Dos Bocas Budget Balloons, Oil Prices Stutter AgainBy Peter Appleby | Thu, 10/22/2020 - 17:36
The Dos Bocas refinery has finished its first phase if construction. Nevertheless, costs have climbed. Meanwhile, news on the global stage, including reimposed lockdowns in Europe, climbing COVID-19 cases in the US and plans to reopen oil production in Libya dented oil prices this week. A report on CNH’s activity in 3Q20 saw over half a billion dollars invested, while Eni’s plans on the Saasken discovery were rejected.
All this and more in The Week in Oil and Gas.
Mexico’s President Andrés Manuel López Obrador, PEMEX Director Octavio Romero and Minister of Energy Rocío Nahle were present at the Dos Bocas refinery construction site this week to celebrate the end of Phase 1 of construction.
Romero noted that the final cost for the refinery is expected to be “around US$8.918 billion” rather than the US$8 billion that the government had forecast initially. The almost US$1 billion additional capital required for the new refinery comes as no surprise to analysts who had repeatedly questioned the logic behind the government’s initial cost projection.
Rystad Energy’s Schreiner Parker told Mexico Business News this year that “the government “has shown no signs of abating on its Dos Bocas refinery plans despite mounting cost estimates” and that some reports suggested eventual costs to be as high as US$13 billion. “The rationale behind that is still opaque to any outside observer and, from a purely economic standpoint, the project seems unlikely to be viable,” Parker added.
Read Schreiner Parker’s full interview here.
Oil prices took another tumble this week as countries across important oil consuming regions experienced rising COVID-19 case numbers and enforced tighter restrictions on movement.
By Tuesday, Brent fell US$0.34 or 0.8 percent at US$42.28 a barrel, while WTI fell US$0.15 cents or 0.4 percent to US$40.68. This downward trend continued into Wednesday night, with Brent prices dropping to US$41.47 per barrel and WTI falling to US$39.79 per barrel before prices picked up on the back of positive news for the US stimulus package.
The price drop was also impacted by Libya’s plan to boost its output following positive talks between rival factions that have been battling for control of the country.
Consumption in China, considered among the world’s largest oil consumers, remains stable. But continued growth in COVID-19 cases in the US and across Europe continue to sew doubt into the markets.
CNH Approvals and Set Backs for Operators
In 3Q20, CNH approved investments totaling US$545 million from private operators and the drilling of 14 wells, El Financiero reports.
The 3Q20 report details that almost 50 percent of the total investment, some US$245 million, was for activity on deep and ultradeep offshore wells, while shallow-water wells saw US$92.4 million and US$207.4 million was targeted at the onshore arena. Two of the 14 approved wells belonged to Shell, five to PEMEX and one to Pantera.
However, Italian IOC Eni received an unexpected set back this week after CNH rejected its evaluation program, work program and proposed budget for Saasken-1EXP. CNH reportedly marked up non-compliance with contractual obligations within the plans. “The Technical Unit for Exploration and its Supervision considered that the first work program, as well as the budget, did not contain sufficient scope to allow the CNH to evaluate them, and also did not provide, for its analysis, the supporting documents for its cost estimates,” CNH stated.