Kenyan government officials assured US investors this week that the country is safe for business and investment despite a string of terror attacks that threatens to undermine key infrastructure projects.
Energy cabinet secretary Davis Chirchir said Kenya was looking for investors for energy sector projects including oil and gas exploration, geothermal power development and the construction of a crude oil export pipeline, according to local media Thursday.
Speaking at a conference in Washington, Kenya’s foreign affairs cabinet secretary Amina Mohamed also said investors were needed for the expansion of the heavily congested port of Mombasa and the planned upgrade of the Jomo Kenya International airport, according to Kenyan media reports Thursday.
But a string of lethal terror attacks together with ongoing clan clashes in the north have dealt a fresh blow to Kenya’s economy and threaten to undermine the east African nation’s ambitions of becoming a regional transport hub.
Kenya has experienced a rash of attacks since deploying troops in October 2011 to Somalia to fight al-Qaeda linked al-Shabaab militants. While many of these attacks have been comparatively small, there are now signs that the terror group is increasing its capabilities and escalating its targets.
At least 29 people were killed over the weekend in the coastal counties of Lamu an Tana River, an area close to where 60 people were massacred last month. Al-Shabaab rebels claimed responsibility for the attacks. The group also claimed responsibility for last month’s attack on the mainly Christian town of Mpeketoni when 48 people were killed, which was Kenya’s deadliest massacre since the Westgate siege last September.
Lamu is the hub of Kenya’s plans to connect new oil fields in Uganda and Kenya — and in the future the fields of South Sudan — by pipeline to the Indian Ocean. The aim of the scheme, the Lamu Port South Sudan-Ethiopia Transport (LAPSSET) project, is to transform Africa’s economy through international maritime trade and integration and opening up of East Africa.
Critics have already queried how Kenya intends to raise funding for the $26 billion project that by 2030 envisages a new 32-berth port at Lamu, a 120,000 b/d refinery, products pipeline systems, 3,500 km of high-speed roads that will connect Lamu to the capitals of Ethiopia and South Sudan, airports and railways. The recent attacks make the task of raising finance a more challenging sell.
The overhang on the West African crude market for cargoes loading in July and August is starting to clear gradually, but crude differentials remain weak, trading sources said Thursday. “I think [some of the WAF] overhang is clearing to floating oil on the Nigerian side but the Angolan overhang will have to move to China in some parts and maybe India,” a trader said.
“But Nigerian crudes just now need to price into deferred shorts in Europe...and yes with Sharara [from Libya] now expected to flow this week everyone is on tenterhooks,” the trader added.
Sources said there were only 10 unsold Angolan cargoes in the August loading program, compared to around 25 at the same time last week. Usually, at this time of the trading cycle more than 90-95% of the program has cleared.
Grades like Girassol, Kissanje, Hungo, Cabinda, Dalia and Pazflor had seen some decent activity in the past week but grades like Plutonio and Saturno had been slow to sell. Angola’s Cabinda was assessed at Dated Brent minus $1.98/barrel Wednesday, the weakest value seen since December 21, 2010, Platts data showed.
A similar trend was seen on Nigerian markets, with some cargoes moving but half of the August program still unsold along with six million barrels of Nigerian crude for July loading expected to travel to Europe hoping to find a buyer. “We had something like 6-7 million barrels [of WAF] arriving in Europe in first half-August coming out of the July WAF programs, assuming the last few cargoes cleared to Europe. Partly that’s why Europe is struggling at the moment,” said a second trader.
And, Nigeria’s Bonny Light was assessed at Dated Brent plus $0.90/b, the lowest since August 29, 2012, Platts data showed. Sources also said that with news that some Libyan sweet crude production and exports might increase soon, Nigerian crudes could be under further pressure.
“Some cargoes are finally moving but it seems that the Libya news could push prices down and if that really happens [Libyan exports out of the eastern ports resume] then it will put huge pressure on the market,” said a third trader. Sources also said refining margins had improved slightly which was providing some relief to refiners.
China’s crude imports in June rose 5% year on year to 23.28 million mt, or an average 5.69 million b/d, according to preliminary data released Thursday by the country’s General Administration of Customs.
This is 7.8% lower than the 6.17 million b/d imported in May. China skipped crude exports last month for the fourth consecutive month, bringing net crude imports to 5.69 million b/d, a 5.1% year-over-year increase.
In the first half of 2014, China’s total crude imports rose 10.2% to 151.97 million mt, or 6.15 million b/d, the data showed. This compares with a 0.7% year-on-year contraction in crude imports over the same period of 2013.
Given China’s sluggish oil demand growth rate, the country’s increase in its crude imports so far this year have been attributed to stockpiling by state-owned companies for state strategic petroleum reserves. China’s apparent oil demand over the first five months of the year inched up just 0.2% year on year to 9.85 million b/d, according to Platts data.
Meanwhile, China’s oil product imports in June slumped 28% year on year to 2.36 million mt, while oil product exports jumped 13.1% year on year to 2.25 million mt. China was a net importer of oil products last month, with volumes totaling 110,000 mt, flipping from a net oil product exporter in May.
Over the first six months of the year, China’s total oil product imports plunged 29.4% year on year to 15.26 million mt, while oil product exports slid 7% year on year to 13.67 million mt. This brought net oil product imports to 1.59 million mt, a whopping 77% decrease from the first half of 2013.
European oil refiners are hesitant to increase their run rates, despite the recent improvement in margins, as it may not be supported by any widespread rise in products demand, traders said Thursday.
“The margins are better than last week for sure,” said one crude buyer at a European refiner. “[But] what people see is that margins are better not because of more demand for products, but because the Brent side came off. What is important for us as a refiner is better demand on products. I’m not so sure if this is the case. So you’re not running at max, not buying much in advance.”
One trader of West African crude also said Europe’s crude runs were still low, despite the improvement in margins. “We haven’t seen an increase in runs big enough to eat though all the inventory in tanks and hence support differentials.” “Margins... are now on the positive side, but the feeling is that there is still a lack of fundamental strength,” said a third trader.
“There has been some support from the falls seen on ICE Brent but product cracks have been slow to react.” Some traders said the current market bore similarities to April, when margins started to look more interesting and refiners stepped up runs leading to tightness in June-trading crude, only for margins to become unsustainable leading to the currently weak crude complex.
While cracks look better across many European products markets than a few weeks ago, this is mainly driven by the supply side. Northwest European gasoline, for instance, has been tightened on the supply side, said traders, without any substantial pick up in demand. FOB Rotterdam Eurobob barges, a regional trading benchmark, were heard trading during Thursday at more than $30/mt over the front-month August swap, compared to a $29.75/mt premium to the front-month swap Wednesday.
Supply tightness at the prompt means that the market remains steeply backwardated. The balance-month/front-month Eurobob gasoline swap spread widened to be assessed in a backwardated structure of $19.75/mt, down from $21.25/mt on the day. This level of backwardation means that stock levels remain very low, said sources.
By Mark Shenk Jul 11, 2014 6:47 AM GMT+0700 2 Comments Email Print
New U.S. pipelines and a revival in Libyan supply are increasing the likelihood that oil prices will slump through year-end after climbing in the first six months.
Wall Street analysts tracked by Bloomberg predict West Texas Intermediate oil will average $100 a barrel in the fourth quarter, down 5.1 percent from June 30, while Brent drops 4.8 percent to $107. Violence in Iraq sent Brent to $115.71 in June, its highest level since September, on concern supplies would be disrupted.
Brent is poised to decline in part on increased output in Libya as key export terminals were reopened. In the U.S., traders are focused on supplies at Cushing, Oklahoma, the delivery point for the WTI futures contract. Tallgrass Energy Partners LP plans to complete the conversion of the Pony Express pipeline to carry crude to Cushing from Wyoming. Enbridge Inc.’s Flanagan South will connect to the hub from Illinois.
“Cushing is an island of scarcity in a sea of plenty,” Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London, said by phone on July 2. “In the third quarter we’re looking at two new pipelines, the Flanagan and Pony Express, that will supply Cushing. There will then be a new equilibrium.”
Prices Gained
WTI rose 7.1 percent in the first six months of 2014 on the New York Mercantile Exchange as Cushing supplies tumbled to a five-year low, with new lines carrying oil to the Gulf Coast. Brent, the benchmark for more than half the world’s oil, gained 1.4 percent on the London-based ICE Futures Europe exchange. The U.S. grade fell $4.21 to $102.29 during the nine days ended July 9, the longest stretch of declines since 2009.
Brent was headed for a drop in the first half until the widening conflict in Iraq raised concern of a supply disruption. Prices fell after an Islamic insurgents’ advance stopped short of southern Iraq, home to most of the country’s crude output.
The spread between the contracts narrowed to as little as $3.59 in April from $14.95 on Jan. 13, before the opening of the southern leg of the Transcanada Corp.’s Keystone XL. Stockpiles have slipped 50 percent since the pipeline began moving barrels from Cushing to Texas on Jan. 22, Energy Information Administration data show.
“We’re looking for a change in the balances with the opening of the Pony Express and Flanagan South pipelines,” Francisco Blanch, head of commodities research at Bank of America Corp. in New York, said by phone on July 7.
Supply Drop
Cushing supplies began falling two years ago when the direction of the Seaway pipeline was reversed to move oil away from the hub. Enbridge and Enterprise Products Partners LP said July 3 that they completed a 512-mile (833-kilometer) loop that’s expected to boost Seaway’s capacity to 850,000 barrels a day from 400,000.
The additional supply coming out of Cushing is about half that of the new lines going in. Pony Express will open with throughput of 230,000 barrels a day and Flanagan South will be able to move 600,000, the lines’ owners said.
Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone on July 2 that there were a lot of geopolitical issues affecting markets in the first half, but that the biggest factor was the opening of the southern portion of TransCanada’s Keystone XL pipeline because it resulted in a decline in Cushing stocks.
U.S. Production
U.S. crude output rose to 8.514 million barrels a day in the week ended July 4, the most since October 1986, EIA figures show. Annual output is forecast to reach 9.28 million barrels a day in 2015, the highest since 1972.
“If not for the massive increase in U.S. production, we would be paying a significant premium to what we’re seeing today,” Adam Wise, who helps run a $6 billion oil and gas bond portfolio as a managing director at John Hancock in Boston, said July 2 by phone.
Global consumption is forecast to climb 1.2 percent to 91.62 million barrels a day this year, the EIA says.
“There will be a moderate rise in demand but supply will be enough to cover that,” Hans van Cleef, an energy economist at ABN Amro Bank NV, said by phone from Amsterdam on July 4.
Crude climbed in June after violence flared in Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries.
“Iraq has been the big surprise,” Amrita Sen, chief oil economist for Energy Aspects Ltd. in London, said by phone on July 2. “The second quarter was very strong.”
Libyan Supply
Iraq concerns increased amid a drop in Libyan supply. Libya pumped 300,000 barrels a day in June, down 73 percent from a year earlier, according to a Bloomberg survey of oil companies, producers and analysts. Output has risen to 350,000 barrels a day, National Oil Corp. spokesman Mohamed Elharari said by phone yesterday.
Libya, holder of Africa’s biggest reserves, has 7.5 million barrels of oil stored at the ports of Es Sider and Ras Lanuf, which were reopened this month, Oil Ministry Measurement Director Ibrahim Al-Awami said by phone on July 7.
“Risk premiums linked to Libya and Iraq in particular will continue to dictate where Brent prices are,” Abhishek Deshpande, a crude markets analyst at Natixis SA in London, said by e-mail on July 8.
Iran is another possible source of increased crude as diplomats meeting in Vienna seek a permanent accord over the country’s nuclear work. If an agreement is reached, sanctions limiting Iranian exports could be eased.
Saudi Arabia has also added to supply, boosting output by 230,000 barrels a day to 9.9 million, the highest since September, when it pumped 10 million, the most in monthly data going back to 1989.
“The U.S. and Saudi Arabia have almost exclusively made up for the declines in Libyan and Iraqi output,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said July 2 by phone. “If the other shoe were to drop, there’s nobody to make up for the loss.”
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net; David Marino at dmarino4@bloomberg.net David Marino
By Grant Smith Jul 10, 2014 9:21 PM GMT+0700 3 Comments Email Print
Oil prices are indicating the most favorable supply situation in a year, with Brent crude for August cheaper than later months as Libya revives exports, according to Norway’s biggest bank.
Brent futures traded for a third day in a price structure called contango, the longest stretch in a year that the front month has held a discount to later contracts. The collapse in the premium for near-term crude supplies reflects both the prospective return of Libyan shipments and subdued crude demand from refiners, according to DNB ASA.
“This is not a sign of a strong physical market,” Torbjoern Kjus, senior analyst at DNB in Oslo, said by phone yesterday. “Libya was probably the catalyst for the sell-off. People have started to price in some Libyan barrels returning.’
Libya is restoring crippled output after yearlong political protests at oilfields and terminals that reduced the nation to the smallest producer in the Organization of Petroleum Exporting Countries. Pumping has resumed at its second-largest oilfield, Sharara, and two oil ports in the country’s east reopened as protests ended, according to state-run National Oil Corp. Libyan production should rise toward 1 million barrels a day, from about 320,000 recently, according to consultant Petromatrix GmbH.
Brent for August delivery on the ICE Futures Europe exchange traded at $108.11 a barrel at 12:30 p.m. London time, 22 cents less than the September contract. Brent’s move into contango on July 8 was the first since a two-day spell ended April 15. The previous period was a three-day run in June 2013.
Investors Hurt
The contango could deepen because prices aren’t yet fully reflecting the return of Libya after previous deals to resolve political protests faltered, said Kjus. ‘‘I don’t think the market dares to price that in yet because there’s been so many false alarms,” he said.
Contango encourages traders to put oil in storage, then profitably sell futures contracts and deliver the supplies at a later date, according to Petromatrix, which is based in Zug, Switzerland. The structure can penalize financial investors seeking to maintain a position from one month to the next as the subsequent contract is more expensive, Olivier Jakob, the company’s managing director, said yesterday.
Final Nail
Libya was “the final nail in the coffin” for an oil market that was already very weak, Amrita Sen, chief analyst at Energy Aspects Ltd., a consultant in London, said by e-mail yesterday. Elevated crude prices deterred purchases by refineries in Europe and Asia, who are running down inventories accumulated during the early part of the summer, helping to flatten the premium on front-month Brent, she said.
Libya, holder of Africa’s biggest reserves, has 7.5 million barrels of oil stored at the ports of Es Sider and Ras Lanuf, which were reopened this month, Oil Ministry Measurement Director Ibrahim Al-Awami said by phone on July 7. Production has risen to 350,000 barrels a day, National Oil Corp. spokesman Mohamed Elharari said by phone today. Daily production was 300,000 barrels last month, according to data compiled by Bloomberg.
The sale of crude supplies held in storage will be gradual and in coordination with other OPEC members in order to maintain a stable oil market, Samir Kamal, the nation’s governor for the Organization of Petroleum Exporting Countries, said by e-mail July 8.
Contango Reversed
Front-month Brent will regain its premium, Miswin Mahesh, an analyst at Barclays in London, said by phone yesterday. If Libyan exports are restored, Saudi Arabia will temper its typical seasonal increase in production, ensuring that the contango is reversed, he said. Oil demand will also climb through the summer, depleting inventories of refined oil products, he said.
“I don’t see it getting wider than it is already,” Mahesh said of the contango. “We’ll see the spread move back into positive territory. We’re gearing up for oil demand to increase.”
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron
By Dan Murtaugh Jul 11, 2014 2:09 AM GMT+0700 46 Comments Email Print
For more than 30 years, the Louisiana Offshore Oil Port LLC has been a symbol of U.S. dependence on foreign oil, pumping Nigerian and Saudi Arabian crude from the world’s biggest supertankers into underground storage caverns beneath the marshes of southern Louisiana.
Now, with domestic production at a 28-year high, LOOP’s managers are thinking the previously unthinkable: They want to reverse the flows and send North American oil out as well as take foreign oil in.
To be an outbound hub, the port needs financial commitments from shippers to build needed infrastructure, and even under the most optimistic scenario, it will be a year before it loads the first tanker, Barb Hestermann, LOOP’s business development manager, said by phone yesterday.Still, the fact that LOOP is considering the project underscores how shale drilling and oil-sands mining have altered energy flows in North America.
“This is what oil independence is all about,” Carl Larry, president of Oil Outlooks & Opinions LLC in Houston, said by phone yesterday. “We’re going to get to the point where we reach maximum capacity of oil storage in the Gulf Coast and we’re going to have to move that crude out to somewhere else.”
The terminal was conceived in 1972, a year before the Arab oil embargo, and opened in 1981. It’s owned by units of Marathon Petroleum Corp. (MPC), Valero Energy Corp. (VLO) and Royal Dutch Shell Plc. (RDSA) It remains the only port in the U.S. that can unload Ultra Large Crude Carriers and Very Large Crude Carriers, the two biggest classifications of oil tankers.
Salt Caverns
Instead of pulling into a dock along the shore, vessels unload at buoys about 20 miles (32 kilometers) south of the Louisiana coast. A pipeline 48 inches in diameter transports oil to storage tanks and underground caverns carved out by injecting fresh water into natural salt formations.
The caverns sit one-third of a mile below ground, hidden beneath brackish bayous in Clovelly, Louisiana. All that’s visible are massive arrays of pipes shooting out along the surface of the water. Combined with the tanks, the caverns give LOOP about 69 million barrels of storage, making it the U.S.’s largest private terminal.
Shipments into the port peaked in 2005 at 1.18 million barrels a day, according to Louisiana state records, about 12 percent of total U.S. imports. Deliveries dropped below 1 million barrels a day in 2009 and last year fell to 658,000, the fewest since 1985.
Falling Imports
The decline mirrors that of total U.S. imports, which fell to 6.47 million barrels a day in the week ended May 16, the least since 1997, U.S. Energy Information Administration data show. Net liquid fuel imports, as a percentage of consumption, are projected to slip to a 45-year low in 2015, Adam Sieminski, the EIA’s administrator, said in a July 8 statement.
Improvements in horizontal drilling and hydraulic fracturing have drawn crude from previously unreachable formations in Texas and North Dakota, propelling U.S. output to 8.5 million barrels a day, the highest level since 1986.
West Texas Intermediate crude, the U.S. benchmark, weakened from a historical premium to a discount versus global prices starting in 2011 as domestic supplies began to build. WTI settled today at $5.74 a barrel less than the European benchmark, Brent.
The terminal modified its buoys in 2012 to accept smaller tankers carrying domestic crude. About 13 percent of the port’s volumes have come from Texas so far this year.
Canadian Crude
The next step could be loading that domestic oil or crude mined from Canada’s oil sands onto tankers. Engineers have finished preliminary planning on two projects that would allow the reversed flows, Hestermann said.
One would make the existing pipeline between the buoys and storage bi-directional. That would take about a year to mechanically complete. The port is still receiving enough inbound shipments that it would be challenging to switch the flows long enough to load a vessel, Hestermann said.
The long-term solution is building another pipeline dedicated to loadings. That would take about two to three years, and would require new permits, she said.
The mechanical changes aren’t the end of LOOP’s challenges. The terminal’s chief advantage over other ports like Corpus Christi, Texas, and St. James, Louisiana, would be its ability to load the world’s largest tankers.
A law known as the Jones Act requires all shipping between U.S. ports to be done aboard American-built-and-crewed vessels, most of which are small enough to use existing ports.
U.S. Restrictions
The U.S. also restricts exports of domestic oil, with shipments to Canada allowed. Oil exports totaled 268,000 barrels a day in April, the highest since 1999, according to EIA data.
The U.S. Commerce Department recently told two companies that some ultra-light oil from the Eagle Ford known as condensate, which goes through a stabilizing process at the oil field that includes a distillation tower, can also be exported.
LOOP can receive Eagle Ford crude through Shell’s Ho-Ho pipeline, and it has received condensate, Terry Coleman, vice president for business development, said by phone. It hasn’t evaluated opportunities surrounding stabilized condensate exports, he said.
The terminal accepts Mars and Thunder Horse oil from the Gulf of Mexico via offshore pipelines. If output from those fields increases as expected in the next few years, it could provide another push for vessel loadings, Hestermann said.
Big LOOP
One path that could be promising is re-exporting Canadian oil. Production in Canada has risen 42 percent to 3.6 million barrels a day in the past five years. The U.S. allows re-exports of foreign crude that hasn’t been mixed with domestic oil.
For now, LOOP doesn’t have access to a steady flow of Canadian crude. It has received a few shipments down the Seaway pipeline and loaded onto vessels at Freeport, Texas, Hestermann said.
A new rail terminal or pipeline project might give them the access they need. Changes to U.S. export policy or the Jones Act might also provide a boost to their efforts.
“Anything that would allow larger vessels, that’s what really makes our project more viable,” Hestermann said. “LOOP is all about big.”
To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Dan Stets
By Lananh Nguyen Jul 10, 2014 7:18 PM GMT+0700 6 Comments Email Print
Oil-price hedging by producers and consumers is declining as a result of stricter of regulation that’s caused banks to exit commodities markets, according to Threadneedle Asset Management Ltd.
Trading of futures for delivery later this decade has diminished as some banks either leave commodities altogether or curb trading, Nicolas Robin, a fund manager at Threadneedle, said at a presentation in London yesterday. Increased regulatory oversight has caused a slump in energy trading on exchanges, Platts, a company publishing prices for commodities including oil, said the day before.
Banks including Barclays Plc, JPMorgan Chase & Co. and Morgan Stanley reduced their commodity businesses over the past several years as returns declined and regulation intensified. While most crude-futures trading centers on prices for immediate supply, known as the front-end of the oil curve, companies producing and processing crude also hedge prices for supply several years in the future.
“The back end of the curve is becoming less liquid,” Robin said at the presentation, adding that the banks still operating in commodities have curbed their activities because of stricter rules. “Because of the changes in regulation, we think this change is permanent.”
Less Liquid
New regulations including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Volcker Rule restrict banks from trading for their own account and expanded oversight of commodities derivatives. The producers and consumers those rules were created to protect are now saying that markets are less liquid and it’s harder to hedge, Jorge Montepeque, global director of market pricing at Platts, said at a conference in Tokyo on July 8.
Platts, a unit of New York-based McGraw Hill Financial Inc., competes with Bloomberg LP and other companies in providing energy markets news and information.
The amount of light, sweet crude futures handled by CME Group Inc. (CME), the world’s largest derivatives exchange, slumped 22 percent to an average of 489,658 contracts a day in May from a year earlier, the bourse’s data show. Natural gas trades fell the same amount. Brent crude transactions on Intercontinental Exchange Inc. (ICE) were 9 percent fewer in the first six months than the same period in 2013.
“Liquidity is drying up out of the curve,” Jim Newsome, founding partner of Washington D.C.-based Delta Strategy Group, who has served as chairman of the Commodity Futures Trading Commission and chief executive officer of the New York Mercantile Exchange, said by phone on June 23. “You’ve got fewer banks willing to do the business, and you’ve got hedgers that are just doing less hedging because of the cost.”
To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron
By Grant Smith Jul 10, 2014 5:50 PM GMT+0700 3 Comments Email Print
OPEC predicted that demand for its crude will decline in 2015 to the lowest in six years as supplies from other producers, led by the U.S., are more than enough to cover the increase in global consumption.
The need for crude from the Organization of Petroleum Exporting Countries will slide to 29.4 million barrels a day next year even as growth in world oil consumption accelerates, the group said in its first assessment of 2015. That’s 300,000 a day less than OPEC’s 12 members pumped in June. It would be the third consecutive annual drop in demand for OPEC crude and the lowest since 2009. The U.S. will provide about two-thirds of next year’s supply growth, OPEC said, amid a shale-oil surge that has made the U.S. the world’s biggest producer.
“Even if next year’s world economic growth turns out to be better than expected and crude oil demand outperforms expectations, OPEC will have sufficient supply to provide to the market,” the group’s Vienna-based secretariat said in the report.
The U.S. has overtaken Saudi Arabia and Russia as the world’s biggest oil producer as it taps shale formations in Texas and North Dakota by splitting apart rocks with high-pressure liquid, a process known as known as hydraulic fracturing, or fracking. Oil prices have remained supported by threats to supplies in OPEC members such as Iraq and Libya, with the Brent benchmark’s loss this year limited to 2.3 percent.
Global Demand
Brent traded at $108.20 a barrel at 10:50 a.m. London time on the ICE Futures Europe exchange.
Global oil demand will expand by 1.2 million barrels a day, or 1.3 percent, to 92.35 million a day in 2015, a faster pace of expansion than this year’s 1.1 million a day, OPEC said. World economic growth will quicken next year to 3.4 percent from 3.1 percent in 2014, it projected. OPEC kept its forecast for demand this year unchanged, predicting growth of 1.3 percent to 91.13 million.
Supply growth from outside OPEC will slow next year, according to the report. Non-OPEC producers will increase output by 1.31 million barrels a day, with 880,000 a day of this provided by the U.S., reaching 56.96 million a day. Non-OPEC supply expansion in 2014 is estimated at 1.47 million barrels a day.
OPEC Output
Production from OPEC’s 12 members declined by 79,300 barrels a day last month to 29.7 million a day, the lowest level since April, as a result of losses in Iraq, Iran and Kuwait, according to secondary sources cited by the report.
The biggest drop was in Iraq, where output fell by 169,300 barrels a day to 3.16 million. The organization has a collective target of 30 million barrels a day, reaffirmed at its most recent meeting on June 11.
Output in Saudi Arabia, the group’s biggest member and de facto leader, rose by 47,800 barrels a day to 9.73 million. Production in Libya, where the government has regained control of ports from rebels after a yearlong blockade, was little changed in June at 220,000 barrels a day, the report showed.
OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. The organization will next meet on Nov. 27 in Vienna.
The International Energy Agency, the Paris-based adviser to oil-consuming nations, will publish its monthly report tomorrow, the agency’s first monthly outlook to include supply and demand forecasts for 2015.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley, James Herron
By Anthony DiPaola Jul 10, 2014 3:38 PM GMT+0700 0 Comments Email Print
Bondholders in Persian Gulf energy companies with oil and gas production in Iraq are succumbing to concern that the conflict wracking the nation since June risks disrupting operations in OPEC’s second-biggest member.
Yields on the debt of Abu Dhabi National Energy Co. (TAQA) and Dana Gas PJSC, United Arab Emirates-based companies active in Iraq, have risen since June 9, a day before Islamist militants seized the country’s second-largest city, Mosul. The spread for Middle East sovereign debt to U.S. Treasuries surged last month and widened to an eight-month high relative to an emerging-market index, according to JP Morgan Chase & Co. data.
Dana Gas and the Abu Dhabi-based utility known as Taqa have so far escaped disruptions in Iraq because they operate in the country’s semi-autonomous Kurdish region, which has remained outside the main area of hostilities between government forces and an al-Qaeda offshoot called Islamic State. Militants control territory from the Syrian border in the west to Kurdish positions in the northeast and are battling efforts by the army to recapture towns it abandoned earlier to the insurgents.
Iraq’s Oil
“Yields on names like Taqa and Dana Gas would go up further if the situation in Iraq worsens in the near to medium term,” Amol Shitole, a credit analyst with SJ Seymour Group, said by phone yesterday from Bangalore, India. “There won’t be many takers for bonds unless yields on such paper go up to a level which provides an attractive entry point given the prevailing risks.”
Future Threat
The yield on Dana Gas’s 2017 Islamic bond, at a 12-month low in March, rose 134 basis points in June and traded at 9.63 percent today, according to data compiled by Bloomberg. Yields on Taqa’s 2023 bond gained 29 basis points from a one-year low on May 15 and were at 3.64 percent today, the data show.
“We view the uprising against Iraq’s central government as disruptive to the investments and longer-term growth plans of the major oil companies operating in the country,” David Staples, Dubai-based managing director for Moody’s Investors Service corporate finance group, said in a June 7 report.
Companies such as BP Plc and OAO Lukoil, which work in southern Iraq where the bulk of the nation’s crude output and exports originate, are large and internationally diverse enough to support earnings even if production is damaged, Moody’s said.
Political Impasse
The future of Iraq, a founder of the Organization of Petroleum Exporting Countries, is uncertain, with the central government, the Kurdish administration and Sunni militants each controlling chunks of the nation. Federal lawmakers have been unable to form a governing coalition, dimming the outlook for oil and gas companies counting on Iraq for future growth.
Taqa plans to use cash flows from its Kurdish project and from oil deposits it’s developing in the North Sea to repay future debt, Chief Financial Officer Stephen Kersley said on a conference call in November. The company spent about $600 million to buy a stake in Iraq’s Atrush oil field in 2012 and is investing an additional $300 million to start pumping crude next year at a rate of 30,000 barrels a day. A further outlay of $300 million will double daily output in 2016, Taqa said in December.
The company’s operations in Iraq have been unaffected by the recent fighting, and it remains committed to its plans there, a Taqa official said yesterday, asking not to be identified due to corporate policy.
Kirkuk Oil
Dana Gas is a partner in two Iraqi natural gas fields, which together accounted for about 40 percent of the company’s first-quarter production. The fields are less than 100 miles (160 kilometers) from Kirkuk, an oil-rich area where Kurdish forces have dug in to defend against militants.
“Operations in the Kurdistan Region of Iraq continue uninterrupted in light of recent events,” Robinder Singh, the investor relations director for Dana Gas, said by e-mail yesterday. “All our facilities and people are safe, and there have been no incidents” affecting business, he said.
Dana Gas has struggled to get paid for fuel sold in Iraq, and together with partner Crescent Petroleum Co., it’s in arbitration with the Kurdish Regional Government. Dana Gas was owed $583 million from the Kurdish region at the end of the first quarter, the gas producer said in May.
The KRG and Iraqi government have been at loggerheads over Kurdish oil exports. Federal authorities claim sole rights over crude sales and revenue.
The main issue for the KRG “is whether they can put exports on sustainable footing,” Richard Mallinson, an oil analyst at Energy Aspects in London, said by phone yesterday. “If the Kurds resolve the issue and start selling greater volumes, this will present the region’s prospects as very exciting.”
To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley, Zahra Hankir
By Indira A.R. Lakshmanan Jul 11, 2014 2:37 AM GMT+0700 6 Comments Email Print
Four months after Vladimir Putin’s government annexed Crimea, the U.S. and European Union have failed to deliver on threats to cripple Russia’s economy, penalizing fewer than 100 people and companies.
The U.S. has drawn up proposals to deny Russia access to debt markets and to technology with both civilian and military uses, and the EU is weighing similar steps, according to more than a dozen U.S. and European diplomats who asked not to be named discussing internal deliberations. Yet there’s no plan to impose the measures.
The inaction over Russia’s intervention in Ukraine stems from divisions among the 28 members of the EU, a gap between the U.S. and Europe over how to proceed, and disagreements within President Barack Obama’s administration over moving forward without the Europeans.
“Sometimes I’m embarrassed for you as you constantly talk about sanctions and yet candidly, we never see them put in place,” Republican Senator Bob Corker of Tennessee admonished Obama administration officials at a hearing in Washington yesterday. With empty threats, the U.S. risks becoming a “paper tiger,” Corker said.
Inside the U.S. administration, White House officials are wary about acting without the Europeans, not wanting to create a trans-Atlantic rift that would undermine future cooperation with Europe on a number of issues, or to impose bans that would disadvantage U.S. businesses against European ones, according to three U.S. officials.
State, Treasury
On the other side are some in the State Department and Treasury Department who think trade or financial restrictions should have been imposed a month ago to deter Russia from further action in Ukraine and are frustrated that the White House hasn’t acted on proposals that have been submitted, these officials said.
Asked today why the Obama administration has failed to move forward with wider sanctions, White House spokesman Josh Earnest said “the United States in concert with our allies stands prepared to act if necessary,” and he said “the prospect of sanctions remains on the table.”
There’s no “consensus within the U.S. government, let alone within the EU,” said Andrew Weiss, who oversees Russia research in Washington and Moscow for the Carnegie Endowment for International Peace. There’s “a perception that the White House has been unresponsive” to sanctions that could be imposed without the Europeans.
Exploiting Fractures
Russian President Putin has exploited the fractures blocking decision-makers in Brussels and Washington, shrewdly playing on fears of EU states that depend on Russian trade and energy while portraying the U.S. as meddling in Europe’s affairs, according to a European envoy and a U.S. official who weren’t authorized to be identified.
Putin is “trying to drive a wedge” between the U.S. and EU, said Weiss. The Russian leader is capitalizing on “resentment in Europe” over the U.S. championing trade and financial bans that would pinch European economies without affecting most Americans, he said.
“That’s matched by resentment in Washington about Europe’s reluctance to go fast,” said Weiss, a former Clinton administration official who directed Russia and Ukraine policy on the National Security Council. “Even in the best of times, EU decision-making is one step forward and two steps back.”
Asset, Travel Bans
EU governments provisionally agreed to add 11 more people to the 61 individuals and two businesses under European asset and travel bans for supporting separatists in Ukraine.
That blacklist and a similar U.S. Treasury Department roster of 52 individuals and 19 entities have been dismissed by advocates of stronger action as symbolic gestures that failed to alter Putin’s risk-reward calculus.
U.S. and EU officials say Putin continues to aid pro-Russian separatists while voicing support for peace talks. European diplomats say broader sanctions would almost certainly come if Russian forces intervened directly as Ukraine’s military presses an advance that’s under way against the rebels.
One proposal to deter further Russian intervention would bar American financial institutions from buying or selling assets of any Russian bank under sanctions, according to the three U.S. officials, who spoke on condition of anonymity to describe internal deliberations. That would block U.S. banks from underwriting, buying, selling or trading a targeted institution’s bonds, effectively blocking access to debt markets and financing.
European Banks
It’s a measure that Robert Kahn, a former Treasury Department official now at the Council on Foreign Relations in Washington, said the U.S. could impose unilaterally with dramatic effect because of the dominance of the U.S. financial system. Even so, “there’s a value in bringing Europe along for political reasons as much as economic ones,” Kahn said.
European states have studied halting new financing for Russia from the European Bank for Reconstruction and Development and the European Investment Bank, according to two European officials who asked not to be named because of the sensitivity of the issue. Russia is the top recipient of project-financing from the London-based EBRD, amounting to 1.8 billion euros last year.
Another proposal would stop U.S. sales of dual-use technology, such as spare parts for helicopters, machine parts and drills. The measure would have less impact if Europe didn’t impose a similar ban on its own companies, Kahn said.
‘Close Consultation’
At yesterday’s hearing of the Senate Foreign Relations Committee, Assistant Treasury Secretary Daniel Glaser said the U.S. is working on numerous options in a “broad range of sectors” that it could impose if Russia “does not take immediate steps toward de-escalation.”
This “involves close consultation with our partners to maximize the impact on the Russian economy,” said Glaser, who said he traveled to France, Germany and the U.K. in the last two weeks to advance sanctions preparations.
John Herbst, a former U.S. ambassador to Ukraine who now is director of the Atlantic Council’s Eurasia Center in Washington, said in an interview that “strong leadership from Washington could move the Europeans in the right direction. It may be painful in terms of certain business interests, but if we don’t stop Putin now, what might he do next?”
Russia’s Economy
The EU’s next chance to discuss broader sanctions on Russian industry, finance and trade would be at a July 16 leaders’ summit. With Russia engaged in talks aimed at restoring a cease-fire, however, there’s little appetite for punitive action that could undermine negotiations, the European diplomats say.
EU and U.S. officials say the mere threat of additional sanctions has hit Russia’s economy by stoking market uncertainty and discouraging investment.
Russia is struggling to steady its $2 trillion economy in the face of an estimated $80 billion in capital outflows in the first five months of 2014 and a ruble that’s down 3.3 percent against the dollar this year.
At the same time, there’s a risk to threatening more and doing less, said Kahn, an economist who worked for the International Monetary Fund. “As soon as you stop threatening, markets rally,” he said.
Russia’s Micex index has risen 21 percent from this year’s low on March 14, just before Crimea’s referendum to join Russia.
EU policies require unanimous consent, and states including Italy, Austria, Slovakia, France and Greece have raised objections to wider sanctions for economic and political reasons.
Pressing Sanctions
In internal debates, northern and northeastern nations including Poland and the Baltic States are pushing for sanctions against entire sections of the Russian economy, diplomats say. That includes the four nations -- Latvia, Lithuania, Estonia and Finland -- that rely solely on Russia’s OAO Gazprom for natural gas and are most vulnerable to a Russian cutoff but that also have checkered histories with their mammoth eastern neighbor.
Cyprus, Italy and other southern European states rely on Russian capital, trade and tourism and fear ruining traditionally good relations, the diplomats said, while Slovenia and Hungary are among nations worried about Russia retaliating by cutting energy supplies. Most EU nations are concerned that sanctions could boomerang on economies still recovering from the euro crisis.
European Dependence
“Our decision on sanctions is so difficult because it is linked to European dependence on Russian gas” for 30 percent of supply and deep economic ties with the country, Jerzy Buzek, chairman of the European Parliament’s industry and energy committee, said in an interview. Buzek, a former Polish prime minister who favors tougher sanctions, acknowledged they pose “some threats to us here in Europe.”
U.S. and EU leaders have sought to keep the threat of sanctions alive, with German Chancellor Angela Merkel warning on July 2 that broader sanctions haven’t been ruled out if Russia fails to back peace efforts. A day earlier, U.S. Treasury Secretary Jacob J. Lew said more penalties could drive Russia into recession.
Debate over economic warfare has “sucked the oxygen out of the larger policy debate,” Weiss said. While sanctions are a tool to pressure Putin, he said they won’t force Ukraine and Russia to reach an accord.
To contact the reporter on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net
To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net Larry Liebert
By Alex Morales Jul 10, 2014 8:00 PM GMT+0700 1 Comment Email Print
China may struggle to cut carbon emissions to levels that prevent the worst effects of global warming, a United Nations study of 15 major emitters showed.
The UN said per-capita emissions from burning fossil fuels needs to fall to 1.6 tons in 2050 from 5.4 tons now across the 15 nations in order to stand even half a chance of capping the global average temperature rise at a safe level.
It tasked research teams in each of the countries, including the U.S., India, Germany and Japan, to devise “deep decarbonization pathways” through to 2050. The Chinese team produced one that leads to 3.5 tons per capita, and the sum total of the 15 nations’ efforts totaled 2.4 tons, according to the study by the UN’s Sustainable Development Solutions Network.
The potential for China to cut its harmful emissions matter because the country is the world’s biggest emitter, after overtaking the U.S. in 2006. The two nations combined account for more than two-fifths of global emissions.
“We know that we are not on track, and time is not on our side,” UN Secretary-General Ban Ki-moon said in a statement on July 8, when the report was released. “I expect countries to adopt different combinations according to their needs, resources and priorities. But all countries need to embark on the same journey.”
The pathways outlined by the 15 research teams involved ramping up technologies such as nuclear and renewable power, carbon capture and storage, and electric vehicles. They led to an aggregate cut in annual emissions from energy of 45 percent, falling to 12.3 gigatons (12.3 billion tons) in 2050 from 22.3 gigatons in 2010.
Temperature Target
Even so, that’s not enough to keep the Earth on a pathway to cap the temperature rise since industrialization began to 2 degrees Celsius (3.6 degrees Fahrenheit), according to the study. That threshold has been agreed as a target by 194 nations involved in climate treaty talks and compares with the current trajectory which the UN predicts will lead to warming of at least 3.7 degrees Celsius.
The 15 countries account for 70 percent of total global greenhouse gas emissions. Cutting per-capita emissions to 1.6 tons by 2050 would yield a 50-percent chance of capping the temperature rise at 2 degrees, according to the UN.
The U.S. team charted four potential pathways, leading to emissions totaling 1.6 tons to 1.7 tons per capita in 2050. That compares with 17.7 tons in 2010. The researchers said it’s “technically feasible” to cut U.S. emissions by 85 percent between 1990 and 2050, while still growing the economy.
China’s Challenge
In the Chinese scenario, coal use declined to 5 percent of the energy mix in 2050 from 39 percent in 2010, while hydro, renewables and nuclear increase their share of power generation to 41 percent. China’s industrial base, which manufactures goods for much of the world, was picked out as a challenge.
“Currently, 25 percent of energy is used for the production of export products in China,” the researchers wrote. “Given that adjustments of the structure of exports is not an easy task, manufacturing exports (and associated emissions) are expected to remain important in the long run.”
The U.K. pathway would drive emissions per capita down to 1.1 ton in 2050 from 7.9 tons in 2010, while the Japanese one would see greenhouse gas output fall to 1.9 ton from 8.8 tons. Chapters covering Germany, India and Brazil weren’t yet available. The other countries covered are Australia, Canada, France, Indonesia, Mexico, Russia, South Africa and South Korea.
The study set the per-capita emissions number as a “benchmark but not as a target in a strict sense.” That’s because 194 nations locked in global climate treaty talks for two decades have squabbled over the fairest way to split the burden of cutting emissions.
Industrialized nations have benefited from decades of higher emissions that helped them modernize -- something developing nations including China and India say they should be allowed to do too. The countries aim to write a new global deal on climate change at a UN meeting in Paris in December 2015.
The UN said its analysis of the pathways remains “preliminary and incomplete.” It plans to issue a complete report before Ban hosts a climate change summit of world leaders in September in New York. It then plans to further refine its analysis and broaden the study to cover what is not yet technically feasible, preparing a wider report in 2015 for the French government, which will host the treaty talks.
To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net
To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net Alex Devine
By Joe Carroll Jul 11, 2014 4:47 AM GMT+0700 0 Comments Email Print
Chevron Corp. (CVX), the world’s third-largest energy producer by market value, said more than half a billion dollars in asset sales helped lift second-quarter profit higher than the first three months of the year.
Chevron sold $500 million to $600 million in assets such as oil and natural gas wells during the April-to-May period, according to a statement the San Ramon, California-based company issued today.
Production for the first two months of the quarter averaged the equivalent of 2.566 million barrels of crude a day, according to the statement. If that pace held for the final month of the period, output slid 0.6 percent from the second quarter of 2013.
Chevron is scheduled to release full results for the quarter on Aug. 1. The statement was released after the close of regular U.S. stock trading. Chevron shares have risen 4.3 percent this year, underperforming the 6.3 percent gain of the Standard and Poor’s 500 Index.
Exxon Mobil Corp. is the world’s biggest energy company by market value, followed by Royal Dutch Shell Plc, according to data compiled by Bloomberg.
To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net
To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Robin Saponar
http://www.naturalgaseurope.com/content/17769/Europe%20map_550x300.png
The recent events in Ukraine, in addition to triggering the most acute political crisis between Russia and the West since the end of the Cold War, also has the potential to significantly influence the future development of global trade patterns related to the export of natural gas. Although East Asian gas markets were already on their way towards eclipsing the European gas market in size and attractiveness for many gas exporters, the effects of the current geopolitical crisis in Ukraine could accelerate this trend, with Russian gas exporters increasingly shifting their attentions eastward. In fact, the recent agreement on the export of 38 billion cubic meters of Russian gas to China over 30 years is already an example of the Russian ‘pivot’ eastwards.
Such a trend has profound implications for internationally traded natural gas flows, and could lead to a scramble for market share between the main suppliers, the results of which will be difficult to predict. Such trends hold both opportunities and dangers for Russia and its existing European customers, and these effects are examined in this paper by Rimma Subhankulova and Richard Wheeler.
By Chris Dalby | Thu, 10 July 2014 21:58 | 0
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Economic analysts are torn as to how important Saudi Arabia will prove to the global economy in years ahead. In the first half of 2014, the US surpassed Saudi Arabia to become the world’s foremost oil producer. This sparked widespread predictions that the US would soon become an oil exporter, reducing its dependency on Riyadh and harming Saudi Arabia’s leading role in the Middle-East. However, the ISIS invasion of Iraq and Syria, the Boko Haram insurgency and continued oil theft in Nigeria, unrest in Venezuela and ongoing violence in Sudan and South Sudan have changed the deal.
The US extracted a record 11.2m bbl/d in April 2014, as compared to 9.69m bbl/d for Saudi Arabia in March 2014. But this increase in American oil is hardly enough to mitigate the devastating impact on oil prices that would be seen, should oil facilities in countries at war stop producing. ISIS alone has spooked oil markets with its gains. It has captured the al-Omar oil field in Syria (75,000 bbl/d) and five others, seized control of Baiji, Iraq’s largest refinery, for over a month, while trouble still brews not far from the Kirkuk oil field (260,000 bbl/d) and repair work has halted on the Kirkuk-Ceyhan pipeline (capable of transporting 300,000 bbl/d).The US may be boasting of energy independence thanks to its shale gas boom, but the situation in Iraq still threatens to deal an uppercut to global oil prices. Exxon and BP even began evacuating workers from Iraq in June as ISIS continued its advance. Spooked markets already saw the Brent crude price in June hit its highest level since September, although it has begun to lower again in July.
The US and Saudi Arabia have stood alongside one another as unlikely partners for decades, ignoring each other’s unsavory activities in the name of mutual prosperity and a shared loathing of Iran and Al Qaeda. The UN had the Oil-for-Food program, but Saudi Arabia pioneered the Oil-for-Safety tactic. However, this dependency on American foreign policy goodwill may have had deeper consequences than the House of Saud expected. The administration of US President Barack Obama took a dim view to Saudi Arabia’s interference in Bahrain during the Arab Spring, and Riyadh’s threat-laden rhetoric against Tehran seems to have abated under pressure.
The US shale boom also seems to have made a direct dent in Saudi Arabia’s production plans. Talk of adding 2.5m bbl/d to Saudi Arabia’s capacity has stopped as the US has scaled up its daily production ability. Therefore, could the former oil king be counted upon to scale production up to 12.5m bbl/d, should at-risk OPEC members drop the ball. Seth Kleinman, Citigroup’s Head of Energy Research, doesn’t think so, writing that “the market has never seen Saudi Arabia hold production over 10 million barrels a day…a combination of skepticism and caution seems warranted.” Critics also point out that Saudi Arabia has made no new discoveries in years.
A silver lining came last week in the shape of a deal in Libya between the government and rebels to re-open eastern ports that handle half of the country’s oil exports. The agreement to re-open the ports of Es Sider and Ras Lanuf has already led to production restart at the Sharara oil field, with a capacity of 340,000 bbl/d. Active exports are expected in late July, once the Zawiya refinery also gets underway. Despite this good news, it is difficult to see this as anything more than a stop-gap.
US shale finds show no sign of abating but neither do crises in the Middle-East. The good news out of Libya may help to stabilize oil prices for now, but this may not hold true in the long-term. With ISIS now having announced the desire to one day attack Saudi Arabia and destroy the Kaaba, the old pact between the US and Saudi Arabia may gain a new lease of life. While the US maintains its unwilling burden to guarantee the security of its Middle-East allies, Saudi Arabia will remain in the familiar position of being the world’s most trusted source of oil.
By Chris Dalby for OilPrice.com
http://www.scotsman.com/webimage/1.3473368.1405035889!/image/336196616.jpg_gen/derivatives/articleImgDeriv_628px/336196616.jpg
by TOM PETERKIN
THE body responsible for independent analysis of the UK’s public finances yesterday dramatically reduced its forecasts for North Sea oil revenue over the next two-and-a-half decades.
The Office for Budget Responsibility (OBR) has revised its predictions to suggest around £39.3 billion will be raised in North Sea revenues in total between 2019/20 and 2040/41 – a fall of £12.6bn on last year’s projections.
When yesterday’s long-term forecasts are factored into figures already produced for the medium term, the OBR now reckons total oil and gas receipts between 2013/14 and 2040/41 will fall from last year’s prediction of £82.2bn to £61.6bn.
The OBR’s forecasts, contained in its annual “Fiscal Sustainability Report”, were altered to take into account “unexpectedly weak production”, which has had an impact on long-term projections. Also taken into account was “lower sterling oil prices”, which were partly offset by higher gas prices, and the sustainability of tax revenues.
The leader of the No campaign Alistair Darling said the figures confirmed that the oil was running out and added that remaining in the UK was the best way to make use of the remaining resource. Alex Salmond, however, dismissed the OBR estimates as “stuff and nonsense”, arguing that they were too pessimistic.
The publication of the report was accompanied by a letter sent to the Holyrood finance committee by the OBR’s chairman Robert Chote.
Mr Chote said that the OBR’s figures suggested that North Sea oil and gas receipts would “remain a valuable resource for many years to come”.
But he added: “They are highly volatile from year to year, which makes near-term forecasting very difficult. And while it is clear the long-term trend in receipts is downward, the pace of that decline – and the amount that can be collected as it happens – is highly uncertain and very sensitive to production and prices. Whichever government receives these receipts needs to plan on that basis.”
The OBR, which was created by the Chancellor George Osborne to provide independent economic analysis, also predicted UK government debt would peak in 2015/16, a year earlier than expected, at 78.7 per cent of GDP – 6.9 percentage points lower than previously forecast.
Its latest figures also showed total debt at £1.273bn, or 76.1 per cent of GDP – the equivalent of £48,200 per household.
The OBR warned that governments will have to raise taxes or implement further spending cuts in the coming decades, mainly because, as life expectancy grows, the cost of health, social care and the state pension will increase.
Mr Darling claimed that the revised oil figures added credibility to the No argument.
The Better Together leader said: “Today’s figures confirm what we already know – the oil is running out and the tax we will get from it is falling. Being part of the UK means we can make the most of what is left in the North Sea without putting the funding for our schools and hospitals at risk. It’s the best of both worlds for Scotland.
“Oil and gas has been great for Scotland. The industry employs around 200,000 people here and generates billions in tax to pay for our public services. That’s a good thing, but the tax we get is volatile and declining.
“Alex Salmond has consistently over estimated how much tax we would get from the North Sea, and today’s figures confirm that his future guesses are as unreliable and optimistic as ever.”
Mr Salmond said: “It’s stuff and nonsense. The OBR are suggesting 10bn barrels of oil and gas remaining.
“[Umbrella body] Oil and Gas UK say up to 24bn barrels. Sir Ian Wood, the huge expert on how to maximise (production), says up to 24bn barrels. The professor of geology at Aberdeen University says it’s more like over 30bn barrels.
“Now, all of these people know infinitely more about the extent of the reserves remaining in the North Sea than the Office of Budget Responsibility in London does.”
By Andy Tully | Thu, 10 July 2014 21:14 | 0
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OPEC is cutting its forecast of demand for its own oil by 300,000 barrels a day in 2015 because of an increased supply of crude from other sources, particularly the United States and Canada.
The cartel’s secretariat in Vienna issued its first estimates for the year on July 10 in its latest monthly report on the global oil market. Its conclusion: Demand for crude from the 12 OPEC members should remain at an estimated 29.7 million barrels a day (MBD) through 2014, but drop to 29.4 MBD in 2015.
It said the oil supply from non-OPEC producers is expected to grow by 1.3 MBD to 57 MBD in 2015 at a time when the global demand for crude is estimated to be 92.3 MBD, up from 2014 by 1.2 MBD. As a result, OPEC won’t be strained to meet the worldwide demand for oil, the secretariat said in a statement.
The OPEC report doesn’t come as a surprise. Dependence on OPEC oil is declining as the United States and Canada use hydraulic fracturing, or fracking, to extract previously untapped supplies of crude from underground shale deposits.
Two major variables in this equation, however, are consumption in China and the United States, the world’s two biggest oil consumers. There are signs that China’s economy is slowing, and recovery from recession in the United States remains uneven. In fact, U.S. consumption remains the biggest variable, according to Eugen Weinberg, the director of commodities research at Commerzbank AG in Frankfurt. “The million-dollar question is what is going on with non-OPEC supply, and when we speak about non-OPEC we are speaking definitely about the U.S. market,” Weinberg told Bloomberg News. “Otherwise it’s a balanced outlook for the next year, and growth is likely to increase, though maybe OPEC are a little too optimistic on China.”
OPEC isn’t alone in projecting less pressure on OPEC production in 2015. In Tokyo, Yoshikazu Kobayashi, the oil group manager at the fossil fuels and electric power industry unit of the Institute of Energy Economics-Japan, told Platts on July 10 that he expects the global demand and supply to lessen next year as oil demand rises by 1.4 MBD, less than the projected rise in supply.
Kobayashi’s figures differed slightly from OPEC’s, but both forecasts generally jibed.
Despite the recent increase of North American crude output, Rostam Qasemi, Iran’s oil minister, cautioned that non-OPEC oil output may not be as generous as many believe. He said not all countries are capable of extracting any shale reserves they may have, and stressed that reserves of U.S. shale oil “should not be exaggerated.”
“Everything must be assessed realistically,” Qasemi said July 10 in Frankfurt. “Based on a study by OPEC, we do not believe that there will be vast amounts of energy production in the U.S. In some countries it might not be possible to use those technologies.”
By Andy Tully of Oilprice.com
By Nick Cunningham | Thu, 10 July 2014 21:33 | 0
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Rising global temperatures are melting Arctic sea ice, so much so that some companies are now viewing the Arctic Ocean as a major shipping route for energy supplies.
The Wall Street Journal published an article on July 9 that detailed a joint venture between two major Asian companies seeking to ship liquefied natural gas (LNG) through the Arctic Ocean. Mitsui OSK of Japan and China Shipping Development Company announced a combined investment of $932 million on three LNG carriers that could handle the rough icy waters of the far north.
China and Japan promise to be huge buyers of LNG in the coming years. China, with its cities suffocating from air pollution, is seeking to replace much of its coal fleet with cleaner burning natural gas. And Japan – which has long been the world’s largest importer of LNG – is still heavily dependent on LNG imports with its 48 nuclear reactors still offline.
China and Japan continue to scour the world for new LNG supplies, and melting sea ice has opened up the option of the Arctic Ocean. The three LNG ships ordered by Mitsui and China Shipping Development will be equipped with ice breaking capability in order to plough through chunks of ice. The objective is to export natural gas from the Yamal LNG project that Russia is building in the Arctic Circle, ship it via the Northern Sea Route (NSR) along Russia’s northern coastline, and on to China and Japan.
The route between Russia and Asia via the Arctic would theoretically cut down on shipping times, and thus cost. “The shorter distance would be good for buyers, by cutting shipping costs and reducing other risks,” Yu Nagatomi, an economist at the Institute of Energy Economics, told the Wall Street Journal.
But there are several reasons to think that the role of the Arctic in shipping could be vastly overblown.
First, even with ice breaking capability, LNG carriers would only be able to transit the Arctic Ocean in summer months, a fact that even Mitsui OSK conceded.
And according to Malte Humpert, Executive Director of The Arctic Institute, the economic savings of shipping LNG via the Arctic are questionable. “There are a number of factors: seasonality, geography, and market conditions, being the most important, which will prevent the route from becoming a major transit route let alone reshape global LNG trade,” he said in an email.
Humpert says that much of the LNG is destined for Chinese ports, where distance savings over the traditional route via the Suez Canal will be less significant in comparison with Japanese or South Korean ports.
In other words, by traveling the NSR, ships can achieve a 40 percent savings in distance if they are destined for Japan or Korea, but only cut down on 20 percent of the distance if heading for Chinese ports. And after factoring in the additional cost of ice breaking technology, and the narrow window of time in the summer when ice retreats, the benefits of the NSR becomes less certain, he argues.
Moreover, shipping in the Arctic Ocean is still dangerous, and oil and gas companies don’t have solid response plans for dealing with an oil spill or other emergency. Shipping in summer months does not mean the route is entirely ice-free. Softer first-year ice – ice that only formed the previous winter – melts in summer months. But harder multi-year ice, which represents the greatest danger to shipping, remains. That means that traveling on top of the ice is not possible in the summer, but emergency response ships would face challenges navigating through broken up sea ice at the same time.
To be sure, LNG shipping via the Arctic Ocean will likely grow. Only four ships traveled the NSR in 2010; that number jumped to 71 ships last year. Once the Yamal LNG project is completed, shipments will surely rise. The project will have the capacity to ship 16.5 million tons of LNG per year.
But the route through the Arctic Ocean will remain limited to seasonal shipments, and only to ports that can significantly save on costs relative to traditional routes like the Suez Canal. “Apart from these niche opportunities,” Humpert writes in a 2013 report on Arctic trade, “Arctic shipping routes will be unable to compete with the world’s existing major trade routes.”
By Nick Cunningham of Oilprice.com
Houston (Platts)--10Jul2014/641 pm EDT/2241 GMT
US Gulf Coast heating oil continued to soar Thursday after a brief spike in demand as traders sought to take advantage of recent low differentials.
Platts assessed USGC heating oil with less than 2,000 ppm sulfur up 2.50 cents to NYMEX August ULSD futures minus 12.25 cents/gal, the highest differential since minus 12 cents/gal on June 18.
"I think they are storing it for the winter," one trader said.
Heating oil differentials plummeted immediately before and after regulations on sulfur content went into effect in several demand states on July 1, but a rapid recovery in the six trading days since has regained that strength and then some.
Traditional heating oil cannot be used in most of the Northeast, which used to hold the vast majority of demand for the product, but it can still be used as a blendstock to make heating oil with less than 500 ppm sulfur, which would be legal in any state except New York or Rhode Island.
The Atlantic Coast heating oil differential moved up in response to the USGC strength, but the regional spread still compressed. Platts assessed USAC heating oil up 1 cent to minus 11 cents/gal, which brought the spread to 1.25 cents/gal, the narrowest since 80 points/gal on April 21.
Platts assessed the NYMEX August ULSD futures contract at $2.9013/gal at 3:15 pm EDT.
--Joshua Mann, joshua.mann@platts.com --Edited by Derek Sands, derek.sands@platts.com
Washington (Platts)--10Jul2014/406 pm EDT/2006 GMT
With concerns over the volatile nature of Bakken crude growing and US regulators developing sweeping crude-by-rail safety rules, lawmakers and safety advocates are pressing for a new, federal requirement to stabilize certain types of crude before it is shipped by rail.
While such a requirement is seen as unlikely, at least in the near term, the Obama administration may find its recent crude export rulings could create a de facto stabilization requirement. In effect, current US crude export policy and global oil market fundamentals may be enough of an incentive for industry to stabilize Bakken crude before it is shipped.
"It could be a perfect bureaucratic solution to a policy problem," Benjamin Salisbury, a senior energy policy analyst at FBR Capital Markets, said.
This idea builds off last month's revelation that the US Commerce Department would allow both Enterprise Product Partners and Pioneer Natural Resources to export crude that has been stabilized and processed through a distillation tower.
Under this apparent precedent, which Obama administration officials say does not mark a policy change, Bakken producers may look to export some of the roughly 1 million b/d now coming out of the growing oil play. To do this, analysts said, they would need to stabilize the crude to meet Commerce's export requirements. This stabilization would in theory make Bakken crude less volatile and safer to transport and would effectively create a stabilization requirement without a new federal rulemaking process.
"You could stabilize and go," said one analyst. "You'd still have to put it into rail cars and ship it to the coast, but at least you'd be selling it at a global market price instead of at the WTI discount. Who wouldn't do that? Everybody would do it."
There are obvious limitations to this solution, lobbyists and analysts said, including that Bakken producers are already permitted to export to Canada, a market they would likely prefer due largely because it is close. There's also the fact that building up the Bakken's stabilization and distillation capacity would cost millions of dollars and could take years to complete.
But at least one company, Quantum Energy, seems to be emphasizing the link between stabilization and exportability as it pushes its plans to build as many as five stabilization units in the Bakken.
Quantum's plans include building five 20,000 b/d micro-refineries in North Dakota and Montana that would be capable of stripping volatile natural gas liquids out of the crude, making it safer for transport.
"The result of that is that the liquid that flows out of the facility is less volatile, bottom line," said Russell Smith, an executive vice president with Quantum, which has offices in Williston, North Dakota. "To pretend that light sweet crude isn't more volatile than heavier crudes ... doesn't make any sense."
Smith outlined these plans in a meeting last month with US Department of Transportation and White House officials as the administration began its review of a new crude-by-rail rules.
These rules are expected to focus on rail speeds, braking technology standards and design specifications for tank cars.
HOUSE DEMOCRATS WANT NGLs REMOVED BEFORE SHIPPING
In a letter to Transportation Secretary Anthony Foxx last week, four California Democrats in the US House of Representatives, led by Representative Doris Matsui, asked regulators to address crude oil volatility concerns by requiring the removal of flammable natural gas liquids from the crude before it is loaded on to tank cars.
"In order for industry to comply, they would need to build small processing towers known as stabilizers that shave off NGLs from crude before it is ultimately loaded for transports," the members wrote. "Stabilizers are common in other parts of the country and we understand that this could also be feasible through equipment leasing."
Smith said his company's plans were focused on exports, rather than rail safety.
"We're not advocating if they do or if they don't [require stabilization]," he said. "Quite frankly, we don't care. Our business plan is centered around exportability."
In addition, analysts said such a stabilization requirement is unlikely in the near term, because it would first require an extensive collection of data by DOT. Analysts said DOT was unlikely to propose new stabilization rules for Bakken or any other crude type without proving first that it is more volatile than other crude and in need of additional safety regulations. Data collection and this finding would be necessary for the rule to survive any legal challenge, one analyst said.
DOT's Pipelines and Hazardous Materials Safety Administration has said preliminary testing shows Bakken crude may be more flammable than other crudes typically shipped in the US. And while there is no federal law requiring crude to be tested for volatility or vapor pressure, DOT has said shippers may be violating federal law by not correctly identifying on manifests what kind of crude they were carrying.
The American Fuels and Petrochemical Manufacturers in May said its analysis of 1,400 samples of Bakken crude, found that it is comparable in flashpoint, boiling point, corrosivity and other specifications to other light crudes and "well within the safety standards" for DOT-111 tank cars approved by the DOT for transporting oil.
--Brian Scheid, brian.scheid@platts.com
--Edited by Jeff Barber, jeff.barber@platts.com
London (Platts)--10Jul2014/732 am EDT/1132 GMT
Rising supply from non-OPEC producers will more than meet expected growth in world oil demand next year, forcing OPEC to cut its forecast of demand for its own crude by 300,000 b/d, the cartel's Vienna secretariat said Thursday in its latest monthly oil market report.
Issuing its first estimates for 2015, OPEC said it expected demand for crude produced by its 12 members to fall to 29.4 million b/d. It has kept the 2014 forecast broadly unchanged at 29.7 million b/d.
Non-OPEC supply is seen growing by 1.3 million b/d to 57 million b/d in 2015 while world oil demand is expected to grow by 1.2 million b/d to 92.3 million b/d.
OECD demand is expected to rise -- by a modest 40,000 b/d -- for the first time since 2010, with the Americas the only region showing growth and Europe expected to decline further.
"The above forecasts suggest a demand for OPEC crude of 29.4 million b/d in 2015, a decline of 300,000 b/d from the current year," OPEC said.
"Therefore, even if next year's world economic growth turns out to be better than expected and crude oil demand outperforms expectations, OPEC will have sufficient supply to provide to the market."
OPEC said its crude output fell by 80,000 b/d to 29.7 million b/d in June from 29.78 million b/d in May. The group uses secondary sources to monitor its production.
--Margaret McQuaile, margaret.mcquaile@platts.com
--Edited by Maurice Geller, maurice.geller@platts.com
Tokyo (Platts)--10Jul2014/723 am EDT/1123 GMT
Non-OPEC oil supply is expected to rise by 1.6 million b/d in 2015 from a year earlier, led by increasing US liquids exports, a senior oil analyst at the Institute of Energy Economics, Japan said Thursday.
Yoshikazu Kobayashi, oil group manager at IEEJ's fossil fuels and electric power industry unit, said the outlook considered rising LPG supplies from the US and a recent US Commerce Department decision allowing exports of lightly processed condensates.
"We expect to see US condensates flowing into the Asian market from now on," he said, adding that US condensate export volumes would be limited but would nevertheless help reduce procurement prices of naphtha and light crudes in Asia.
Kobayashi, speaking to Platts on the sidelines of an IEEJ press briefing in Tokyo, said he expects the global demand/supply situation to ease next year as oil demand rises by 1.4 million b/d, less than the projected rise in supply.
Of the 1.6 million b/d year-on-year increase in non-OPEC supply next year, Kobayashi said US liquids would account for 700,000 b/d, with crude supplies from Brazil and Colombia accounting for 400,000 b/d, and 300,000 b/d of NGLs from OPEC countries. The remaining 200,000 b/d of oil is expected to come mainly from Canada, he added.
The US Commerce Department in June confirmed that both Enterprise Product Partners and Pioneer Natural Resources would be allowed to export crude condensate processed through distillation towers.
Under the ruling, which Obama administration officials have stressed is not a shift in policy, processed condensate would be eligible for export without a license since it is a petroleum product not subject to the 1975 crude export ban.
Looking at the second half of 2014, Koyabashi said he expects the global oil demand/supply balance to tighten toward the end of the year.
This is based on Kobayashi's assumption that OPEC will maintain its current output for the rest of the year, that the increase in non-OPEC supply will be limited to 800,000 b/d in H2 compared with H1, and that global oil demand will increase 2 million b/d over the same period.
Kobayashi's outlook for international benchmarks has Brent crude hovering around $110/barrel, Dubai at $108/b and WTI at %105/b in H2 2014. For 2015, he forecasts Brent at $105/b, Dubai at $103/b and WTI at $100/b.
IEEJ is an affiliate of Japan's Ministry of Economy, Trade and Industry.
--Takeo Kumagai, takeo.kumagai@platts.com
--Edited by Meghan Gordon, meghan.gordon@platts.com
Buenos Aires (Platts)--10Jul2014/430 pm EDT/2030 GMT
Argentina expects a planned natural gas pipeline system in the country's northeast to be largely complete by the end of 2015, Planning Minister Julio De Vido said Thursday.
The projects that will still be pending at that time involve the construction of distribution networks to carry gas the final leg to consumers, he said.
Construction is not yet underway on the main pipeline, a 40-inch diameter, 27.7 million cubic meters/d capacity line that will carry gas from Bolivia to the Argentinian provinces of Chaco, Corrientes, Formosa, Misiones, Salta and Santa Fe.
Bolivia this year is delivering about 18 million cu m/d of gas, but shipments are due to rise to 27.7 million cu m/d by 2017 as that country steps up gas production.
De Vido said contracts would be awarded August 12 for a supplier of the pipes and for the construction of the first three segments of the line -- the pipeline's first phase.
De Vido, the country's chief energy strategist, has said the project will cost a total of Pesos 25 billion ($3.1 billion).
Argentina is seeking to increase the availability of energy supplies after a decade of dwindling domestic production led to periodic shortages and an increase in the imports of crude, diesel, fuel oil, gas and gasoline.
--Charles Newbery, newsdesk@platts.com
--Edited by Lisa Miller, lisa.miller@platts.com
Singapore (Platts)--10Jul2014/724 am EDT/1124 GMT
Falling LNG spot prices across the Asia Pacific region, stemming from a supply and demand imbalance, are presenting more opportunities for Thailand's PTT to attract competitively priced cargoes, diversifying the source of its imports, an analysis of Platts data shows.
State-owned PTT appears be one of the few beneficiaries of the softening spot market in the Asia Pacific. It is the only buyer in the region not currently bound by long-term contract deliveries for its 5 million mt/year Map Ta Phut terminal, meaning it can import more competitively priced spot volumes through tenders, its preferred method of procurement.
Thailand has so far signed one long-term contract, but deliveries will only begin in 2015.
According to Platts ship-tracking software cFlow and Bentek data, Thailand began diversifying its imports away from preferred Qatari LNG from June. By contrast, the first six cargoes that Thailand imported from January to May this year had come from Qatar.
The diversification of supply is likely a reaction to sliding spot prices. Since reaching historical highs of $20.20/MMBtu for March delivery, the Platts Japan Korea Marker spot price has lost 47% of its value, closing at $10.75/MMBtu for August delivery on July 9.
PTT launched its first reported tender of the year in mid-March -- as spot prices began their descent -- seeking one cargo in the second-half of April. Since then, it has launched four more tenders for June, July and August for a total of five cargoes.
Thailand has since taken delivery of cargoes from Malaysia, Trinidad and Tobago and Oman for the first time, and also a Russian cargo for the first time since June 2011, as other sellers undercut Qatari offers.
Future cargoes scheduled for delivery into Thailand over July and August will also come from different locations. The winner of a recent tender for an early August cargo was heard to have been BG Group, which would supply the cargo from its portfolio at around the low to mid-$11/MMBtu, but this could not be confirmed.
Thailand's July delivery tender for two cargoes was heard to have been awarded to a Japanese trader. The second cargo was aboard the Trinity Glory, heard to be under the control of Shell or Mitsui. Prices were heard at $12/MMBtu to the mid-$13/MMBtu.
These spot prices would generate significant savings compared to oil-linked deals pegged to the Japan Customs Cleared crude price, which would give prices of around $16-17/MMBtu for the same period.
MAP TA PHUT DELIVERIES BY ORIGIN Loading Port Vessel Name Delivery Date (2014)
Ras Laffan, Qatar Al Rekayyat Jan 19
Ras Laffan, Qatar Al Nuaman Mar 08
Ras Laffan, Qatar Al Khuwair Feb 04
Ras Laffan, Qatar Al Shamal Apr 04
Ras Laffan, Qatar Murwab Apr 25
Ras Laffan, Qatar Onaiza May 03
Bintulu, Malaysia Puteri Firus Satu May 16
Point Fortin, Trinidad and Tobago Methane Nile Eagle May 10
Sakhalin, Russia Grand Aniva Jun 19
Qalhart, Oman Ibra LNG Jul 01
Bonny, Nigeria Trinity Glory Jul 21
***Source: Platts cFlow
QATAR PROVIDES WINTER SUPPORT, DELIVERS EXPENSIVE SPRING CARGOES
Over the peak North Asian winter demand months of October 2013 to March 2014, Qatar exported 453,485 mt to Thailand -- 88.6% of the total 511,648 mt Thailand received over that period.
An analysis of the import price for Qatari LNG against the JCC crude price revealed a strong correlation between the two over the October 2013-January 2014 period, rather than a relationship with spot pricing. This suggests that winter cargoes imported from Qatar over this period may have been purchased on a strip basis -- a deal that is usually less than a year and typically indexed to crude prices -- linked to trailing 3-month average JCC prices.
This potential strip deal shielded PTT from higher spot prices over December 2013 and January 2014 -- the only months when Qatari import prices into Thailand were significantly below the JKM.
Officials from PTT were not available for comment.
Thailand elected to re-enter the spot market in March and April, when the Asian market traditionally cools with milder temperatures and spot prices tend to dip in comparison to JCC-linked contracts.
This is evident as cargoes imported in March and April were more closely correlated with the JKM -- rather than the three-month JCC average. Prices unexpectedly rose late in winter. As such, Thailand paid $19.70/MMBtu and $18.66/MMBtu for its March and April requirements from Qatar.
Overall, most of the imported cargoes from Qatar into Thailand were around -- or slightly higher than -- the average JKM price.
This means that Thailand has paid similar prices -- or slightly more -- for Qatari imports, compared to the deals done in Japan or South Korea, despite the beneficial geographic location of the terminal to the Middle East.
The shipping time for the vessel from Qatar to Thailand is 3-4 days less when compared to North Asian ports, resulting in lower freight charges.
In 2013, Qatar was the main supplier to PTT, sending 993,238 mt -- around 70% of the total volume Thailand received over the year. In October 2013, Qatargas recognizing the growing importance of Thailand and Southeast Asia, announced plans to open a representative office in Bangkok.
Thailand's only long-term LNG Sales and Purchase Agreement was signed with Qatargas in December 2012, at a price pegged to the basket of crudes in the Japanese crude cocktail. Under that contract, Thailand will receive 2 million mt/year of LNG over 20 years, starting in 2015.
--Max Gostelow, max.gostelow@platts.com
--Edited by Stephanie Wilson, stephanie.wilson@platts.com, Geetha Narayanasamy, geetha.narayanasamy@platts.com
London (Platts)--10Jul2014/507 pm EDT/2107 GMT
Exports of ultra low sulfur diesel and higher sulfur gasoil from the US Gulf coast and Atlantic coast to Europe in July are expected to decrease from June, according to traders and Platts cFlow data.
Arrivals from the US of ULSD and gasoil in June were above 2 million mt for the second month in a row.
As of Wednesday, approximately 1.3-1.5 million mt of ULSD are expected to arrive in Northwest Europe and the Mediterranean, with another two to three days of loadings expected. It takes approximately 20 days to sail to destinations in Northwest Europe.
According to traders, higher freight costs for the Transatlantic route combined with low physical cash premiums at the end of June played a large role in decreasing the arbitrage opportunities for swing barrels.
Clean US Gulf coast to UK coast Transatlantic freight rates closed at a seven-month high on June 26 at Worldscale 150, or $33.20/mt, following a sharp fall in the amount of ships ballasting back to the US from Europe from the previous month and creating tightness in the US region for Medium Range vessels.
Weakness in ULSD cash premiums in both Northwest Europe and the Mediterranean in the first half of June also contributed to the lower volumes exported according to traders, putting further pressure on the arbitrage profit.
"July is looking more dry, we're not seeing as many of the US cargoes and Russian barrels. The Mediterranean is trading highly above the north and people need to bid up in Northwest Europe to avoid cargoes deviating south," said one trader.
--Charles Goldner, charles.goldner@platts.com
--Edited by Jonathan Fox, jonathan.fox@platts.com
London (Platts)--10Jul2014/1014 am EDT/1414 GMT
Three of the four Kurdish crude cargoes that have so far loaded out of the Turkish port of Ceyhan remain on the water, according to Platts vessel-tracking software c-Flow, with two now destined for North Asia and Brazil, respectively.
Of the four cargoes, only one has been confirmed as having discharged its crude -- at the Israeli port of Ashkelon -- with the other three still at sea.
According to c-Flow, the United Leadership, which loaded the first cargo out of Ceyhan back in May, is currently stationary off of the coast of Morocco, where it has been more or less uninterrupted for the past month after reportedly being turned away from Mohammedia.
The second cargo offloaded in Israel, while the third and fourth cargoes -- on the United Emblem and United Kalavrvta, respectively -- are yet to be discharged, traders said.
Both vessels spent significant time in the ship-to-ship transfer zone off the coast of Malta, but neither vessel carried out a transfer, according to traders and shipping sources.
The United Emblem moved through the Suez Canal earlier this week after spending a little less than a day offshore Limassol, Cyprus last Friday, where there are crude storage facilities.
According to c-Flow, the vessel is still laden, with a current destination of North Asia.
The United Kalavrvta stopped briefly in Algeciras, Spain, on Tuesday, but is currently still laden with a destination of Brazil, according to c-Flow.
Despite market expectations that crude loadings would become a more regular occurrence, there have been no further Kurdish exports out of Ceyhan since the United Kalavrvta loaded on June 22, according to sources.
"There has been no fifth loading yet," an official from Turkey's energy ministry told Platts Wednesday, adding that there is currently some 2.3 million barrels of the blend in tank at the Mediterranean port.
It is unclear at what rate Kurdish crude is flowing through the Kirkuk-Ceyhan export pipeline.
--Paula VanLaningham, paula.vanlaningham@platts.com
--David O'Byrne, newsdesk@platts.com
--Edited by James Leech, james.leech@platts.com
Singapore (Platts)--10Jul2014/914 am EDT/1314 GMT
The South Korean ports of Yeosu, Gwangwang, West of Ulsan and Onsan reopened at 9 am local time Thursday after Typhoon Neoguri veered off the Korea Straits, port officials in the country said.
Typhoon Neoguri, one of the worst typhoons Japan has faced, slammed into the country's southern main island after lashing the Okinawa island chain.
Bunker suppliers in Korea said the storm had minimum impact on the South Korean bunker market, with the ports closed for only a relatively short period.
Bunker activities are set to return to normal and availability of bunker fuel dates is expected to improve, market sources said.
--Ronald Shi, ronald.shi@platts.com
--Edited by James Leech, james.leech@platts.com
July 10, 2014 09:12 AM Eastern Daylight Time
HOUSTON--(BUSINESS WIRE)--ConocoPhillips (NYSE: COP) today announced that its board of directors has raised the company’s quarterly dividend to 73 cents per share, an increase of 5.8 percent. This marks ConocoPhillips’ second dividend increase since the company separated its downstream operations in May 2012 to become the world’s largest independent E&P company based on production and proved reserves.
“Our company’s financial position is strong and our outlook for growth is positive. Our diverse asset base, significant technical capability and strong balance sheet provide confidence in ConocoPhillips’ future and the ability to execute our plans for growth and returns.”
“A compelling dividend remains a top priority for our company and reflects our commitment to deliver competitive shareholder returns,” said Ryan Lance, chairman and chief executive officer. “Our company’s financial position is strong and our outlook for growth is positive. Our diverse asset base, significant technical capability and strong balance sheet provide confidence in ConocoPhillips’ future and the ability to execute our plans for growth and returns.”The dividend increase is part of ConocoPhillips’ plan to increase value for shareholders through portfolio optimization, focused capital investments that deliver 3 to 5 percent growth in both production and cash margins, improved returns on capital, and a compelling dividend.
The dividend is payable on Sept. 2, 2014, to stockholders of record at the close of business on July 21, 2014.
--- # # # ---
Down 30,000 Barrels Per Day from May on Cuts by Iraq, Qatar, Algeria
LONDON, July 10, 2014 /PRNewswire/ -- Platts – Oil production from the Organization of the Petroleum Exporting Countries (OPEC) dipped by 30,000 barrels per day (b/d) in June to 29.94 million b/d, according to the latest Platts survey of OPEC and oil industry officials and analysts. The survey showed Iraq's output plunge of 160,000 b/d was largely offset by production increases from several other OPEC member countries.
"Small though it may be, a dip in OPEC output is the last thing the consuming world wants to see," said John Kingston, Platts global director of news. "OPEC itself sees the call on its crude averaging 30.4 million b/d in the second half of this year, so any drop in production from the organization – even an involuntary one – could be viewed as a move in the wrong direction."
The 40,000 b/d boost from Libya in June marks the first increase since the beginning of the year, when output was estimated to have risen to 530,000 b/d in January from 250,000 b/d in December. Libyan production declined steadily in recent months as the stalemate between the authorities in Tripoli and the protesters occupying oil facilities and blockading ports continued.
Production in the beleaguered country has begun to climb again after agreements between the government and the protesters that resulted in the Sharara oil field restarting production on Tuesday and the lifting of force majeure at ports Es Sider and Ras Lanuf on Sunday.
But, given the continuing political turmoil and the likely constraints on production as a result of fields having been shut in for long periods, industry sources and analysts are far from optimistic that Libya will be able to restore output to the 1.4 million b/d level achieved during the early part of 2013 any time soon.
Iraq's southern production and export facilities have not been affected by the jihadist onslaught across the northern part of the country in June that has put paid to any hopes Baghdad might have had of resuming exports of Kirkuk crude via the Iraq-Turkey pipeline to Ceyhan. Northern exports, which averaged 293,000 b/d in February, have been suspended since sabotage closed the pipeline in early March.
BLIGHTED
Baghdad is now entirely reliant on the southern system, which has been blighted by a number of technological problems, not least of which are pumping constraints that are limiting the volume of crude available for export to around 2.5 million b/d.
Saudi Arabia's output of 9.78 million b/d was highest the kingdom has produced so far this year.
Nigeria's oil production rose to 1.98 million b/d, the highest since March 2014 but the outlook remains uncertain as spills largely due to crude oil theft and unrest continue in the Niger Delta.
On Friday, OPEC issued its first forecasts for 2015, saying that increased world oil demand would be met entirely by non-OPEC producers and that the call on OPEC oil would drop by 300,000 b/d to 29.4 million b/d from 29.7 million b/d in the current year.
During the second half of this year, however, OPEC expects demand for its crude to average around 30.4 million b/d.
For output numbers by country, click here . You may be prompted for a cost-free, one-time-only log-in registration. For the latest OPEC news features, visit this OPEC Features link and for an OPEC guide, access this link ( http://www.platts.com/news-feature/2014/oil/opec-guide/prod_table )
Additional information on oil , energy and related information may be found on the Platts website at www.platts.com .
Kathleen.tanzy@platts.com
SOURCE Platts
Copyright (C) 2014 PR Newswire. All rights reserved
Jul 10, 2014 Priyanka Shrestha Coal, Gas & Oil, Infrastructure & Generation 0
http://www.energylivenews.com/wp-content/uploads/2014/07/pylons.jpg
A third of Britain’s gas needs could come from shale gas by the early 2030s, according to National Grid.
That’s if government policies and economic growth allow companies to invest in gas exploration, it said under the ‘Low Carbon Life’ scenario – one of four potential scenarios in its new report published today.
However a failure to invest in UK gas production under the ‘No progression’ scenario could see import dependency rise to 90% by 2035 which would leave the nation vulnerable to price shocks, the grid operator warned.
Imports could reach 71 billion cubic meters every year in that time frame without shale gas output and with limited development of offshore fields.
The Future Energy Scenarios report also found around six million homes could be generating their own heat from domestic heat pumps by 2030 if technology continues to improve and is supported by strong government policy and incentives.
The ‘Gone Green’ scenario shows how “strong and effective” policies can also ensure the UK meets both its current emissions and renewable energy targets for 2020 and new EU targets for 2030, which are currently under discussion.
The report also predicts a boost for the clean tech sectors, with a forecast of more than five million electric vehicles on the nation’s roads by 2035 and almost all cars expected to be electric or hybrid by 2050. It also predicts a national roll-out of LED lighting by 2030.
Richard Smith, Head of Energy Strategy and Policy at National Grid said: “It’s really important that we have an open and transparent discussion about where we get our energy from and how we use it.
“Our Future Energy Scenarios document aims to help that dialogue, presenting a range of holistic, plausible and credible scenarios that can help our customers and stakeholders make informed decisions.”
* New oilfield development drop to lowest since 1999
* Global reserve replacement ratio falls steeply
* Enhanced oil recovery from mature field is partial solution
By Ron Bousso
LONDON, July 10 (Reuters) - Two years ago Total's chief Christophe de Margerie launched a "high risk, high reward" oil exploration strategy, betting he could hit a bonanza, even though his rivals had failed to make big discoveries.
But Total risks joining the industry trend of making only smaller and fewer finds, despite global investments in oil exploration heading to a record $1 trillion by 2017.
This week, Margerie told Reuters he gives himself until the year-end to find a major deposit or cut the exploration budget next year following several disappointing drilling campaigns.
Top players are struggling to find enough conventional oil. Majors are caught between growing pressure from investors to cut spending and boost profits and the increasingly costly need to replace declining onshore and offshore reserves.
"Over the last 10 years the rate of return from exploration has diminished with time," said Andrew Lodge, exploration director at London-listed explorer Premier Oil.
"In the heyday of 2001-2002 the average rate of return for the industry was 20 percent ... that dropped last year to around 10 percent," he said.
Disappointing exploration campaigns no longer make such big headlines as they were 10 years ago amid the "peak oil" debate.
That theory of oil as a diminishing resource has been transformed by the U.S. shale oil revolution. Speedy growth from North American unconventional oil reserves has helped stabilise oil prices, despite major supply outages.
As a long-standing U.S. ban on crude oil exports remains in place, however, the industry still hugely relies on conventional mega-projects, such as those off the coast of Angola or Brazil, which progress along generally predictable time frames and produce stable volumes for years.
The shale oil industry is more complicated and is still in its infancy, which makes it incredibly difficult to anticipate new oil coming onto the market.
TRILLION DOLLARS
New conventional discoveries in recent years have disappointed in size and only a handful, such as Statoil's Johan Sverdrop oilfield in the North Sea, have emulated the mega fields discovered more than 50 years.
"Today we consume 33 billion barrels of oil per year and are discovering 10-20 billion barrels at most. It appears that the biggest single oil discovery in 2013 was less than 1 billion barrels in size," asset management firm Investec said in a report.
Despite a tight capital diet, oil companies are set to spend a record $1 trillion to explore for new reserves by 2017, according to Barclays.
Exploration and production spending has risen four-fold since 2000 to around $700 billion because of a rise in material and services prices, which in turn were driven to a large extent by a steep increase in global oil prices and inflation rates.
In 2014, ExxonMobil will spend the most on E&P among the oil majors at $35.3 billion dollars, followed by Chevron at $34.6 billion. PetroChina has the largest E&P budget for 2014 at $39.6 billion, according to Barclays data.
"Majors have increased exploration budget by 3 to 5 times in recent years but they have been very ineffective," said Investec's Charles Whall. "The oil companies are a little complacent".
Oil discoveries peaked in the 1960s when around 400,000 billion barrels were discovered.
In a measure of the success of drilling project, the number of new oilfield developments is set to drop below 50 per year in 2014 and 2015, compared with an average of 75 per year over the past decade, according to Nicholas Green, analyst at London-based Bernstein Research.
"This represents the lowest level of activity since 1999, lower even than the oil price crash of 2008-09," he said.
The declining rate of finds is now discouraging investment in certain areas, with drilling in the North Sea set to decline the most over the next two years. Southeast Asia is likely to be the only region to see increased activity, according to Green.
The complexity of "frontier exploration" such as the Arctic and the pre-salt deep waters of Brazil and West Africa has cut returns on investments.
Some hope the answer to poor exploration results can be found in increased recovery rates from mature conventional fields.
Oil recovery averaged around 35 percent for decades but technological advances such as computer geological modelling and the use of new chemicals have increased the recovery to over 50 percent, according to Matthias Bichsel, Shell director of projects and technology.
"I believe in further breakthroughs in enhanced oil recovery. That's what we will see - injecting chemicals to simply get more oil out of the ground," Bichsel told Reuters.
"The best way is to make the most out of what you have." (Editing by William Hardy)
