WEEKLY ENERGY RECAP: Pondering Permian pipeline

A pump jack operates in the Permian Basin oil production area near Wink, Texas U.S. August 22, 2018. (REUTERS)
Updated 11 August 2019

WEEKLY ENERGY RECAP: Pondering Permian pipeline

Oil prices tumbled last week as Brent crude fell below $60 per barrel for the first time in eight months. Brent finished at $58.53 while WTI fell to $54.50 per barrel.
Some analysts suggest that Brent has dropped on fears that the trade spat will expand into a full currency war, overshadowing the risk of supply disruptions in the Arabian Gulf. There has also been much attention paid to gloomy global economic sentiment dragging the oil price down — yet demand continues to be strong in China, the world’s biggest buyer of crude oil, and that has been reflected by record high imports.
We should instead consider the financial fragility of the US shale industry amid tightening of liquidity that has made it clear that US shale requires longer investment horizons than expected. The US oil rig count is at a 19-month low amid a broad drilling slowdown.
Shale risks being left behind by increasingly skeptical US capital markets. Drilling has slowed in the Permian Basin, and the slowdown has been even more acute outside this region.
The key mathematics of US shale oil growth have become more challenging, partly because of the rapid growth achieved in 2018. Decline rates for existing wells have risen, and production growth means the month-to-month decline is applied across a higher base. Changes in Permian well productivity estimates suggest that shale is much less resilient and hence output growth is set to slow sharply amid lower plans for capex.
Small and mid-sized shale producers have suffered from a financing squeeze since late 2018 when oil prices plummeted to similar prices levels. Shale investors are growing weary of a sector that has struggled to generate cash returns.
US loans to sub-investment energy companies fell by a third in the first half of 2019, compared with the same period last year.
Equity offerings were down by two-thirds and bonds by half. Shareholder pressure on larger explorers has dampened interest in acquisitions. This makes the capital constraints facing smaller producers all the more onerous, with investors shunning the space enough to crush equity values and kill off attempts to build scale.
Last year saw midstream operators deftly circumvent anticipated capacity shortfalls through de-bottlenecking and accelerated construction schedules.
Estimates vary, but the market largely expects a major shortfall in Permian pipeline takeaway capacity to persist late into 2019. At that point, Permian producers are expected to breathe a collective sigh of relief, with no further oil infrastructure bottlenecks on the horizon till 2020.
The Permian Basin continues to dominate US shale oil output growth but the rapid pace is becoming increasingly difficult to sustain in the face of pipeline constraints.
So far, infrastructure expansion has failed to keep pace with Permian output growth. So the future sustainability of oil recovery in the Permian is still questionable as shale producers have different levels of exposure to the bottlenecks.

Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq

Saudi energy giant to invest $3bn in Bangladesh’s power sector

Updated 22 October 2019

Saudi energy giant to invest $3bn in Bangladesh’s power sector

  • Experts say deal will usher in more economic and development opportunities for the country

DHAKA: Saudi Arabia’s energy giant, ACWA power, will set up an LNG-based 3,600 MW plant in Bangladesh after an agreement was signed in Dhaka on Thursday.

The MoU was signed by ACWA Chairman Mohammed Abunayyan and officials from the Bangladesh Power Development Board (BPDB), officials told Arab News on Monday.

According to the agreement, ACWA will invest $3 billion in Bangladesh’s energy development sector, of which $2.5 billion will be used to build the power plant while the rest will be spent on an LNG terminal to facilitate fuel supply to the plant. Under the deal, ACWA will also set up a 2 MW solar power plant.

In recent months, both countries have engaged in a series of discussions for investment opportunities in Bangladesh’s industry and energy sectors. 

During the Saudi-Bangladesh investment cooperation meeting in March this year, Dhaka proposed a $35 billion investment plan to a high-powered Saudi delegation led by Majed bin Abdullah Al-Qasabi, the Saudi commerce and investment minister, and Mohammed bin Mezyed Al-Tuwaijri, the Saudi economy and planning minister.

However, officials in Dhaka said that this was the first investment deal to be signed between the two countries.

“We have just inked the MoU for building the LNG-based power plant. Now, ACWA will conduct a feasibility study regarding the location of the plant, which is expected to be completed in the next six months,” Khaled Mahmood, chairman of BPDB, told Arab News.

He added that there are several locations in Moheshkhali, Chottogram and the Mongla port area for the proposed power plant.

“We need to find a suitable location where the drift of the river will be suitable for establishing the LNG plant and we need to also consider the suitability of establishing the transmission lines,” Mahmood said.

“It will be either a JV (Joint Venture) or an IPP (Independent Power Producer) mode of investment, which is yet to be determined. But, we are expecting that in next year the investment will start coming here,” Mahmood said.

BPDB expects to complete the set-up process of the power plant within 36 to 42 months.

“We are in close contact with ACWA and focusing on the successful completion of the project within the shortest possible time,” he said.

Abunayyan said that he was optimistic about the new investment deal.

“Bangladesh has been a model for the Muslim world in economic progress. This is our beginning, and our journey and our relationship will last for a long time,” Abunayyan told a gathering after the MoU signing ceremony.

Economists and experts in Bangladesh also welcomed the ACWA investment in the energy development sector.

“This sort of huge and long-term capital investment will create a lot of employment opportunities. On the other hand, it will facilitate other trade negotiations with the Middle Eastern countries, too,” Dr. Nazneen Ahmed, senior research fellow at the Bangladesh Institute of Development Studies (BIDS), told Arab News.

She added that Bangladesh needs to weigh the pros and cons before finalizing such contracts so that the country can earn the “maximum benefits” from the investment.

“It will also expedite other big investments in Bangladesh from different countries,” she said.

Another energy economist, Dr. Asadujjaman, said that Bangladesh needs to exercise caution while conducting the feasibility study for such a huge investment.

“We need to address the environmental aspects, opportunity costs and other economic perspectives while working with this type of big investment. Considering the present situation, the country also needs to focus on producing more solar energy,” Dr. Asadujjaman told Arab News.