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Q&A: Chevron sees global exploration revival

  • Spanish Market: Crude oil, Natural gas
  • 18/11/24

US major Chevron and its peers are taking a more prominent role in global frontier exploration as they push for scale and value in oil and gas output in the face of an uncertain energy transition. Chevron vice-president of global exploration Liz Schwarze spoke to Aydin Calik at the African Energy Week conference in Cape Town, South Africa, earlier this month, Edited highlights follow:

How much of a role do you think exploration will play for Chevron and the wider sector in the next 10 years?

We believe the future of energy is lower carbon, and we're leveraging our strengths to grow energy delivery to an energy-hungry world. We see oil and gas being part of the energy mix for longer, investing to reduce the carbon intensity of our existing operations. Growing our oil and gas for longer, because it's a declining business — as you produce it, you have to replace it.

We replace our resources to underpin our future in three ways. Exploration is one; M&A, buying other companies, is another; and then technology is the third. So think in terms of shale and tight development in the US, with drilling and completions technologies; and the Anchor technology, bringing on the world's first 20k [20,000 lb/inch², ultra-high pressure deepwater] production platform in the Gulf of Mexico. That's technology. It's a new development, but it will help in the long term.

For exploration, at Chevron, we invest in exploring in our existing assets — if we can find new oil and gas pools that we can tie into existing infrastructure, it's a win... it comes on faster, creates a lot of value, leverages existing infrastructure — but we're [also] increasing our investment in more frontier areas, where we can build big, material positions at scale, early and if successful, really build new businesses. That's what you see us doing in places we've added acreage recently, like Brazil and Uruguay. We have the block in Namibia, we're going to drill, and we're in Egypt and so forth. So exploration is a very important part of Chevron's future, and because it's a bit of a long-cycle game, yes, for exploration, 10 years is an easy horizon.

And do you think things might change in terms of what you're exploring for — more oil, more gas?

Oil is relatively straightforward to get to markets, because there's a global market for liquids. If we're going to explore for gas, it'll be in a place that has either an existing market or existing assets to market, for the most part. Sometimes you explore for oil and you find gas. Sometimes search for gas and you find oil — because it's model based particularly in these frontier areas. So, you know, whatever mix we find we have to look at the development scenario for that, so that we can bring as much of that product to market with the highest returns possible for our shareholders.

What are the biggest challenges for explorers today?

We'll focus on the frontier first. Chevron looks at entering a new country or a new basin for exploration, really looking for four things to be there. First, of course, are the rocks — a compelling hypothesis that there are hydrocarbons at commercial scale. Second is a supportive fiscal environment, with which, upon discovery, you'd have the opportunity to create value for everyone. The third is access — the country has to offer a way for an operator like Chevron to enter, whether that's through a competitive bid round or through a direct negotiation; we'll also do farm-ins to other people's acreage. And regular access. That hypothesis of where hydrocarbons are can change through time. Having regular, predictable opportunities to access acreage is important, and it is sometimes a challenge. Some countries have opportunities for a while, and then they'll take things off the market, and then you don't really have another way to invest, and that creates a challenge. And then the fourth consideration is just the overall welcomeness for us to deliver the work programme that we commit to — functioning governmental organisations, all the way from environmental to operational permitting.

Where is the most exciting place to explore at the moment? Are there any new Namibias around the corner?

I hope so! Everywhere we enter, we have a story. Sometimes it works and sometimes it doesn't work. But we've got a well drilling in in Egypt now, so west of the Nile in the Herodotus basin — it's called the Khendjer well. So Egypt, we're excited. Namibia, it's the hot story of the past few years. In the Orange basin, we're in PEL90, and that well will start notionally [on a] December timeframe. Think of a big deepwater exploration well. Think of 90 days as an average. [We are] really very keen to see what our block holds. Certainly, high hopes.

And then we've added new acreage in Brazil, the South Santos and the Pelotas basin, we signed a block last week in Uruguay. And so, you know, some of that geology is what we call conjugate margin in Namibia.

And Angola and Nigeria. There are places in the world that are very successful hydrocarbon provinces that are still under explored and we think have a tremendous potential. And Nigeria deepwater is one. We had a lovely discovery on the Nigeria shelf a few weeks ago — the Meji well. And then we added two blocks in Angola earlier this year, deepwater.

I'm getting a sense, not just from Chevron, that exploration around the world is picking up?

I think this is true across the board. And one of the reasons that you explore is the idea that there's likely a further advantaged barrel relative to some of the existing discoveries. So there are a lot of stranded discoveries — either cost-prohibitive, geopolitically challenged, any number of issues that prevent some of the really big discoveries around the world from coming to market. From an exploration standpoint, if you are able to discover at scale, develop that and then bring it to market, it will be lower in the supply stack from a breakeven perspective. And lower carbon intensity as well from the get go, and it will find a place in the market.

On Namibia, what we have heard from some other operators is high gas content. This might make it more challenging. Have you thought about that?

So when we're thinking about entering a new basin, and then when we're thinking about drilling the well, before we make those investments, we're always thinking about what the development scenario might look like. Because we've got to test that development scenario against our range of resource outcomes and test, you know, whether it's going to be economically viable. Or how would we make it economically viable?

So for Namibia, we have considered, what would you do at various gas contents? The first, simplest, development is that you bring your production flow to your FPSO, compress the gas and reinject it. You can do that, given the resource volumes at a commercial outcome, Over time, I think it'll be interesting to see if there's a broader-basin scale gas solution that comes to bear, whether that's pipe to shore or LNG. It depends on the GOR [gas-oil ratio] and then it'll depend upon the gas terms that the government provides.

In the eastern Mediterranean, is Egypt your main exploration prospect?

Our focus is Egypt for exploration. When we go into an area like Egypt, we try to pick something at scale, and then high-grade from there. And so you relinquish the leases that, with additional data, don't look as prospective as the other ones. Right now, our focus is on block four. We're going to drill, and then we're also in [a block] north of that, that someone else operates on our behalf, and we have a minority interest.

What about Algeria and its shale potential? To what extent do you think you'll be able exploit those resources? And will you be signing something soon?

Chevron has been in conversations with the ministry, upstream regulator Alnaft and Sonatrach since 2020. We signed MOUs, that was in the news. And then the big milestone was 13 June of this year, where we aligned on two areas of interest. And we signed heads of agreement to negotiate Chevron's entry into these two areas of interest. And so that's ongoing now, and that's all I can say about that. We have two areas, one in the Ahnet and one in the Berkine, and seeing if there's a negotiated agreement that would have Chevron enter the country, working with Sontrach to explore and develop those.

Algeria is, again, one of these very hydrocarbon-rich countries in Africa. A tremendous gas resource. So we think it's a really strategic opportunity for Chevron, if we can get to a negotiated agreement that's amenable to both parties. You know, significant resources in an existing, vibrant oil and gas sector, access to markets through pipelines and LNG for the gas. And so we believe at Chevron that we can bring our global experience, and in particular our shale and tight expertise to bear in Algeria. To help them explore and ultimately develop.

But you think you can do shale development there?

Yes. I mean, the first piece would be exploration, right? So, you know, even in shale and tight, the molecules are there, or you're fairly confident the molecules are there. It's just, are the molecules producible at a commercial scale? And so that's always the first phase — you drill some pilots, look at your flow back, then optimise. And we believe everything that we do in the Permian is potentially applicable, especially from a factory perspective, right? And then the challenges are going to be things like supply chain.

How much more exploration potential is there left in the Gulf of Mexico? Would you say, is it mature, or is it still much to play for?

The Gulf of Mexico tends to reinvent itself. So we still see plenty of potential there. What's going on in the Gulf of Mexico right now are two critical technologies. One is on the geophysics side — ocean bottom node acquisition for exploration, which is giving us much better images of very complicated geology. That's a critical technology evolution. And we believe that that will help discern between prospects — point the way of where not to drill, and where maybe to drill. And then the other one is, of course, the Anchor platform, which is the world's first 20k. We are currently the only operator in the world that's operating a 20k field, and so I don't know where that technology would be applicable globally yet. But you know what we see? You've got to build the technology, you put it on production, and then you realise, oh, okay, now I can use this to really unlock some other areas. Still pretty, pretty excited about the Gulf of Mexico.


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18/11/24

Canadian TMX crude finds favour in China

Canadian TMX crude finds favour in China

London, 18 November (Argus) — Canadian heavy crude exported from the country's west coast has become a steady supply source for Chinese refiners in the six months since the opening of the Trans Mountain Expansion (TMX) pipeline in May, even as refiners elsewhere in Asia-Pacific have been more cautious about embracing the new flows. China-bound exports of Canadian heavy sour crude delivered along the TMX pipeline to Vancouver climbed to a fresh high of around 240,000 b/d in October, analytics platform Vortexa data show (see graph). This left average TMX loadings to China at around 150,000 b/d in June-October. The 590,000 b/d TMX project started loading cargoes in May. While Chinese refiners have been quick to embrace the convenience of the shortened time to import crude from Canada's Pacific coast, this has not been the case for other Asian refiners. China looked set to absorb all the October TMX exports to Asia-Pacific. Exports to other Asian destinations — South Korea, India, Japan and Brunei — averaged just 37,000 b/d in June-October. Weak refining margins may have encouraged Chinese buyers to turn to TMX-shipped crude, which has become their cheapest supply source not under sanctions. Private-sector Rongsheng has become a key buyer to meet its spot requirements of 4mn-6mn bl/month for the 800,000 b/d ZPC refinery in Zhejiang. The firm now buys between three and seven cargoes a month, or 53,000-125,000 b/d, of TMX crude, mainly Access Western Blend (AWB), a heavy sour grade with a higher total acid number (TAN) than Cold Lake, the other heavy sour TMX export. China's largest state-owned refiner Sinopec has also been a consistent buyer of AWB for its 470,000 b/d Maoming and 540,000 b/d Zhenhai refineries, and the increased Chinese buying of Canadian crude has displaced some of the country's usual intake from the Mideast Gulf . Rongsheng in the past bought large amounts of UAE grades including medium sour Upper Zakum through monthly spot tenders. Upper Zakum exports to China fell to around 380,000 b/d in June-October from just over 430,000 b/d in January-May and 615,000 b/d in 2023. The steep drop from last year might also be down to lower availabilities after Abu Dhabi's state-owned Adnoc started to divert more Upper Zakum to its domestic Ruwais refinery late last year as part of its crude flexibility project. But Iraqi Basrah Heavy flows to China have risen this year from 2023, defying early expectations that the heavy sour grade would be squeezed out by TMX crude. Traders in Asia-Pacific say medium sour grades have been most affected, including US Mars, with Asian imports this year falling to the lowest since the grade started moving to the region in 2017. Stuttering start Demand for TMX crude has not picked up as quickly elsewhere in Asia. Early interest surfaced from India, with private-sector Reliance Industries receiving a 2mn bl cargo of AWB in July, but no crude shipments have left Vancouver for India since then. Indian refiners may be wary of AWB's high TAN and the logistical challenges facing shipments. The July cargo made its way to India after three ship-to-ship transfers and the voyage took nearly two months. Reliance may instead prefer even cheaper Venezuelan crude. Flows to South Korea appear to have dried up after just under 3mn bl of Cold Lake loaded in July-August for the country, with Vortexa data showing no departures for South Korea since. A cargo of Cold Lake was exported in August to Japan, and another in September to Brunei. Interest from Asian refiners other than China and India is likely to be focused on Cold Lake rather than the more acidic AWB, which would be harder to process at their plants. By Fabian Ng TMX Vancouver exports to Asia-Pacific Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Hong Kong unveils green maritime fuel action plan


18/11/24
18/11/24

Hong Kong unveils green maritime fuel action plan

Shanghai, 18 November (Argus) — The Hong Kong special administrative region government unveiled a green maritime fuel action plan on 15 November, aimed at making the region a top-tier centre for green fuel bunkering and reducing carbon emissions from the port of Hong Kong. According to the Action Plan on Green Maritime Fuel Bunkering, Hong Kong aims to curb carbon emissions in line with the International Maritime Organization (IMO), which targets 20% emissions reduction in international shipping by 2030 and a 70% reduction by 2040, compared with 2008 levels, before achieving net-zero emissions by or around 2050. The plan also targets to reduce carbon emissions from Hong Kong-registered ships by at least 11pc, compared with 2019 levels, and have 55pc of diesel-fuelled vessels in the government fleet switch to green maritime fuels by 2026. Hong Kong will target lower carbon emissions from the Kwai Tsing Container Terminals by 30pc, compared with 2021, and ensure that 7pc of its registered ships use green maritime fuels by 2030. Separately, the plan outlines that Hong Kong will have completed the development of the Code of Practice (CoP) on liquefied natural gas (LNG) and green methanol bunkering by 2025. The government will also invite industry expressions of interest by end-2025 for the conversion of a land parcel near the port in Tsing Yi South for green maritime fuel storage. Hong Kong is expected to achieve an annual sale of over 200,000t of green marine fuels by 2030, with over 60 LNG or green methanol bunkering services for ocean-going vessels a year, according to the plan. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

India cuts allocation to city gas firms again


18/11/24
18/11/24

India cuts allocation to city gas firms again

Delhi, 18 November (Argus) — The Indian government has reduced the domestic gas allocation to the city gas distribution sector by state-run distributor Gail, effective from 17 November. This is the second cut after they first slashed allocation by 20pc, or 4mn-5mn m³/d , last month. The cut for Delhi-based city gas entity Indraprastha Gas is a reduction of 20pc, for Mumbai-based Mahanagar Gas it is 18pc, and for privately owned Adani Total Gas it is 13pc, the firms' stock exchange filings stated over the weekend. The move would reduce the overall share of domestic gas allocation to city gas distributing companies to 30-37pc from 50pc last month and 70pc at the beginning of the year. City gas firms had received priority status for gas allotment over the past two years. "It is uncertain what could have re-instigated this cut, but this may translate into 6.5mn-7mn m³/d based on the different growth rates of city gas firms," Moody's affiliate ICRA senior vice-president Prashant Vashisht told Argus . City gas entities are mulling a hike in CNG rates and are heard to be in talks with the government over the policy changes. The government is yet to formally announce a statement over the cuts and is heard to be asking retailers to give a cost break-up to justify the hike, sources say. These cuts are mainly aimed at compressed natural gas (CNG) supply that has been receiving domestic gas allocation at a fixed price by the government of $6.5/mn btu under New Delhi's pricing mechanism — almost half the price that firms would pay for spot LNG. City gas firms are discussing the possibility of increasing CNG prices by Rs5-5.5/kg by the end of the year to preserve their margins. This would represent a 7pc increase compared with the average CNG price of Rs75.1/kg ($0.88/kg) against Rs94.77/litre of petrol in New Delhi. But the price hike may reduce CNG's competitiveness, hampering further development of the sector and limiting LNG demand growth. CNG vehicles have rapidly expanded their share of the Indian fleet, accounting for 14pc of all four-wheelers at present, up from 8pc three years earlier, data from the government's Vahan website show. The reduction in allocation is linked to reduced supply from conventional gas fields run by state-controlled upstream companies such as ONGC and Oil India. The sector received 27.8mn m³/d of domestic gas over April-September, including about 5mn m³/d of higher-priced supply from high-pressure, high-temperature fields, oil ministry data show. Allocation to the sector was largely unchanged during the same time last year. To bridge this shortfall, city gas firms are exploring options of sourcing gas through LNG , domestically produced high-pressure and high-temperature gas, production from ONGC's new wells, and long-term gas contracts. By Rituparna Ghosh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Trump taps oil services head as US energy secretary


17/11/24
17/11/24

Trump taps oil services head as US energy secretary

Washington, 17 November (Argus) — President-elect Donald Trump intends to nominate oil services company Liberty Energy's chief executive Chris Wright to lead the US Department of Energy (DOE), giving him oversight over LNG export facilities and a vast portfolio of federally-backed energy projects. Wright also will serve on Trump's planned Council of National Energy, which will oversee policies across the federal government affecting energy production, permitting, transportation and regulation. Trump said he wants Wright to work alongside North Dakota governor Doug Burgum, who Trump has nominated as US interior secretary, to oversee "the path to US ENERGY DOMINANCE" by cutting regulations and supporting investments from the private sector. "As Secretary of Energy, Chris will be a key leader, driving innovation, cutting red tape, and ushering in a new 'Golden Age of American Prosperity and Global Peace,'" Trump said. Liberty Energy, which was founded in 2011, focuses on hydraulic fracturing services and earned $1.2bn last year. Wright has downplayed the urgency for the world to address climate change or transition away from fossil fuels. He has criticized the use of phrases like "climate crisis" and "carbon pollution", which he says are impeding projects that could alleviate energy poverty. Those terms "are not only deceptive, they are in fact destructive deceptions," Wright said in a video he posted last year on YouTube. "Destructive because they drive centrist politicians and regulators to oppose life-critical infrastructure, like building pipelines and natural gas export terminals." If confirmed by the US Senate, Wright would be responsible for deciding how to resolve a "pause" on US LNG export licensing that President Joe Biden put in place in January. DOE has been studying whether allowing more gas exports would exacerbate climate change or hurt consumers by increasing domestic natural gas prices. The vast majority of DOE's budget goes to maintaining the US stockpile of nuclear weapons and cleaning up contaminated nuclear sites. DOE also manages the four facilities that make up the US Strategic Petroleum Reserve, which currently holds 387.8mn bl of crude, and oversees 17 national laboratories that are spread across the US. In the last four years, the US Congress substantially increased DOE's role in energy. DOE is currently managing billions of dollars in funds provided by the 2021 infrastructure law, such as an $8bn initiative meant to support "hydrogen hubs" and a $2.5bn carbon capture demonstration program. The Inflation Reduction Act expanded DOE authority to issue loans for clean energy projects by about $100bn. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop: Parties continue slow work on finance goal: Update


16/11/24
16/11/24

Cop: Parties continue slow work on finance goal: Update

Updates throughout Baku, 16 November (Argus) — Parties at the UN Cop 29 climate talks in Baku have asked for more time to work on "specific proposals" for a new finance goal, working from a draft text released yesterday , but it is unlikely to yield progress on key sticking points. Country representatives are seeking to agree on a new climate finance goal for developing nations, following on from the current — broadly recognised as inadequate — $100bn/yr target. A plenary is due to take place later today in Baku. "Over the last few days some people have doubted whether collectively we can deliver. It is time for the negotiators to start proving them wrong," Cop 29 deputy lead negotiator Samir Bejanov said. The current draft text still fails to bridge the huge divide between developed and developing countries on key issues such as an amount for the goal, the contributor base and what the funds should be used for. And the new version due to come out today is unlikely to show meaningful progress on these issues, observers suggested, leaving them for ministers to tackle next week. Technical negotiators continue to try and move forward on topics such as funds' access and transparency. Developed countries have still not proposed a number for the goal, and want the contributor base broadened. Developing countries remain broadly united in calling for climate public finance of over $1 trillion/yr. Options show that developing country parties seek a new finance goal that serves mitigation — actions to reduce emissions — adaptation and loss and damage. Adaptation refers to adjustments to avoid global warming effects where possible, while loss and damage describes the unavoidable and irreversible effects of such change. Developed nations are also pushing for sub-targets of $220bn/yr for least developed countries (LDCs) and $39bn/yr for small island developing states (Sids), in which money for adaptation should come in the form of grants and highly concessional finance and funding for loss and damage "primarily in grants". Multi-layered The multi-layered approach in the draft, mostly supported by developed countries, does not mention loss and damage. On broadening the contributor base, it has options calling on "parties in a position to contribute" or "all capable parties" to "mobilise jointly $100bn/yr for mitigation and adaptation in developing countries by 2035". The UN climate body the UNFCCC works from a list of developed and developing countries from 1992 — delineating 24 countries plus the EU as developed — and many of these note that economic circumstances have changed in some countries, including China, over the past 32 years. China between 2013 and 2022 provided and mobilised $45bn in climate finance to developing countries, equivalent to 6.1pc of climate finance provided by all developed countries in the period, according to think-tank WRI. A few options in the multi-layered approach in the draft talk about "investments", language that developing countries do not support, and "investing trillions "from all sources, public, private, domestic and international". Developing nations are not against private sector financing, but they want the main figure for the new finance goal to come from public sources, observers said. Some parties on both sides are calling for an acceleration of the reforms of multilateral development banks, key to leverage billions in private sector finance, as well as for the use of taxes and levies. But these issues are largely outside of the remit of the Cop, even though they may get a boost from the upcoming G20 leaders summit on 18-19 November. UN climate body chief Simon Stiell today called on G20 to ensure the availability of more grant and concessional finance, make progress on debt relief, and push for additional multilateral development bank reforms. Brazil is looking to use its G20 presidency to advance agreement on energy transition finance, having set fighting climate change as one of its priorities. The country called for a global finance governance that includes rules for financing a "just and equitable" energy transition in developing economies and for an easier access to climate funds. Brazil has also pushing for a 2pc tax on billionaires that could generate up to $250 bn/yr in revenue. By Victoria Hatherick, Jacqueline Echevarria and Caroline Varin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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