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IMO’s Regulation to Cost Shippers Extra $60bn in Bunker Fuel Yearly

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International Maritime Organisation
  • IMO’s Regulation to Cost Shippers Extra $60bn in Bunker Fuel Yearly

The global bunker fuel costs could rise to $60 billion yearly from 2020, in a full compliance scenario, when the International Maritime Organisation’s (IMO) 0.5 weight- percent sulphur cap for bunker fuels kicks in, a new study by Wood Mackenzie has revealed.

In the global petroleum/marine industry, oil bunkering is a legitimate business that involves the process of supplying a ship with fuel.

Fuel oil, which is high in sulphur content, has traditionally been used by the shipping industry as bunker fuel.

In 2016, global demand for high-sulphur fuel oil stood at almost 70 per cent of overall bunker fuels.

With the implementation of the IMO regulation in 2020, Wood Mackenzie argued that the shipping industry will have to consider a switch to alternative fuels, such as marine gas oil (MGO), or install scrubbers – a system that removes sulphur from exhaust gas emitted by bunkers.

According to a new study by Wood Mackenzie, a combination of higher crude prices and tight availability of MGO could take the price of MGO up to almost four times that of fuel oil in 2016, and eventually cost the entire industry additional $60 billion annually.

Research Director for Asia Refining at Wood Mackenzie, Sushant Gupta, noted that installing scrubbers may be an economically attractive option.

“Although there is an initial investment, shippers can expect a high rate of return of between 20 per cent and 50 per cent depending on investment cost, MGO-fuel oil spread and ships’ fuel consumption. Despite attractive returns, penetration rate for scrubbers could be limited by access to finance, scrubber manufacturing capacity, dry-dock space and technological uncertainties. The shipping industry is traditionally slow to move, but in this case, early adopters may hugely benefit,” Gupta explained.

“Switching to MGO is a more costly solution. In full compliance, we expect shippers to try to pass the cost to consumers and freight rates from the Middle East to Singapore could increase by up to $1 per barrel,” Gupta added.

The situation for refiners, on the other hand, is more complicated. The impact on margins will vary by refiners depending on the configuration, access to advantaged feedstock, location and type of products produced.

Some refiners should see better profit margins as a result of higher MGO price that is required to satisfy the incremental demand for MGO. Chinese (Sinopec and Petrochina) and Indian (Reliance and Essar) refiners stand to gain as they are deep conversion refiners with the capability to produce more MGO.

Simple refiners with high yields of fuel oil (HSFO) could lose out because of weaker HSFO price and their inability to produce more MGO. These refiners should start thinking about options for placing their fuel oil.

Higher refining runs, required to meet additional MGO demand, could potentially push global gasoline market into surplus weakening gasoline prices. Therefore, the gasoline pain for some refiners could be more acute than the impact of weaker HSFO prices.

Refiners with high gasoline yields need to explore their options to manage gasoline production.

Overall, we expect a material impact on refining economics post IMO and refiners must ensure they have a robust IMO strategy in place.

Wood Mackenzie also predicted a shift in bunkering locations based on compliant fuels availability.

According to the study, Singapore could potentially lose some of its market share for bunker fuels to China as shippers look for alternative locations with a surplus of compliant fuels. China, with ample MGO supply, is well positioned to attract shippers looking for MGO. Singapore will also need to repurpose some storage tanks and other infrastructure to prepare for a shift from fuel oil to gasoil bunkering.

“The options for refiners and shippers will depend on the course of action decided by each of them. At the end of the day, the shipping industry and refineries need to communicate and find middle ground, and time, unfortunately, is running out,” Gupta added.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Energy

Equatorial Guinea to Launch Vision on Post-COVID Energy Transition Plans with Report and Film

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The Africa Energy Series (AES): Equatorial Guinea 2021 campaign – comprising a report and a documentary – will serve as a critical tool to navigate the energy investment landscape in one of Africa’s more mature petroleum producing markets; Equatorial Guinea has largely been able to sustain its pace of engagement with global investors in the face of COVID-19, forecasting $1.1 billion in FDI in oil and gas activities in 2021; The third edition of the AES: Equatorial Guinea 2021 report will be released at Africa Oil & Power’s U.S. Africa Energy Forum 2021 networking event in Washington, D.C. this July.

Africa Oil & Power is proud to announce the upcoming launch of its Africa Energy Series (AES): Equatorial Guinea 2021 investment report and documentary, as part of a multimedia campaign set to champion the domestic energy sector and shape the West and Central African energy narrative.

The dual-language publication will target key developments driving a post-COVID-19 recovery in Equatorial Guinea – namely, the growth of petroleum and power industries; regional gas monetization initiatives; a clean energy transition; the impact of environmental, social and governance criteria; and expansion of the national diversification agenda.

A 30-minute documentary will provide a visual complement to the publication, featuring first-hand interviews with government officials, private sector players, industry regulators and energy experts discussing Equatorial Guinea’s unparalleled ambition and future plans.

“From spearheading regional gas monetization initiatives to drilling new exploration wells as early as Q2 2021, Equatorial Guinea continues to cement its reputation as a progressive, dynamic force on the African energy stage,” said H.E. Gabriel Obiang Lima, Minister of Mines and Hydrocarbons. “The Africa Energy Series publication in conjunction with a detailed documentary format, gives us the voice to showcase the depth of our full-stream investment opportunities to a global audience.”

Since the onset of COVID-19, Equatorial Guinea has been proactive in safeguarding opportunities for foreign investors and continuing to drive capital into its hydrocarbon resources. In February, Chevron achieved first gas flow from the successful execution of its Alen Gas Monetization project, a $475-million investment representing the first phase of Equatorial Guinea’s Gas Mega Hub masterplan.

The Ministry of Mines and Hydrocarbons is currently promoting several capital-intensive projects – including the construction of modular oil refineries, a gold refinery, liquefied petroleum gas strategic tanks, a urea plant and the expansion of a compressed natural gas project – which are open for investment. Last December, the Ministry of Mines and Hydrocarbons announced a forecast of $1.1 billion in foreign direct investment in oil and gas activities in 2021.

Active in Equatorial Guinea since 2015, AOP released its first AES documentary on the country in 2016, followed by investment reports in 2018 and 2019.

The AES: Equatorial Guinea 2021 investment report will be launched at the U.S. Africa Energy Forum 2021 online seminar and in-person networking event in Washington, DC. (July 12). The documentary will be launched at the U.S. Africa Energy Forum conference in Houston (October 4-5) and broadcast globally on news networks.

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U.S. Africa Energy Forum 2021 Launches: Promotes U.S. Role as Primary Investor in African Energy

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The U.S. Africa Energy Forum 2021 – organized by Africa Oil & Power, in partnership with the African Energy Chamber’s U.S.-Africa Committee – will foster alignment between U.S. and African governments’ energy policies and highlight African oil, gas, power and renewable projects across the energy value chain for U.S. investors; the multi-day forum unites U.S. and African policymakers, energy executives and industry leaders to create new linkages and foster discussions that drive long-term policy formation and project execution; the in-person, two-day summit and gala dinner will be hosted in Houston, Texas (October 4-5, 2021) and an online seminar and in-person networking event will be held in Washington D.C. (July 12).

Africa Oil & Power (AOP) and the African Energy Chamber are excited to announce the launch of the first-ever U.S. Africa Energy Forum (USAEF). This event aims to create deeper cooperation between the U.S. and Africa on energy policy, to reach alignment on long term sustainability goals, to stimulate greater American investment in the African oil, gas and power sectors, and to engage and reposition the U.S. as the primary partner of choice for African energy developments.

Under the theme “New Horizons for U.S. Africa Energy Investment” the forum will explore diverse foreign investment and export opportunities across the continent, including natural gas as a vital fuel for the energy transition; energy storage and battery minerals; Africa’s place in global energy supply chains; the benefits of the African Continental Free Trade Area; evolving energy technologies and how they relate to the future role of petroleum resources; and on-and off-grid power developments.

An online seminar and in-person networking event will be held in Washington D.C. on July 12, 2021, building up to the in-person U.S. Africa Energy Forum summit and gala dinner, to be hosted in Houston, Texas, on October 4-5, 2021. Africa Oil & Power and the African Energy Chamber invite all U.S.-based companies with an interest in engaging with African industry leaders and project developers to participate in the USAEF Houston summit.

This initiative comes at an important juncture in U.S.-Africa relations. The Biden Administration’s announcements of its intentions to proactively build a stronger U.S.-Africa partnership coincides with the fact that African projects are seeing rising interest from U.S. companies and lending institutions alike. The USAEF event is thus dedicated to enabling dialogue between its participants that advances these developments.

“Our mission has always been to showcase the resource potential that Africa has to offer while at the same time showing its growing preference for sustainable energy policies and technologies. Toward that end, we hope it becomes evident that Africa does not just want investment capital: it wants smart capital and an accompanying partnership with the investors,” says James Chester, Senior Director of Africa Oil & Power. “The U.S. Africa Energy Forum represents the first-of-its-kind opportunity to catalyze U.S. participation in Africa’s energy transformation – via technology, policy support, capital injection and skills development – and turns a new page in the chapter on global energy investment.”

In partnership with the African Energy Chamber’s U.S.-Africa Committee, AOP will introduce American companies to African opportunities and advance an agenda of sustainable, long-term investment in African energy and other sectors by U.S. organizations.

“The rise in support from the U.S. to the continent is a credit to Africa itself, which is increasingly viewed as a favored destination for global investors, multilaterals and export credit agencies,” says Jude Kearney, President of Kearney Africa and former Deputy Assistant Secretary for Service Industries and Finance at the U.S. Department of Commerce during the Clinton Administration. “Africa continues to command a healthy share of global FDI in oil and gas industries. It has for decades shown that investment in those sectors is favorable compared to other jurisdictions and can be successful by many measures. Even as Africa and the rest of the world wrestles with a global pandemic, Africa’s energy sector shows vitality and resiliency – not only in hydrocarbons but in regard to new opportunities in mining, liquefied natural gas, and agriculture.”

Both African governments and private sector sponsors of African energy projects value highly the combination of investment and partnership that US investors famously convey. The USAEF seeks to enable successful partnerships between its participants such that the energy development goals of U.S. investors and strategic partners and their African counterparts can be achieved.

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Angola’s Petroleum Agency Outlines Timeline for Ongoing Bid-round

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Angola’s National Oil, Gas and Biofuel’s Agency (ANPG) has outlined its timetable for the evaluation of its ongoing 2020 bid round, as interest in the acreage on offer continues to grow.

In line with its statutory duties as national concessionaire in charge of the attribution of petroleum exploration blocks, the ANPG has sought to adjust its processes to remain competitive in the current market environment, which is dominated by concerns around COVID-19, long-term demand considerations and stiff competition from new and promising frontiers like Guyana and Suriname.

The ongoing bid-round is a manifestation of Angola’s strategy for the continuous attribution of petroleum concessions 2019-2025 which was approved and codified by Presidential Decree no. 52/19, of 18 February 2019. The aim of the strategy is to provide access to promising acreage to competent explorers in an effort to increase geological knowledge about Angola’s hydrocarbons potential and ultimately increase proven reserves.

A hybrid online and physical roadshow for the current bid-round is scheduled for April 6 in at the Talatona Convention Centre in Luanda. This event will provide the opportunity for investors to engage with the agency regarding the blocks on offer, the data packages and the accessibility studies, as well as touch upon environmental, logistical and local content issues.

This will kickstart a series of both digital and in-person roadshows and technical presentations to promote the blocks to be awarded in key international markets. The acreages on offer include:

  • Three blocks of the lower Congo onshore Basin CON1, CON5 and CON6
  • Six of the Kwanza onshore Basin (KON5, KON6, KON8, KON9, KON17 and KON20)

In line with the provisions of Presidential Decree No. 86/18, of 2 April 2019, which establishes the rules for the organization of bid rounds, the ongoing 2020 bid round will unfold as follows:

  • Tender Launch
  • Proposal submission
  • The opening of offers from potential suitors in a public setting
  • The evaluation and qualification of proposals
  • The submission of the evaluation report to the Ministry of Mineral Resources and Petroleum and Gas
  • Contract negotiation with the winners of the bid-round
  • Signature

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