark prices. Trade sources estimated that Saudi Arabia would increase its crude oil supply to China in October after the price cut.

But the latest pricing, in which Aramco raised its prices to Asia, could reflect expectations of stronger demand in the region.

The price move from Saudi Arabia came days after the OPEC+ group left its current production policy unchanged, expecting to begin adding supply to the market in December.

The new pricing also comes amid rallying oil prices, which gained about 8% last week on the Israel-Iran standoff.

By Oilprice.com,  Charles Kennedy – Oct 07, 2024

Saudi Arabia’s Aramco Digital, the digital arm of the world’s largest oil producer, Aramco, is making moves to boost the country’s artificial intelligence (AI) ecosystem and help the country play a more significant role in the global AI industry.

Case in point: the business recently teamed with Groq to set up the world’s largest inferencing data center in Saudi Arabia. 

According to a press release, “The facility will process billions of tokens per day by the end of 2024 and be able to onboard hundreds of thousands of developers in the region and then hundreds of billions of tokens per day with millions of developers by 2025, setting a new industry standard and bringing advanced technology from Groq to the Kingdom.”

Aramco Digital has also signed several Memorandums of Understanding (MoU) at the Global AI Summit held in Riyadh recently. It inked a deal with Cerebras Systems and FuriosaAI to explore collaboration in the supercomputing and AI domains and also partnered with South Korea’s Rebellions to deploy Rebellions Neural Processing Unit chips in Aramco’s data centers.

In addition, Aramco Digital has signed an MoU with SambaNova Systems to accelerate AI capabilities, innovation and adoption across the country. It also announced the deployment of an AI supercomputer powered by NVIDIA GPUs, one of the region’s first systems of its kind.

The deals come after Aramco Digital jumpstarted its AI efforts last year by hiring Tareq Amin, one of the industry’s most charismatic and visionary leaders, as its CEO.

The new collaborations and partnerships are all part of the Saudi Arabia’s Vision 2030 initiative to transition from an oil-based to a technology-based economy. This transition is driven by the realization that it is crucial for the country to build capabilities in new and advanced technologies as the global economy is becoming knowledge-based.

“This shift is not just about diversification but about securing the nation’s future in a rapidly evolving global economy,” said Hamza Naqshbandi, IDC’s Country Lead for Saudi Arabia. 

“Strategic investments in AI will not only help diversify revenue streams but also future-proof the economy, creating new industries and job opportunities,” Naqshbandi continued. “Additionally, it will enhance Saudi Arabia’s global competitiveness, enabling it to play a larger role as a knowledge-based economy on the international stage.” 

Already, the country has taken several steps to grow its AI capabilities, including creating the Saudi Data and AI Authority (SDAIA), which is responsible for the country’s overall AI strategy. As per media reports, the Saudi Arabia government is also planning to create a fund of around $40 billion to invest in AI.

Roadblocks: Talent and chips

However, Saudi Arabia faces a number of issues in its quest to play a bigger role in the growing AI ecosystem. A key challenge is that it lacks a vibrant tech industry, which means that developing AI talent will be a problem.

“The country remains heavily reliant on technology vendors that hail from abroad. The Kingdom has a long way to becoming a genuine AI enabler and not just an AI deployer. AI sovereignty will be a key focus of policymakers in the Kingdom,” Patel continued. 

In addition, a U.S. ban on Saudi Arabia on sourcing advanced NVIDIA AI chips is a problem that can possibly thwart Saudi Arabia’s growing technology industry. The U.S. has imposed restrictions to prevent China from accessing AI chips. Still, the country is hopeful that it will be able to procure high-performance AI chips in the coming year.

“This is a problem, though it is increasingly becoming a grey area for even the U.S. vendors. The U.S. vendors want their chipsets to be sold to institutions and companies in Saudi Arabia and the wider region, but U.S. legislation is blocking the sale of high-end chipsets. If Saudi Arabia and its institutions and governments do not completely detach themselves from Chinese technology (which is what is happening in the UAE), this dynamic will continue,” Patel concluded. 

By Gagandeep, Kaur  Fierce-network / Oct 7, 2024.

BP (BP.L), opens new tab has abandoned a target to cut oil and gas output by 2030 as CEO Murray Auchincloss scales back the firm’s energy transition strategy to regain investor confidence, three sources with knowledge of the matter said.

When unveiled in 2020, BP’s strategy was the sector’s most ambitious with a pledge to cut output by 40% while rapidly growing renewables by 2030. BP scaled back the target in February last year to a 25% reduction, which would leave it producing 2 million barrels per day at the end of the decade, as investors focused on near-term returns rather than the energy transition.

The London-listed company is now targeting several new investments in the Middle East and the Gulf of Mexico to boost its oil and gas output, the sources said.

Auchincloss took the helm in January but has struggled to stem the drop in BP’s share price, which has underperformed its rivals so far this year as investors question the company’s ability to generate profits under its current strategy.

The 54-year-old Canadian, previously BP’s finance head, has sought to distance himself from the approach of his predecessor Bernard Looney, who was sacked for lying about relationships with colleagues, vowing instead to focus on returns and investing in the most profitable businesses, first and foremost in oil and gas.

The company continues to target net zero emissions by 2050.

“As Murray said at the start of year… the direction is the same – but we are going to deliver as a simpler, more focused, and higher value company,” a BP spokesperson said.

BP shares were up 0.8% by 0912 GMT.

Auchincloss will present his updated strategy, including the removal of the 2030 production target, at an investor day in February, though in practice BP has already abandoned it, the sources said. It is unclear if BP will provide new production guidance.

Rival Shell has also slowed down its energy transition strategy since CEO Wael Sawan took office in January, selling power and renewable businesses and scaling back projects including offshore wind, biofuels and hydrogen.

The shift at both companies has come in the wake of a renewed focus on European energy security following the price shock sparked by Russia’s invasion of Ukraine in early 2022.

BP has invested billions in new low-carbon businesses and sharply reduced its oil and gas exploration team since 2020.

But supply chain issues and sharp increases in costs and interest rates have put further pressure on the profitability of many renewables businesses.

A company source said that while rivals had invested in oil and gas, BP had neglected exploration for a few years.

BACK TO THE MIDDLE EAST

BP is currently in talks to invest in three new projects in Iraq, including one in the Majnoon field, the sources said. BP holds a 50% stake in a joint venture operating the giant Rumaila oilfield in the south of the country, where it has been operating for a century.

In August, BP signed an agreement with the Iraqi government to develop and explore the Kirkuk oilfield in the north of the country, which will also include building power plants and solar capacity. Unlike historic contracts which offered foreign companies razor-thin margins, the new agreements are expected to include a more generous profit-sharing model, sources have told Reuters.

BP is also considering investing in the re-development of fields in Kuwait, the sources added.

In the Gulf of Mexico, BP has announced it will go ahead with the development of Kaskida, a large and complex reservoir, and the company also plans to green light the development of the Tiber field.

It will also weigh acquiring assets in the prolific Permian shale basin to expand its existing U.S. onshore business, which has expanded its reserves by over 2 billion barrels since acquiring the business in 2019, the sources said.

Auchincloss, who in May announced a $2 billion cost saving drive by the end of 2026, has in recent months paused investment in new offshore wind and biofuel projects and cut the number of low-carbon hydrogen projects down to 10 from 30.

BP has nevertheless acquired the remaining 50% in its solar power joint venture Lightsource BP as well as a 50% stake in its Brazilian biofuel business Bunge.

By: Reuters, Ron Bousso / October 7, 2024

In summary, the worst case (for the oil market) would be an Israeli attack that reduced Iranian oil exports, and then the issue becomes whether the Saudis raise production to compensate or seek to draw down global inventories in support of prices, which would mean Brent stays over $80. Absent such an attack, the security premium will be only temporary and weakness in the fundamentals will reassert themselves; Brent would sink below $75 again.

At this point, it appears that the conflict in the Middle East is morphing into a ‘forever war,’ with Israel attempting to destroy Hamas and Hezbollah, something which is almost certainly impossible, and to cow Iran into reducing its support for members of the ‘axis of resistance.’ To date, the damage done in both Iran and Israel from ongoing missile attacks has been minimal, but concerns that the situation might escalate has been keeping oil prices elevated, our old friend the security premium making a reappearance. Prices that had been under pressure from fundamentals have instead risen by $5 to $8 a barrel in recent days. Given the possible direction of the conflict, what do the different paths mean for oil prices?

First, it’s important to keep in mind that while fundamentals tend to move slowly, geopolitical events can change abruptly and drastically. Although oil supply sometimes drops sharply, demand evolves only gradually: next month, next quarter, will not be substantially different from current levels. In effect, geopolitics are fast, fundamentals slow but more persistent.

That said, consider the different political/military decisions going forward. It should be taken for granted that Israel will continue to prosecute the war against Hamas and Hezbollah, but their response to the latest Iranian missile attack remains unclear. There are four likely choices: a minimal attack, such as after the April barrage from Iran, would ease tensions and see oil prices pull back quickly. Israeli rhetoric at this point implies this is unlikely.

Next, a larger attack from Israel that targets Iranian military bases and infrastructure, such as weapons depots or factories, is possible. Given recent developments, Israel clearly has good intelligence on its adversaries, so such an attack is doable, although the long-term effects would be minimal. However, Iran would almost certainly respond with another missile attack which would mean that the tit-for-tat exchanges would continue the security premium on oil prices would remain elevated.

A third choice would be for Israel to go after Iranian nuclear facilities, something that Israel has supposedly long wanted to do but been restrained from attempting by the U.S. However, with U.S. influence clearly at a low point, Netanyahu might be tempted to undertake this, seeing a successful attack as a crowning achievement to his long political career. There is uncertainty about Israel’s ability to launch such an attack without U.S. help and many caution that Iranian facilities are not vulnerable to air strikes. Even so, Israel might feel that inflicting minor damage on those sites would provide a demonstration effect and serve as a deterrent to further Iranian retaliation. Again, this would translate into continuing violence, keeping the oil price’s security premium high.

Finally, some have been suggesting Israel might attack Iranian oil infrastructure, including refineries or export facilities. Reducing Iran’s oil income would seem desirable from Israel’s point of view, and while the U.S. would presumably discourage such a move, especially the Biden Administration which doesn’t want an October surprise of higher oil prices, U.S. political clout appears at a low point.

Expectations of an Israeli attack on the Iranian oil industry explains much of the recent elevation in prices, since that is the only likely development that would have a direct impact on world oil markets. However, even the destruction of the Abadan and Bandar Abbas refineries, with 700 tb/d of capacity, while no doubt generating impressive videos of spectacular fires and explosions, would not have a major effect on world oil markets.

In 1951, the Iranian nationalization of BP’s holdings and the shutdown of Abadan raised Asian oil prices by approximately 30%, because at that time, Abadan was providing a large fraction of Asian product demand. Now, those two refineries together provide less than 1% of world capacity and could easily be replaced. The figure below shows global refinery capacity and throughput with an implied 20 mb/d of surplus but overstates the available capacity. A more realistic estimate would be about 3-5 mb/d of surplus capacity, at any rate, more than enough to replace any disruption to Iranian operations. There would be some rebalancing and Iran would lose money, but aside from that the impact would be minor.

An attack on Iranian oil fields would also look impressive, generating massive blazes but having only a limited effect on supplies given the dispersed nature of production. Destroying the tanker loading facilities at Kharg Island would be more serious and could reduce Iranian oil exports by perhaps 1 mb/d in the worst case scenario. Then, the question becomes whether or not the Saudis replace the lost supply. They have ample spare capacity, but might prefer to let markets tighten, inventories drop, and prices firm. In that case, Brent would remain at or above $80.

In essence, there are three paths forward: the level of violence remains roughly constant or declines, in which case the security premium would fade as traders get crisis fatigue, Brent sliding back towards $70-75. Alternatively, an escalation with continuing missile attacks and/or assassinations would mean traders remain fearful of an oil supply disruption and the price would remain elevated, as it is now (Brent about $78). Finally, any attack on Iranian oil facilities would boost Brent above $80, if and only if Iranian exports dip significantly and the Saudis refuse to raise production.

Overall, then, the prospect is for prices to return to the levels of September, sooner rather than later, and the chances for Brent to remain above $80 for any period appears slim. Even so, wagering on peace in the Middle East is never for the faint-hearted.

By: Forbes, Michael Lynch- Oct 6, 2024