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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.

Environment

Stena Bulk performs a test running an MR tanker on 100% biofuel

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During the coming weeks Stena Bulk will perform a test running an MR tanker on 100% biofuel. The fuel is the MR1-100 bio-fuel oil, produced from used cooking oil and supplied by GoodFuels in Rotterdam, the Netherlands. It has been bunkered onto the Stena Immortal and will be used to power the main engine in normal operations to test and prove the technical and operational feasibility.

“By doing this test we want to contribute to push the industry and pave way towards more sustainable shipping”, says Erik Hånell, President and CEO Stena Bulk. “We want to be able to offer our customers additional options with less environmental impact in the future and by conducting the trial in normal operations we want to show that being sustainable doesn´t have to interfere with core business”, he continues.

Biofuels are compatible with regular fuels but produced from biomass or biowaste instead of fossil oil. While there are many kinds of biofuel Stena Bulk is only using 2nd generation fuel, meaning they are based on waste and thereby do not compete with food production. In this case the fuel is made from used cooking oil.

The reduction of CO2 by using this particular biofuel is around 83%. In this trial we will reduce the emissions with 690 mt. These figures are from a life cycle perspective, i.e. including production and distribution of the fuel. Apart from contributing to a large reduction in greenhouse gas emissions the fuel also emits significantly lower levels of SOX than regular compliant fuels.

 

 

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Maritime

Svitzer wins 10- year extension in Sakhalin, Russia 

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Svitzer wins 10- year extension in Sakhalin, Russia. Image: Svitzer
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Svitzer is announcing a ten-year extension of their marine service contract with Sakhalin Energy Investment Company Ltd., a consortium set up to develop and manage the Sakhalin-II project, aimed at producing and exporting oil and liquefied gas.

Svitzer has been providing towage services to the Sakhalin-II project since 2007. The extension, which comes into effect in November 2022, supports the mooring of more than 1800 gas carriers with a vessel fleet of 4 Robert Allen ice-breaking tugs and 2 mooring boats. These vessels are operated by a team of 58 Russian crew members, supported by nine onshore staff.

With the COVID-19 virus making life difficult for people and putting a strain on global trade, towage plays a crucial part in the logistics value chain – bringing vessels and cargo safely in and out of ports and terminals.

Commenting on the extension, Alan Bradley, Cluster Manager – Asia, said:
“We are very pleased that Sakhalin Energy Investment Company Ltd. have chosen Svitzer as their preferred partner for 10 more years. With the extension we are able to continue to play an important role in ensuring that oil, gas, food and supplies are reaching people and homes. Our goal is to ensure we always support the customer’s business by providing efficient marine services in their terminal – the extension of a contract as significant as this one gives us confidence that we are adding value. To witness the dedication and pride our colleagues in Sakhalin take in their jobs day-to-day makes me very proud, and gives me confidence in our ability to deliver safe, efficient and high quality services in the most challenging of environments.”

With this long-term agreement Svitzer remains committed to ensuring reliable and safe marine operations for Sakhalin Energy Investment Company Ltd. in a harsh and remote area of the world. The operation in Sakhalin is part of Svitzer’s Asia and Middle East region (AMEA) here Svitzer employs 1.225 people and 109 vessels, delivering marine services to global and regional customers across 10 countries.

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Maritime

DNV GL introduces new recommended practice and digital tool to manage major safety and cost risks exposed by corrosion under insulation

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DNV GL introduces new recommended practice and digital tool to manage major safety and cost risks exposed by corrosion under insulation. Image: DNV GL
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A new methodology designed to address the major safety threat and multi-billion-dollar cost posed by corrosion under insulation (CUI) has been published by DNV GL.

CUI, a type of corrosion which arises when water becomes trapped between insulation and the piping and vessels it is designed to protect, has contributed to more than 20% of all major oil and gas accidents in the EU alone over the past 35 years. DNV GL’s industry-first methodology helps integrity engineers and plant managers to identify the areas of a plant with the greatest current and future risk of CUI and take action to prevent failures.

Recommended Practice (RP) DNVGL-­RP­-G109 was developed in collaboration with several regulatory bodies, international oil and gas operators and major players in the supply chain to deliver a practical and cost-effective methodology for managing the threat of CUI and is setting a new standard for managing CUI risk.

CUI can take the form of localized external corrosion in carbon and low-alloy steels, external stress corrosion cracking (ESCC) or pitting in austenitic and duplex stainless steel. Despite the risks that CUI exposes, the oil and gas industry has never adopted a standard approach for identifying and managing the threat. Operators currently employ a variety of methods to identify the presence of CUI on their assets. These range from using diverse inspection methods that can lead to undetected defects to the expensive process of systematically removing and renewing all insulation and coating with limited upfront assessment of the risk of CUI presence. DNV GL’s RP provides a systematic approach to assessing, mitigating and updating CUI risk.

Koheila Molazemi, Technology and Innovation Director, DNV GL – Oil & Gas said: “Corrosion under insulation is recognized as the single most expensive corrosion issue in the oil and gas and petrochemical industries. Our Recommended Practice has been developed as a guide to the most effective and efficient way to assess, mitigate and systematically manage the risk.

“With its hidden and pervasive threat to life, property and the environment, and the cost of accidents and mitigation being staggeringly high – the combination of the new Recommended Practice and the CUI Manager, digital tool enables the industry to control CUI risk significantly more cost efficiently.

“The new Recommended Practice is a great example of DNV GL’s approach to exploring and identifying problems with our partners, to ultimately establish industry benchmarks for safely and effectively manage these issues.”

DNV GL has also developed a digital tool to support the implementation and use of its methodology. CUI Manager applies machine learning to CUI data gathered from operators with the methodology from DNV GL’s Recommended Practice, to continuously assess and calculate the risk of CUI in process plants. According to estimations the tool can reduce the cost of CUI-related maintenance by up to 50%, while enabling asset managers to:

  • Continuously assess CUI risk and predict the cost of mitigation
  • Optimize CUI strategies and gain detailed insights
  • Access a global database, gain knowledge and benchmark performance
  • Track the status of inspections and manage deviations
  • Evaluate the risk impact of different mitigation measures and their cost
  • Communicate and interpret data more effectively
  • Integrate CUI assessment data with existing ERP systems.

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