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News 23rd July 2014

Libyan freight risk premium pushes up Med crude shipping costs: sources

Aframax freight rates on the Cross-Mediterranean and the Black Sea to Med voyages, basis 80,000 mt, hit seven-month highs Monday on more bullish sentiment due to uncertainty in Libya, shipping and trading sources said Tuesday.

According to Platts data, Aframax rates rates on the Cross-Med and Black Sea-Med, basis 80,000 mt, nudged w10 to w140 reaching the highest assessed since January 24 when the rate on the route was w150.

“It is more than w140 for ships loading from the Black Sea-Med voyage, and similar for Cross-Med routes, except if it is Libya which should still be around w160 level due to uncertainty that goes with it,” a London based shipbroker said. “In the recent deals, we have seen around w160-165 level from Libya...the Libyan cargoes we have seen have been prompt, and probably will continue that way...that is more to the point as to why they are charging more,” the broker said.

Traders were also growing increasingly frustrated at the soaring rates, with a recent revision of the Libyan OSP to lower prices for its crude grades doing little to incentivize the market due to the high freight costs.

“The retroactive change of the OSPs has been a surprising move, the only side effect at present, and very serious, was to have WS index skyrocket as vessel were put under subjects and not lifted so we are paying amazingly high rates which are totally unjustified, in my view,” said one trader. “[Libya] is contributing to heating up Med rates, shipowner is asking 20 points more so they are this taking into consideration in case it gets canceled,” added another.

Mideast sour crude market under pressure on weak demand from Asian refiners

A combination of poor refining margins and autumn refinery turnarounds scheduled at several North Asian refiners has put pressure on the Middle Eastern sour crude market, with almost all grades trading at discounts to their respective official selling prices for September-loading barrels, traders said Tuesday.

A trader with an Indian refiner said there was “general weakness in the market. People are not buying too much; this is reflected in prices.” The spot market for Persian Gulf crudes typically trades two months forward, with cargoes from the September-loading programs clearing at a slow rate, traders said.

The first September trades of Upper Zakum — Abu Dhabi’s medium, sour crude grade — were heard this week, with at least one cargo sold by ExxonMobil to Chinaoil at a discount of around 15 cents/b to its OSP, sources said.

Murban — Abu Dhabi’s flagship light, sour crude — was last heard bid at a discount of around 20 cents/b to its OSP, with sellers at around a 5-10 cents/b discount.

Das Blend, a blend of Abu Dhabi’s Lower Zakum and Umm Shaif crudes, has been trading at around a 20 cents/b discount to its OSP, sources said.

Meanwhile, Japan’s Fuji Oil was heard to have bought two September-loading cargoes of Qatar Land from Chevron and Unipec at discounts of 20 cents/b and 35 cents/b discount to its OSP, respectively.

Refining margins have been under pressure, particularly due to persistent weakness in gasoil cracks in recent weeks. This has led to refiners lowering run rates, while some refiners, particularly in South Korea, have increased their processing of straight run fuel oil as an alternative to crude oil, sources said.

“Korean spot demand doesn’t feel robust,” said a source at a trading house. Another trader agreed, saying: “It is a terrible market, demand is very tepid ... we will limp through the month.”

More WAF crude could flow to the US as USGC crude differentials surge: sources

West African and other Dated Brent-related crude grades are beginning to look more attractive to US refiners as crude differentials in the US Gulf Coast firm amid strong refining margins, traders said Tuesday.

West African crude differentials to benchmark grades, meanwhile, have been extremely weak, with some crudes near multi-year lows on low Asian and European demand caused by fragile refining margins and low product crack spreads.

Angolan heavy sweet crude Girassol, which has recently been traveling to the US, was assessed by Platts at Dated Brent minus $0.86/ barrel Monday, the weakest level since September 20, 2010.

Nigerian flagship crude, the light sweet Qua Iboe, was assessed by Platts at Dated Brent plus $0.90/b, the lowest since December 11, 2009.

“With the arbitrage getting tight, we might see some barrels head this way,” said one US crude trader. “Prompt US grades are strong. Light Louisiana Sweet is trading at plus $7/b over WTI [almost $2/b over Brent] and Mars is trading plus $2.00/b over WTI.”

Demand for crude in the USGC region has been high in the past week, with some price differentials jumping to their firmest levels since January as a result of robust refining margins in the US. “Refinery runs on the US Gulf Coast are at multi-year highs.... [but] I do not see how it can last as margins are getting weaker,” said the trader.

Russian producers move away from Crimean ports to avoid sanctions: traders

Russian producers who used to export from Crimean ports are switching exports to the Russian port of Kavkaz across the Kerch Strait to avoid the impact of sanctions, traders said Tuesday.

Russia’s gasoil and fuel oil are currently being exported from the port of Kavkaz on the other side of Kerch. According to a London-based P&I Club circular, the EU enforced as of June 25 sanctions relating to Ukraine that prohibit the import into the EU of goods originating in Crimea or Sevastopol, as well as financing, financial assistance or insurance in relation to such imports.

The product ban was followed by an order by Ukraine’s infrastructure minister — registered by the Justice Ministry on June 24 and published on July 15 — that effectively closed the ports to international shipping, despite Russia having taken over the peninsula.

“Until the constitutional order of Ukraine is restored on the temporarily occupied territory of Crimea and the city of Sevastopol, the ports are closed,” the order said, naming the ports of Kerch, Sevastopol, Feodosia, Yalta and Yevpatoria.

The Ukrainian State Inspection for Safety in Maritime and River Transportation explained the order means all ships found to be violating the ban may face legal action. Gasoil with 350 ppm sulfur is the typical specification that used to be exported from Kerch on a ship-to-ship, or STS, basis, though traders said this operation has recently moved to Russian waters.

“The volumes from Kerch were moved to Kavkaz,” a trader said. “The volumes load up the Don River, with barges loading onto a mother ship, which used to be sent to Kerch. But now they’ve moved the vessel 3 km to Kavkaz, so the STS is in Russian waters.”

A Long Range 2-sized vessel is typically used as the mother ship, the trader said. The gasoil is then exported to destinations in the Black Sea or can be blended with other products for exports to North Africa. Likewise, fuel oil used to be accumulated on a floating storage off Kerch and from there sent for exports. But the storage has been moved to Kavkaz, a source said.

USGC, Midwest CBOB dip on oversupply, high refinery runs, weak demand

Houston (Platts)--22Jul2014/609 pm EDT/2209 GMT

US Gulf Coast CBOB dipped Tuesday to its lowest assessed spot price since summer-RVP assessments began April 1 in the cash market, with Midwest CBOB and suboctane reaching lows not seen for several months.

Platts assessed Gulf Coast CBOB at 9 RVP (A2) at $2.6117/gal. That's not only the lowest of 2014, but also the lowest since the assessment of $2.5786/gal on July 2, 2013.

A US products trader said the Gulf Coast market has ample blendstock.

"With these refinery runs as high as they are, it's getting hard for people to find a home for some of this gasoline," he said. "Add to that, the export market has not looked as healthy in the last month as it usually does. "Plus I am hearing from folks around the Southeast that demand is disappointing at a sales level. It's been slammed since the Fourth of July, and the holiday was not what a lot of folks would have liked."

CBOB also was weaker against conventional gasoline. It was assessed 7.25 cents below 9-RVP conventional (M2), the widest spread since April 1. The A2/M2 spread has increased three of the last four trading days, and the gap at 7.25 cents trumped the 2014 to-date average of 2.26 cents.

"The A to M has blown out," a second US product trader said. "I'm not really sure why, but I have a good idea about a starting point."

He said M2 has drawn strength with less conventional gasoline coming from Houston-area refineries. He said the current M-A spread better reflects reality than the spread in early June, when the products were flat to each other.

"Maybe the regrade [the spread between M and A gasoline] needs to fix itself first before gasoline rallies. If the gas basis rallies, then I will feel smart," he said.

The CBOB differential fell 1.5 cents to NYMEX August RBOB minus 26.75 cents/gal on the back of a Morgan Stanley offer in the Platts Market on Close assessment process and has fallen four of the last five days. Since June 16, the differential has been falling at a rate of 39 points/day.

On Tuesday, cash differentials in Chicago traded at the lowest level in seven months.

Platts assessed Cycle 3 Chicago CBOB at NYMEX August RBOB minus 24 cents/gal, down 2.25 cents from Monday on oversupply and weak demand. The last time CBOB was lower was December 27 at NYMEX February RBOB minus 24.05 cents/gal.

In the week ending July 11, the Midwest refinery utilization rate jumped 5.1 percentage points to a record 100.3%, EIA data showed. Midwest gasoline stocks also rose 1.298 million barrels to 49.357 million barrels. Builds in RBOB and CBOB stocks contributed to that increase.

"In general, the refining capacity in Chicago area is much greater than the demand. So when everybody is running OK, that market will be long, and [it] makes sense [the] basis should be under pressure," the first US products trader said.

Midwest Group 3 suboctane, which is comparable to CBOB, was trading at its lowest levels since April 29, when it was at NYMEX May RBOB minus 23.75 cents/gal. Platts assessed suboctane down 1.75 cents at NYMEX August RBOB minus 22 cents/gal. Suboctane also traded at that level during the MOC process.

Market sources said the oversupply of CBOB came from an influx of crude from Canada and the Bakken shale play that the Midwest refiners have been processing.

"Question is, can it get consumed as fast as refiners making it?" the first US products trader asked.

--Jeffrey Bair, jeffrey,bair@platts.com --Faiza Hassan, faiza.hassan@platts.com --Edited by Jason Lindquist, jason.lindquist@platts.com

Colombia's largest pipeline confirms 'very small' oil spill

Bogota (Platts)--22Jul2014/453 pm EDT/2053 GMT

A "very small" quantity of crude oil has spilled off Colombia's Caribbean coast at the country's principle offloading depot at Covenas, the country's largest pipeline, OCENSA, said Tuesday.

Few other details, including how many barrels poured in to the sea and how the spill happened, were provided, however. Clean-up operations are underway, the pipeline company said.

A statement issued by the pipeline concern said "extreme weather conditions" were responsible for the spill, which occurred Sunday night. Reached by telephone, a Bogota-based spokeswoman for the pipeline said she did not know whose oil was lost in the "very small" spill.

Production was not impacted by the spill, whose slick was brought under control due to a contingency plan. The statement said that loading operations were expected to return to normal by Wednesday morning.

With a capacity of 650,000 barrels, the 515-mile OCENSA is the nation's main trunk pipeline, and was built in the 1990s to deliver oil produced at the Cusiana-Cupiagua oil fields in the eastern Andes foothills to the Covenas depot. Connecting pipelines to OCENSA now run heavy oil pumped in the eastern Llanos region as well.

--Chris Kraul, newsdesk@platts.com

--Edited by Derek Sands, derek.sands@platts.com

Iran to unveil new upstream contracts Nov 3-4 in London: Hosseini

Tehran (Platts)--22Jul2014/309 pm EDT/1909 GMT

* Watching progress in nuclear talks

* 'Shared fields' among projects to be offered at London roadshow

Iran plans to unveil its new upstream oil contract model in early November but is keeping a close eye on the ongoing nuclear negotiations with six world powers that could have an impact on the event, a senior Iranian official said Tuesday.

Mehdi Hosseini, in charge of designing the new contracts, told Platts that Iran would launch the new contract at a London roadshow on November 3-4, but hinted that the date could change if the negotiations were ongoing.

"We haven't touched the date of the conference and, God willing, we won't," Hosseini said. "We expect our conference to be a successful one. I personally think the nuclear talks will have good results and before the date of our conference they will yield the result."

"If the results are not known by then [the date of the conference] and if this is going to have an impact on our seminar, we should naturally consider it," he said. "Our work will be based on the country's interests."

Iran and the six world powers -- Britain, China, France, Germany, Russia and the United States -- agreed on Friday to extend an interim deal on its nuclear program by four months until November 24 to give negotiators more time to thrash out differences standing in the way of a comprehensive agreement that would lead to sanctions being removed. The six-month interim deal, which gives Iran limited sanctions relief in exchange for nuclear concessions, was to have expired on Sunday, July 20.

Iran's oil-dependent economy has been hit by the swinging sanctions and has refurbished its oil and gas contract model in a bid to make it more attractive to investors.

As well as introducing the new model, Iran plans to present a series of investment packages for its underdeveloped oil and gas fields. In recent years, the combination of sanctions banning investment in Iran's oil and gas sector and the shortcomings of the contract model that has governed upstream investment in the past -- the so-called buyback -- has discouraged foreign investment.

The London event has been previously postponed due to what oil minister Bijan Zanganeh has described as "foreign pressures."

Asked whether the November roadshow would be cancelled if the nuclear talks failed to reach agreement, Hosseini said, "We have fixed the date and we don't want it to be the case [that no nuclear deal is reached], and we hope the negotiations will reach a positive result."

Projects covering the development of large "shared fields" that extend into neighboring countries -- from which Iran wants to exploit abundant amounts of oil and gas over the next four years -- will be among those offered in London, Hosseini said. The oil ministry, he said, "has a comprehensive plan for projects to present."

After several months of work and scrutiny, the new model has been finalized and is now in the hands of the oil ministry, which will present it to the cabinet for final approval, Hosseini said.

"We used a lot of comments and opinions from experts and big foreign companies," he said, refusing, however, to identify the relevant companies or specify their nationalities. "We received very positive feedback from them and I think they will welcome the new model very well."

The old buyback contract, which confers no ownership of reserves onto the contractor, repays investors in project revenues. Even before the imposition of the various sanctions that forced European companies to pull out of Iranian projects, poor rates of return and short-term participation of the foreign partner were acting as a deterrent to investment.

Iran has said it will offer more attractive terms than those offered by neighboring Iraq, with which Iran shares several big reservoirs.

--Aresu Eqbali, newsdesk@platts.com

--Edited by Margaret McQuaile, margaret.mcquaile@platts.com

--Edited by Richard Rubin, richard.rubin@platts.com

Brent premium to Dubai below $2/b for first time since Nov on North Sea crude glut

Singapore (Platts)--22Jul2014/717 am EDT/1117 GMT

The premium that Western sweet crude benchmark cash Brent commands over the Middle Eastern sour crude benchmark cash Dubai has fallen below $2/barrel for the first time since November last year following a continued easing in pressure on the Brent contract on a raft of unsold sweet crude with the contango structure in ICE Brent also widening Tuesday.

The second-month (September) cash Brent premium over front-month (September) Dubai narrowed 65 cents day-on-day to $1.74/b. This is the smallest premium Brent has commanded over the Dubai since November 12, 2013 when the premium was $1.62/b.

While the price of both Brent and Dubai rose day on day, with September cash Dubai rising $1.30 to $105.95/b and September cash Brent assessed at $107.69/b, the structural movement in each market took different paths Tuesday.

September to October cash Dubai saw a widening in the backwardation with the spread widening 11 cents to 60 cents/b.

While in the cash Brent market, the contango between September and October cash Brent widened to 52 cents/b Tuesday from 31 cents/b Monday.

The Brent market has been characterized by prompt weakness in recent weeks, as a glut of oil has weighed on market sentiment, sources said.

Vessels of North Sea oil have been offered on a ship-to-ship basis in recent days, while Norwegian sweet crude grade Ekofisk remains at historically low levels, traded at Dated Brent flat and minus $0.10/b Tuesday, recovering somewhat from seven-year lows hit earlier this month.

Despite the easing of the premium of the Brent complex to Dubai, no new fixtures to Asia have been reported.

Traders said a late-July VLCC on subjects to Trafigura from Hound Point to South Korea, then failing last week, was more likely to be used for floating storage locally rather than being taken to refiners in Asia, where margins remain low in many regions.

--Daniel Colover, daniel.colover@platts.com

--Ned Molloy, ned.molloy@platts.com

--Edited by Jonathan Dart, jonathan.dart@platts.com

Russia to consider gas exports by independent East Siberian producers: report

Moscow (Platts)--22Jul2014/711 am EDT/1111 GMT

Russia's President Vladimir Putin has asked his government to consider allowing independent producers to export gas from new fields in East Siberia and the Far East by September 1 in a move that would effectively spell an end to Gazprom's export monopoly.

 

The decision follows a meeting by the presidential energy commission on June 4, Russia's Vedomosti daily reported Tuesday.

In Russia, gas producers that are not controlled by Gazprom, which enjoys the exclusive right to export pipeline gas and controls the trunk gas transportation system, are considered independents, irrespective of their ownership.

Putin also asked the government to consider allowing independent producers to participate in the construction of the gas transportation system in Russia's eastern regions on an economically viable basis, the newspaper reported.

Earlier this year, Russia allowed the country's second-largest gas producer Novatek and biggest oil company Rosneft to export LNG from projects that are under construction and expected to come online after 2016.

At the June meeting, Rosneft's CEO Igor Sechin called on the government to allow independents to export natural gas from planned projects in eastern Russia as well, where annual output has been put at 200 billion cubic meters, according to Rosneft's estimates. Until recently, the government was reluctant to grant gas export rights to producers other than Gazprom in a move to avoid competition for Russian gas in international markets.

But recently, discussions on allowing independent producers access to international markets have gained momentum as competition in the Russian gas market is growing and companies are planning a drastic boost in production.

During the June meeting, Sechin urged the government to allow independents to export gas to China via the planned Power of Siberia pipeline.

The government is unlikely to grant unlimited export rights to all independents. It was more likely to choose another option, for example one where independents would sell their gas to Gazprom at prices calculated as a netback to its export prices, several market experts said.

Liberalization of gas exports "is possible to resolve by sales of a certain proportion of a producer's output to Gazprom at the gas giant's export netback," Sergei Kudryashov, head of state-run Zarubezhneft and also deputy energy minister, said at the presidential commission meeting in June.

PLAN TO REDUCE USE OF FOREIGN EQUIPMENT

Separately, Putin also asked the government to develop a plan by November 1 to reduce the use of foreign equipment by Russian energy sectors as the US and the European Union have already imposed sanctions against Moscow and are considering new, tougher ones over its role in the Ukrainian crisis.

The new sanctions could target specific industries, including the oil and gas sector.

Putin asked for a plan that would ensure less dependence not only on equipment and parts for the oil and gas sector produced abroad, but also foreign companies' services and software, Russia's Itar-Tass reported.

Following Thursday's downing of Malaysian flight MH17 with a suspected missile, the West has increased pressure on Russia, warning of new and more serious sanctions. The Malaysian airliner carrying 298 people from Amsterdam to Kuala Lumpur crashed last Thursday in rebel-held east Ukraine where fighting is going on between Kiev's government forces and pro-Russian separatists.

Ukraine immediately accused Russia and the separatists of shooting down the plane. Moscow has denied this and called for an investigation into the incident.

--Nadia Rodova, nadia.rodova@platts.com

--Edited by E Shailaja Nair, shailaja.nair@platts.com

South Africa says gas to play larger role in energy mix: minister

Cape Town (Platts)--22Jul2014/644 am EDT/1044 GMT

* Energy woes force rethink of South Africa's energy mix

* Gas, shale to play significant role but not abandoning coal

* Producers to blend biofuels from 2015

South Africa's energy minister Tina Joemat-Pettersson said natural gas, including shale gas, and nuclear should play a greater role in the country's energy mix as the nation battles with energy shortages. In her energy budget speech yesterday, the newly appointed minister said she planned to finalize the frameworks to allow higher levels of gas and nuclear in South Africa's coal-heavy energy mix.

"With regard to the development of our gas resources, including the regional gas opportunities in neighboring countries and our own shale gas resources, a draft of the gas utilization master plan is being finalized, and will be taken through Cabinet before starting with stakeholder consultations," she said.

The lack of infrastructure, including pipelines and storage facilities had made it difficult for gas to play a role in the country's energy mix, she said. That was despite the discoveries of gas in neighboring Mozambique, Tanzania, and off South Africa's west coast.

The much anticipated gas utilization plan would outline the infrastructure necessary to open up the gas market to residential and industrial sectors, Joemat-Pettersson said.

The plan's scope includes "investigating the development of gas-receiving and storage terminals for LNG, and to meet the gas-to-liquids requirements at Mossel Bay refinery, as well as investigating the conversion of Eskom's diesel plants," she said.

"The gas infrastructure development effort is accordingly premised on regional integration with Mozambique in the east, the importation of LNG and the networking of various load centers for transporting and storing shale gas in the Karoo," she said.

In addition, the department of energy will soon release the outcome of a gas feasibility study, being completed in collaboration with Transnet, state-owned PetroSA and the state utility, Eskom.

"The prospect for gas to replace imported crude oil in the transport sector is very high on the government agenda because it bodes well for our macroeconomic outlook, particularly in our balance of payments. In the future, gas is likely to be the most common energy carrier for public transport, freight and domestic heating and cooking," Joemat-Pettersson said. South Africa has limited oil reserves and imports nearly all of its crude oil requirements from the Middle East and Africa.

Around 10 million South Africans currently have no access to any form of energy, and South Africa is facing an imminent energy crisis as demand outstrips supply. Some 77% of its current electricity is sourced from coal but increased generating capacity is required to meet future economic growth as well as replace old power stations whose coal reserves will soon be exhausted. Natural gas accounts for just 3% of the country's energy mix.

The US Energy Information Administration estimates the potential shale gas resources in South Africa to be around 485 Tcf. If those reserves are proven to be correct it means that South Africa holds the fifth-largest reserves of shale gas in the world. As a cheaper way of meeting future electricity needs, and a relatively smaller carbon footprint, shale gas could well be a long-term solution to South Africa's crippling power situation.

Shell, Bundu Oil & Gas and Falcon Oil & Gas have applied for exploration licenses in the environmentally sensitive Karoo desert, where the reserves are expected to be found. It is not certain when exploration permits will be awarded.

"Our government has adopted a cautious and responsible approach that seeks to understand the risks to the environment posed by fracking," the minister said, referring to the hydraulic fracturing or fracking technique for recovering gas and oil from shale rock.

NOT ABANDONING COAL

Joemat-Pettersson said the department of energy had "no intention of abandoning" coal, but that it was "determined to find cleaner technologies that will reduce the adverse environmental impact associated with greenhouse gas emissions from coal generation."

She also said Rand 850 million ($80 million) had been allocated to her department to undertake further research and development into nuclear energy. The plan includes introducing 9.6 GW of nuclear energy in the next decade, in addition to running the Koeberg power station.

"Apart from Koeberg for power generation, our current program includes Pelindaba, one of the world's biggest producers of medical radio isotopes from low-enriched uranium. We are therefore starting from zero base, in fact, we want to build on our expertise and skills base that already exists in the country," the minister said.

TO BLEND BIOFUELS FROM 2015

South Africa has set the beginning of October 2015 as the date from which fuel producers will have to blend diesel and gasoline with biofuels. The regulations propose a minimum blend of 2% ethanol in gasoline, and 5% biodiesel in diesel.

"In the next two months, our focus will be on finalizing the subsidy framework for the manufacturers and the pricing approach for the blended product," the minister said.

It is suggested a levy of between 4.5 cents and 5.6 cents/liter is imposed on the first 20 years in order to provide a 15% return on investment guarantee for biofuels manufacturers.

--Jacinta Moran, jacinta.moran@platts.com

--Edited by Maurice Geller, maurice.geller@platts.com

OPEC’s Two-Decade Ride on Global Growth Stalls: Chart of the Day

By Grant Smith Jul 23, 2014 6:00 AM GMT+0700

For the past two decades, growth in the global economy spelled higher revenues for the Organization of Petroleum Exporting Countries. Not any more.

The CHART OF THE DAY shows how last year was the first since 1993 that the value of OPEC’s total crude exports didn’t track the direction of global gross domestic product. The bottom panel shows how the group supplying about 40 percent of the world’s oil fetched lower average prices and also shipped fewer barrels year on year.

Production among OPEC’s 12 members fell 2.5 percent to average 31.6 million barrels a day last year, data from OPEC’s Annual Statistic Bulletin showed on July 18. Libya’s output slumped 31 percent amid political protests at oilfields and export terminals. Output from Iran, whose exports are subject to international sanctions, fell by 4.4 percent. The group’s members also consumed about 1 percent a day more domestically.

“It’s three factors that have combined to give them, as they say, $100 billion less,” said Leo Drollas, an independent oil consultant in Athens and former chief economist at the Centre for Global Energy Studies. “The increase in the internal consumption, the slight fall in the price, and the fall in production in some members.”

The average price of Brent futures fell 2.7 percent to $108.70 a barrel in 2013, according to data on the ICE Futures Europe exchange. It was the first annual decline since the second year of of the financial crisis in 2009. The price of OPEC crude averaged 3.3 percent lower, the group’s data show.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron

Credit Suisse Commodities Exit Said to Lead to Job Cuts

By Agnieszka Troszkiewicz and Michael J. Moore Jul 23, 2014 12:02 AM GMT+0700

Credit Suisse Group AG (CSGN)’s decision to exit the commodities-trading business will probably result in about half of the unit’s 80 workers globally being cut, people briefed on the matter said.

Some employees will remain in different roles while others will work on winding down the business, said one of the people, who requested anonymity because the figures aren’t public. The cuts won’t be immediate as the Zurich-based bank transfers the commodities book into its non-strategic unit, the person said.

Chief Executive Officer Brady Dougan has reduced the amount of capital dedicated to the trading business as investors have called for Credit Suisse to shrink its investment bank and focus on wealth management. The firm cited low volatility and client volumes in its decision to exit commodities trading and said the move will reduce costs by about $75 million and lower risk-weighted assets and leverage exposure by $2 billion and $5 billion, respectively.

Dougan, 54, said the commodities-trading business was losing money this year. Credit Suisse may keep small parts of the business, such as precious metals, and move them to the foreign-exchange unit, he said. The bank is keeping its commodity trade finance business, which is part of the corporate and institutional clients division.

Credit Suisse is also cutting expenses at its foreign-exchange and rates businesses by shifting more of those trades to its electronic platform, Chief Financial Officer David Mathers said on a conference call with reporters today.

To contact the reporters on this story: Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net Steven Crabill, Dan Kraut

 Arctic Ice Melt Seen Freeing Way for South Korean Oil Hub

By Ann Koh and Heesu Lee Jul 23, 2014 3:54 AM GMT+0700

Melting Arctic ice is widening a path for ships to deliver European oil to Asia, stoking South Korea’s ambition to become a regional storage and trading hub.

The country, whose proximity to China, Russia and Japan makes it an ideal conduit for oil arriving via the Arctic, plans to add tanks for storing almost 60 million barrels of crude and refined products by 2020, about the same as Singapore’s current capacity. The nation also seeks to leverage its energy infrastructure, which includes five refineries, to become Northeast Asia’s oil hub, said Kim Jun Dong, the deputy minister of energy and resources policy.

Global temperatures are rising, breaking up polar ice and opening the Northern Sea Route to tanker traffic for a longer period each year than from July to October. It’s forecast to be ice-free for six months by 2020, boosting South Korea’s appeal as the destination for European cargoes that traders could potentially ship again to other Asian countries.

“We’ve noticed a huge difference in trading routes,” Erik Hanell, the chief executive officer of Stena Bulk AB in Gothenburg, Sweden, which controls a fleet of 110 tankers, said by phone on July 9. “China is importing more and all the countries in the Far East are importing a lot more. South Korea has a very strong geographic position in today’s development of both Arctic oil and China’s growing demand.”

Trade Zones

Resource-scarce South Korea, Asia’s fourth-largest economy, depends on exports for more than half of its gross domestic product. It’s seeking to lure energy traders, having designated 12 oil-storage facilities as free-trade zones. The nation’s global trade climbed to $1 trillion last year, customs data show, and President Park Geun Hye is seeking to boost annual growth by a percentage point to 4 percent.

“After the oil hub is established, we expect to make more than $25 billion annually” through storing and processing cargoes for third parties, Kim, the deputy minister, said in an e-mail response to questions.

The country’s free-trade agreement with the European Union waives a 3 percent tariff on imports, which is drawing crude from the North Sea.

Stena Bulk, whose lineup includes 15 so-called Ice Class vessels capable of sailing through the Arctic, partnered South Korea’s Hyundai Glovis Co. to transport 44,000 metric tons of naphtha from Ust Luga near Saint Petersburg to Yeosu last year, according to Hanell. That’s about 396,000 barrels. The voyage by the Stena Polaris was covered in 35 days, compared with a typical seven-week journey via the Suez Canal.

Arctic Route

South Korea was the destination last year for at least three ships traveling through the Northern Sea Route, while six made the voyage in 2012, according to IHS Maritime, a unit of IHS Inc., a consultant in Colorado. These tankers carried naphtha and ultra-light crude known as condensate.

“The Northern Sea Route would cut journeys considerably for energy shipments heading from Europe and Russia to Northeast Asian markets, even after factoring slow steaming due to ice,” Gary Li, a senior analyst at IHS Maritime in Beijing, said by e-mail on July 7.

The world experienced its warmest May in more than a century this year, data from the U.S. National Oceanic and Atmospheric Administration show. The earth’s combined land and sea temperature for May was 59.93 degrees Fahrenheit (15.5 Celsius), a record 1.33 degrees warmer than the 20th century average, it said June 23.

Ice Free

As global temperatures rise, the Northern Sea Route, which follows Russia’s Siberian coast, will be completely free of ice all-year round by 2030, according to the Korea Energy Economics Institute, a government researcher in Gyeonggi province.

It’s the shortest shipping lane connecting Europe to Asia. The waters off Siberia first became sufficiently ice-free in the summer of 2005 for voyages to be considered, with satellites suggesting in 2008 that the route might be passable. South Korea, which has about 2.9 million barrels a day of refining capacity compared with Singapore’s 1.4 million, is “most favorably located” to benefit, according to Kim.

Still, tanks alone may not be enough for Korea to stake a claim as Asia’s oil-trading center. The “key challenge” would be to sell its surplus products into other Asian markets, said Sushant Gupta, the head of Asia-Pacific downstream research at Wood Mackenzie Ltd., an Edinburgh-based consultant.

Regional Rivals

Even as Korea’s capacity swells, Malaysia and Singapore are adding facilities that will maintain Southeast Asia’s appeal, Gupta said by phone from Singapore on July 1.

Singapore currently offers almost 63 million barrels of storage capacity, according to government estimates, a component of its role as a pricing center for Asia’s crude and refined products. It’s also home to Royal Dutch Shell Plc’s biggest refinery globally, as well as chemical and oil plants operated by Exxon Mobil Corp.

Last month, Malaysian Prime Minister Najib Razak opened the first phase of a storage complex partly owned by Royal Vopak NV, the world’s largest independent tank operator, in Johor state. The clean-products project follows similar facilities led by Vitol Group and Dialog Group, a local investor.

South Korea is making 20 million barrels of state-owned storage available for commercial use and seeking to attract 2 trillion won ($1.94 billion) in private funds to build 36.6 million of capacity by 2020, government data show.

Korea Hub

Last month, the nation designated two oil terminals in Yeosu and Ulsan as free-trade zones, where duties for storing and blending imported products will be exempted. This is aimed at boosting trade and enticing foreign investment needed to establish the oil hub, the Customs Service said June 18.

Oilhub Korea Yeosu Co., a project of seven companies including Korea National Oil Corp., started an 8.2 million-barrel terminal in July last year, said Kim, the deputy minister. It has already signed contracts to fill 78 percent of the capacity, he said.

Korea Oil Terminal Co., a venture in which KNOC is proposing to partner with Vopak and S-Oil Corp., will build 9.9 million barrels of storage in Ulsan by 2016, Kim said July 18. A further 18.5 million barrels of capacity is planned at Ulsan by 2020.

“The oil hub project is going in the right direction,” Hong Sung Won, a maritime business professor and director at the Institute of Arctic Logistics at Youngsan University in Busan, said by phone July 9. “As South Korea is only in its beginning stage, securing storage capacity is the right thing to do.”

To contact the reporters on this story: Ann Koh in Singapore at akoh15@bloomberg.net; Heesu Lee in Seoul at hlee425@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net; Pratish Narayanan at pnarayanan9@bloomberg.net Pratish Narayanan, Yee Kai Pin

Pump Prices in U.S. at 4-Month Low as Refineries Ramp Up

By Lynn Doan Jul 22, 2014 11:14 PM GMT+0700

Retail gasoline in the U.S. slid to the lowest level in almost four months as refineries boosted production to cash in on cheaper domestic oil, offering relief to consumers who saw their costs rise last month.

Pump prices averaged $3.593 a gallon yesterday, down 4.2 cents from the previous week and the lowest since March 31, data posted on the Energy Information Administration’s website show. Gasoline was 2.4 percent below 2013 levels.

Drivers are seeing relief at the pumps as U.S. refiners process a record amount of oil, reversing an increase in June that boosted U.S. consumer prices. A production boom from U.S. shale formations and Canadian oil sands pushed some domestic crudes down last month to multiyear seasonal lows versus foreign grades. Oil futures in New York and London have retreated as output in Iraq has been unaffected so far by unrest there.

“Refineries are running really smoothly right now and they’re making lots of gasoline,” Michael Green, a spokesman for Heathrow, Florida-based AAA, said by telephone from Washington. “There’s also a stalemate in Iraq that’s helped stabilize the markets because there’s less fear that rebels will disrupt oil production and exports.”

Refineries in the U.S. processed 16.6 million barrels a day in the week ended July 11, the most in Energy Information Administration data going back to 1989, and plants operated at 93.8 percent of capacity, the highest level since August 2005.

Refining Margin

The surge in U.S. refining narrowed gasoline’s crack spread versus West Texas Intermediate crude on the New York Mercantile Exchange, a rough measure of refining profit, last week to $17 a barrel, the smallest in five months and the lowest seasonally in four years. The gap was $16.88 today. The motor fuel’s premium to the international standard Brent oil shrank to $11.89, before rebounding to $12.68 today.

Retail gasoline may “drift down slowly by a few more cents” should refineries in the U.S. continue to run at high rates and hurricanes steer clear of the Gulf, Green said. The six-month Atlantic storm season runs from June 1 through Nov. 30, with the statistical peak Sept. 10 and the most activity from mid-August to mid-October.

The second tropical system of the season formed far east of the Lesser Antilles island chain yesterday, the National Hurricane Center’s website shows.

The U.S. consumer price index increased 0.3 percent last month, matching the median forecast of 85 economists surveyed by Bloomberg, figures from the Labor Department showed today in Washington. Gasoline costs jumped 3.3 percent, the biggest gain since June 2013, accounting for two-thirds of the increase in total prices, today’s report showed.

Decline Slowing

The escalating tension between the West and Russia, the fighting in the Gaza Strip, and the violence in Iraq will temper the decline in the pump price, Andy Lipow, president of energy consulting firm Lipow Oil Associates LLC in Houston, said by telephone. Both Brent and WTI capped their first increases last week in a month on the conflicts.

“I expect the retail price to go down to about $3.55 a gallon over the next week or so,” Lipow said. “Then we’ll have to see if these events overseas result in the market turning around and costing the consumer more money.”

In the U.S. Midwest, crude demand surged 5.4 percent and refineries used oil from North Dakota and Canada to run at a record 100.3 percent of normal operating capacity, EIA data show.

Shale Boom

Those grades are getting cheaper relative to their counterparts as hydraulic fracturing and horizontal drilling help draw record volumes of crude out of shale formations. The tight-oil boom has boosted domestic production to the highest level since 1986, turning the U.S. into the world’s largest producer.

Western Canada Select, a heavy, sour blended crude, was unchanged versus WTI at a $24.50-a-barrel discount yesterday, its lowest level for this time of year since at least 2008, data compiled by Bloomberg show. Oil from North Dakota’s booming Bakken shale formation was $7.80 a barrel below WTI.

This week, pump prices fell in all regions of the U.S., with the biggest drop seen in the Gulf Coast region, where it declined 4.6 cents to $3.394 a gallon. The smallest decrease was in the Rocky Mountain area, which lost 0.4 cent to $3.64.

The EIA collects information from about 800 filling stations as of 8 a.m. local time on Mondays.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Charlotte Porter

 Sinopec First-Half Production Increases 8% on Overseas Output

By Aibing Guo Jul 22, 2014 10:19 AM GMT+0700

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China Petroleum & Chemical Corp. (386), Asia’s biggest refiner, reported an 8 percent gain in first-half oil and gas production as overseas output doubled.

Output rose to 237 million barrels in the six months ended June 30, the Beijing-based company known as Sinopec said in a statement yesterday after the close of trade. Production rose faster than the 3.8 percent increase a year earlier.

Overseas crude oil production increased to 23.7 million barrels in the first-half, Sinopec said. Output rose after the refiner bought foreign assets from its state-owned parent last year, according to Laban Yu, a Hong Kong-based analyst at Jefferies Group LLC.

“The increase came totally from the acquisition of the parent’s assets last year,” Yu said by phone. “Its organic growth was flat in the first-half, although the near 10 percent increase in natural gas could be considered positive, compared with the around 7 percent guidance provided by Sinopec.”

Sinopec’s domestic crude output was little changed at 154.2 million barrels, while natural gas output rose 9.5 percent to 354.8 billion cubic feet during the period, it said.

The stock gained 1.9 percent to HK$7.36 in Hong Kong trading as at 10:49 a.m. local time, the biggest gain since June 26. The city’s benchmark Hang Seng Index rose 1.1 percent.

To contact the reporter on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Madelene Pearson, Rebecca Keenan

 Fracking Opponents Renew Call for South African Shale-Gas Halt

By Paul Burkhardt Jul 22, 2014 3:30 PM GMT+0700

A South African environmental group renewed its call for a moratorium on shale-gas fracking, as the government moves closer to a decision on whether to allow the process opponents say imperils water quality.

The Treasure Karoo Action Group, named after the semi-desert area of South Africa that has attracted petroleum exploration companies, started in Johannesburg today the latest phase of a campaign to block the drilling technique.

An April 2011 moratorium placed on shale-gas exploration in South Africa ended in September 2012. The government on Oct. 16 published proposed regulations for hydraulic fracturing as it seeks to tap as much as 390 trillion cubic feet of resources in the Karoo. Opponents of fracking, which blasts water, chemicals and sand into rock to release natural gas, say it risks contaminating ground water.

Royal Dutch Shell Plc (RDSA) is among explorers to have applied for permits to explore the Karoo. South Africa, which imports 70 percent of its crude-oil needs, estimates shale gas may generate 1 trillion rand ($100 billion) of sales within three decades, helping to bring it closer to self sufficiency.

Energy Minister Tina Joemat-Pettersson said the development of shale gas “can’t be dismissed,” according to a transcript of a speech yesterday. “Our government has adopted a cautious and responsible approach that seeks to understand the risks to the environment posed by fracking.”

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net Alex Devine

Nigeria’s Q1 crude oil output reaches 2.26m bpd

EDIRI EJOH & KAYODE AMOLEGBE, with Agency report

The Nigerian Bureau of Statistics said that crude oil production has averaged 2.26 million barrels per day in the first quarter of this year, bolstering the country’s economic growth rate to 6.21 percent.

According to data released by the National Bureau of Statistics, oil output was 30,000 bpd lower than average production of 2.29 million bpd in the corresponding period of last year, but it was higher than the 1.87 million bpd at the end of 2013.

“As a result, the growth rate of real GDP was recorded at 6.21 percent in the first quarter in 2014, higher than 4.45 percent recorded in the corresponding quarter of 2013”. This shows that there is a slight improvement in oil output by 1.76 percent (140,346 thousand bpd) in the first quarter of the year.

The Group Managing Director, Nigerian National Petroleum Corporation, NNPC, Andrew Yakubu, said the country’s oil production was presently at over 2.3 million bpd, and expected to rise further as the government clamps down on oil theft and sabotage attacks on production facilities.

The statistics office said it expects the economy to grow by 6.19 percent in 2014, up from 5.5 percent last year, making a difference of 0.69 percent, on the back of rising oil output.

Oil is the backbone of Nigeria’s economy.

But large scale theft and security challenges currently faced by the country have prevented Nigeria from producing up to its optimum estimated capacity of 3.2 million bpd, as well as depriving the country of an estimated amount of N966 billion ($6 bln) annual revenue.

However, Oando Energy Resources Inc., a company focused on oil and gas exploration and production in Nigeria, has announced completion of the acquisition of Medal Oil Company Limited for N800 million ($5 mln).

According to the company, “The purchase price of $5,000,000 was satisfied by the issuance of 3,491,082 units, each unit consisting of one ordinary share of the company and one-half of one warrant to purchase an additional ordinary share at a price of C$ 2.00 per common share for a period of 24 months from the date on which the company closes the acquisition of the Nigerian upstream oil and gas business of ConocoPhillips.

“Medal Oil holds a 5 per cent interest in Oil Mining License (OML 131). Upon completion of the CoP acquisition, Oando will own a 100 percent interest in OML 131”.

© 2014 Vanguard Media Limited, Nigeria

US senators call for Russian energy sanctions

Washington, 22 July (Argus) — Three Democratic senators today urged President Barack Obama to impose broad sanctions against Russia's energy sector in the wake of the downing of Malaysian Airlines flight MH 17 in eastern Ukraine.

Senate Foreign Relations Committee chairman Robert Menendez (New Jersey), Senate Select Committee on Intelligence chair Dianne Feinstein (California) and Senate Armed Services Committee chairman Carl Levin (Michigan) sent a letter to Obama calling for new measures against Moscow's energy, defense and banking sectors to "punish Russia's reckless behavior and stabilize the situation in Ukraine."

The lawmakers said they support the US administration's efforts to coordinate sanctions measures with the EU. However senators said the US "must not limit its own national security strategy when swift action will help fulfill our strategic objectives."

One day before the jetliner's downing, Obama on 16 July sanctioned Russia's state-owned oil company Rosneft and independent gas producer Novatek, limiting their access to the US capital markets. The US sanctions against Rosneft and Novatek mean the two companies will be unable to access debt financing in the US of longer than 90 days. The sanctions do not prohibit US companies from engaging in other kinds of transactions with those companies.

BP holds a 20pc interest in Rosneft, while Total has a 17pc stake in Novatek. ExxonMobil is partnering with Rosneft to develop further the Sakhalin 1 project's gas resources. And ExxonMobil and Rosneft are scheduled in August to start drilling in the Kara Sea under an offshore exploration joint venture.

The senators' letter came as EU foreign ministers, meeting in Brussels, called on the European Commission and EU's European External Action Service by 24 July to draw up a list of sanctions proposals that would limit Russia's access to sensitive energy technologies, as well as European capital markets, defense sector and dual use goods.

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Oil prices 'may go up on tighter supplies'

Opec and non-Opec oil supply growth will reduce over the next 18 months, a report said, with the average Brent prices for 2014 and 2015 ranging from $106 to $109 and from $103 to $108/bbl, respectively.

In a new forecast, the BofA Merrill Lynch Global Research said it is now revising up Brent price projections on tighter supplies. Last November it forecast a modest oil price drop in 2014.

“In our 2014 Energy Outlook piece we argued that a strong dollar, sluggish global nominal GDP growth and surging supplies would likely push Brent crude oil prices down to average $105/bbl in 2014, compared to $109/bbl in 2013," the report said.

“Yet, Brent crude oil front-month contract rolling prices have again averaged $109/bbl so far this year. A few factors help explain the persistently high prices. First, geopolitical concerns and supply disruptions have exceeded our initial assumptions. Second, the trade-weighted dollar has depreciated by about two per cent annualised against our strategists' projections. And a distant third, US inflation has surprised a bit to the upside.

“After four quarters of ~2 million bpd supply growth year-on-year, we now see non-Opec supply growing by about one million bpd year-on-year on a forward basis, leading to slightly tighter balances. Once again, much of the growth this year and next will come out of North America, while countries like Russia, China, Brazil, or Colombia, will provide only limited gains. Most other major producers will likely see declines. 

“Meanwhile, we still see WTI falling below $100/bbl in 2H14. As for domestic US benchmarks, we see continue to see downside risks. First, near-dated Brent contracts moved into contango last week and this weakness in structure may feed into WTI.“Second, major inventory draws at Cushing seem to have reversed just as Pony Express and Flanagan South pipes are set to come on line.

“Three, refiners will go into maintenance as the US driving season ends, setting the stage for renewed downward pressure on WTI. Even then, recent condensate export licenses granted by the Department of Commerce are a positive first step to debottleneck the North American crude market.

“As such, we modestly revise up our 2H14 and 2015 average WTI crude oil forecast to $98/bbl and $96/bbl, respectively,” the report concluded. - TradeArabia News Service

Oil demand to rise, price to average $109: Report

Riyadh, 2 days ago

Oil demand is expected to rise in the third quarter of this year due to the summer peak season and a sustained recovery in the US economy plus steady growth in China, a report said.

Non-Opec supply will exceed global demand growth in 2014 but this will not translate to lower Brent prices, as geopolitical issues in Ukraine, Libya and Iraq keep a floor on prices. As a result, Brent oil is expected to average around $109 per barrel in 2014, the Jadwa Investment oil market report said.

According to Opec data, global demand in Q2 2014 increased by 1 mbpd year-on-year with 1.2 mbpd increase from non-OECD countries and a drop of 0.2 mbpd in OECD countries.

The US is the main source of demand growth amongst the OECD countries. Further evidence of a full scale recovery in the US economy was provided by higher Q2 2014 manufacturing PMI’s, which will contribute to US oil demand rising to an average of 15.6 mbpd in 2014, up 2.1 percent, year-on-year.

EU oil demand growth will continue to be weak due to the stuttering economy; Q2 2014 PMI’s declined slightly, compared to the previous quarter. Although the EU economy is expected to improve marginally over the second half of the year, as the fiscal position of the southern European economies continues to improve and industrial production recovers, structural changes through continuing improvements in fuel economy standards will mean growth in oil consumption will be limited for the foreseeable future.

Japanese oil demand in Q2 2014 was broadly unchanged year-on-year and will remain flat during the remainder of 2014 due to changes in the energy landscape, it said.

China’s economy gained pace in June on the back of improving demand at home. Manufacturing PMI’s improved in Q2 2014, with June’s PMI rising above the 50 mark for the first time in 2014. However, China’s ability to meet its forecasted annual GDP of 7.5 percent is also contingent on the strength of overseas demand, and with only tepid growth in key export markets of EU and a recent upturn in the US, the risk of slower economic growth and, in turn, oil demand remains. "Despite this, we still expect oil demand growth to be above 3 percent for the whole of 2014, as government infrastructure projects, new refineries and oil stockpiling sustain demand," said the report.

Indian oil demand will remain at around 2 percent for the next two quarters. Demand will be held up by continued expansion in the construction sector but remains open to downside risks through macro-economic uncertainty relating to a large fiscal deficit and capital outflows due to a lack of economic reform, the report said.

Saudi Arabia's consumption averaged 1.9 mbpd in the first half of 2014, up 28 percent, year-on-year. This rise was much higher than other GCC countries, which only increased by an average of 1 percent, over the same period. The sharp rise in oil demand from Saudi Arabia is largely a result of the startup of the 0.4 mbpd Satorp refinery in Q4 2013, which has pushed up refinery intake levels since the beginning of the year. Going forward, increased demand for generation in electricity during the summer months will see Saudi Arabian oil consumption rise in Q3 2014 and continuing economic growth will sustain oil demand throughout the remainder of 2014, it said.

Supply

Global oil supply grew by 0.4 mbpd year-on-year in Q2 2014, with non-Opec supplies growing by 1.7 mbpd as a result of increased US oil production. In Q3 2014 there will be continued output increases from non-Opec sources, led by the US, but ongoing tensions in Libya and limited growth in output from Iraq will result in Opec output declining in 2014, year-on-year. 

The shale oil revolution in the US continues apace with production rising by 15 percent in Q2 2014, year-on-year. As economic recovery builds momentum, it is expected that increased investment in both non-conventional and conventional oil resources which will expand output by 12 percent in second half of 2014.

US production will average 8.42 mbpd in 2014 and 9.27 mbpd in 2015 and this will be accompanied by declining oil imports, which will average 7 mbpd in 2014 and 6.2 mbpd in 2015. By 2015, imports of oil will represent 36 percent of total US energy consumption, compared to 58 percent in 2010.

Total output from Opec dropped by 4.5 percent in Q2 2014, year-on-year. Opec continues to be affected by large falls in Libyan output, down 84 percent in Q2 2014, year-on-year.

Latest Opec data shows that Iraqi crude production rose by 2.6 percent, year-on-year, in Q2 2014, to 3.1 mbpd. The report says that the current civil strife in Iraq will not negatively impact oil output going forward. This is because, firstly, the main oil facilities are located in the south of the country where 90 percent of Iraqi crude exports are shipped from, and these areas have been unaffected by the violence. In northern Iraq around 0.2 mbpd of oil supply has gone offline as the main delivery point of this crude, the Baiji refinery, has been captured by insurgents. Secondly, insurgents in the north-west do not enjoy the same level of political support in the oil areas of the south and, lastly, any further push south by these groups is likely to draw military action from US, Iraq and Iran.

Saudi Arabian crude production was up by 2 percent in Q2 2014, year-on-year, bringing the first half 2014 production average to 9.7 mbpd, up from 9.3 mbpd over the same period in 2013. "We had previously forecasted full year 2014 average Saudi production at 9.4 mbpd, but we are now revising this upwards to 9.7 mbpd. A number of factors have led us to revise our production forecast, including continued outages and slower growth in output from other Opec members, faster than expected upturn in the US economy resulting in higher demand for Saudi crude, and higher year-on-year domestic Saudi consumption," the report said.

In the previous forecast one primary assumption had been that Saudi Arabia’s share of total Opec production would gradually fall during the year as output from Libya came back online and Iraqi production steadily rose to around 4 mpbd over the course of 2014. As pointed out earlier, we now do not see Libyan supply returning to normal levels until after 2014, whilst security and infrastructure issues in Iraq will prevent production from rising beyond current levels for remainder of the year

"We also see some rises in demand for Saudi crude coming from an improving US economy. Although shale oil has allowed the US to reduce its imports of crude oil, these reductions have affected producers of mainly lighter crude types, such as Nigeria, but because a majority of US refineries are still configured towards processing heavier crudes, imports from Saudi have not been adversely affected. In fact, in the first half of 2014 Saudi crude exports to US averaged 1.4 mbpd, up from 1.2 mbpd in same period last year," the report said.

Furthermore, increased demand for generation in Saudi Arabia electricity during the summer months in Q3 2014 and continuing economic growth throughout the remainder of 2014 will result in Saudi domestic consumption not changing substantially from first half 2014 average consumption of 1.9 mbpd.

As a result of the factors outlined above, Saudi Arabia production is expected to average 9.7 mbpd for 2014 as whole.  - TradeArabia News Service

Sonatrach to spend $100bn to boost oil, gas

Algerian state energy group Sonatrach has approved a $100 billion investment plan for 2014-2018 to increase oil and gas output and also aims to start producing shale gas in 2020, the official APS news agency reported.

Opec member Algeria, a major gas supplier to Europe, has been struggling to raise energy output, on which it relies heavily for state funds to finance development and social programmes.

Oil and gas production has been stagnating since 2010 due to a fall in exploration activity and a lack of investment from foreign companies, which have been wary of Algeria's contract terms and security since a 2013 militant attack on a gas plant.

But energy officials are hopeful things will improve in the medium term through higher spending in the sector.

The $100 billion spending for the five-year period through 2018 will be aimed at boosting reserves and increasing oil and gas production, APS said, citing an unidentified source at Sonatrach late on Saturday.

The plan allocates $42 billion to help develop oil and gas fields from now through 2018. That figure includes $22 billion for natural gas development.

Officials have said Sonatrach is planning to start production at six gas fields with a total capacity of 74 million cubic metres per day in the next three years.

The investment plan was reported as Algeria prepares to open bids for a new oil and gas round, with 31 fields on offer in September this year.

For the first time, the bidding includes blocks for unconventional resources, with tax incentives for foreign companies interested in investing in shale gas and shale oil.

Energy officials are optimistic that Algeria's shale gas potential is significant and that Sonatrach will start producing it in 2020, with initial output of around 30 billion cubic metres per year, ABS reported, citing the Sonatrach source. - Reuters

Saudi Electricity Q2 profit jumps 144pc

Riyadh, 1 days ago

Saudi Electricity Co (SEC) , the Gulf's largest utility firm, reported a 144 percent jump in its net profit for the second quarter on Monday, beating analysts' forecasts because of a one-time gain.

It made 3.66 billion riyals ($976 million) during the three months to June 30, compared to 1.50 billion riyals during the same period of the previous year, it said in a bourse statement

Two analysts polled by Reuters had forecast, on average, that SEC would post a quarterly profit of 1.19 billion riyals.

The net profit jump was the result of a 2.63 billion riyal gain as the company wrote back provisions for doubtful receivables from subscribers, it said without elaborating.

SEC's results are highly seasonal because of big swings between power demand in winter and in summer, when high temperatures lead most homes and businesses to rely on extensive air conditioning.-Reuters

China's oil imports from Iran rise 50pc

China's crude imports from Iran in the first half of the year were up nearly 50 per cent, although shipments in June dropped nearly a third from May to the lowest level in four months.

China, Tehran's largest oil client, began stepping up purchases from the Opec member after a preliminary nuclear deal in November of last year eased some sanctions on Iran. China has been making up the main portion of Asia's higher Iranian oil imports since then.

Iran and six world powers have failed to negotiate a final resolution to a decade-old standoff over Tehran's atomic activities, but talks have been extended for another four months past the July 20 deadline.

Mostly owing to China's increases since the interim deal was agreed, Asian buyers are expected to import about 1.25 million to 1.3 million barrels per day (bpd) of Iranian oil in the first half of the year, industry and government sources have said.

China's June imports from Iran came in at 2.18 million tonnes, or 531,200 bpd, up 38 per cent from a year ago and down 30 per cent from May, customs data showed on Monday.

Imports from Iran for the first half of the year were 627,742 bpd, up 48 per cent from 424,183 bpd over the same six months of last year, the data showed.

June's level eased back to a normal contract rate versus record and near-record shipments seen in April and May, as top state refiner Sinopec Corp may have slowed down loading from Iran, according to a source.

Sinopec had been planning to cut back its June shipments from Iran because of the high volumes of the previous two months, the trading source familiar with loading plans had earlier told Reuters.

China's imports from Iran spiked to a record in April and remained high in May. June's figures were at the lowest since February, on par with December-March daily imports and near pre-2012 levels, before tough Western sanctions were imposed.

Sinopec has been lifting more Iranian crude since last year partly because it is cheaper versus similar grades from Saudi Arabia, industry officials have told Reuters.Sinopec's increased shipments helped lift overall imports from Iran and were a result of both the easing of sanctions and a push to cut purchase costs, the officials said

Higher imports of condensate, a light crude oil from Iran's South Pars gas project, have also contributed to strong intake figures. China counts condensate as crude oil.

Despite the slow progress on a long-term deal to end the decade-old nuclear standoff, Iran has moved to eliminate its most sensitive stockpile of enriched uranium gas, in keeping with the interim agreement, according to an update by the UN nuclear watchdog obtained by Reuters.

Iran's overall crude oil exports dropped in June after a spike in May, yet sales were still above the one million bpd allowed by the November deal aimed at curbing Tehran's nuclear programme, according to sources who track tanker movements.

Iran ranks No.3 among China's top suppliers, according to customs, with growth in the January-June period the fastest among China's top suppliers, outpacing that of Iraq, Oman, Angola, Russia and Saudi Arabia. - Reuters

Asian, western firms bid for UAE oilfields

Asian and western firms have bid to help operate the UAE's biggest oilfields after a deal with oil majors expired this year but the Gulf Arab state is yet to decide whether to let Asian oil buyers in for the long haul, sources said.

A final decision on the winning firms is unlikely before early 2015 as political leaders in Abu Dhabi, the capital of the UAE, weigh whether to bring in Asian firms or stick with old partners, industry and diplomatic sources said.

At least one oil major, ExxonMobil, appears to have decided against bidding, the sources told Reuters.

ExxonMobil, Royal Dutch Shell, Total and BP - have each held 9.5 per cent equity stakes in the Abu Dhabi Company for Onshore Oil Operations (Adco) concession since the 1970s. Portugal's Partex had a two per cent stake, and the rest was held by state-run Abu Dhabi National Oil Company (Adnoc).

After the deal expired in January, Adnoc took 100 per cent of the concession. Shell, Total and BP have made their new bids, which are being evaluated by Abu Dhabi, the sources said.

Exxon, however, did not bid for the Adco concession after it renegotiated a better deal for the Upper Zakum offshore oilfield, which it has been operating with Adnoc and Japan's Inpex since 2006, two sources said.

The US major pulled out its staff from the Adco fields earlier this year, a sign that it has dropped out of the race, sources say.

"Exxon has pulled its folks out while others kept their people. (It is) 95-per cent (sure) Exxon has decided not to bid," one source told Reuters.

"They are going to make what? $2 or $3 dollars a barrel? So they probably said: 'why have two projects in the UAE?'," the source said

Exxon said its Adco concession expired on January 10 but declined to comment about its staff and future plans.

 Exxon's exit may improve the chances for the other three former partners and pave the way for newcomers to join in.

 US firm Occidental Petroleum Corp, Italy's ENI , China National Petroleum Corp (CNPC), Norway's Statoil, Japan's Inpex and Korea National Oil Corp have bid for the new deal, three sources told Reuters.

Rosneft has been invited to bid, but it was not clear whether Russia's top oil company has submitted an offer, two industry sources said.

"Abu Dhabi's new partners are expected to be selected in early 2015. The evaluation process is underway," one industry source said.

The onshore fields produce 1.6 million barrels per day (bpd), over half UAE's oil output.

The UAE oil minister said in January Abu Dhabi has received strong interest from international firms to participate in the Adco fields with revised terms.

Adnoc did not respond to Reuters emails and calls for comment. A CNPC official said the Chinese company has bid to operate the Adco fields, but he knew no further details.

None of the remaining companies vying to be part of the next phase of development would comment on the situation.

POLITICAL TIES

Western oil majors have partnered Abu Dhabi for decades but several Asian energy companies are keen to secure stakes in fields that supply the growing Asian market.

That would offer a chance for UAE to strengthen political ties with its biggest oil buyers such as China, South Korea and Japan.

 "The (UAE) leadership is turning eastwards more than before," said Valérie Marcel of think tank Chatham House.

"We also know that the leadership wants new types of contracts, which encourage oil companies to invest more of their technology. These forces push Abu Dhabi towards new partners and new terms."

Industry observers say any changes in the concessions would be made at the highest decision-making body for the oil and gas industry, the Supreme Petroleum Council. They say there is a difference in opinion inside the SPC over whether to stick with western companies, or make room for newcomers from Asia, while some would like to see Adnoc operating the fields alone.

"At the end of the day it will be the political decision of the leadership in Abu Dhabi on which company will take what," a diplomatic source said. - Reuters

New agency to manage Dubai power demands

The Dubai Supreme Council of Energy is to set up an egency under the name ‘efficiency,’ to reduce energy demand by 30 per cent under the Dubai Integrated Energy Strategy 2030, said a report.

The agency will operate under the council to oversee and implement the Demand Side Management strategy, which was launched recently in collaboration with the council’s agencies, said the Emirates 24/7 report.

The announcement came as the council reviewed the implementation phases of the strategy during its board meeting recently. The members presented a detailed report on the activities of the Project Management Office and preparations for the next major phases, said the report.

The strategy has eight programmes to manage energy demand including regulations for green building construction, retrofitting of existing buildings, district cooling, wastewater reuse, laws and standards to raise efficiency, and energy-efficient street lighting, it added.

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