SunSirs: Review of Energy Industry in 2019

Compared with the peak value in 2018, the global oil field production in 2019 has declined, but the oil industry is still the foundation of the energy industry and plays an irreplaceable role; in terms of natural gas, it is generally considered as the most important growth point in the industry. Last year, the demand for natural gas grew at a high growth rate of 4.6%, with a delivery volume of 314 million tons, and the growth trend has continued to 2019, which It is due to the important transformation of global energy from coal-fired power; on the contrary, coal is relatively lost. In the process of global energy transformation, coal is becoming the biggest loser.

The following is a review made by SunSirs of the energy industry in 2019:

Oil

Crude oil:

1. China US trade negotiations have achieved phased results

The two-year trade talks between China and the United States culminated in the first phase of an agreement at the end of 2019, thus reducing market uncertainty for the future.

2. British election brings new hope for Brexit

On December 12, the Conservative Party led by Prime Minister Johnson won 364 seats in the British parliamentary election, occupying the majority of seats in the parliament. The Labor Party, the largest opposition party, lost out to 203 seats. After the election results, the conservative party gained a strong parliamentary basis to complete the Brexit.

3. Many countries in the world enter into the channel of interest rate reduction, and monetary policy will become more and more difficult in the future

Since 2019, more than 30 central banks have chosen to cut interest rates in response to the slowdown in economic growth. However, the diminishing effect of low interest rates on stimulating the economy and the side effects of investment risks. With the FED likely to end the rate cut process, monetary policy of the global central bank may be suspended in the future. But in the future, ultra-low interest rates may become a trend, and the pressure of economic growth will gradually increase.

4. Saudi oil facilities attacked

In the early morning of September 14, 2019 Beijing time, two oil facilities of Saudi Aramco were attacked by drones and triggered a fire. After the incident, the Hussein armed forces claimed responsibility for the attack, and many countries expressed or used strategic oil reserves to fill the supply gap. On the first trading day after Saudi Aramco's attack, the oil market was not surprised by a huge earthquake. Brent crude oil jumped on the opening day of the 16th, with an increase of 17% at one time, breaking the $70 mark, the largest one-day increase since 1991; WTI crude oil also rose 13%. Although Saudi Arabia's emergency recovery in the following week did not have a significant impact on the market supply, the incident shocked the global crude oil market seriously.

5. Saudi Aramco listed at the end of 2019

On December 11, Beijing time, Saudi Arabia National Oil Company (hereinafter referred to as Saudi Aramco) was listed on Riyadh stock exchange in Saudi Arabia. On the first day of trading, it rose 10% to 35.2 Riyals, hitting the limit. By the end of trading, Saudi Aramco's market value on the first day had soared by 1.2 trillion RMB, with a total market value of 13.16 trillion RMB (about $1.88 trillion), officially surpassing apple（ 8,112, -74.00, -0.90%) is the largest company with the largest market value in the world, equivalent to the market value of 3.5 Alibaba (US stock market value) or of 9 Guizhou Moutai, only slightly lower than Brazil's GDP (US $1.9 trillion) in 2018.

6. Oman sea tanker explosion

On June 13, 2019, due to malicious attacks, there were two tanker explosions in the Oman sea that morning. After the incident, the U.S. WTI Crude oil and Brent oil prices rose rapidly, with Brent oil rising more than 4% and WTI crude oil rising nearly 4%. In addition, in the wake of the attack, tanker premiums through the Oman sea increased significantly.

7. Rocket attack on Basra, an oil production base in Iraq

On June 20, 2019, a rocket attack occurred near the residence of ExxonMobil company in Basra, an important oil production base in southern Iraq. After the incident, ExxonMobil urgently organized the evacuation of local staff, causing strong dissatisfaction from the Iraqi oil minister. Affected by this news, on the evening of the 20th, U.S. and Burmese oil continued to soar, while WTI crude oil rose to 6%.

8. Supply concerns caused by pollution of Russian oil pipeline in Druzhba

In the early morning of April 26, 2019 Beijing time, foreign media reported that the crude oil transported by the Russian Druzhba oil pipeline was polluted by organic chlorides, and Poland and Germany cut interest rates to suspend the import of Russian crude oil from the pipeline. It is reported that the contaminated crude oil can reach up to 1.5 million barrels per day, which exacerbates the market panic.

What are the variables in the international crude oil market in 2020 and where to go?

The impact of "black swan" incident induced by geopolitical conflict on the crude oil market is short-term and phased. In the long run, it is necessary to consider the expectation of future economic cooling and the new progress of Sino US trade negotiations. At the micro level, it depends on the implementation of "OPEC +" production reduction and the growth level of shale oil production in the United States. On the macro level, we should pay attention to the monetary policy of the global central bank under the background of low interest rate, and focus on the monetary policy trend of the Federal Reserve.

Refined oil:

1. Refined oil value added tax lowered again

The value-added tax rate of refined oil was reduced from 16% to 13%. Accordingly, the maximum retail price of domestic gasoline and diesel will be reduced by 225 RMB/ ton and 200 RMB/ ton respectively, which will be implemented from 24:00 on March 31, 2019.

2. Transformation and upgrading of China's refining industry

In May 2019, China's private refining projects officially entered the era of "ten million tons". In 2020, it is estimated that the national refining capacity will increase by 15 million tons/ year, reaching the 900 million tons/ year threshold.

3. Delayed implementation of national VI emission standard for automobiles

Beijing will postpone the implementation of the national VI emission standard until January 1, 2020, while Shenzhen will postpone the implementation of the national VI emission standard until July 1, 2019.

4. Approval and decentralization of retail operation qualification of refined oil

In August, the general office of the State Council issued the opinions on accelerating the development of circulation and promoting commercial consumption, which clearly proposed to expand the market access of oil products, cancel the examination and approval of the qualification for wholesale and warehousing of oil products, and transfer the examination and approval of the qualification for retail operation of oil products to the local and municipal people's governments.

5. Support qualified private enterprises to participate in crude oil import and product oil export

We will support private enterprises to enter the fields of oil and gas exploration and development, refining and sales, and build infrastructure for the storage and transportation of crude oil, natural gas and refined oil, as well as pipeline transportation. Support eligible enterprises to participate in crude oil import and product oil export.

LNG:

In 2019, national pipe network company is establishment, China Russia east gas pipeline (North Section) is ventilated.

1.     China's first self-operated deepwater gas field started construction

According to the news on January 10, 2019, the semi-submersible production platform of Lingshui 17-2 gas field development project, China's first self-operated deep-water gas field has recently started construction at the Qingdao manufacturing site of offshore oil engineering. The gas field is expected to be put into production at the end of the Fifth Plenary Session of the 13th CPC Central Committee as soon as possible, with an annual output of 3 billion to 3.5 billion m³ of natural gas. This will effectively promote the development of deep-water oil and gas resources in the South China Sea, and is of great significance to the construction of the South China Sea atmospheric area and the protection of China's energy security.

2.     Circular of the development and Reform Commission on adjusting the price of LNG benchmark stations

According to the information of the national development and Reform Commission on March 29, 2019, the national development and Reform Commission issued the notice on adjusting the price of LNG benchmark stations of each province (District, city) from April 1, 2019, with a minimum of 1,030 RMB/ thousand m³ (including 9% value-added tax). The combination of residential and non-residential LNG prices does not only mean the price increase, which is also the way to reform the natural gas price in China, to ensure the healthy and orderly development of the natural gas market in China.

3.     ExxonMobil signs a 20-year supply agreement with China

According to CNN report on April 23, ExxonMobil, the world's largest non-governmental oil and gas producer, announced that it had signed a 20-year LNG supply agreement with China's Zhejiang Energy Group, with a contract volume of 1 million tons/year. As the world's largest non-governmental oil and gas producer, ExxonMobil is the industry leader in many aspects of energy and petrochemical industry. The re-entry of US natural gas into the Chinese market will undoubtedly squeeze Australia's share in the Chinese LNG market. Combined with Australia's attitude towards Huawei issues or international decision-making, China's purchase of US natural gas has more advantages than disadvantages in general.

4.     Major changes in LNG pricing

The State Development and Reform Commission, the State Energy Administration and other two departments have formulated the supervision measures for the fair opening of oil and gas pipeline network facilities, which was implemented on May 24, 2019. It is pointed out that after the opening of oil and gas pipeline network facilities, the calorific value quality of mixed transmission natural gas is different. Energy measurement can ensure the accuracy of natural gas trade measurement to the greatest extent, reduce measurement trade disputes, and protect the economic and social benefits of enterprises.

5.     Increasing the exploration and development of oil and gas in China to ensure the national energy security

On July 8, 2019, PetroChina and Sinopec signed a joint research framework agreement on Tarim Basin, Junggar Basin and Sichuan Basin, involving 81 exploration rights and a total area of about 305,800 square kilometers. On July 10, Sinopec and CNOOC (China) Co., Ltd., a subsidiary of CNOOC, signed a cooperation framework agreement on Bohai Bay, Beibu Bay, South Yellow Sea and Subei basin, involving 19 exploration rights of both sides and a total area of 26,900 square kilometers. CNPC, Sinopec and CNOOC signed agreements with each other, join hands with China's oil and gas exploration, and allowed foreign investment to enter China's oil and gas exploration, which was conducive to promoting China's oil and gas opening cooperation, increasing oil and gas exploration and development efforts, improving oil and gas exploration and development technology, and ensuring national energy security.

6.     The attack on Saudi oil fields has reduced the supply of LNG by about 2 billion m³

According to foreign media reports, on September 14, 2019, Beijing time, Saudi Aramco was attacked by drones, resulting in a sharp reduction of 5.7 million barrels of special oil per day, close to 6% of the global oil production. Saudi energy minister said on September 15, 2019 that the explosion of facilities on September 14 also reduced Saudi Arabia's natural gas supply by about 2 billion m³, resulting in Saudi Arabia's supply of ethane and liquefied natural gas It will shrink by 50%. But he said domestic supplies of fuel and water and electricity were not affected.

7.     Discovery of hundred billion cubic meters gas field in Tarim Oilfield

On October 3, 2019, the well test of Bozi 9 of Tarim Oilfield Company of PetroChina was successful, with high-yield industrial oil and gas flow, 418,200 m³of natural gas and 115.15 m³of condensate per day. It has become another one hundred billion cubic meters gas field found in the south of Tianshan in one year, marking the substantial progress of the construction of the second trillion cubic meters atmospheric area in Tarim Oilfield.

8.     Crazy! LNG prices soared 23.7% in a single day

On October 30, 2019, the starting base price of Northwest raw gas auction was raised to 1.57 RMB/ m3, and the final transaction price was 2.6-2.75 RMB/ m3. The volume of registered orders in the auction was 100 million cubic meters, 80 million cubic meters less than the last time. According to the data monitoring of SunSirs, the average price of LNG on October 30 was 3,840 RMB/ ton, and the average price on October 31 was 4,750 RMB/ ton, up nearly 1,000 RMB per day, up 23.7%.

9.     China Russia east gas pipeline (North Section) officially put into operation for ventilation

On December 2, 2019, the LNG pipeline (North Section) of the China Russia east line was officially put into operation for ventilation. The natural gas pipeline of the China Russia east line will be interconnected with the existing regional gas transmission pipeline network, which can stably supply 38 billion m³of clean and high-quality natural gas resources to the northeast, Bohai rim and Yangtze River Delta every year, effectively improving and alleviating the air pollution along the line. After the official acceptance of Russian gas, Northeast China and Beijing Tianjin Hebei region will benefit directly.

10.   Establishment of national pipe network company

On December 9, 2019, National Oil and Gas Pipeline Network Group Co., Ltd. (hereinafter referred to as "National Pipeline Network Company") was established. The National Pipeline Network Company will build a "one network for the whole country" to realize the interconnection of long-distance oil and gas pipelines, better guarantee the national energy security, and promote the high-quality development of the oil and gas industry, which is a key step in deepening the reform of the oil and gas system in China. It can better guarantee the national energy security, promote the high-quality development of the oil and gas industry and meet the people's needs for a better life.

Coal:

In 2019, affected by the environmental protection policy, the task of coal capacity reduction is urgent, coal supply turns from surplus to tight, and it is expected that the supply and demand of coal will be basically stable.

1. Increase of coking coal import in 2019

According to the latest statistics released by the customs, in November 2019, China's coking coal import increased by 16% year on year to 6.18 million tons; the total coking coal import in the whole year was 72.8 million tons, up 17% year on year. In November, the import of anthracite was 440,000 tons, down 49.5% year on year; the total import of anthracite was 7.06 million tons, down 18.6% year on year.

2. Coal industry capacity reduction

In 2019, the national energy system will focus on the major task of structural adjustment, resolutely eliminate backward excess capacity, and further promote structural coal capacity reduction.

3. Strict environmental inspection policy

In 2019, the environmental protection inspection will continue to increase, and the total coal consumption control will continue to be implemented in key regions. By 2020, the proportion of coal in primary energy consumption will be reduced to less than 58%.

4. Coal mine safety improvement & shut down the coal production capacity below 300,000 tons in Guizhou

In December, the website of the State Administration of coal mine safety issued the notice of the State Administration of coal mine safety on carrying out the centralized rectification of coal mine safety (hereinafter referred to as the notice), and decided to carry out the centralized rectification of coal mine safety for three months from now on. The production of coal mines under 300,000 tons per year in Guizhou has been required to stop immediately.

5. Tightening of coal import policy

The policy of restricting the import of coal has always existed, but the price of power coal is on the high side this year. If the import of coal is tightened on a large scale, the price of coal will be further increased. Therefore, the import of coal in 2019 has not decreased. Considering that most ports have used up their import coal quota in 2019, the import coal policy of some ports has been tightened recently.

6. Coal electricity linkage mechanism

The executive meeting of the State Council on September 26, 2019 decided to cancel the linkage mechanism of coal and electricity prices from January 1 next year, and change the current benchmark feed in tariff mechanism to a market-oriented mechanism of "benchmark price + fluctuation".

Conclusion:

In 2020, the continuation and tightening of policies, the expected slowdown in the growth of market consumption and other factors will bring about changes and uncertainties in the energy industry. New opportunities and challenges will inevitably accelerate the industry reshuffle. In 2020, the energy industry situation is still grim.

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