Traders pushed Brent crude oil futures over US$70 per barrel as they remained bullish on the economic outlook for both the US and China, buoyed by rising oil demand and OPEC + policy stability
Brent crude oil (ICE) hit US$70.29 per barrel for August 2021 contracts at 12:40 EDT on 1 June, a rise of $US0.97 per barrel.
Rystad Energy oil markets analyst Louise Dickson said oil prices were rising as “the market is getting increasingly confident that demand is reaching the end of the recovery tunnel, with strong usage indications coming globally, from the US to China.”
Ms Dickson added, “Looking back at demand, the market is shrugging off the downside risk spreading across Asia. While the more than 1M barrels per day (b/d) demand dent in India is likely already priced in, the wave of new restrictions in Japan, Indonesia, Thailand and Vietnam may not yet be fully appreciated in terms of oil consumption losses.”
She said trader enthusiasm was “cemented” by increasing gasoline demand in the US in time for the summer travel season and strong factory activity in China in May.
Despite this steady recovery, the growth rate of oil demand will not be strong enough to allow a full recovery to pre-virus levels. We will need to wait until 2022 to see demand fluctuating around 2019 levels.
Rystad Energy expects total liquids products demand to average 94.5M b/d in 2021, lower than the OPEC research division estimate of 96.4M b/d.
Shallow water activity slips
Drilling activity in the global offshore jack-up rig market did not match the enthusiasm of oil traders, as the number of contracted rigs fell to 330 during week 22; the seven-unit week-on-week fall was the biggest drop of 2021. While shallow water activity slipped, deepwater drilling held steady for the week, with the number of floaters working holding at 113. Nine of those floaters were actively drilling in the west African market, the most so far this year. Among the most recent contracts reported was one scored by NYSE-listed driller Valaris. It reported it had secured a one-well contract for its drill ship Valaris DS-12 from Total E&P Côte d’Ivoire. The drill ship will commence work offshore Ivory Coast in Q3 2021.
South America has been a particularly active deepwater market. In Brazil, Equinor as operator and its partners ExxonMobil, Petrogal Brasil and Pré-sal Petróleo SA (PPSA) announced FID on the development of phase one of the Bacalhau field in the Brazilian pre-salt Santos area. The investment will be about US$8Bn.
“Bacalhau is the first greenfield development by an international operator in the pre-salt area and will create great value for Brazil, Equinor and partners,” said Equinor executive vice president for projects, drilling and procurement Arne Sigve Nylund.
“Bacalhau is a globally competitive project with a break even below US$35 in a key energy region. Estimated recoverable reserves for the first phase are more than 1Bn barrels of oil,” said Mr Nylund.
The development plan was approved by the Brazilian National Agency of Petroleum, Natural Gas and Biofuels in March 2021.
Covid-19 uncertainties could alter the project schedule, with current plans for first oil in 2024.
The Bacalhau field is situated across two licences, BM-S-8 and Norte de Carcará, with plans calling for 19 subsea wells tied back to a floating production, storage and offloading unit (FPSO) located at the field. This will be one of the largest FPSOs in Brazil with a production capacity of 220,000 barrels per day and 2M barrels in storage capacity. The stabilised oil will be offloaded to shuttle tankers and the gas from Phase 1 will be re-injected in the reservoir.
The FPSO contractor MODEC will operate the FPSO for the first year. Thereafter, Equinor plans to operate the facilities until the end of the licence period.
CO2 intensity reduction
Significant effort is being put into reducing CO2 intensity during the development of Bacalhau. Equinor reports one measure being taken is the implementation of a combined cycle gas turbine system to increase the energy efficiency of the power station. This gives an efficient electrical power production and flexible heat supply.
Bacalhau will reportedly have a lifetime average CO2 intensity of less than 9 kg per barrel produced – significantly lower than the global average of 17 kg per barrel.
Partners in Bacalhau are Equinor and ExxonMobil, each with a 40% stake, Petrogal Brasil, 20% and the state-run Pré-sal Petróleo as PSA manager.
Seadrill has secured a four-year firm contract with four one-year options for the drill ship West Saturn with Equinor Brasil Energia for work on the Bacalhau field. Total value for the firm portion of the contract will be US$380M, with commencement starting in Q1 2022.
In line with efforts to reduce emissions, the fuel consumption of West Saturn is expected to be reduced by between 10-15% with the introduction of a combined hydrogen and methanol injection system along with other energy efficiency upgrades. This will result in 10-15% lower CO2 emissions and between 30% and 80% lower NOx emissions.
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