August 2020, Vol. 247, No. 8

Global News

Global News

US Oil and Gas Bankruptcies Likely to Continue: Report


A wave of oil and gas bankruptcies in North America is likely to continue this year as oil prices remain depressed and a new surge of COVID-19 cases threaten to stall any recovery in fuel demand, according to a report by law firm Haynes and Boone. 

Bankruptcies surged in the second quarter, including from major shale independents Chesapeake Energy and Whiting Petroleum, as oil prices collapsed due to the pandemic and a price war between Saudi Arabia and Russia.

Chesapeake Energy, the largest U.S. oil and gas producer to seek bankruptcy protection in at least five years, has asked for court approval to cancel $311 million in pipeline contracts.

The shale pioneer wants to walk away from contracts with units of Energy Transfer, Boardwalk Pipelines, and a Crestwood Equity Partners and Consolidated Edison gas joint venture. The contracts involve about $293 million with Energy Transfer’s Tiger Pipeline and $18 million with Boardwalk’s Gulf South Pipeline.

There were 18 U.S. producer bankruptcies in the second quarter, according to a report by Haynes and Boone, the highest quarterly figure since second-quarter 2016, when there were 34. In total, 23 oil producers and 18 oil field service firms have sought protection from creditors this year. 

Oil prices hovered around $40 per barrel at the time of the report, a level that “is not a sufficient clearing price for many heavily leveraged shale producers,” Haynes and Boone said. In the second quarter alone, producers filing for bankruptcy held over $29 billion in debt, with shale pioneer Chesapeake Energy accounting for $9 billion.


Chesapeake Asks to Cancel Pipeline Contracts Amid Bankruptcy Filing

Chesapeake Energy, the largest U.S. oil and gas producer to seek bankruptcy protection in at least five years, has asked for court approval to cancel $311 million in pipeline contracts 

The shale pioneer wants to walk away from contracts with units of Energy Transfer, Boardwalk Pipelines, and a Crestwood Equity Partners and Consolidated Edison gas joint venture. The contracts involve about $293 million with Energy Transfer’s Tiger Pipeline and $18 million with Boardwalk’s Gulf South Pipeline.

Chesapeake fell under heavy debt among the impact of the coronavirus outbreak on energy markets. It said in a court filing it plans to operate six to eight drilling rigs for the next two years, about half of the 14 rigs active on average in the first quarter.


Fighting on Azerbaijan-Armenia Border Raises Pipeline Concerns 

A series of deadly border clashes between Azeri and Armenian soldiers broke out in July around the Tavush region in northwest Armenia, raising new concerns as the longtime conflict occurred much closer to a major pipeline corridor than it has in the past.

The two former Soviet republics have long been in conflict over Azerbaijan’s breakaway, mainly the ethnic Armenian region of Nagorno-Karabakh, although the latest clashes occurred around the Tavush region in northeast Armenia, some 300 km (190 miles) from the mountainous enclave.

The Nagorno-Karabakh conflict has concerned the international community in part because of its threat to stability in a region that serves as a corridor for major pipelines taking oil and gas to world markets. The latest clash in the Tavush area puts the fighting even closer to the pipelines, including the South Caucasus Pipeline (SCP) and others.

SCP is part of the Southern Gas Corridor, which also includes the Trans-Anatolian Natural Gas Pipeline (TANAP) and the Trans Adriatic Pipeline (TAP). This combined network of pipelines is due to start carrying gas from Azerbaijan to Europe this year, upon completion of TAP.


Keystone XL Shippers Would Owe Contingency Payments if Pipeline Project Canceled

Producers who have committed to ship crude on the stalled Keystone XL pipeline would still owe millions of dollars in contingency payments to TC Energy if the project is canceled on or before March 31, 2021, according to a Calgary Herald report. 

Many stakeholders stand to benefit economically from an operational Keystone XL, so it is reasonable for the developer and the shipper to share in both the risk and the reward of the project, TC Energy spokesperson Terry Cunha told the newspaper.  

TC Energy says it is committed to completing the project.


LNG Supply Ends Growth Streak Amid Pandemic

After surging 12% to a new record of 96 Mt in the first quarter of 2020, global liquefied natural gas (LNG) supply declined in the second quarter, Cedigaz reported, marking a turnaround after a continuous growth since 2015.

Estimates for the second quarter show that COVID-19 had a visible and negative impact on the global LNG market from mid-March, as the virus spread to most countries, Cedigaz said.  LNG supply in April 2020 was 2.2% lower than in April 2019. Cedigaz’ data also indicate that world LNG supply was marginally lower in May 2020 than in May 2019, with European LNG imports’ growth offsetting declines in every other region. 

Europe’s LNG imports continued to grow year on year in April (+6%) and May 2020 (+15%) but the increase was much lower than the growth in the first quarter (+25%). Some preliminary estimates for June also indicate a fall in global LNG supply, with reduced exports from the United States and Russia.


Iran’s Oil Storage Almost Full as Sanctions, Pandemic Weigh

Iran has slashed crude oil production to its lowest level in four decades as storage tanks and vessels are almost completely full due to a fall in exports and refinery run cuts caused by the coronavirus pandemic, industry data showed. 

Market intelligence firm Kpler estimated Iranian average onshore crude storage for June to be around 66 million barrels, about 85% of available onshore storage capacity, and its storage was also filling up. Shipping sources said Iran was estimated to be using around 30 tankers to store oil, most of them supertankers, which can carry a maximum of 2 million barrels of oil each.

Tensions between Tehran and Washington have ratcheted up since 2018, when the United States withdrew from a 2015 nuclear pact between Iran and six major powers and President Donald Trump reimposed sanctions on Iran, hammering vital oil exports.


Study Shows Japan’s Investment Drive in LNG May Sour

Japan’s banks and public agencies have funneled nearly $25 billion into liquefied natural gas (LNG) projects since 2017, but the investments may sour as prices plummet from the COVID-19 pandemic and as climate change risks rise, a new study shows. 

The backing of high-risk projects that require decades of sales to return investments looks questionable, with some facing the risk of delay or being scrapped, the study by Global Energy Monitor (GEM) released to Reuters showed.

“The original rationale for the program-enhanced energy security appears now to be fundamentally flawed, as the simultaneous shocks of the COVID-19 pandemic and the 2020 oil price crash reveal the vulnerability of global LNG supply chains,” Analysts Greig Aitken and Ted Nace wrote in the report.


UAE’s BPGIC to Expand Storage Facilities

The United Arab Emirates’ Brooge Petroleum and Gas Investment Co (BPGIC) is moving ahead with its oil storage expansion plans as there has been a limited impact from the coronavirus pandemic on its operations, the company said. 

Brooge said the second phase of its storage capacity expansion plans in Fujairah, which will add eight storage tanks with capacity of 3.8 million barrels, is expected to be completed by the end of 2020. The company’s Fujairah refinery is expected to become operational in the third quarter of next year, it added. 

Under Phase 3 of its Fujairah storage plans, BPGIC will expand its capacity by another 22 million barrels, increasing total storage capacity to about 159 MMcf (4.5 MMcm), or about 28 million barrels, which will come online in late 2022, it said.


Berkshire Hathaway to Acquire Dominion Energy’s Gas Transmission 

Berkshire Hathaway Energy, a subsidiary of Berkshire Hathaway Inc., announced it has executed a definitive agreement to acquire Dominion Energy’s natural gas transmission and storage business. The transaction has an enterprise value of approximately $9.7 billion.

The assets include over 7,700 miles (12,000 km) of natural gas transmission lines, with approximately 20.8 Bcf/d (589 MMcm/d) of transportation capacity and 900 Bcf (25 Bcm) of storage, with 364 Bcf (10 Bcm) of company-owned working storage capacity, and partial ownership of a liquefied natural gas (LNG) export, import and storage facility.

As part of the transaction, Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission, and 50% of Iroquois Gas Transmission System. It did not include acquisition of Atlantic Coast Pipeline, which was canceled a few days before the sale was announced.


Subsea 7 Awarded Over $100 Million in North Sea, GOM Projects

Subsea 7 said it has been awarded sizeable contracts for development projects in both the North Sea and the Gulf of Mexico (GOM), describing each as being valued between $50 million and $150 million.

Aker BP awarded a contract for the Hod Field Development Project, located 7.5 miles (12 km) from the Valhall area in the southern part of the North Sea, Subsea 7 said.​ The contract scope includes EPCI for pipelines, umbilicals and tie-ins using key vessels from Subsea 7’s fleet. 

Project management and engineering will commence immediately at Subsea 7’s offices in Stavanger, Norway. Fabrication of the pipelines will take place at Subsea 7’s spoolbase at Vigra, Norway, and offshore operations will take place in 2020 and 2021, it said.

The company provided little detail of its contract for work in the GOM, citing contractual reasons, but said it will be recorded in backlog in the second quarter. 


Utility Fined $53 Million for 2018 Massachusetts Blasts

Columbia Gas of Massachusetts was ordered to pay a $53 million criminal fine for causing a series of natural gas explosions near Boston. It is the largest criminal fine ever imposed under the U.S. Pipeline Safety Act.

Sentencing came after the company pleaded guilty in federal court to causing the blasts, which killed one person and damaged dozens of homes in September 2018. The judge also sentenced the company to a three-year probation period during which its operations will be monitored to ensure its compliance with safety regulations.

Authorities blamed the explosions on overpressurized gas lines, saying the company failed to account for critical pressure sensors as workers replaced century-old cast-iron pipes. That omission caused high-pressure gas to flood the neighborhood’s distribution system at excessive levels.

After the plea deal was announced in February, Eversource said it agreed to buy Columbia Gas of Massachusetts’ natural gas assets for $1.1 billion.

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