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COVID-19 and oil price war could derail two-thirds of the world’s oil & gas project sanctioning in 2020

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COVID-19 and oil price war could derail two-thirds of the world's oil & gas project sanctioning in 2020. Image: Rystad Energy
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The effect of the COVID-19 virus on global demand for oil and gas, along with an ongoing price war that has sent oil prices tumbling at an unprecedented rate, are poised to wreak havoc on new project development plans for this year. According to an impact analysis from Rystad Energy, exploration and production (E&P) companies are likely to reduce project sanctioning by up to $131 billion, or about 68% year-on-year, as they batten down the hatches to weather the storm.

In 2019 total onshore and offshore project sanctioning reached some $192 billion. At the outset of this year, Rystad Energy forecast that projects representing about $190 billion worth of investments would be sanctioned this year. Recent developments, however, have spawned a major revision to that estimate.

If price of Brent crude averages around $30 per barrel in 2020, which we see as an increasingly likely scenario, we estimate that total project sanctioning will be reduced to just $61 billion. Some $30 billion of the overall expenditure is tied to onshore projects and $31 billion to offshore.

“Upstream players will have to take a close look at their cost levels and investment plans to counter the financial impact of lower prices and demand. Companies have already started reducing their annual capital spending for 2020,” says Audun Martinsen, Rystad Energy’s Head of Energy Service Research.

In a $40 per barrel price scenario, which is getting more distant by the day, total sanctioning would still be heavily slashed year-on-year, with Rystad Energy estimating a collective sum of $82 billion, representing a decline of 57%.

In North America, multi-billion dollar oil projects, including LLOG-operated Shenandoah Phase 1 and the Shell-operated Whale development, could face short-term delays in the offshore sector due to low oil prices, while in the onshore sector operators are expected to wait for the situation to stabilize before committing to new projects.

Project sanctioning schedules are expected to face delays of several months – even for those with breakeven requirements of less than $40 per barrel, let alone those with higher costs – as most oil companies will prefer to wait for the spread of Covid-19 to slow down and for the market to start to recover.

Still, one of the major projects this is expected to get sanctioned this year is ExxonMobil’s Greater Liza development off Guyana, which encompasses the Payara and Pacora discoveries.

Maritime

Sales of “Honesty” – device to measure the level of liquid in tanks – exceeds 1,000 units

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Sales of “Honesty” - device to measure the level of liquid in tanks - exceeds 1,000 units. Image: NYK Line
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The number of orders for “Honesty” (patented for some functions), a tank sounding device* that allows for the accurate and efficient measurement of the level of liquid in tanks on cargo ships (e.g., ballast tanks and fuel tanks), has exceeded 1,000 units.

Honesty significantly shortens the time required to measure the level of liquid in a tank, reduces crew workload, and benefits the fuel supplier by guaranteeing accurate quantity measurements. The device was developed by NYK and the MTI Co., Ltd with the aim of offering a solution to errors in oil quantity.

Since sales of the device started in June 2014, the time required for measurements has been greatly shortened by about 75% compared to the previous model, and the instrument’s accurate quantity measurement has received excellent reviews. Customer comments have included “it was easy for even inexperienced people taking measurements,” and “it was possible to take accurate measurements even in clear water.” Overall, the device has been very well received.

Characteristics of Honesty

1. Notification with lamp and buzzer
・When the sensor mounted on the tip of the measuring device touches the liquid surface, the lamp and buzzer at hand are activated. The displayed value allows the user to accurately observe the distance to the liquid surface.
・The previous method of inserting the sounding tape into the tank to the predicted distance of the level of the liquid in the tank and visually confirming the liquid attached to the tape scale is no longer necessary.

2. No reaction to bubbles; measure senses the level of the liquid
・Even if cappuccino bunker** occurs, the correct amount of oil can be measured because the sensor does not respond to bubbles on the liquid surface.

3. Accurately reacts to various liquids
・It is possible to measure the liquid level of MGO, seawater, and fresh water, which was difficult in the past.

4. Portable, convenient to carry
・Lightweight and easy to carry. Uses standard batteries for power, and an external power supply is not required.

We will continue to make improvements based on feedback from users and attempt to continually improve product quality.

Based on the medium-term management plan “Staying Ahead 2022 with Digitalization and Green,” the Group will accelerate digitalization efforts and continue to work with partners to innovate in the maritime industry.

* Tank Sounding
Measuring the depth of the liquid in the tank installed on the ship and the distance from the tank top to the surface of the liquid.

** Cappuccino Bunker
A state in which small bubbles are mixed in the fuel oil and supplied to the ship, making the oil appear to be larger in quantity.

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Oil and Gas

Mitsui O.S.K. Lines and LNG Terminal Wilhelmshaven sign a contract to build and charter an LNG terminal ship

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Mitsui O.S.K. Lines and LNG Terminal Wilhelmshaven sign a contract to build and charter an LNG terminal ship. Image: Wikimedia/ Pline
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MOL and LTW (LNG Terminal Wilhelmshaven) have signed a contract to build and charter an LNG terminal ship—known in the industry as a Floating Storage and Regasification Unit (FSRU)—for the planned LNG landing terminal in Wilhelmshaven on the North Sea.

LTW is the project developer and operator behind the future LNG terminal in Wilhelmshaven and a fully owned subsidiary of Uniper S.E. The FSRU will be built in a shipyard belonging to South Korean company DSME (Daewoo Shipbuilding Marine Engineering Co., Ltd., Geoje, Korea), and then chartered by LTW for 20 years. It has been planned and custom designed by the two contracting parties in accordance with the local and environmental requirements for the German market and the Wilhelmshaven site.

The FSRU constitutes the heart of the future terminal and will make it possible to offload, store and regasify LNG for the German market. It will be moored off the coast not far from Wilhelmshaven and will handle incoming LNG tankers there.

The regasified gas will then be pumped from the FSRU along a short
connecting pipeline under the sea to the port facilities and finally fed into the German gas transmission network. This eliminates the need to construct complex regasification facilities on land. This optimized planning will minimize the environmental impact both on land and on the seabed by a non-disruptive crossing of the natural habitat identified in the environmental studies.

Uniper Member of the Board and Chief Operating Officer David Bryson says: “The agreement to build and charter this FSRU is an important milestone for both parties on the journey to establishing an LNG terminal in Wilhelmshaven; it underlines the joint desire for collaboration on this ambitious project. This new agreement will build on the successful and trusting collaboration with MOL on previous major projects in the
LNG ship market. The LNG terminal in Wilhelmshaven is a long-term project based on the prediction that demand for imported natural gas on the German and European energy markets will increase significantly
over the coming years. Based on Uniper’s many years of experience in the European gas business and project management, LTW is pushing ahead with the terminal project in Wilhelmshaven to give companies from all over the world optimal access to customers in Europe — and, vice versa, to open up a new supply channel for customers.”

MOL Executive Officer Hiroyuki Nakano says: “We are excited to move one step further to materialise Germany’s first Liquefied Natural Gas receiving project. Our Floating Storage and Regasification Unit of some 263,000m3 storage capacity is of a unique tailored design to meet all customer requirements to provide economical regasification service and comply with German Environmental Regulations. Our mission from this special moment is to execute the project and deliver the unit on time. MOL has expanded its
global FSRU business over the past few years. We are confident that our operational and technical experience gained will enhance the project in Germany and provide a seamless, safe and efficient service to LTW.”

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Oil and Gas

Wärtsilä solutions chosen for first Japanese built LNG-fuelled ferries

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Wärtsilä solutions chosen for first Japanese built LNG-fuelled ferries. Image: Wartsila
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The technology group Wärtsilä will provide a complete LNG package, comprising the Wärtsilä 31DF engine, gearbox, and LNGPac storage, supply and control system for two new ferries being built on behalf of Ferry Sunflower, a subsidiary of Mitsui O.S.K. Lines.

The ships are being built at Mitsubishi’s Shimonoseki shipyard in Japan, and will be the first LNG-fuelled ferries to be built in Japan. The order with Wärtsilä was booked in the second quarter of 2020.

This newbuild project has been adopted for Japan’s energy conservation rating system for coastal ships, a demonstration test programme to enhance operational efficiency.

The Wärtsilä 31DF dual-fuel engine was chosen for these ferries specifically because of its very high efficiency. It also provides safe and continuous gas mode operation, which were other key requirements in the specification.

“Wärtsilä’s vast experience and know-how in LNG solutions for the marine sector is again recognised with this landmark order for the first Japanese built LNG-fuelled ferries. We are able to offer LNG-based products and systems having a proven design and high performance, with a strong reference list that supports our value proposition,” says Keisuke Yasutake, Area Sales Manager, Wärtsilä Japan.

“MOL is dedicated to reducing the environmental impact of its business activities, and these two ferries are being built in line with that objective. By operating on LNG they will have a greatly reduced carbon footprint, and the high-performance Wärtsilä engine fits our requirements perfectly,” says Mr Makoto Yamaguchi, General Manager, Technical Division, Mitsui O.S.K. Lines.

The about 200 metres long ‘Sunflower Kurenai’ and ‘Sunflower Murasaki’ will be capable of carrying approximately 763 passengers, 136 trucks and 100 passenger cars at a speed of 22.5 knots. They are scheduled to commence operations in 2023 on the Osaka – Beppu route.

Wärtsilä has had lengthy and strong relationships with both MOL and Mitsubishi. Mitsubishi Shipyards, for example, has delivered ferries, LNG carriers, and a seismic research vessel all with Wärtsilä engines.

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