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Paul Hickin

Articles by Paul Hickin

North Sea’s latest crude oil stream is out of fashion, but still in demand: Fuel for Thought

November 26, 2019

The razzle dazzle of US tight oil and new rules on marine fuels could have meant a chilly reception for the arrival of the North Sea’s Johan Sverdrup.
The medium sour crude grade could be the region’s last big production boost at a time when, especially in Europe, there has been a shift to cleaner, less-sulfurous fuels. But China, India and the US will likely welcome it with open arms.

While much of the talk of the onset of Johan Sverdrup has been around the resilience of the North Sea, with the first phase set to add 440,000 b/d by next summer and 660,000 b/d by 2023, the real story is the global appeal of the medium sour crude grade.
Johan Sverdrup has a density of 28 and sulfur level of 0.8%, which means it is of slightly inferior quality to UK’s Forties, the largest of the five grades

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Insight conversation: Jane Ren, CEO, Atomiton

August 29, 2019

Jane Ren, CEO of disruptive technology company Atomiton, talks to Paul Hickin about opportunities in the energy sector and the challenges faced by big oil.

The mainstreaming of artificial intelligence and machine learning will have a profound impact on the industrial sphere, not least in energy industries.
Whether companies are active in the upstream, midstream or downstream segment, they face enormous pressures to control cost while living up to societal demands for environmental stewardship and a wholesale shift to cleaner forms of energy.
Energy companies are increasingly turning to digital solutions to achieve these goals. The Industrial Internet of Things (IIoT) brings into play a sensor-enabled network of interconnected devices applied to physical assets. It can help companies find

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Insight Conversation: Fatih Birol, IEA

May 29, 2019

Fatih Birol, executive director of the International Energy Agency, spoke to Paul Hickin about the new oil market dynamics unleashed by US shale production, challenges facing Venezuela, and heightened geopolitical risk.
In 2012, Fatih Birol predicted that the US would become the largest oil producer by the end of the decade. In an exclusive interview with S&P Global Platts at the IEA headquarters in Paris, Birol did not hold back in outlining the impact US supply is now having on OPEC. The ardent supporter of Turkish soccer team Galatasaray, who has never driven a car, is also worried that Middle East producers may score an own goal if they do not diversify their economies quickly.

What’s your take on the oil markets right now?
I’m the chair of the energy board of the World Economic

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Insight Conversation: Carole Nakhle, Crystol Energy

May 13, 2019

Carole Nakhle, CEO of independent consultancy Crystol Energy and founder of Access for Women in Energy, spoke to Paul Hickin about energy transitions and shifting oil and gas politics.

How do you see the energy mix changing in the next decade?
The global energy mix is unlikely to look much different from today. The lion’s share will continue to be provided by fossil fuels – that is coal, oil and natural gas, accounting for more than 85%. The rest will come from energy that does not emit CO2, with an increasing contribution from modern renewable energy – solar and wind.
Often, we hear about the impressive double-digit growth rates of renewable energy, suggesting – wrongly, in my view – that the world’s energy mix will change drastically in the next few years. This is surely a noble

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The Middle East’s petrochemicals push signals oil’s future

February 20, 2019

This is the second installment in a three-part series exploring oil, plastics demand and sustainability.
Plastics and chemicals will account for the largest share of global crude demand growth by 2030, and a third wave of petrochemicals expansion underway in the Middle East is looking to cash in on the trend,  as investment into downstream petroleum industries will become a critical demand driver for oil markets in the future.
Industrialized economies use up to 20 times more plastic and up to 10 times more fertilizer than developing nations on a per person basis, underscoring the huge potential for global growth. The International Energy Agency expects petrochemicals to account for almost half of global oil demand growth by 2050, equivalent to almost 7 million b/d.
However, chemicals and

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Oil market must solve short-cycle riddle in 2019

December 28, 2018

Oil producers are invariably in it for the long haul. Investing billions of dollars to find and develop new resources entails an almost clairvoyant understanding of future demand cycles. However, volatile prices and uncertainty over global growth may see more short-term thinking in 2019.
This change in mindset has already happened in the US, now the world’s largest producer. The Permian shale oil basin is the world’s epicenter for so called short-cycle investment — where capital employed drilling wells can be recouped over a briefer period than in conventional fields.
S&P Global Platts Analytics forecasts Permian oil production will more than double over the next two years. Output is expected to average 4.9 million b/d in 2020, climbing to 5.5 million b/d in 2021. These figures compare to

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Insight Conversation: Jeffrey Currie

November 5, 2018

In the latest Insight Conversation video, Jeffrey Currie, global head of commodities research at Goldman Sachs, talked to Paul Hickin about the bank’s call on oil prices and the commodities impact of the US−China trade war.

The big question on everyone’s lips is whether we are going to see a return to oil prices at $100/barrel and beyond. Where do you think the market is going?
We’re not saying $100/barrel oil cannot happen. It’s not our base case, nor do we think it’s very likely. To get a $100 price spike, you need to have a sustainable loss in all of Iran’s exports for an extendable period of time… The key point here is yes, if you had a sustained outage you could see a spike of that magnitude, but in no way is it our base case. Our base case is for a modest decline in inventories in

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Saudi Arabia’s power play will unleash crude oil supplies: Fuel for Thought

October 15, 2018

Saudi Arabia’s energy strategy could put to bed questions over its spare oil capacity in the coming years.
The kingdom’s plan is two-pronged: Expand and develop oil fields to offset production decline, and diversify away from crude for power generation. It is this latter move that is key to unlocking further oil exports.
The OPEC doyen plans to burn less crude as it pushes ahead with a swathe of important gas and high-sulfur fuel oil power plants to drive its economy and keep homes cool.
S&P Global Platts Analytics sees high-sulfur fuel oil displacing 200,000 b/d of crude burn by 2020, as Saudi Arabia ramps up use of the cheap and undesirable by-product of the refining process rather than its precious black gold.
The International Maritime Organization’s regulation that will cut the sulfur

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Energy security is a two-way street: Fuel for Thought

August 6, 2018

US Energy Secretary Rick Perry’s recent claim that energy independence is within reach overlooks a fundamental principle of interconnected global trade: Producing countries need security of demand as much as consuming countries need security of supply.
While the US Energy Information Administration projects the US will become a net energy exporter within the next few years, as it already is for natural gas, the country will still need to buy heavier and sourer crude to blend with its lighter sweet grades and will be reliant on the political and economic relations it fosters with other energy suppliers.
Dependence can be as much a strength as a weakness, helping to guarantee security of supply and security of demand for both parties.
“History tells us that energy independence does not

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Energy reform is a price worth paying

July 5, 2018

Oil above $75 a barrel is good for Middle East economies but a challenge for the region’s energy reformers and consumers.
Slumping prices had triggered a wave of new policies over the last four years to slash subsidies on petrol and electricity, while boosting investment into renewables. Maintaining the momentum behind energy market liberalization is essential for future prosperity.
Previously, the region’s consumers were insulated from higher oil prices by generous state subsidies, which were costly to maintain and encouraged waste.
The UAE opened the flood gates three years ago by introducing a new pricing model for gasoline and diesel in August 2015, when a barrel of Brent crude was trading at $54. Since then a fuel committee has set gasoline prices based on a monthly review of global

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Global oil demand could leave gaping hole: Fuel for Thought

June 11, 2018

Global oil demand growth was a much heralded sidekick to supply cuts that rebalanced the market in record time. Now the Saudi Arabia-Russia pronged pact is considering reversing course on its output cut deal, while demand growth shows little sign of letting up.
That risks leaving a hole in the market that the OPEC alliance will struggle to plug.
Oil bulls listening to Jeff Currie, Goldman Sachs’ head of commodity research, at the S&P Global Platts Crude Oil Summit earlier this month would have been rubbing their hands with glee. He stated he was his most bullish in a decade.
“The underlying demand trend is what is dominant here, not the OPEC production cuts. That is secondary,” Currie said.
OPEC and 10 other countries embarked on a plan to remove 1.8 million b/d in late 2016 to wipe out a

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OPEC needs a clear line on oil prices: Fuel for Thought

April 30, 2018

OPEC would benefit from more transparency about oil prices. The group has geared its efforts to rebalancing the market, but its ultimate goal is surely to maximize revenues for its members. Putting a number on this target would be helpful.
After all, with many ministers claiming there is still a distance to go when the alliance has pretty much realized its stated aim, the focus on fundamentals is starting to look like a fig leaf.
OPEC and Russia, joined by a group of smaller producers, have focused on bringing bloated oil inventory levels in OECD countries down to the five-year average. With overcompliance to the deal, they have reduced their collective output by more than the agreed 1.8 million b/d since January 2017 and cleared an overhang of almost 400 million barrels in an

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Five oil market myths that need dispelling: Fuel for Thought

January 8, 2018

The oil market has come to be defined by several narratives over the past couple of years: market rebalancing, OPEC versus shale, Russia’s delicate relationship with OPEC, OPEC’s conformity with production cuts with the latest deal extension running to end of 2018 and shale’s resilience to lower prices. But these frameworks have created a narrow ideology that could harm the way producers participate in the oil market this year and beyond.
Myth 1: OPEC’s exit strategy means exit
The idea that the 24 producers who came together and struck a deal to cut production by 1.8 million b/d in November 2016 are somehow going to ‘exit’ the alliance later this year is misleading. There will be no exit when OPEC, Russia and other non-OPEC producers decide the market has rebalanced—based on OECD stock

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OPEC-plus: Old strategies, new manifesto – Fuel for Thought

June 5, 2017

OPEC’s ability to balance the market has many naysayers amid stubborn stockpiles, rising US production and the same old tactics of output quotas that typically sooner than later fall apart.
But this producer pact is a very different phenomenon: one that doesn’t just have non-OPEC countries on board, but has organized joint monitoring committees to fully track compliance with production cuts and a strong collective communication (including regular technical meetings and ministerial dialogues).
This has fostered a sense of togetherness among oil producers that usually are more interested in competing for market share.
As a result, this new producer alliance could be here for the long haul.
OPEC is on the cusp of overcoming one of its biggest challenges: convincing a skeptical, and often

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OPEC’s pyrrhic market share victory: Fuel for Thought

July 18, 2016

OPEC’s decision to defend its market share by opting for freewheeling crude oil production appears to be working.
It was only a few months ago the International Energy Agency said the market was “drowning in oil” and prices plummeted to less than $30/b. Fast forward to July and the IEA said there had been an “extraordinary transformation” from a major surplus in the first quarter to near-balance in the second.
Non-OPEC production remains on course to fall 900,000 b/d this year before staging a modest recovery in 2017, according to the IEA.
Meanwhile, OPEC production hit an eight-year high in June, helped by Iran’s post-sanctions return being better than most analysts expected. Couple that with Iraq’s substantial rise in 2015 and the IEA commenting that “low-cost Middle Eastern OPEC countries have seen output rise steadily in recent years” and not only is OPEC defending its market share, it’s slowly increasing it.
So far, so good.
However, there are a number of flaws to the plan.
First, it has only delayed the inevitable. US shale producers are becoming more flexible and prices around $50/b start to make it economic for some to increase output.
Second, even the better placed OPEC members have felt the squeeze — evidenced by the mooted privatizations from Kuwait and Saudi Arabia to generate extra cash for depleted government coffers.

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Platts Crude Oil Summit: Debunking the myths

May 13, 2016

In Monty Python’s Holy Grail King Arthur tells the black knight that he has no arms left, to which the knight replies: “It’s just a flesh wound.” This was how Standard Chartered’s Paul Horsnell described the so-called resilience of US shale production as he went on to critique commonly held views in the market.
The robustness of US production is certainly an important question, not least for OPEC strategy, with Horsnell arguing a sharp rise in the rig count, which is at its lowest ever according to Baker-Hughes, is needed to stabilize output.
Low prices have led to calls in the way the industry works. “No other industry would work backwards from the price of its output (in this case, hydrocarbons) in an attempt to justify the costs of its inputs (i.e. capital and operating costs),” said Allianz’s Chris Wheaton. He joked that the industry has often responded to underperformance with ‘it’s not our fault, the oil price did it,’ and he suggested the use of more technology appears to have increased costs and not cut them.
Wheaton’s key message was that 21st century oil needs to be a manufacturing business: standardization, repetition and low unit costs become competitive advantages. “Shell has 24 shades of yellow underwater paint,” he added, highlighting the overly complex nature the industry needs to address.

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OPEC boxes itself into a corner: Fuel for Thought

February 29, 2016

Heavyweight oil producer group OPEC stepped into the ring with young upstart US shale back in November 2014 and delivered its best shot. Led by prizefighter Saudi Arabia, it decided not to cut output in hopes of arresting the slide in prices, but, in an attempt to floor the relatively high-cost producer, declared it would defend its ground.
Fast forward 13 months and unconventional crude supply is down but not out. And OPEC, whose membership has been split down the middle by a policy aimed at clawing back market share from what has proved to be a resilient opponent, must be wondering whether it has all been worth it — especially after having read the International Energy Agency’s latest medium-term forecasts.
The IEA expects US light tight oil output to start recovering in 2018 after a 600,000 b/d decline in 2016 and a further 200,000 b/d drop next year. It sees US light tight oil reaching 5 million b/d by 2021, up from 4.23 million b/d in 2015 as oil prices recover and technology continues to improve.
Indeed, OPEC is now in a predicament of its own making. It and Saudi Arabia have regularly stipulated over the past 13 months that OPEC will not cut output unilaterally but is willing to work with independent producers towards a stable market.

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