LONDON, 1 hours, 46 minutes ago
Opec's oil supply jumped to its highest in almost two years in September due to further recovery in Libya and higher output from Saudi Arabia and other Gulf producers in the face of sub-$100 per barrel oil prices, a report said.
Supply from the Organization of the Petroleum Exporting Countries (Opec) averaged 30.96 million barrels per day (bpd) in September, up from 30.15 million bpd in August, according to the Reuters survey based on shipping data and information from sources at oil companies, Opec and consultants.
The lack of any cutbacks underlines the relaxed view of Opec's core Gulf members to oil's slide from $115 in June to $97 on Tuesday - a level they can tolerate, but which puts budgets in producers such as Iran and non-member Russia under pressure.
"Libya has increased production massively and if you look forward, Opec is producing more than the (forecast) demand for Opec crude in 2015," said Carsten Fritsch, analyst at Commerzbank. "This puts pressure on Opec ahead of their next meeting."
Opec pumps a third of the world's oil and meets next in November. This month, the largest increase has come from Libya, where supply is up by 280,000 bpd despite conflict. Iraq, Nigeria, Angola and Saudi Arabia also boosted output.
This month's output is Opec's highest since November 2012 when it pumped 31.06 million bpd, according to Reuters surveys. Involuntary outages, such as in Libya, kept output below Opec's nominal 30 million bpd target in earlier months of the year.
Iraq, like Libya, has also managed to increase supplies despite fighting in the country. Oil output rebounded due to higher exports from Iraq's southern terminals and increased output from fields in Kurdistan.
An advance by Islamic State fighters into northern Iraq has not reduced southern exports, but violence has hit supply of Kirkuk crude from the north and shut down the Baiji refinery, keeping crude output below Iraq's potential.
Nigerian output, disrupted in earlier months of the year, has climbed in September, and another increase has come from Angola where CLOV, a new crude stream operated by Total , is ramping up exports.
Top exporter Saudi Arabia, supported by Kuwait and the United Arab Emirates, has boosted output informally to cover for outages elsewhere in the group. So far, there is no sign of any further trimming, according to the survey.
In fact, industry sources in Saudi Arabia have talked of higher demand with the approach of winter and return of refineries from maintenance - factors that would argue against cutting output. Sources in the survey said supply to market had increased this month.
Some Opec members have voiced concern over the drop in prices and its meeting on Nov. 27 in Vienna is likely see a debate on whether output needs to be cut.
Opec's own forecasts suggest demand for its crude will fall to 29.20 million bpd in 2015 due to rising supply of U.S. shale oil and supplies from other producers outside the group - almost 1.8 million bpd below current output according to this survey.
Iran on Friday urged Opec members to make joint efforts to keep the market from falling further, but the Gulf Arab producers remain unruffled according to comments from oil ministers and delegates.
Iranian output was steady in September, the survey found. Western sanctions over Iran's nuclear work are restraining its output, although supply has risen since the start of the year following a softening of the measures.
Iran's budget needs oil prices well above $100, among the highest in Opec, while the budget of non-member Russia assumes an average of $100. – Reuters
The European Union is looking for alternative gas supply sources as a result of Russian involvement in the Ukrainian crisis and it now seems that it may be looking towards Iran to fulfil this need. Russia is the largest supplier of gas for the EU but after the sanctions enacted by the EU against the country, based on its annexation of Crimea and support for separatists in eastern Ukraine, the EU runs the risk of falling victim to Russia’s use of gas as a political weapon.
An anonymous source from the European Commission that is involved in the development of EU energy strategy told Reuters that the EU is considering, first of all, lifting its sanctions on Iran over its disputed nuclear programme and, second, discussing the pipeline infrastructure that is needed to transport Iranian gas to Europe. The EU had tightened sanctions on Iran in 2012 by imposing an oil embargo and restricting the country’s access to financial services and energy technologies.
A paper prepared for the EU's Directorate-Generale for External Policies of the Union following Russia's annexation of Crimea stated, "High potential for gas production, domestic energy sector reforms that are underway, and ongoing normalisation of its relationship with the West make Iran a credible alternative to Russia". The document also indicated that current sanctions and large infrastructure deficiencies inhibit Iran’s ability to act as an alternative supplier in short term.
The European Commission source also remarked that a rapprochement between Iran and the West is being observed nowadays. The source also pointed out that Iran’s new ambassador to Germany, who was appointed in July and is the EU’s main point of contact with the Iranian government, is a former member of Iran’s energy ministry. During a Tuesday meeting in New York with President of Austria Heinz Fischer ahead of the 69th UN General Assembly meeting, Iranian President Hassan Rouhani has said that the Islamic Republic can be a reliable supplier of energy to Europe, adding that Tehran is ready to deliver gas to European countries via Austria.
Amir Handjani, an independent oil and gas specialist working in Dubai commented on Iran’s position, “Iran is trying to position itself in Europe as an alternative to Russian gas. It's playing a very sophisticated game, talking with Russia on the one hand about cooperation on easing sanctions and also talking to Europe about substituting Russian gas with its own.”
The most visible route for importing Iranian gas to Europe would be via Turkey due to its geostrategic position. This option would also less politically controversial than transporting the gas by way of the Persian pipeline. Independent feasibility studies indicate that Iran could supply 10-20 billion cubic meters (bcm) of gas per year to Turkey and Europe by the early 2020s if sanctions were eased and if investments were promptly initiated.
Wednesday, October 01, 2014
SINGAPORE: Asian refiners may be about to get a welcome boost from major oil producer Saudi Arabia, which is likely to keep lowering the cost of crude to the region.
Saudi Aramco, the kingdom’s state oil producer, looks set to again cut the official selling prices (OSPs) for November cargoes when details are published early in October.
There are several reasons this may be the case, but chief among them is probably concern over market share in Asia.
It appears that Saudi Aramco has decided to make Asian markets its main focus, which makes sense given that the region takes about two-thirds of the producer’s output.
The Saudis aren’t exactly retreating from the North American and European markets, but they seem to have read in the tea leaves the trend that physical oil flows are moving toward the East and away from the West.
This pivot from North America can be seen in the OSPs this year for the various regions, with prices rising for cargoes to the United States and dropping for Asia.
In January this year, for instance, the OSP for benchmark Saudi Arab Light crude to the United States was a premium of $1.65 a barrel to the Argus Sour Crude Index.
By October, the premium for the United States had risen to $2.45 a barrel.
For Asia, in contrast, the premium for Arab Light over Oman/Dubai was $3.75 a barrel in January, but this had dropped to a discount of 5 cents a barrel by October, the first time it has been a discount in four years.
While some of the steep decline in the Arab Light OSP for Asia was due to the narrowing of the spread between Dubai crude and global benchmark Brent, in relative terms the Saudis were cutting prices for Asia while raising them for the United States.
The spread between Brent and Dubai DUB-EFS-1M was $1.02 a barrel on Monday, up from the four-year low of 72 cents on Sept. 15, but still well below the $3.88 at the start of 2014 and the peak this year of $4.86 on June 13.
The collapse in the spread has resulted in Saudi Aramco lowering the OSP for its benchmark grade in order to keep its crude competitive with grades priced against Brent.
The ongoing weakness in the spread means the OSP is poised to continue at low levels, but the other factor driving reduction is Saudi concern over market share.
China, Asia’s biggest crude importer and the Saudi’s top customer, has been taking more cargoes from Iran and Iraq recently, and trimming its reliance on Saudi Aramco.
The Saudis are likely to be uncomfortable with this situation, and they may plan to keep their crude competitive with those from their rival Middle East producers.
While the Saudis will understand that a major buyer such as China will desire to have a range of suppliers, they will also want to make sure they aren’t giving up market share.
But still Chinese imports of Saudi crude have trended lower since peaking in early 2012.
In January 2012, China bought 5.57 million tons of Saudi crude, giving the kingdom a 22.1 percent share of the country’s total imports.
By August this year, China took 3.94 million tons from Saudi Arabia, which was 15.6 percent of the total. Saudi imports are down 11.6 percent in the first eight months of 2014 compared to the same period last year.
In contrast, imports from Iraq were 1.59 million tons in January 2012, rising to 2.7 million by August this year, and they are up 24.8 percent year-to-date.
Shipments from Iran have been influenced by Western sanctions against the Islamic republic over its disputed nuclear programme, but China has bought 37 percent more from Tehran in the first eight months of this year compared to 2013.
If the Saudis have shifted their focus to Asia, and if they are determined to keep, and even build, market share, then its likely they will be prepared to accept lower prices.
By keeping their OSPs at low levels, the Saudis may well be signalling to Asian refiners that it’s “game on” against their Middle East rivals.
The News International - Copyright @ 2010-2012
Commodity weakness threatens to undermine Kremlin's main revenue source, putting a fresh squeeze on the economy.
By Craig Mellow
September 29, 2014
The global economy seems set to pour some salt onto Russia’s Ukraine-related economic wounds.
The cost of Brent crude oil, the global benchmark, has fallen more than 13 percent since the start of July to trade near a two-year low at $97.25 a barrel on September 29. By comparison, Russia needed an average Brent price of about $117 to balance its budget last year. That break-even point has risen from about $50 in the mid-2000s as President Vladimir Putin’s government has hiked spending on social programs, the military and salaries for public sector workers.
Brent’s decline below the $100 level would appear to spell fiscal trouble for the Kremlin at a time when lenders are especially reluctant to finance Russian debt. The government canceled nine straight weekly domestic bond auctions following the downing of Malaysia Airlines Flight MH17 over Ukraine in mid-July. But Moscow’s Ministry of Finance has been able to avoid a budgetary squeeze thanks to a secret weapon: the ruble.
Russia generates about half of state revenues from taxes on oil and gas sales, and crucially for the Treasury, those sales are priced in dollars. Every ruble increase in the exchange rate to the dollar boosts government revenues by about 1.4 percent, or R200 billion ($5.2 billion), according to the Finance Ministry. The ruble was trading at 39.44 to the dollar in late September, compared with 32.77 at the start of the year. That decline of more than 16 percent has produced a windfall of oil revenue and generated a budget surplus of about 2 percent of GDP in the first eight months of this year.
“The Russian budget this year has performed very well,” says Tatiana Orlova, chief Russia economist for Royal Bank of Scotland in London. “It is hard to say what the break-even oil price is now thanks to a much more flexible FX policy.”
A further 10 percent drop in Brent’s price, to about $90, might leave the Kremlin feeling less comfortable, says Yaroslav Lissovolik, chief economist for Deutsche Bank in Moscow. Russia has become more dependent on hydrocarbon revenue since the global financial crisis, with the government’s nonoil budget deficit swelling to some 10 percent of GDP currently from 4 percent in 2008, he estimates. That gap is bound to increase this year, as Russian corporate profits look set to fall by 30 to 40 percent from 2013, shriveling the Treasury’s tax take. Meanwhile, Putin is moderating but not eliminating increases in discretionary expenditure. State sector salaries will rise 2 to 3 percent in real terms this year and more than 10 percent in nominal ruble amounts, Lissovolik predicts.
The weaker ruble has its downside — notably, a rising inflation rate, which stood at 7.6 percent in August, above the central bank’s 5 percent target. “The fact that weaker dollar oil may translate to more rubles is an accounting windfall, not a paradigm for addressing Russia’s ills,” Lissovolik says.
One more medium-term threat to the Kremlin’s well-stocked coffers is banking sector weakness. The authorities spent R239 billion in August to bolster the capital of state-owned VTB Bank and state-owned agricultural lender Rosselkhozbank. That may not be the last banking injection, says Natalia Orlova, chief economist at Alfa-Bank in Moscow (no relation to RBS’s Orlova). “Slow GDP growth and rate hikes will increase the risks of nonperforming loans and later may force the cabinet to recapitalize state-owned banks,” Orlova says. “I think the risk of this scenario is material.”
Finance Minister Anton Siluanov has until now defended his “fiscal rule” to limit any budget deficit to no more than 1 percent of GDP, based on average oil prices for the previous seven years, despite demands for greater spending from “the media, academia and industrial circles,” Lissovolik notes.
Russia entered the Ukraine confrontation with abundant savings, but these bulwarks cannot last forever if Putin keeps cutting bigger slices of a diminishing pie. “The cabinet is trying to manage in a tactical way,” Alfa’s Orlova says. “But there is no strategy to address the long-term issue related to high social obligations and modest income growth.”
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By Jonathan Leff and Meeyoung Cho
(Reuters) - The first U.S. export of Alaskan crude to South Korea in more than a decade set sail at the weekend, according to a company source and shipping data, marking another milestone as booming shale oil output forces domestic drillers to seek new customers.
The Suezmax Polar Discovery loaded at the Valdez terminal in Alaska late last week and was due to arrive next week in Yeosu, South Korea, according to shipping data available on Thomson Reuters Eikon.
A source at South Korea's second-biggest refiner GS Caltex Corp said the firm would receive 800,000 barrels of Alaskan crude on October 10 after purchasing the oil on the spot market.
It was the first exported cargo of Alaska North Slope (ANS) crude, which is largely excluded from a 40-year U.S. ban on oil exports, since 2004. U.S. government data showed it was the first crude oil exported from the United States to South Korea since 2000, excluding a recent cargo of lightly processed condensate exported from the Gulf.
The source at GS Caltex, a joint venture between GS Holdings and Chevron Corp, said the refiner bought the crude at competitive prices but did not elaborate.
ConocoPhillips spokesman Daren Beaudo said the company had sold a cargo of ANS to Asia, but did not reveal terms of the deal. The sale would "enable the state of Alaska and ConocoPhillips to potentially realize a higher value" for the oil, he said.
Bids for the crude from Asian customers were higher than those from U.S. West Coast customers, Genscape, an industry group that first reported the shipment, quoted an unnamed Conoco official as saying.
NEW WAVE OF ANS CRUDE SALES
Analysts have been expecting a new wave of ANS crude sales to Asia as rising U.S. output of light sweet crude threatens to crowd out the Alaskan crude from being used at West Coast refineries. In addition, Flint Hills Resources said in February it would shut its 85,000 barrel per day North Pole refinery which had consumed nearly one-sixth of ANS output.
Last week a 900,000 barrel cargo of ANS crude for domestic delivery sold at the lowest price since June 2012, at $2.25 a barrel over U.S. crude futures for November delivery, according to traders.
President Bill Clinton signed legislation in 1996 that ended a 23-year-old ban against exporting ANS crude. Oil production in Alaska had swelled from almost nothing to more than 2 million bpd over the decade to 1988, overwhelming demand.
Within five years, Alaska exports to Asian countries ran at around 44,000 bpd, Energy Information Administration (EIA) data show. But exports to Asia ceased in 2004, after ANS production began to decline and the surplus dwindled. Alaskan output totaled 526,000 bpd last year, the lowest in 25 years.
Now, U.S. West Coast refineries that process ANS crude are filling their slates with more inland crude.
In Asia, South Korean refiners faced with weak margins want to cut costs by diversifying away from their traditional crude suppliers in the Middle East.
Earlier this month, GS Caltex received the first cargo of ultra-light oil, or condensate, from the United States since the softening of the U.S. ban, and South Korea's biggest refiner SK Energy Co Ltd is also expecting U.S. condensate soon.
GS Caltex and other South Korean refiners are considering using more U.S. condensate if the economics remain attractive, according to the company and other refining industry sources.
(Additional reporting by Timothy Gardner in Washington and Catherine Ngai in New York; Editing by Meredith Mazzilli, Matthew Lewis and Ed Davies)
* 1st export of Alaskan crude to South Korea in more than a decade
* Tanker due to arrive in South Korea Oct 10-GS Caltex source
* Asian bids top those from West Coast customers-industry group
* South Korean refiners seek to diversify away from Mideast crude (Adds Murkowski quote paras 5-6)
By Jonathan Leff and Meeyoung Cho
NEW YORK/SEOUL, Sept 30 (Reuters) - The first U.S. export of Alaskan crude to South Korea in more than a decade set sail at the weekend, according to a company source and shipping data, marking another milestone as booming shale oil output forces domestic drillers to seek new customers.
The Suezmax Polar Discovery loaded at the Valdez terminal in Alaska late last week and was due to arrive next week in Yeosu, South Korea, according to shipping data available on Thomson Reuters Eikon. South Korea's second-biggest refiner GS Caltex Corp will receive 800,000 barrels of Alaskan crude on October 10 after purchasing the oil on the spot market, a company source told Reuters.
It was the first exported cargo of Alaska North Slope (ANS) crude, which is largely excluded from a 40-year U.S. ban on oil exports, since 2004. U.S. government data showed it was the first crude oil exported to South Korea since 2000, excluding a recent cargo of lightly processed condensate exported from the Gulf. Caltex also bought the condensate cargo.
A spokesman for ConocoPhillips, one of the major producers of Alaskan crude, said the company had sold a cargo of ANS to Asia, but did not reveal terms of the deal or confirm if it was the Polar Discovery. The sale would "enable the state of Alaska and ConocoPhillips to potentially realize a higher value" for the oil, spokesman Daren Beaudo said.
The shipment will likely intensify pressure on President Barack Obama's administration to ease the longstanding export ban, which some analysts say would help lower global fuel prices. The export exemption for ANS was created in 1996.
"I am encouraged to see Alaska increasing its participation in global oil markets," said Republican Senator Lisa Murkowski of Alaska, a leading proponent of loosening export limits. "It's my hope that Lower 48 oil will soon follow suit."
The source at GS Caltex, a joint venture between GS Holdings and Chevron Corp, said the refiner bought the crude at competitive prices but did not elaborate.
Bids for the crude from Asian customers were higher than those from U.S. West Coast customers, Genscape, an industry group that first reported the shipment, quoted an unnamed Conoco official as saying.
NEW WAVE OF ANS CRUDE SALES
Analysts have been expecting a new wave of ANS crude sales to Asia as rising U.S. output of light sweet crude threatens to crowd out the Alaskan crude from being used at West Coast refineries. In addition, Flint Hills Resources said in February it would shut its 85,000 barrel per day North Pole refinery which had consumed nearly one-sixth of ANS output. [ID:nL2N0LC1Z4}
Last week a 900,000 barrel cargo of ANS ASW- crude for domestic delivery sold at the lowest price since June 2012, at $2.25 a barrel over U.S. crude futures for November delivery, according to traders.
President Bill Clinton signed legislation in 1996 that ended a 23-year-old ban against exporting ANS crude. Oil production in Alaska had swelled from almost nothing to more than 2 million bpd over the decade to 1988, overwhelming demand.
Within five years, Alaska exports to Asian countries ran at around 44,000 bpd, Energy Information Administration (EIA) data show. But exports to Asia ceased in 2004, after ANS production began to decline and the surplus dwindled. Alaskan output totaled 526,000 bpd last year, the lowest in 25 years.
Now, U.S. West Coast refineries that process ANS crude are filling their slates with more inland crude.
In Asia, South Korean refiners faced with weak margins want to cut costs by diversifying away from their traditional crude suppliers in the Middle East.
Earlier this month, GS Caltex received the first cargo of ultra-light oil, or condensate, from the United States since the softening of the U.S. ban, and South Korea's biggest refiner SK Energy Co Ltd is also expecting U.S. condensate soon.
GS Caltex and other South Korean refiners are considering using more U.S. condensate if the economics remain attractive, according to the company and other refining industry sources. (Additional reporting by Timothy Gardner in Washington and Catherine Ngai in New York; Editing by Meredith Mazzilli, Matthew Lewis and Ed Davies)
UN urges ceasefire in bid to prevent civil war
Tobruk and London, Reuters/Asharq Al-Awsat—Libya’s elected parliament held UN-brokered talks on Monday with a rival assembly in a bid to agree a ceasefire by armed factions and more dialogue to end a confrontation driving the Organization of Petroleum Exporting Countries (OPEC) member state close to civil war.
The House of Representatives, the internationally recognized parliament elected in June, was uprooted last month when an armed group from the western city of Misrata took control of the capital Tripoli and set up its own assembly and cabinet there.
The meeting in Ghadames, a southern town near the Algerian border, was brokered in an attempt to prevent the confrontation from descending into civil war, three years after the uprising that ended the 42-year rule of Muammar Gaddafi.
UN Special Envoy Bernandino León said after the meeting that both sides agreed on the need for a ceasefire and for humanitarian aid for victims of recent clashes in Tripoli, and to reopen airports closed by fighting. “We have agreed to start a political process to address all issues on the elements on the situation in Libya today and to do it in a peaceful way with a very strong call for a complete ceasefire all over the country,” he said.
The negotiations are likely just an initial phase including the House of Representatives and only elected deputies from Misrata, who have boycotted the chamber’s sessions since it was convened in August. The talks did not take in armed factions from Misrata which have seized Tripoli and set up the alternative assembly, or rival militia allied to the western city of Zintan, which battled Misrata forces in Tripoli for more than a month over the summer.
Those armed clashes, mostly over control of Tripoli international airport involving volleys of Grad rockets and mortars, were the worst street fighting in the capital since the fall of Gaddafi in 2011.
In a development which underlined the fragility of the situation, the Islamist militia in control of Tripoli said on Tuesday that it rejected any involvement in the UN-backed talks. The Libyan Dawn group, which includes militias from Misrata, issued a statement on its Facebook page saying it would continue the fight against its rivals, disarm them, and arrest their leaders.
The armed factions are brigades of former rebels who once fought side by side against Gaddafi, but have since sided with rival political groups and turned on each other in a battle for control of the North African country and its resources.
Libya’s weak central government and fledgling national army have been no match for the well-armed factions, both of which claim legitimacy for their role in the NATO-backed civil war that ended the late Gaddafi’s one-man autocracy.
Despite the political disorder, Libya’s oil production has been recovering after a year of strikes, blockades and protests by armed groups slashed the OPEC nation’s output. Crude production is now around 900,000 barrels per day (bpd) compared with below 200,000 bpd at the height of the crisis.
Before the negotiations, Tripoli lawmaker Ali Tekbali said he expected little from the meeting, because it did not directly include representatives of the armed factions.
Other lawmakers and diplomats welcome the prospect of talks in the vast desert country. They hope that since Misrata members of the House of Representatives are indirectly linked to the rival parliament in Tripoli, the meeting will start a broader political dialogue.
A previous UN initiative for a national dialogue—planned before fighting in Tripoli escalated in July—failed amid a public outcry, with the world body coming under criticism for alleged interference.
Hours before details of the meeting emerged, Libyan Prime Minister Abdullah Al-Thani and his Cabinet took the oath of office after lawmakers approved the line-up of his government. Last week the House of Representatives agreed on a second cabinet list after rejecting an initial 16-member one as too large. The new cabinet has 13 ministers, including three deputies for Thani, but no oil minister.
The vital oil sector will be run by state firm National Oil Corp, as it was under Gaddafi. Thani, a former career soldier, has been prime minister since March, but resigned following a June election. Lawmakers then asked him to form a new government.
Asharq Al-Awsat
Oil prices are set to remain around current levels in the near term and are unlikely to fall below $90/barrel because of the high cost of producing shale oil, a senior Saudi oil official said Tuesday.
Ibrahim al-Muhanna, adviser to Saudi oil minister Ali Naimi, said the costs associated with developing and producing shale oil had put a floor under oil prices.
“Oil prices are likely to remain at current levels, with some fluctuations,” Muhanna told a Bahrain conference. “The high cost of producing shale oil has put a floor under oil prices. ... Today, there are various estimates of [the] production costs of shale oil. The least is $50 per barrel, but the highest is $100,” Muhanna said.
“It means the price of oil will not go to less than $90, and even if it goes below that for whatever reasons, it would be for a short time before going back to the level of around $100,” he said.
World oil prices have fallen below $100/b in recent weeks amid expectations that rising non-OPEC supply will outpace growth in world oil demand. North Sea Brent traded at $96.30/b at 1503 GMT, having traded within a $97-98/b range earlier in the day.
Muhanna said Saudi Arabia’s near-term view was that world oil markets would remain stable in terms of prices, with a balance between supply and demand. “We see continuing stability of the oil market, in terms of prices, and balanced supply and demand. What we have seen over the last five years will likely continue for another five years, and maybe beyond,” he said.
Muhanna dismissed any suggestion that the shale boom that has revolutionized oil production in the United States would result in the US replacing Saudi Arabia as the world oil market’s swing producer, saying the key requirement for such a role was the availability of surplus output capacity.
Some are saying that the US will take the role of Saudi Arabia as the balancing producer, supplying the market during times of need,” he said.
“It won’t happen. The role requires spare production capacity, not just increasing production due to new resources or investments,” he said.
Saudi Arabia is currently producing “about 9.5 million b/d” and has total output capacity of 12.5 million b/d, Muhanna said. “As a matter of policy, we will have, at least, 1.5 [million] to 2 million b/d of standby production capacity,” he said. Muhanna also emphasized as “equally important” the kingdom’s oil marketing policy.
A 13-month low spread between crude futures benchmarks either side of the Atlantic has incentivized the flow of West African barrels to the US and made North Sea crude look more attractive to US Gulf Coast refiners, traders said Tuesday.
“The narrowing WTI/ Brent spread can open arbitrages,” a North Sea crude trader said. ICE Brent futures’ premium to the NYMEX WTI crude contract hit a 13-month low Tuesday at $2.55/barrel, before widening to $2.78/b as of 1220 GMT.
While several trading houses have been said to be looking to arrange cargoes for an arbitrage to the US Gulf Coast, no concrete vessel fixtures have been seen yet. The spread between the two front-month crude contracts has narrowed rapidly over the past week, as the overhang of supply in the Atlantic Basin has put pressure on ICE Brent, even as an uncharacteristically tight inventory situation in the US has bolstered NYMEX.
While strong refinery yields throughout much of the summer has created a tight supply situation in the US, which has added support to the NYMEX crude complex, the recent return of Libyan crude production to the Mediterranean market has added to the bearish impact on ICE Brent futures several months ago caused by reduced Asian demand for West African cargoes.
“Oil market fundamentals have continued to weaken,” Credit Suisse economist Jan Stuart said in a note. “The real problem, in our view, is supply...Oil inventories continue to rise. While worries about the long run growth of supply have risen, largely due to intensifying conflict in the Middle East, oil markets have resolutely focused on the short run,” he said
The WTI/Brent spread could narrow further due to speculative buying of the WTI contract, Commerzbank analysts said, adding: “There is still correction potential for WTI, where speculative net long positions are still at a comparatively high level despite their 14,700 decline in the same reporting week to 194,100 contracts.” “The better economic development in the US and the high rate of crude oil processing by US refineries have doubtless played their part in this, as well as causing the price differential between Brent and WTI to narrow.”
Combined imports of Iranian crude by China, India, Japan and South Korea averaged 1.17 million b/d over the first eight months of this year, up more than 20% from the 975,907 b/d imported over the same period of 2013, the latest official and trade data show.
India accounted for the biggest increase, boosting imports by 55.7% year on year to 296,820 b/d in the first eight months of this year from 190,640 b/d over the January-August 2013 period.
Turkey, whose imports from Iran rose to 112,324 b/d in July from 91,958 b/d in June, has yet to release data for August. Its imports of Iranian crude over the first seven months of the year have averaged roughly 106,000 b/d, about 6,000 b/d lower than the volume imported during the same period of 2013.
Taiwan, one of these six countries still able to buy Iranian oil under waiver from US sanctions, has not imported any crude from Iran so far this year.
In August, the combined volume imported by China, India, Japan and South Korea dipped to 936,326 b/d from 1.09 million b/d in July, but was higher than the combined 815,730 b/d imported by the four in August 2013.
The International Energy Agency flagged the lower August imports in its regular oil market report earlier this month but said China had reportedly stepped up loadings in August, which would arrive in September or October.
Iran has been subject to international sanctions for several years because of its nuclear program, which the West believes is aimed at building nuclear weapons but which Tehran insists is aimed solely at generating electricity.
Newer oil and financial sanctions imposed by the EU and US in mid-2012 have slashed Tehran’s oil exports and revenues. Under a landmark interim deal between Iran and six world powers, in effect since January 20 this year, Washington agreed to “pause” its pressure on China, India, Japan, South Korea, Turkey and Taiwan to reduce further their imports of Iranian oil.
US officials have said they expect the combined volume imported by these six countries to remain around 1 million b/d while negotiations with Iran continue toward a comprehensive nuclear agreement that would lead to the full lifting of sanctions.
Sellers of low-density crude grades are enjoying a recovery in European crude markets as light-end products remain tight during refinery maintenance season and gasoline is supported by a late boost in US demand. But the trend could be reversed by the sharp increase in Libyan crude exports, according to some traders.
North Sea Norwegian grade Ekofisk has recovered from a seven-year low of Dated Brent minus $0.59/b on August 18, to Dated Brent plus $0.045/b as of Monday.
In the Mediterranean, prices for naphtha-rich grades such as Kazakhstan’s CPC Blend and Algeria’s Saharan have shot up over recent weeks.
CPC Blend (CIF Augusta) has rebounded from Dated Brent minus $0.86/b in mid-August to remain at plus $0.47/b for the last few days, while Saharan Blend (FOB Algeria) has recovered from Dated Brent minus $0.75/b in mid-August to plus $0.37/b on Monday.
This has partly come from a tight gasoline market in Europe where refinery turnaround season has reduced gasoline output while demand has remained steady, traders said. The front-month Eurobob crack swap was assessed at $9.30/barrel Monday, up from the previously-assessed value of $8.70/b.
On Thursday last week, it had reached its monthly high of $9.70/b “I think there is a real lack of product There are a few refineries down and planned to be down,” said a gasoline trading source with reference to European supply.
“The market does feel a little dry.” Europe is net-long gasoline, so does not receive import cargoes even during refinery maintenance, unlike diesel, where US imports have weighed on the European market. In addition, gasoline fixtures to North America’s Atlantic Coast have increased, as arbitrage economics were seen workable last week, according to sources.
“Maintenance in NWE and Canada is [creating] good demand for barrels,” said a regional refiner. “I think the netback from exports [to the Atlantic Coast] is outweighing the one [for delivery] into the UK,” said a Nordic refining source, adding that it was difficult to call the arbitrage “fully open.”
But the strength in gasoline, reflected in wide cracks and steep backwardation, is unlikely to last according to some traders.
US oil independent Murphy Oil will sell 30% of its Malayasian oil and gas producing assets for $2 billion to state-owned Pertamina to finance its operations in Texas’ Eagle Ford Shale, among other North American plays, the company said in a statement Tuesday.
“This transaction allows us to re-deploy the proceeds through an individual or combination of strategic and financial initiatives such as increased drilling capital in the Eagle Ford Shale, acquisition opportunities, debt reduction and share repurchases,” said Murphy CEO Roger Jenkins.
Second-quarter global production volumes were 210,000 b/d of oil equivalent, below guidance of 217,000 boe/d, due to a delay in development in Malaysia’s Kikeh field after a fire earlier this year, Jenkins said during the company’s Q2 conference call on July 31.
The company did not break out Malaysia output separately. El Dorado, Arkansas-based Murphy said it completed 97 new Eagle Ford shale wells through mid-2014. Second-quarter production from the Texas shale oil play averaged 52,815 boe/d, with 9% of that liquids.
“We have tremendous running room in the Eagle Ford Shale with over 600 potential locations that are identified in the Upper Eagle Ford Shale and over 1,500 well locations to go in the Lower Eagle Ford Shale on the previous guided downspacing plans,” said Jenkins on the Q2 earnings call.
Murphy also has holdings in Canada’s Montney shale oil play as well as offshore at the Dalmatian project in the US Gulf of Mexico, where first production from two wells began earlier this year.
The effective date of the Malaysia transaction will be January 1, 2014, with closing expected to take place in two phases, Tuesday’s statement said. The first phase is expected to be completed in the fourth quarter of 2014 and the second phase is expected to be completed by the first quarter of 2015. The transaction is subject to, among other things, the approval of Petronas.
By Lynn Doan and Dan Murtaugh Oct 1, 2014 4:44 AM GMT+0700
U.S. oil exports, which in July reached the highest level since 1957, are set to climb to a record by the end of 2014 as producers find ways around a four-decade restriction on crude leaving the country.
The U.S. sent 401,000 barrels a day abroad in July, 54,000 shy of the record set in March 1957, according to data compiled by the Energy Information Administration, the Energy Department’s statistical unit. While Canada accounted for 93 percent of the shipments, Italy, Singapore and Switzerland also took U.S. oil. Coupled with Alaskan oil bound for Asia, total U.S. exports will reach 1 million barrels a day by the middle of 2015, according to Citigroup Inc. (C)
Shipments abroad have quadrupled from a year ago as U.S. drillers pull record volumes of crude and natural gas out of shale formations across the middle of the country using hydraulic fracturing and horizontal drilling. Exemptions to a federal ban on crude exports allow for deliveries to Canada and permits some shipments from Alaska and California. The Commerce Department also issued rulings this year allowing an ultra-light crude known as condensate to be sent overseas.
“You have the condensates, some Alaska North Slope oil and the exports to Canada,” Amrita Sen, chief oil analyst for the London-based research company Energy Aspects Ltd., said by telephone today. “We can have record-high numbers by the end of the year.”
Asia Cargo
ConocoPhillips said yesterday that it’s shipping a cargo of Alaska North Slope oil, or ANS, to Asia in the fourth quarter. The Polar Discovery, a 140,000-deadweight ton oil tanker, left the oil port of Valdez in Alaska on Sept. 26 for Yeosu, South Korea, vessel-tracking data compiled by Bloomberg show.
“The Conoco cargo headed for South Korea marks the first sailing in what Citi expects to become an armada,” Ed Morse, the head of commodities research at Citigroup, said in a research note today. “Exports of ANS should reach sustainable levels of 100,000 barrels a day or more as more producers follow suit.”
U.S. shipments to Canada will also rise when maintenance there ends, even as Enbridge Inc. finishes the reversal of Line 9B that will carry 300,000 barrels of oil a day to eastern Canada from Ontario, Sen said.
“We are expecting U.S. exports to remain high even with the Line 9 reversal,” Sen said. “Eastern Canadian refiners want the light, sweet crude, and the U.S. can give it to them.”
Canada Refineries
Suncor Energy Inc. (SU) is performing work at its Sarnia, Edmonton and Montreal refineries in Canada this month. Irving Oil Ltd.’s 298,800-barrel-a-day Saint John refinery in New Brunswick also has units shut for repairs, according to the Louisville, Kentucky-based energy data provider Genscape Inc.
North Atlantic Refining Ltd.’s 115,000-barrel-a-day Come by Chance refinery was scheduled to finish planned repairs next month, two people familiar with the work said Aug. 21, while asking not to be identified because the information isn’t public.
The slide in oil prices linked to the international benchmark North Sea Brent crude may slow demand for U.S. barrels. Brent-related crudes have become more attractive to refiners along the Atlantic Coast, Geneva-based JBC Energy said in a research note Sept. 22. U.S. benchmark West Texas Intermediate closed at a $2.63-a-barrel discount versus Brent yesterday, the narrowest since August 2013.
Record Exports
“I don’t think anybody is talking about Brent displacing U.S. oil up in Canada right now, but if we stay down here or get back to par, you might make the case for that,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said by telephone today. “It takes a little more than a week at that spread to really think of the attractiveness.”
Two crude cargoes were booked on tankers from the U.S. Gulf Coast to Canada in the past week, compared with one for the previous three weeks combined, according to ship fixture data compiled by Bloomberg.
“If we aren’t already there, we’ll probably be at record exports by the end of the year,” Carl Larry, president of Oil Outlooks & Opinions LLC in Houston, said by telephone today. “We’re finding ways to ship it out and the numbers keep growing. It’s an inevitable thing.”
By Jim Snyder Oct 1, 2014 6:00 AM GMT+0700
Proposed federal rules to make hauling crude oil by rail safer and avoid fiery wrecks would drive up costs and put the U.S. energy revival at risk, the head of an oil industry trade group said today.
The American Petroleum Institute joined by the Association of American Railroads today proposed keeping older tank cars, which investigators say are vulnerable to puncture, in service for twice as long as envisioned by regulators drafting rules for carrying flammable liquids like oil on trains.
The Transportation Department proposal to phase out older cars known as DOT-111s in two years is “not feasible,” said Jack Gerard, executive director of the Washington-based API, which represents companies including Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX)
The rules “could stifle North America’s energy renaissance and curtail substantial volumes of U.S. and Canadian oil production,” Gerard said.
U.S. regulators drafted the rule after several accidents of oil tank cars, including a July 2013 derailment in Quebec that killed 47 people, and fiery explosions that rattled communities in North Dakota, Virginia and elsewhere. Today is the deadline to file comments with the agency, which may issue a final rule this year.
Surging Production
The regulators are considering tougher standards to account for an increase in the use of trains to carry flammable liquids, particularly crude oil from places like North Dakota’s Bakken field where production is soaring beyond the capacity of pipelines. U.S. carloads of oil jumped to 408,000 last year from 11,000 in 2009.
The American Petroleum Institute and Association of American Railroads, whose members include Berkshire Hathaway Inc.’s (BRK/B) BNSF railway, suggested that DOT-111s be replaced or retrofitted within four years. Tank car makers would get as long as a year to increase the capacity of their rolling stock.
The Transportation Department’s proposal calls for older tank cars to be modified or scrapped within two years from the time the rule goes into effect.
The API-AAR also proposed that new tank cars have half-inch shells, or slightly thicker than the latest models and one-eighth of an inch thinner than options proposed by the Transportation Department.
Gerard said the proposal stems from conversations with companies that represent another component of the crude-by-rail business, the manufacturers of the tank cars.
Meeting Deadlines
At least one, the Greenbrier Companies of Lake Oswego, Oregon, thinks it can meet the timeline laid out by the Transportation Department.
Without an aggressive timeline, “we won’t move as quickly toward those safer standards as we otherwise might,” said spokesman Jack Isselman in an interview.
The company also said the 9/16th inch tank car shell suggested by the government offers significant safety benefits, a point disputed by the API and AAR proposal.
The amount of crude carried by railroads has climbed as U.S. oil production, which is at its highest point in three decades, has surged.
Accidents have also increased. There were five accidents in 2013, according to the Transportation Department. There have been another five so far this year. No accidents involving crude oil were reported in 2010.
The worst occurred in 2013 when an unattended train with more than 70 oil tank cars rolled into Lac-Megantic, Quebec, derailing and sparking a massive explosion that left 47 people dead.
The API, citing a study done by ICF International Inc. (ICFI), a consultancy based in Fairfax, Virginia, said the U.S. proposed phase-out could restrict the production and transportation of goods, costing consumers up to $45.2 billion.
By Anthony DiPaola Sep 30, 2014 7:29 PM GMT+0700
Saudi Arabian Oil Co. and partner Sinopec Group plan to start a main refinery unit for making gasoline from crude at a joint venture plant at Yanbu on the Red Sea next year, people familiar with the situation said.
The partners will start the plant’s hydrocracker by mid-2015 and begin producing gasoline next year, said two people with knowledge of plant operations, who asked not to be identified because they aren’t authorized to speak with media.
Yasref, as the joint-venture refinery is known, will produce low-sulfur diesel for export and have the fuel available for sale next year, the people said. The lower the sulfur content in diesel, the cleaner it is as a transport fuel. Yasref’s diesel will meet European specifications, the people said. Yasref media officials were unable to comment immediately by phone today.
Middle Eastern oil producers such as Saudi Arabia are expanding refining capacity to reduce costly imports of fuel needed to meet rising domestic demand and to produce cleaner-burning diesel that fetches premium prices in other markets like Europe. Regional fuel imports are mainly gasoline and diesel, while exports include jet fuel, fuel oil and naphtha.
Abu Dhabi in the United Arab Emirates is doubling its largest refinery, the 400,000 barrel-a-day plant at Ruwais on the Persian Gulf. State-run Abu Dhabi National Oil Co. is pushing back the start of the new units being built there until the first quarter of 2015 at the earliest, two people with knowledge of the facility’s progress said Sept. 18.
Yasref will produce its first products sale in the fourth quarter this year, the people said. The first shipments from the plant, which is already processing Arab Light crude in test runs, will probably be naphtha, the people said.
The plant on Saudi Arabia’s Red Sea coast will have crude-processing capacity of 400,000 barrels a day. Saudi Aramco, along with partner Total SA of France, built a refinery of the same size at Jubail on the Persian Gulf. That plant, known as Satorp, has been running at its full capacity since Aug. 1, Total officials said Sept. 23.
By Luzi Ann Javier Oct 1, 2014 1:33 AM GMT+0700
Investors are betting that the worst isn’t over for commodity prices that already are the lowest in five years.
About $907 million was pulled from U.S. exchange-traded products backed by raw materials this month, the most since April, data compiled by Bloomberg show. Expanding surpluses, a surging dollar and slowing growth in China helped send the Bloomberg Commodity Index to the lowest since 2009, reversing first-half gains fueled by a polar vortex and dead pigs in the U.S., and escalating tensions in Ukraine and the Middle East.
Banks from Societe Generale SA to Citigroup Inc. expect the losses for many raw material to continue. U.S. farmers are collecting the biggest corn and soybean crops ever, and global stockpiles of nickel are at an all-time high. Americans are producing the most oil since 1986, compounding a global surplus. China, the largest consumer of grains, energy and metals, is poised for its slowest expansion in two decades.
“The commodity complex as a whole did really well for a long time, and as a result, a lot of money poured in across the board and created oversupply and over-capacity,” said Peter Sorrentino, a Cincinnati-based fund manager who helps oversee $1.8 billion at Huntington Asset Advisors Inc. “It definitely has been an asset class that people have been withdrawing money from. Hedge funds congregate in momentum trades, and over the last two years, commodities have been sources of cash.”
Not ‘Super’
The Bloomberg Commodity Index fell on Sept. 22 to the lowest since July 2009 and is down 5.6 percent this year, set for a fourth straight annual loss, the longest slide since the data begins in 1991. The declines come after the index more than doubled from 2000 to a record in July 2008. By 2012, Citigroup declared the end of the commodity “super cycle,” a period of longer-than-average rising prices. Goldman Sachs Group Inc. also said the super cycle was over last year.
The banks are getting more bearish. Societe Generale on Sept. 12 lowered its price forecasts for more than half of the 43 raw materials it tracks, and on Sept. 24, Citigroup pared its outlook on commodities including crude oil, gold, corn and wheat. Goldman Sachs is sticking with its outlook for losses in copper and gold. Abundant supplies helped push 14 of 22 raw materials on the commodity index lower this year.
The Bloomberg Commodity Index is down 12 percent since June 30, headed for the biggest quarterly decline since 2008, while MSCI All-Country World Index of equities slid 2.8 percent. The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major peers, has jumped 6.7 percent, the most since 2008.
Bear Markets
Soybean meal, soybeans, cotton, corn and wheat are the five worst performers this year amid rising world inventories and heightened competition among exporters. Brent crude is set for the biggest annual loss since 2008, as ample supplies shield the market from the U.S. military campaign against Islamic State in Iraq and Syria. Copper is set for the biggest annual loss in three years. Gold erased almost all its gains this year, after slumping in 2013 by the most in three decades.
Corn fell to a five-year low today and soybeans yesterday were the cheapest since 2010 as farmers begin record harvests in the U.S., the largest producer of both crops. Wheat, used as a substitute for corn to feeds pigs, chickens and cattle, slumped last week to the lowest since 2010, as world inventories climb for a second year. Declining oil prices are cutting costs for buyers including Delta Airlines Inc.
Costly Meat
Not all raw materials are facing supply gluts. Cattle futures surged to a record yesterday as a prolonged drought in Texas led to the smallest U.S. herd in at least six decades, government data show. Record-high prices for beef, pork and chicken are squeezing profit margins for food processors including Hormel Foods Corp.
Arabica-coffee futures surged 75 percent this year as a drought curbs harvests in Brazil, the largest grower and exporter. Citigroup forecast Aug. 21 that the crop shortfall may leave a global production deficit lasting into 2016.
Cocoa has rallied 22 percent this year, heading for the biggest gain since 2009, on concern that supplies will be disrupted if the Ebola disease spreads from nations including Liberia and Guinea to neighboring Ivory Coast, the world’s top producer and exporter.
Picking winners and losers across commodities is “increasingly important,” Citigroup said in a report this month. The bank, citing supply risk, is bullish on palladium, copper, nickel, lead, coking and thermal coal, cocoa and coffee. Commodities will end 2014 in a “positive run” with nickel, zinc and lead outperformers, Deutsche Bank AG said today.
‘Worst Is Over’
“There are certain markets where you see bullishness because of supply issues like cattle, nickel and coffee,” said Donald Selkin, the chief market strategist at New York-based National Securities Corp., which oversees about $3 billion. “The commodities that have been going up are reacting to the particular bullish fundamentals. Even for the big three -- gold, crude oil and grains -- it’s possible that the worst of the downside is over.”
Paris-based Societe Generale, in its Sept. 12 report, urged investors to take short positions in gold, betting prices will drop as the Federal Reserve raises U.S. interest rates and the dollar rises. The precious metal, down 8.8 percent this quarter to $1,209.94 an ounce today in London, will slip below $1,000 “over the medium-term,” the bank said.
Gold Futures
Holdings in exchange-traded products backed by bullion are down 2.6 percent since the end of July, helping to erase $5.4 billion in value, data compiled by Bloomberg show. Money managers cut their net-long positions in gold futures and options for a sixth straight week, the longest exit in more than four years, and are the least bullish since January, government data show.
Prices fell today to an eight-month low. The Fed on Sept. 17 raised its outlook for interest rates, signaling the central bank is committed to keeping inflation in check, crimping demand for the precious metal as a hedge.
Jeffrey Currie, the head of commodities research at New York-based Goldman, says the worst isn’t over for gold, forecasting prices at $1,050 by year-end. The bank also expects copper will fall to $6,200 a metric ton over 12 months because of a “major” increase in stockpiles. Copper settled at $6,667 today on the London Metal Exchange.
Compounding demand concerns for commodities are signs of slowing growth in Europe. Manufacturing and services in the countries that use the euro unexpectedly slowed in September to the weakest pace this year.
Weaker Growth
The International Energy Agency has cut its forecast of global oil demand because of weaker growth in China and Europe. Rising exports from Libya and booming output in the U.S. “deepened the overhang in crude markets and overshadowed any lingering worries of potential output disruptions in Iraq,” the IEA said in a monthly report on Sept. 11.
Brent crude oil fell 15 percent this year to $94.70 a barrel, while West Texas Intermediate declined 7.4 percent to $91.10.
While the U.S. economic outlook is improving, economists surveyed by Bloomberg predict China will expand 7 percent in 2015, the slowest pace since 1990. The Chinese economy has grown an average of 9.9 percent annually since 1990, according to data compiled by Bloomberg.China’s Growth
China’s more than five-fold expansion from 1999 through 2010 left miners, farmers and energy producers struggling to keep up with demand. That attracted a surge of investment and assets under management totaled $418 billion at the end of 2012, from $271 billion at the end of 2009, Barclays Plc estimates. The assets had shrunk to $315 billion in August.
“Commodities had a boom predicated on Chinese growth,” said Quincy Krosby, a market strategist at Newark, New Jersey-based Prudential Financial Inc., which manages more than $1 trillion. “There are always these pockets of opportunities. Those typically are short periods until the event eases. When all is said and done, you need expansion, you need growth in China” to support a rally in raw-material prices, she said.
(An earlier version of this story was corrected because the ETP holdings were described in billions rather than millions of dollars.)
By Jake Rudnitsky, Jason Corcoran and Stephen Bierman Sep 30, 2014 8:38 PM GMT+0700
Schlumberger Ltd. (SLB), the biggest oilfield services provider, is withdrawing employees who are citizens of the U.S. and the European Union from Russia amid sanctions, two people with knowledge of the matter said.
About 20 mid-level and senior managers will be pulled, one of the people said. Both asked not to be identified because they aren’t authorized to discuss the matter.
The U.S. and the EU targeted Russia’s oil industry by banning exports of some equipment and technology after Russia annexed Crimea and allegedly stoked a separatist insurgency in eastern Ukraine. The sanctions have forced Exxon Mobil Corp. to suspend some joint work with Russia’s OAO Rosneft, threatening a project where the state-run company announced a billion-barrel crude discovery in the Kara Sea last week.
“Technology transfer could become a problem,” Alexei Kokin, an oil and gas analyst at UralSib Financial Corp., said by e-mail. “If Schlumberger and others scale down involvement in the Russian oil sector, the impact on output could start to be felt within months, maybe cutting output by 1 percent next year.”
Exploration and production companies were expected to spend $51.7 billion in Russia this year, according to estimates from Barclays Plc. A large part of the spending goes to service and equipment companies such as Schlumberger and Halliburton Co.
“Schlumberger continues to closely monitor the U.S. and EU sanctions and restrictions, and continues to take all steps necessary to ensure compliance with applicable laws,” Alexander Borisov, a Moscow-based Schlumberger spokesman, said by e-mail, without elaborating.
Schlumberger gets 5 percent to 7 percent of its global sales from Russia, according to an August report by RBC Capital Markets.
‘Colossal Funds’
Russia relies on hydraulic fracturing, or fracking, for 25 percent of its oil production and replacing technology developed by companies like Schlumberger would require “colossal funds,” Vagit Alekperov, chief executive officer of OAO Lukoil, Russia’s second-biggest oil producer, said Sept. 19 in Sochi, Russia.
“The biggest engineering companies, like Schlumberger, Halliburton and others, have technology they spent billions of dollars developing,” Alekperov said.
The U.S. and EU announced the latest wave of sanctions this month, targeting the banking, energy and defense industries. They forbid providing services such as drilling, well-testing or logging for Russian deep-water, Arctic and shale oil exploration and production.
Schlumberger, based in Houston and Paris, is the biggest provider of the so-called wireline services globally in an estimated $20 billion-a-year market, according to Andrew Cosgrove, an energy analyst at Bloomberg Intelligence.
(An earlier version of this story corrected the timing of Alekperov’s comments.)
By Mahmoud Habboush Sep 30, 2014 5:35 PM GMT+0700
For the desert cities of Dubai and Abu Dhabi, luxury, prosperity and security in a region torn by conflict are things worth protecting.
In a country known more for building glitzy shopping malls and trophy skyscrapers than battling terrorists, the United Arab Emirates is involved in the fight against Islamic militants like never before. It took part last week in U.S.-led airstrikes against Islamic State, underlining the scale of the perceived threat from the extremists after they took cities in Iraq and this month gained ground in Syria.
“This is more than a red line for them and that is why they are pro-actively taking part in those strikes,” said Ghanem Nuseibeh, founder of Cornerstone Global Associates, which advises clients on risk in the Middle East. Islamic State has “the ability to expand whereas al-Qaeda did not,” he said.
The U.A.E. and fellow Gulf Arabs regard Islamist groups as an existential challenge to their thriving economies and monarchies relatively untouched by the uprisings over the past four years. The Emirates has one of the world’s most modern air forces and increased military engagement in recent months, with U.S. officials saying the country teamed with Egypt in cracking down on Islamists in Libya in August.
Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan told the United Nations General Assembly on Sept. 27 that the Islamic State’s menace was expanding beyond the Middle East.
Unified Strategy
“The U.A.E., therefore, calls upon the international community and member states to cooperate in combating these terrorist groups and to take comprehensive measures to fight them through a clear, unified strategy,” he said.
Last year, the Emirates put on trial 94 members of a local franchise of the Muslim Brotherhood on charges of conspiring to overthrow the government. It has also bankrolled the Egyptian economy with billions of dollars following the ouster of Islamist President Mohamed Mursi after an army-backed uprising.
The U.A.E. said claims of its intervention in Libya last month were an attempt to divert attention from political reversals suffered by Libya’s Islamists. The country then joined airstrikes against Islamic State targets in Syria in the biggest U.S.-Arab military venture since the 1991 war to liberate Kuwait from Iraqi occupation.
More Assertive
“The U.A.E. is acting more assertively,” Abdulkhaleq Abdulla, an Emirati academic and author of “The Gulf Regional System,” said in an interview. “It’s becoming more visible maybe lately. It has made clear that it knows who the friends and the enemies are, and it’s attending to all of that more forcibly these days than ever.”
The first harbingers of a change in foreign policy appeared when a new leadership took over after the death of the country’s founder, Sheikh Zayed bin Sultan Al Nahyan, in 2004 after 33 years. While backing the Arab oil embargo in protest against U.S. support of Israel during the 1973 Arab Israeli War, Sheikh Zayed mostly shunned confrontation.
Current foreign policy is ascribed to the crown prince of Abu Dhabi, Sheikh Mohammed bin Zayed Al Nahyan, following the emergence of the Islamist threat in the wake of the toppling of regimes in Tunisia, Libya and Egypt.
Military Power
The U.A.E.’s air force operates some of the most advanced military hardware, including dozens of American and French fighter jets and the latest upgrades of the Patriot anti-missile defense system. The government plans to improve its fleet of Dassault Mirage 2000-9 with a more advanced aircraft.
“It’s been a surprise because no one knew that they view the Islamists as a danger,” said Andrew Hammond, Middle East analyst at the European Council on Foreign Relations. “That’s been one of the shocks of the Arab uprisings.”
The U.A.E.’s $390 billion economy is the second largest in the Gulf Cooperation Council, after Saudi Arabia. The six council members supply about 20 percent of the world’s oil.
Dubai is the financial hub. Bankers, company executives and tourists rub shoulders in the world’s tallest building, the Burj Khalifa. The city attracted 11 million hotel guests last year, an increase of 11 percent on 2012. Abu Dhabi, the capital and home to about 6 percent of global proven oil reserves, is building branches of the Louvre and Guggenheim museums and has a Formula One motor racing circuit.
Defensive Move
The U.A.E. is concerned that Islamists would eventually shift their attention to overthrowing Gulf monarchies after the Muslim Brotherhood won power initially in Egypt, according to Abdulla, the political science professor.
“The U.A.E.’s foreign policy behavior with regard to the Muslim Brotherhood is more defensive rather than offensive,” he said. The government went after the group because it had evidence presented to courts that it had been plotting to overthrow the government, he added.
Qatar was the only member of the six-nation GCC to support the Brotherhood in Egypt during Mursi’s one-year rule. In March, the U.A.E., Saudi Arabia, and Bahrain, recalled their ambassadors to Qatar for failing to halt support for those “who threaten the security and stability” of the group.
U.A.E. policy makers view both Islamic State, also known as ISIS or ISIL, and the Muslim Brotherhood as two sides of the same coin, Nuseibeh at Cornerstone said.
“They belong to the same ideological camp and are seen as an expansion to each other in different fields,” he said. “One of them on the political front, one on the military front.”
Sheikh Mohammed bin Rashid Al Maktoum, the U.A.E.’s vice president and ruler of Dubai, said that “lasting peace” requires eliminating the root causes that led to the emergence of militant groups, such as radical ideology and unemployment.
“Only one thing can stop a suicidal youth who is ready to die for ISIS,” he wrote in an article published in local newspapers on Sept. 28. “A stronger ideology that guides him onto the right path and convinces him that God created us to improve our world, not to destroy it.”
LONDON, Sept. 30 (UPI) -- British offshore oil and natural gas reserves will stop providing a return on investments if costs continue to rise, an industry report said Tuesday.
Oil and Gas U.K., the British industry body, published its annual report Tuesday showing there may be as much as 24 billion barrels of oil equivalent left offshore, but it may require more than $1.6 trillion in investments to exploit.
It warned that operating costs on the British continental shelf were 60 percent higher than they were in 2011.
"If the current trend of rising cost continues, the British continental shelf will cease to provide a healthy return on investment and we'll feel the brunt through falling levels of activity" Oil and Gas U.K. Chief Executive Officer Malcomb Webb said in a statement.
The British economy depends on oil and natural gas for 70 percent of its energy needs and offshore reserves account for 50 percent of that total.
Analysis from energy consultant group Wood Mackenzie finds mid-term production from regional waters should hold relatively steady with around 1.3 million barrels of oil equivalent expected per day in 2018. After that, production dips below 1 million by 2023, which is less than a quarter of the peak production reached in 1999.
STAVANGER, Norway, Sept. 30 (UPI) -- Norwegian energy company Statoil and its counterparts at Shell said Tuesday they'd spend the next two years assessing the shale gas potential in Algeria.
"Statoil is entering this shale play to test the prospectivity and commerciality through a step-wise approach," Nick Maden, a senior vice president of exploration for Statoil, said in a statement. "The first exploration phase is expected to last up to 2017 and include the drilling of two wells."
Statoil and Shell entered a license in an Algerian shale area alongside state energy company Sonatrach, which holds the controlling interest.
Algeria has the tenth-largest natural gas deposits in the world and is the third-largest gas supplier to Europe. Its exports have been in decline, however, because of lagging foreign investments.
It's been reviewing prospects for shale natural gas, which Shell and Statoil said may be substantial. With Europe looking to diversify an energy sector dependent on Russia, the companies said any shale from Algeria could be an important part of energy security ambitions.
The license area is just north of the In Amenas gas facility in eastern Algeria. Terrorists sympathetic with al-Qaida stormed the facility in January 2013, leaving 38 civilians and 29 militants dead.
"The decision to re-enter [Algeria] was the result of a thorough and stepwise process to identify the necessary security measures, implementing them and validating that they are in place and operational," Statoil said.
ISTANBUL, Turkey, Sept. 30 (UPI) -- The Kurdish minister of natural resources issued a warning to the Sunni-led Islamic State there would be no quarter for oil smugglers.
Kurdish Minister of Natural Resources Ashti Hawrami said during a World Economic Forum conference in Istanbul authorities arrested seven people tied to oil smuggling near the northern Iraqi city of Kirkuk. Four tankers of oil were seized before entering the Kurdish region of Iraq.
The terrorist group in control of parts of Syria and Iraq is said to be generating about $2 million per day on pilfered oil. The Kurdish Ministry of Natural Resources last week said action must be taken to contain oil's role in IS financing through action by the Kurdish Peshmerga and other forces.
With an international coalition behind the fight, Hawrami said IS, known also as ISIS or ISIL, "will see how we deal with smuggling."
U.S. air strikes last week targeted oil installations in Syria under IS control.
The minister said Monday he was looking for regional support to help contain the threat.
"Peshmerga and the Iraqi army are ready for it, and Turkey plays a very crucial role for this cooperation," he said.
LONDON, Sept. 30 (UPI) -- Though operations in Syria are idled because of economic sanctions, Gulfsands Petroleum said Tuesday its assets in the northeast of the country are secured.
Gulfsands Petroleum was one of the last energy companies operating in Syria to suspend operations amid ongoing civil war.
In an interim statement on quarterly results, the company said economic sanctions on Syria mean operations at so-called Block 26 are shut down and not generating revenue for the company.
"We are at least fortunate in being able to report that our facilities in Syria's far north east remain safe and secure and largely untouched by the unfortunate circumstances prevailing in the country," Chief Executive Officer Richard Malcolm said in a statement. "Our dedicated technical team remains at the ready and prepared to return to operational control of our Block 26 fields, as soon as relevant sanctions permit."
The Sunni-led terrorist group calling itself the Islamic State controls parts of northeastern Syria and is said to be financing itself through oil sold on the black market.
In 2012, the company said it was producing around 4,000 barrels of oil per day from Block 26 in northeastern Syria through a partnership with Syrian state-owned General Petroleum Co. On legal advice, the company declared force majeure, meaning its released from contractual obligations because of circumstances beyond its control.
BAGHDAD, Sept. 30 (UPI) -- The Iraqi government said Tuesday it welcomed French diplomats in Baghdad to discuss natural security and economic ties, including ties in the oil sector.
Iraqi Oil Minister Adel Abdel Mahdi met in Baghdad with French Ambassador to Iraq Mark Barity to discuss bilateral ties.
French energy company Total has a 20-year development and production service contract through a consortium led by PetroChina Co. to develop the Halfaya oil field in Iraq's eastern Missan province.
Halfaya could eventually produce as much as 535,000 barrels of oil per day.
The Oil Ministry said Mahdi received congratulations from the French envoy for his "willingness to develop the mutual relations in all the sectors, especially the oil sector."
Iraq's oil sector has come under threat from the Sunni-led terrorist group calling itself the Islamic State, which occupies parts of northwestern Iraq.
The Oil Ministry reports August exports were down more than 2 percent from the 75.7 million barrels sent from southern port cities the previous month.
Total last year was cleared by a Parisian court of violating U.N. sanctions during Iraq's controversial oil-for-food program.
A U.N. committee led by former U.S. Federal Reserve Chairman Paul Volker said in 2005 there were thousands of companies allegedly involved in illegal activities tied to the oil-for-food program for Iraq.
MOSCOW, Sept. 30 (UPI) -- Whether or not there's enough natural gas on hand to meet Ukrainian needs depends on the parties in Kiev, Russian Energy Minister Alexander Novak said Tuesday.
Novak said a winter gas plan for Ukraine could be on its way to Russian lawmakers for consideration soon.
"It all depends on Ukraine," he said. "I believe that from our side we are practically ready to do everything that we agreed on in regard to this packet. We'll wait for a reaction from Ukraine in the next few days when everything becomes clear."
Ukraine under an interim deal would pay the $3.1 billion it owes Russian energy Gazprom. Ukraine, in return, would get a price discount and assurances of adequate winter natural gas supplies.
Russia sends most of its gas for European consumers through the Soviet-era transit network in Ukraine. Contractual disputes in 2006 and 2009 between Kiev and Gazprom resulted in brief gas shortages in Europe, and ongoing crises in eastern Ukraine have exposed the European community to additional energy risks.
Novak said more momentum on the winter plan is expected when Russian joins its Ukrainian and European negotiating partners later this week in Berlin.
"First, the three parties [Russia, Ukraine, EU] need to agree during the trilateral consultations, then we'll be able to talk about the next steps: putting it on the government's agenda," he said.
HOUSTON, Sept. 30 (UPI) -- An oil pipeline designed to transport as much as 300,000 barrels per day from the Permian shale basin in Texas is now in service, operators announced.
Magellan Midstream Partners and Occidental Petroleum Corp. said its BridgeTex pipeline connecting the Permian basin to Houston refinery markets started commercial service. Construction of the pipeline began in November 2012.
"Initial flow rates are expected to ramp up over time, as the BridgeTex Pipeline is capable of transporting up to 300,000 barrels per day of Permian Basin crude oil," the companies said in a Monday statement.
Occidental, known by its stock ticker symbol Oxy, said in its second quarter financial statement Permian shale helped boost its oil production to 278,000 bpd, up more than 8 percent from second quarter 2013.
The new project would relieve some of the midstream bottlenecks that have developed as a result of the increase from Texas shale.
Permian production increased 58 percent from 2007 to reach 1.35 million bpd last year, which represents 18 percent of total U.S. crude oil production.
New York (Platts)--30Sep2014/507 pm EDT/2107 GMT
* 2015 price forecasts cut to $97/b for Brent, $89/b for NYMEX
* Market should look to Saudi exports, not production
* Softer prices risk Saudis losing market control
* Discounted OSPs suggest Saudis looking to regain market share
Should world crude prices continue to weaken into 2015, any forward price support will likely have to come from supply cuts, rather than increased demand, Credit Suisse analysts said Tuesday.
And even though there has been no evidence yet of a pullback in Saudi Arabian production, the investment bank's top oil economist Jan Stuart said in a conference call that Saudi Arabia will play a key role in balancing the market.
Amid a steadily bearish fundamental picture, Credit Suisse analysts this week cut their 2015 forecasts for ICE Brent and NYMEX crudes to $97/barrel and $89/b, respectively.
"Oil market fundamentals have continued to weaken," the analysts said. "The real problem, in our view, is supply. In contrast to the consensus, we find that oil demand growth is tracking close enough to expectations, but North American production growth is overwhelming that demand."
Stuart said the question remains to what degree the Saudis will seek to manage the global crude market.
"It's their job -- in OPEC as well as in the G-20 context -- Saudi Arabia is proud to remain the self-appointed 'central banker of oil'," he said in a research note.
That said, Stuart noted during the conference call that so far, the Saudis have showed no signs they are in any mood to cut.
"Any indication will have to come from their actions," he said, noting the market will need to keep a close eye on Saudi exports, rather than production, as a swath of new refining capacity will likely eat into domestic production.
Nearly 800,000 b/d of Saudi refinery capacity is expected online in the next year in the form of the 400,000 b/d Yasref refinery in Yanbu, in addition to the 400,000 b/d Satorp refinery in Jubail.
The International Energy Agency said earlier this month that Saudi Arabia cut August supply by 330,000 b/d to 9.68 million b/d in an apparent response to lower requests from customers.
But Joint Organisations Date Initiative (JODI) data shows actual exports of Saudi crude in July at 6.989 million b/d were still toward the lower range of historical data. Exports in June were lower at 6.946 million b/d, and have not been lower since September 2011.
"Saudi exports are already at the bottom of their range, but the 800,000 b/d of export refineries up and running should allow exports to fall below 5.5 million b/d," they said. The real downside risk to oil prices is seeing this export figure going up through 2015, they added.
'REAL RISK' OF LOSING MARKET CONTROL
Credit Suisse analysts cite other reasons as to why they believe the Saudis will cut exports to support prices, including budgetary considerations and a historical "preference" for $100/b oil. But they also cite the "real risk of losing control of markets."
While it is clear that a steep reduction in Saudi exports is expected to provide price support to the global crude market, is is less clear that this is the strategy the Saudis are currently embarked upon, as Platts has reported in the past. Instead, it appears the Saudis are working toward regaining more refinery market share by discounting their crudes to remain competitive in a lower priced environment.
In October, Saudi official selling prices were slashed across all markets, with the steepest cuts coming in Europe and Asia. In this case, increased term sales, even at slightly lower prices, would pad Riyadh's coffers more than slashing exports in an effort to keep crude priced at $100/b.
Keeping the Brent market around $100/b would likely widen the spread to the more insulated North American benchmark in NYMEX crude, which would only see more discounted Canadian and Latin American grades seek more lucrative markets in Europe and Asia.
As far as budgetary considerations go, the Credit Suisse analysts say Saudi Arabia is in a much safer financial position with regard to cheaper crude prices than Russia, and the market can look forward to a continued stable domestic situation.
"The Saudis have shored up their balance sheet," they said. "They're in year five of surpluses and the sovereign wealth fund is in a good position."
Calgary (Platts)--30Sep2014/321 pm EDT/1921 GMT
Enbridge's plan to start filling its reversed 9B pipeline in Eastern Canada will provide a much-needed option for refineries in Quebec to source competitively priced crude, Guy Jarvis, the company's president for liquids pipelines, said Tuesday.
"The pipeline will provide access to light crude [from Western Canada and the Canadian Bakken] and also an alternative for the more expensive rail option," he said on a webcast at the company's Investor Day in Toronto.
Enbridge is due to start filling the reversed pipeline on November 1, which will result in 300,000 b/d of primarily light crude flowing north from Westover in Ontario to Montreal, Quebec, he said.
The project was approved by federal regulator National Energy Board in March, with an eye toward a late-2014 start.
"The NEB had set certain conditions at the time of its approval. We have since submitted the last of our reports and are not expecting any responses [that will delay start-up]," Jarvis said.
A major beneficiary of the pipeline reversal will be oil sands producer Suncor, which also owns a 137,000 b/d refinery in Montreal. The company, which has traditionally relied on imports of higher-priced crude from international markets, has since early 2014 spared no effort to achieve 100% reliance on inland crude from North America as its refinery feedstock.
Suncor currently relies on a combination of rail cars and tankers to source its crude from Western Canada and the US Gulf Coast. But CEO Steve Williams said earlier this month the Line 9B reversal will allow Suncor to transport both Western Canadian heavy and the light Bakken barrels to its Montreal facility.
OIL SANDS PIPELINE EXPANSIONS
Enbridge is also focusing on increasing the takeaway capacity of its oil sands pipelines from Alberta, with a target of providing 800,000 b/d of new throughput by 2017, Jarvis said.
"There is specifically a need to move more crude into the Hardisty and Edmonton hubs and we have already secured C$6 billion [$5.78 billion] worth of projects in northern Alberta," he said, noting the two projects currently underway are expansions of the Woodland and the Woodbuffalo facilities.
Enbridge, which already operates the 345,000 b/d Athabasca and the 500,000 b/d Waupisoo pipelines serving several oil sands developments in northern Alberta, is also moving ahead with the Athabasca Twining and the AOC Hangingstone Lateral facilities, Jarvis said.
Decisions by some major producers to keep their planned oil sands facilities in Alberta on the backburner is also an issue that Enbridge would like to address, Jarvis said, adding "cross-border permitting of pipelines is the critical issue for market access for the heavy Canadian barrels."
"We have seen the opposition to the 525,000 b/d Northern Gateway pipeline in Canada," Jarvis said. "Rail has been providing a solution, but we also hear talks of congestion on tracks in some states in the US."
Two major oil sands producers, Total E&P Canada and Statoil, said this summer they would defer the 100,000 b/d Joslyn North and the 40,000 b/d Corner facilities, respectively, due to lack of pipeline access from Alberta.
However, Jarvis is not expecting this to be a trend and is confident that pipeline operators will be able to serve the "medium-term" growth plans of oil sands producers.
Enbridge is also planning startup of its Flanagan South pipeline in early November, providing access for Canadian heavy barrels to the US' Midwest and also "dock access for exports abroad" from the US, Jarvis said.
The 600-mile, 36-inch-diameter interstate pipeline will run from Pontiac, Illinois, and terminate in Cushing, Oklahoma, and will have an initial capacity of 600,000 b/d.
London (Platts)--30Sep2014/820 am EDT/1220 GMT
The UK's declining oil production could see a modest recovery this year for the first time in more than a decade based on "encouraging" provisional production data for the first half of the year, the country's oil industry body said Tuesday.
North Sea crude output rose 1.7% in the first half of 2014, compared with the same period last year, according to preliminary government data, offsetting a 1% decline in natural gas output over the period, Oil & Gas UK said in a report.
Decline rates from the UK's North Sea have recently slowed from falls of 14.5% in 2012 and 17.5% in 2011. UK oil output continues to fall, however, from its 1999 peak of about 2.835 million b/d.
Last year the UK saw its oil and gas output slip 7.7% to 1.44 million barrels of oil equivalent per day.
"Provisional data for the year so far suggest that, for the first time since 2000, there is a reasonable chance that there will not be an overall decline in UKCS production," according to the report.
Following a number of years of major upstream investment in the North Sea, new fields are having a material effect on production, according to the report, which highlighted the startup of the Breagh, Huntington and Jasmine fields.
Since the start of last year, production also has resumed on Elgin-Franklin, Gryphon and the Penguins cluster, the report said. More than 10% of oil and gas production this year is now expected to come from fields that came on-stream in 2013 or 2014.
RECOVERY, TAX BURDEN
The producer association said it continues to forecast a temporary recovery in the UK's oil and gas output until 2017, helped by a number of field developments and field projects due on-stream. Under a "central" production forecast, the association said it sees oil and gas output rising to around 1.6 million boe/d in 2017 before again starting to decline.
BP's Clair Ridge and Schiehallion projects together with Statoil's Mariner field are all expected to come on-stream by 2017, the report noted. Those three fields alone will be producing over 250,000 boe/d, or some 17.5% of 2014's production by the end of this decade.
Capital investment in the UK's oil sectors hit a record GBP14.4 billion ($23.3 billion) last year and Oil & Gas UK said it expects capital investment to remain above GBP10 billion a year this year and next, assuming new projects continue to be developed as expected.
Oil & Gas reiterated its call for additional tax breaks to help mitigate the rising cost of exploring and developing assets in the North Sea. Unit operating costs are now about 60% higher than they were in 2011, according to the report.
"We need a lighter tax burden, a simpler and more predictable system of field allowances and fiscal support for exploration," Oil & Gas UK Economics Director Michael Tholen said in a statement.
Many of the benefits of recent, targeted tax breaks in the North Sea have now been swamped by rising industry costs, according to producers.
Staff costs remain high and access to equipment such as rigs, which are limited in number, are driving prices higher. Growing costs also are being encountered in extending infrastructure beyond its original design life and tackling complex more geology such as high temperature, high pressure fields.
BAAR, Switzerland, Sept. 30 (UPI) -- Spanish energy company Enagas said Tuesday it signed up as a partner for the Trans Adriatic Pipeline for European natural gas needs, project developers said.
The TAP project consortium said Enagas signed on for a 16 percent share, bringing the number of consortium members to six.
BP, the State Oil Co. of the Azerbaijan Republic and Norwegian energy company Statoil are leading the development of a pipeline meant to deliver as much as 700 billion cubic feet of natural gas per year.
"This continues our successful joint-venture model that has brought producers, midstream players and gas buyers together to develop this important project," TAP Managing Director Kjetil Tungland said in a statement.
TAP is slated to transport natural gas from the second phase of the Shah Deniz natural gas field off the coast of Azerbaijan as early as 2019. It's part of the network of pipelines included in the Southern Corridor of gas programs meant to diversify a European energy sector dependent on Russia.
Construction on some phases of TAP begins in early 2015.
The new consortium structure follows the purchase by Enagas and its Belgian energy company Fluxys of the TAP shares owned previously by German energy company E.ON and French supermajor Total. Fluxys increased its stake from 16 to 19 percent.
MOSCOW, Sept. 30 (UPI) -- Exxon Mobil can operate freely with Russian energy company Rosneft at a Far East energy project without fear from sanctions, a spokesman said.
The Sakhalin-1 project envisions the development of three oil and natural gas fields located in extreme sub-Arctic conditions off the coast of Sakhalin in Russia's Far East. Alan Jeffers, a spokesman for project partner Exxon Mobil, said Monday the company was isolated from the economic impact of Western pressure.
"The Sakhalin-1 project is not impacted by U.S. sanctions," he told state news agency RIA Novosti.
Western governments blacklisted Rosneft and other Russian energy companies in response to the Kremlin's stance on the separatist campaign in eastern Ukraine. In mid-September, the European Union took additional steps by barring Russian oil company Rosneft and its counterparts Transneft and Gazprom Neft from working in European capital markets.
Rosneft is working alongside Rosneft on nearly a dozen projects in Russia. In the arctic reaches of the Kara Sea, Russian Deputy Energy Minister Kirill Molodtsov said there are enough Russian rigs in the area to continue should Exxon drop out under sanctions pressure.
Washington (Platts)--30Sep2014/429 pm EDT/2029 GMT
Tougher federal emission standards will force more coal plants to retire between now and 2020, increasing natural gas use for power by between 2.7 Bcf/d and 5 Bcf/d, Standard & Poor's Ratings Direct said in a report Tuesday.
S&P assumed that gas will replace the anywhere from 40 GW to 75 GW that S&P predicts utilities and independent power producers will sideline because of the Environmental Protection Agency's Cross State Air Pollution Rule and Mercury Air Toxins Standard, which are set to take effect next year.
"Although renewable [energy] growth will form an important part of future electricity supply, low natural gas prices are swinging the pendulum in favor of a significant build-out of natural gas plants," S&P said in a report on the future of coal and the power industry.
The increased demand for gas as coal-fired power plants are taken out of service will boost gas prices to the $5/Mcf range by 2016-2017, S&P predicted.
If more coal plants than expected retire, something S&P said is a possibility as states work to reduce greenhouse gases to meet EPA's proposed Clean Power Plan, new demand for gas could reach as high as high as 6 Bcf/d to 8.5 Bcf/d, S&P said.
But, any rise in gas prices will be capped by "the impressive shale gas resource, ongoing rig count and well productivity gains, the meaningful backlog of drilled but not yet producing wells, and associated gas production growth from increased oil drilling," S&P said.
S&P's base case predicts the retirement by 2020 of 30 to 40 GW of coal on top of the 24 GW already announced. S&P projects increased gas use of between 3.4 Bcf/d and 4 Bcf/d in the case of 54 GW to 64 GW of coal retirements, S&P's likely scenario.
Scheduled coal capacity retirements across independent system operators are projected to total 23.8 GW between 2015 and 2020. Adding the actual capacity retirements in 2012 and 2013, and expected retirements in 2014, the total rises to 42.1 GW, boosting gas demand by 2.7 Bcf/d, according to the report.
The MATS rules will account for half of the planned retirements, S&P said. Among ISOs, the MATS rule is likely to impact PJM Interconnection the most, given its significant coal-fired capacity and dependence on Appalachian coal, the report said. PJM accounts for 20.2 GW of the 42.1 GW in coal generation capacity expected to be taken offline between 2012 and 2020.
Greenhouse gas rules may expose another 35 GW of coal capacity to retirement.
"While on the one hand MATS is spurring the utility sector to invest billions of dollars on scrubbers, bag houses, etc., on the other, the greenhouse gas rules could be so stringent as to hasten the retirements of the power plants, resulting in the stranding of these assets' costs," the report said.
Because the curve of natural gas futures prices is essentially flat, S&P noted that development of renewables will be delayed by at least two decades in favor of cheap, clean gas.
"As natural gas struggles near $3.50 to $4/Mcf, some fear the stunting of clean energy investment growth, while others fear that generating portfolios could be over-reliant on the historically volatile fuel," S&P said.
"Ultimately, a growing swath of observers see the US potentially repeating its past with abundant fossil fuels, unless the enthusiasm for natural gas tamps down and the [power] industry considers a broader energy policy," S&P said.
Nonetheless, S&P predicts coal's demise is in the cards.
"Coal-fired generation essentially benefits from a hidden subsidy in terms of absence of carbon regulation," S&P said. "In the next few years, we see permanent erosion in using this fuel for power generation as greenhouse gas regulations advance and more coal units retire."
S&P,like Platts, is a unit of McGraw Hill Financial.
Berlin (Platts)--30Sep2014/907 am EDT/1307 GMT
Selling gas in the EU remains a risky commercial activity, as demand cannot be counted on in the medium term, and producers may lose interest in a region where some major countries have de facto turned their back on gas as a fuel for power generation.
That was one of the messages from the first day of the eighth European gas summit in Berlin, organized by Platts.
Among the debates on Monday was how to price gas in a way that captured its environmental benefits -- relative to other fossil fuels -- and the security of energy supply that it confers.
"Gas has no perceived leading role as the cleanest, cheapest and most reliable fuel," Dutch GasTerra's head of sales Bert Coelingh said.
He made the case that oil indexation still played a part even in western Europe, and GasTerra offered it if that was what customers wanted, although most were moving to Dutch hub indexation.
In the Netherlands gas is having to compete with cheap coal in the power generation sector and has also faced a 41% increase in gas taxes over the past five years, he said.
Nevertheless GasTerra was seeking to regain market share for gas through such innovative offerings as virtual storage, he said. He also referred to a deal with Dutch utility Eneco whereby the gas volume bought rose as the wind speed dropped.
GERMANY BECOMING BIT-PART PLAYER
Major Norwegian gas producer Statoil, which is the EU's largest external supplier after Russia, has just opened an office in Berlin.
According to Statoil's vice president for strategy and regulatory affairs, Rannveig Stangeland, even Germany is becoming a bit-part player in the EU's gas market, however.
Coal is displacing gas in Germany's power sector as the low carbon price does not encourage a move from coal, she told the conference.
"We support a single carbon dioxide target and a strengthened emissions trading scheme," she said, but the cost of decarbonizing, at tens of billions of euros a year, was a high price for struggling economies to pay. Private consumers will pay this, she said.
Stangeland said EU leaders were sending mixed messages, as energy security implied a lot of suppliers, while the strategy of using less gas implied pushing new entrants to the margins.
"Energy security is best served by robust markets to attract infrastructure and supplies," she said. LNG production could meet 40% of demand by 2020, she said, and there is an extensive gas network that is well integrated, liquid and competitive.
But "reduced gas demand will not increase security. Using less gas will mean marginal sources are pushed out, meaning less diversification and the rejection of shale," Stangeland said.
On the positive side, she welcomed moves to create a single gas trading zone for Central Europe by the Czech Republic, Hungary, Poland and Slovakia.
PRICE PROBLEMS
One reason for gas not being competitive for power is that sellers have resisted attempts to link the gas price to coal. When gas contracts were signed the coal price was seldom a factor.
In the last few years, however, the EU has seen an influx of cheaper US coal while industrial gas demand has collapsed. At the same time the gas price has remained high, owing in part to oil indexation. This has led to a series of price reopener talks.
Speaking later in the day, lawyer Peter Hughes, who has been involved in a number of long-term gas contract negotiations with Global Gas Partners, said it was "ironic" that Statoil should be demanding security of demand, having fought so hard to defend price contracts that had priced gas out of the power sector.
He also warned companies to think twice about seeking arbitration to lower their price. He had heard of one company being surprised, after presenting its case as a gas buyer, at being ordered to pay a hub price but with a premium. "Arbitration can give arbitrary results," he said.
In other cases, it is politics that makes the price unpalatable. Ukraine for example rejected Russia's offer of a discounted price of $385/1000 cubic meters, but it was happy to pay some companies from western Europe just $10 or $20 less, one industry source told Platts.
The western European companies have insisted on pre-payment, just like Russia, the source said.
Ukraine has said that it rejected Russia's offer as the Russian government could cancel the discount at any time, so there was not enough price certainty.
UPHEAVALS IN HUNGARY
The source said that Russian gas company Gazprom tackled this competition from western European companies by simply reducing flows to Hungary by the amount it judged Hungary to be re-exporting to Ukraine.
This led to Hungary halting the re-exports, which were not, the source said, to Ukraine's state gas company Naftogaz Ukrainy but to a private entrepreneur with a major chemicals works.
Gazprom now says it wants to book another 500 million cubic meters in storage in Hungary, to meet demand there and in the Balkans, the source said, suggesting there might be problems with supplies through Ukraine this year.
Hungarian storage has been slow to fill up this year, with some sources saying that the regulated price to households has made it a risky proposition as the injection price might not justify it.
The Hungarian national gas supplier is now owned by the government, however, after Germany's E.ON pulled out almost 20 years after first investing in the country's early privatization plans.
STORAGE PROBLEMS
Storage itself has become a problem, as the winter-summer spreads are often too small to make it financially viable, according to Vattenfall's gas trading head Frank van Doorn.
A storage operator in continental Europe told Platts that most of his company's capacity was sold before the spread between prices for this summer and next winter widened, so his company could not capitalize on it.
The lack of investment has opened the prospect of strategic storage. Italy's Snam CEO Carlo Malacarne told the conference that storage and LNG were the main options to tackle disruption to gas flows.
The appropriate measures to encourage developing storage further had to be designed at EU level, he said.
That included devising conditions for getting stored gas transported to where it is most needed, creating an international body to coordinate the rules for strategic supply, reverse flow to be available at interconnector points, and new services to optimize access by traders and shippers, he said.
Dubai (Platts)--30Sep2014/1257 pm EDT/1657 GMT
The UAE's Dana Gas has struck a deal with Egypt's government that will allow it to export gas condensate while increasing natural gas output from Egyptian fields for domestic consumption, the company said Tuesday.
The agreement could set a precedent in the country as its government, headed by President Abdel-Fattah el-Sisi, seeks to negotiate the repayment of outstanding amounts due to international contractors for oil and gas production.
"We believe this to be a great example of public-private partnership in action that will generate significant value to Egypt as the increased production delivers much needed gas to domestic markets. It will also enable us to recover the overdue receivables due to us, unlock the substantial value of Dana Gas' current Egyptian assets and deliver maximum value to our shareholders in the long term," Dana CEO Patrick Allman-Ward said in a statement.
Allman-Ward thanked the UAE government, which has staunchly supported Sisi's administration following the July 2013 ouster of former Islamist Egyptian president Mohammed Morsi, and the UAE's Egypt Task Force for mediating the agreement.
Under its Gas Production Enhancement Agreement (GPEA) with state-owned Egyptian Natural Gas Holding Co., or EGAS, Dana will undertake a seven-year work program during which it plans to drill 37 new wells and carry out a similar number of work-overs of existing wells, starting within the next few months.
The company projected the total resulting incremental production over the project's life-time at about 270 Bcf of gas, 8-9 million barrels of condensate and around 450,000 mt of LPG. Peak output of about 160,000 Mcf/d of gas and 5,600 b/d of condensate is expected in 2017.
Dana said the development program would bring its total gas and liquids production from onshore leases in Egypt's Nile Delta to about 40,000 b/d of oil equivalent.
"In addition to enhancing the value of Dana Gas Egypt's assets into which all of the company's GPEA revenues will be dedicated, the GPEA generated revenues will eventually allow reduction of the company's Egyptian outstanding receivables of $280 million to nominal levels by 2018, from the proceeds of direct sales of all of the incremental condensate at international market prices," the company said.
Faced with delays in government payments for production from both Egypt and Iraqi Kurdistan, the only two jurisdictions in which it currently has producing assets, Dana in 2013 was forced to refinance $1 billion of sukuk (Islamic debt).
During Morsi's turbulent one-year tenure as president, Egypt's debts to foreign oil and gas contractors mounted, but Sisi's government has been seeking to whittle away the debt-load in a bid to retain international producers as partners in the country's oil and gas sector.
Egypt, the Arab world's most populous country, has been facing a severe energy crisis since the country's 2011 revolution and is seeking in particular to increase production of natural gas and LPG for domestic consumption. The UAE has been foremost among a number of Arab Persian Gulf oil-producing states supporting Sisi in offering help for Egypt's energy problems.
On Monday, Dana announced it had been awarded Block 1 in Egypt's Nile Delta region and would partner with BP on Block 3. The UAE company said it had also struck a deal with BP on exploration of deep gas prospects in the region.
By Christine Buurma Oct 1, 2014 6:01 AM GMT+0700
The U.S. natural gas boom is poised to go global as the government approves projects that will export the fuel to buyers from Tokyo to New Delhi.
Dominion Resources Inc.’s Cove Point terminal in Maryland won authorization Sept. 29 from the U.S. Federal Energy Regulatory Commission to ship liquefied natural gas around the world. It’s the fourth export project to win permission and the first outside the Gulf of Mexico. Construction will cost between $3.4 billion and $3.8 billion, Dominion said yesterday.
Advances in drilling techniques including hydraulic fracturing have pushed U.S. natural gas output to a record every year since 2011 and made the country the world’s largest producer. U.S. supplies will compete with cargoes from Qatar and Australia, two of the biggest exporters, shifting global movements of the super-chilled fuel.
“In our projections the U.S. becomes a significant LNG exporter, taking the bronze medal after Qatar and Australia,” Laszlo Varro, head of gas, coal and electricity markets at the International Energy Agency, said in an interview in Berlin yesterday. “As North American LNG flows to Japan and Korea, the Japanese and Koreans will buy less LNG from Qatar. Qatar will want to do something with that gas.”
Surging U.S. gas production from shale formations including the Marcellus deposit in Appalachia has sent prices tumbling 69 percent from a peak in 2008. Marketed gas output will advance 5.3 percent this year to an all-time high of 73.93 billion cubic feet a day, according to U.S. Energy Information Administration projections.
Asia Market
Asia is a prime market for low-cost U.S. supplies, with LNG demand for the region set to climb about 36 percent between 2013 and 2020, according to Rafael McDonald, director of global gas and LNG at IHS CERA, an energy consulting company in Cambridge, Massachusetts. Asia consumed 75 percent of the world’s LNG last year, data from the International Group of Liquefied Natural Gas Importers show.
A U.S. LNG cargo sent to Japan today would cost about $10.50 per million British thermal units, taking into account marketing fees and transportation costs, McDonald said by phone yesterday. Japan paid an average of $15.58 per million Btu for shipments from Australia in June, government data show.
Sumitomo Corp., Japan’s third-largest trading house, and Tokyo Gas Co. will buy gas from the Cove Point terminal under 20-year contracts. Japan’s LNG imports jumped to a record after the 2011 meltdown at the Fukushima Dai-Ichi nuclear plant.
Growth Market
“Asia is the growth market,” McDonald said by phone yesterday. “U.S. LNG will bring security of supply and diversification of supply sources for the region.”
India is building LNG receiving terminals in anticipation of U.S. cargoes, R.K. Garg, finance director at Petronet LNG Ltd., India’s biggest importer of LNG, said by phone yesterday.
Gail India Ltd., the nation’s largest gas distributor, said in June that it is offering LNG supplies from the U.S. tied to the American benchmark as an alternative to its oil-linked contracts. Asia’s LNG contracts traditionally are tied to oil, making them vulnerable to increases in crude prices.
U.S. exports may also be destined for Europe, especially if severe winters cause prices to jump, McDonald said.
North American LNG exports to Japan and Korea may displace supplies from Qatar, prompting Qatar to divert cargoes to Europe, the IEA’s Varro said.
“U.S. LNG will definitely lead to a more competitive and more saturated European gas market, even if the actual quantities in Europe will not be very large,” he said.
Global Trade
Worldwide, LNG trade will rise by 40 percent to 450 billion cubic meters (16 trillion cubic feet) by 2019, the IEA said in its medium-term gas market report in June.
U.S. LNG exports will probably climb to about 8.5 billion cubic feet a day of gas in 2020, IHS CERA’s McDonald said, or about 1.8 percent of global demand.
While the U.S. won’t begin exporting gas until late next year, the prospect of rising North American supply is already having an impact as the market anticipates increased competition, Catriona Scott, a London-based senior energy analyst at Interfax Europe Ltd.’s Global Gas Analytics, said by phone yesterday.
“You have suppliers like Qatar looking to balance their portfolios and positioning themselves to be able to offer Asian buyers much more flexible supply options from a pricing perspective,” Scott said. “This will be another step in that change.”
By Chris Dalby | Tue, 30 September 2014 22:31 | 0
In June 2014, computer files captured from a courier for the Islamic State shortly after the fall of Mosul revealed that the group had assets of $875 million, largely gained in the sacking and looting of Mosul and its central bank.
The size of the group’s bank account has now risen to an estimated $2 billion dollars, thanks in part to revenues from ransom paid for kidnapped foreigners and more pillaging. However, oil remains the group’s primary source of income.
The 11 oil fields that IS controls in Iraq and Syria have made it a largely independent financial machine. Reports show that IS-controlled fields in Iraq produce between 25,000 and 40,000 barrels of oil per day, at an estimated value of approximately $1.2 million, before being smuggled out to Iran, Kurdistan, Turkey and Syria.
That doesn’t account for revenue from oil fields that IS has held much longer in Syria, which take the Islamist group’s daily profit to just under $3 million.
But if the regional narrative of IS’s rise is to be believed, the group is universally loathed. How, then, is it so readily finding customers to buy its oil abroad?
Oil smuggling is hardly new in Iraq and Syria -- Iran and Turkey have been major conduits for illegal oil exports since the days of Saddam Hussein. Those smuggling rings are still very active, and are now working with IS and contributing to its exploding wealth.
In an interview with CNN, Luay al-Khatteeb, the director of the Iraq Energy Institute, explained that “IS smuggles the crude oil and trades it for cash and refined products, at a refined price,” thanks to its own refineries in Syria.
One important reason that smugglers have been so eager to work with IS is that the terrorist group sells its oil on the cheap. A barrel of oil that would ordinarily sell for over $100 can be discounted as much as 75 percent. But it’s still a profitable sale for IS, as the money it loses from such a discount is more than made up for by the readiness of customers to buy its oil and the plethora of routes through which it can export it.
“The crude is transported by tankers to Jordan via Anbar province, to Iran via Kurdistan, to Turkey via Mosul, to Syria's local market and to the Kurdistan region of Iraq, where most of it gets refined locally,” Khatteeb explained. “Turkey has turned a blind eye to this and may continue to do so until they come under pressure from the West to close down oil black markets in the country's south.”
One of the more terrifying aspects of IS’s newly found wealth is that it is no longer based on the traditional donor model, in which rich sympathizers in the Middle-East and the West pour generous funds into training and capacity-building of fresh jihadists. IS’s goal has always been to form a caliphate, and although no country would recognize it as such, it is running the territory it conquers as a state, albeit through illegal means; IS is pumping, refining and selling oil, just like any other petro state.
What’s more, now that it controls fertile provinces in western Iraq, such as Anbar and Nineveh, the group also now sits on 40 percent of Iraq’s wheat crop, and can force farmers to deal only with them, sometimes for no pay. Baghdad is now worrying about a medium-term food crisis, since 20 percent of its stores are in IS-held territory and thousands of farmers have fled.
Clearly, there’s a stark difference between the financial operations of IS and those of Al-Qaeda and other international terrorist organizations. U.S. President Barack Obama recently admitted that his administration and the intelligence community had underestimated IS, which now looks like a nightmare to Washington.
The group has captured American military-grade weaponry and equipment and freed from jail former soldiers who know how to use it. It is independently rich but operates outside the normal fiscal system, which means conventional financial sanctions can’t touch it. It has set up its own illicit trading networks in an area it controls with an implacable totalitarianism. It effectively combines political terror, religious zealotry and financial muscle to bend local populations to its will.
IS’s powerful economic engine may not guarantee that it will one day peacefully rule the territory it claims, but $3 million a day more than assures that it can continue financing its fight to do so.
By Chris Dalby of Oilprice.com
Thanks so "shale revolution," US liquid petroleum production booming, Financial Times reports
bySarah Lazare, staff writer
The United States is expected to overtake Saudi Arabia as the number one liquid petroleum producing nation in the world for the first time in over two decades, thanks to America's fracking boom, Financial Times reported Monday.
According to journalists Ed Crooks and Anjli Raval, this could happen as soon as "this month or next."
The article cites information from the International Energy Agency, which shows that "US production of oil and related liquids such as ethane and propane was neck-and-neck with Saudi Arabia in June and again in August at about 11.5m barrels a day." The article argues, "With US production continuing to boom, its output is set to exceed Saudi Arabia’s this month or next for the first time since 1991."
The explosion is largely due to a "shale revolution," explains the article, referring to the controversial practice of extracting oil from shale using a process of hydraulic fracturing, or fracking.
Organizations and communities across the U.S. have pushed for a ban on this extraction method, due to its role in destabilizing the climate, devastating residents near fracking sites who suffer cancer and disease from water and air pollution, marring natural landscapes, and killing wildlife.
By Joe Parson | Tue, 30 September 2014 21:42 | 0
Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.
Halliburton may be interested in Romania’s offshore oil fields, but it could face a challenge from a bolstered Russian presence in the Black Sea.
Russia’s claim to the Crimean Peninsula, and collocated military assets, pose a notable security threat to the longstanding maritime division of the Black Sea. The Exclusive Economic Zones, as well as territorial and contiguous zones with oil and gas resources, are possibly vulnerable to Russian interference. Even the threat of military presence may increase investment risks in the Romanian and Ukrainian offshore oil sector. This security and geopolitical risk is likely to stifle investment interest. Russia is likely concerned chiefly with the distribution of resources in the Black and Azov Seas, as well as Turkish influence over the South Stream pipeline.
Division of the Black and Azov Seas
The United Nations Convention on the Law of the Sea established the basic stipulations for maritime boundaries, but this regulation is limited in adapting to the concave borders within the Black and Azov Seas. Usually, these boundaries are negotiated bilaterally based on a predefined concept such as equidistance or relative distribution based on length of coastline. When bilateral negotiations fail, as they did between Ukraine and Romania, often the International Court of Justice (ICJ) mediates these issues. In this instance, the ICJ delivered a decision based on equidistance.
However, the ICJ ruling took into account the Crimean Peninsula as a part of Ukraine and not Russia. Russian control over the Crimean Peninsula may necessitate a redistribution of maritime boundaries such as those involved in the South Stream pipeline. To avoid Ukraine, the pipeline was routed through Turkish waters, and under threat of the European Southern Corridor project, Russia did not likely get a satisfactory deal. Placing the pipeline through Crimean waters would not only cut costs by reducing time and distance, it removes undue Turkish influence from any potential expansion project. It is possible that the original route will be honored in order to help supply Turkey, but that future projects will be routed in now Russian waters.
The oil and gas reserves offshore between Ukraine and Romania were a major proponent for the expeditious settlement of a longstanding border dispute. While these resources are miniscule compared to Russian onshore conventional reserves, they were to play a significant role for Ukraine and are still a priority for Romanian energy independence. The ability for Russia to disrupt alternative sources of oil and natural gas from key import partners is likely a high priority issue.
Romania’s offshore resources could supplant their entire demand from Russia -- roughly 25 percent of total natural gas consumption. Prime Minister Victor Ponta has claimed energy security is key to the country’s economic goals, which prominently include the intent to increase military spending to support economic interests as a way to boost the overall domestic investment climate.
Halliburton, which has a history with OMV Petrom in Romania, recently expressed interest in offshore Romanian fields. OMV has explicitly stated they are interested in further developing the Neptun Bloc, which unfortunately sits at the new border with Russia. The company is likely specifically looking into the Domino-2 field with ExxonMobil.
Before the annexation of Crimea, Ukraine’s assets could have reduced their demand by nearly a third due to resources in the Black and Azov Seas. The new distribution between Russia and Ukraine of these assets will likely be in Russia’s favor. Due to security risk, it is improbable that Ukraine will acquire the needed foreign investment for their remaining offshore potential.
The Russian pipeline system into Europe involves numerous countries, but they all have a common trend by being high dependence importers from Russia. If these countries reduce their dependency, it also reduces Russia’s ability to influence the international agenda in the region.
In the event of Romania’s, and possibly Ukraine’s, increased domestic oil and gas production, regional spot market prices may deflate due to excess supply. However, their failure may do the opposite due to limited new prospects in the region, given opposition towards shale natural gas development.
A threat to traditional Russian demand markets will likely increase Russian interest in destabilizing the surrounding security environment to deter investors in non-Russian projects.
Joe Parson for Oilprice.com
By Andy Tully | Tue, 30 September 2014 21:30 | 0
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Solar energy could be the world’s largest source of power by 2050, providing more than a quarter of the Earth’s energy, according to the International Energy Agency (IEA).
A report from the Paris-based agency forecasts that photovoltaic (PV) plants could generate up to 16 percent of the Earth’s electricity, while another report says solar thermal electricity (STE), which concentrates sunlight with mirrors to produce steam energy, could provide 11 percent.
The total would push solar energy beyond all other sources of electricity, including fossil fuels, hydropower and nuclear energy. It seems possible because of the “rapid cost decrease” of solar energy hardware, according to a statement by the IEA’s executive director, Maria van der Hoeven.
The IEA’s conclusions are in line with other forecasts that say renewable energy, particularly solar energy, is set to transform power generation around the world. Bloomberg New Energy Finance expects solar power will increase its share of the energy market by 2030, as the use of panels grows from only 0.3 percent penetration now to fully 6 percent in 15 years.
And the Swiss financial services company USB reported last month that solar power plants and storage devices will become popular enough to change the paradigm of electricity generation.
The IEA, which advises 29 national governments on energy policy, said PV installations have grown much more than agency had expected when it issued its first solar energy outlook in 2010. At that time it saw PVs providing no more than 11 percent of global electrical power by mid-century.
The difference is attributable to the drop in cost and the fact that utilities have responded quickly to that drop, the IEA said. Its latest report notes that more solar capacity has been added since 2010 than was added in the previous 40 years.
As a result, the IEA expects solar facilities to generate about 4,600 gigawatts of PV capacity by 2050, compared with about 150 gigawatts today. But the report stresses that such progress would require a doubling of annual investments into solar energy, to an average of $225 billion per year.
As for solar thermal electricity, the IEA estimates that it generates about 4 gigawatts today, with growth to about 1,000 gigawatts by 2050.
The best news from the IEA is that the use of solar energy will snowball with further price drops and, consequently, greater investment. For example, the agency forecasts an average price drop for PV-generated electricity of 25 percent by 2020, 45 percent by 2030 and 65 percent by 2050.
By Andy Tully of Oilprice.com
By Business News Americas staff reporter
London-based Andes Energía raised oil production 66% to 1,510b/d in H1, with increased conventional and shale activity in Argentina.
Revenue grew to US$20.4mn from US$4.3mn in 1H13, according to the company's latest interim report.
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The firm's first half of the year included a discovery of 125M of gross shale oil pay from the Las Varillas x-1 well in the Vaca Muerta formation.
Andes is awaiting a workover rig and fracking equipment availability at the well, which is part of a farm-in agreement with national oil company YPF.
Andes brought 11 development wells into operation on the Chachahuen license, also operated jointly by the two companies.
Andes will carry out an ambitious drilling campaign at Chachahuen over the next 15 months, a company statement said.
Aside from Argentina, Andes holds exploration licenses in Colombia, Brazil and Paraguay, and has 7.5mn acres in all across South America.
In Argentina, the company boasts 20Mb of conventional 2P reserves and 659boe of certified unconventional reserves, mainly in Vaca Muerta.
BNamericas will host its 11th Southern Cone Energy Summit in Lima, Peru, on November 12-13. Click here to download the agenda.
The U.S. energy sector keeps posting impressive numbers and it’s on the verge of reaching another international milestone.
For the first time in nearly 25 years, American liquid petroleum production, which includes oil and natural gas, is on pace to surpass Saudi Arabia.
HAIL, SHALE: Due in large part to what’s called the “shale revolution,” the U.S. is poised to become the world’s top producer of liquid petroleum.
According to figures released by the International Energy Agency in Paris, the United States is just about even with the Saudis at 11.5 million barrels per day of oil and related liquids.
Saudi officials insist it still has the capacity to increase production, but as the Financial Times of London reported Monday, “even Saudi officials do not deny that the rise of the U.S. to become the world’s largest petroleum producer — with an even greater lead if its biofuel output (of about 1 million barrels a day) is included — has played a vital role in stabilising markets.”
The last time the United States produced more liquid petroleum than Saudi Arabia was in 1991.
The news comes little more than two months after a study was released predicting that as early as 2015, the United States can be the world’s largest producer of oil.
“If you had said that a decade ago, you would’ve been laughed at and called a fool,” wrote Walter Russell Mead, the editor-at-large of The American Interest, a magazine specializing in foreign affairs and geopolitics. “What a difference fracking makes.”
Hydraulic fracturing and horizontal drilling techniques in places such as the Permian Basin in West Texas and eastern New Mexico have spurred what’s called a “shale revolution” to get to oil and natural gas in fields that used to be considered nearly impossible to reach.
“From an overall energy standpoint, we’re in a much, much better shape than we used to be,” energy analyst Dan Steffens, president of the Energy Prospectus Group in Houston, told Watchdog.org Monday. “We used to be worried about what the hell we’re going to do with natural gas because we were running out. That was in the year 2000 … But then they figured out how to get into the shale gas and now we’re just floating in the stuff.”
Steffens predicts the United States will become a net exporter of natural gas by 2017 because of domestic production and the move towards exporting liquefied natural gas to markets, particularly in Asia:
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