Oil majors raise stake in gas to hedge unstable oil prices

The need to hedge their earnings against the challenges of unstable oil prices and weaker refining margins is pushing many oil majors to increase their portfolio investments in Nigeria’s gas and many other developed climes.   For Nigeria, the need to plough more gas for domestic consumption, especially in power generation, is pushing majors to increase their stake in gas-linked liquefied natural gas (LNG) projects.   Stakeholders in the gas sector noted that gas-fired power generation represents the most economically viable, and immediate means to fuel Nigeria’s energy need, considering the amount of stranded gas that can be utilised for domestic consumption.   Nigeria’s gas reserves have increased by 7.3 per cent from 187 trillion cubic feet to 200.79 tcf, according to the Director of Department of Petroleum Resources (DPR).   For instance, Shell Petroleum Development Company (SPDC) last month said that it would be expending about $15 billion across 24 oil and gas projects in Nigeria, in the next five years.   Already, the oil major said its ongoing Assa North/Ohaji South gas development in Imo state will produce 600 million standard cubic feet of gas per day, energy equivalent of about 2400 Mega Watts of electricity enough to provide uninterrupted power to 2.4 million homes.   For Seplat Petroleum Development Company Plc , Final Investment Decision (FID) for the large scale ANOH gas and condensate project was announced in March, and initial equity investment of $100 million from government received.   The project will comprise a Phase One 300 MMscfd midstream gas processing development with first gas targeted for first quarter (Q1) 2021.   In their Q1 earnings results, the oil majors posted a mixed set with most continuing to grow production, and some proving resilient to the impact of lower oil and gas prices and weaker refining margins.   Both Shell and BP were able to shrug off the impact of mostly lower global benchmark gas and LNG prices to benefit from strong gas trading or arbitrage profits.   Shell, in particular, posted strong Q1 results with segmental earnings some 20% ahead of consensus.   Already the world’s second-biggest LNG seller after Qatargas, Shell reported a profit of $2.57 billion from its LNG-linked gas business, almost 25% higher than analysts’ estimates after higher gas contract values offset lower LNG liquefaction volumes and lower LNG sales volumes. It started gas flows to its giant Prelude floating LNG facility offshore Australia in December and plans to launch production from Appomattox in the Gulf of Mexico this year.   France-based, Total, the sixth-biggest LNG producer in the world in 2018, is also looking to expand its gas footprint as evidenced by its deal to buy Anadarko’s LNG-focused assets in Africa from Occidental, if Oxy’s bid for the U.S. independent is successful.   In the downstream sector, IOCs reported broadly weaker refining margins in Q1, encumbered by rising crude prices and evaporating heavy crude price differentials.   ExxonMobil suffered particularly, posting a loss in its downstream segment for the first time in a decade, after high gasoline inventory and shrinking North American crude differentials hit its margins.   Shell’s downstream earnings, however, rose 3% to $1.82 billion on higher contributions from crude, and oil products trading, and partly offset by lower realized refining margins.   But refining margins have improved steadily since the end of March and most producers remained optimistic for higher downstream earnings in the coming quarters.

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