OPEC won’t cut its collective crude output when it meets this month and global oil prices will stabilize once the surplus is absorbed by the market, Kuwait Oil Minister Ali Al-Omair said.
OPEC, which supplies about 40 percent of the world’s oil, meets Nov. 27 to debate supply. The 12-member Organization of Petroleum Exporting Countries, which has a production target of 30 million barrels a day, pumped 30.974 million barrels a day in October, according to data compiled by Bloomberg.
“I don’t think there will be any cut in the production,” Al-Omair said at a conference in Abu Dhabi in the United Arab Emirates. “We feel prices will settle down once surplus oil is absorbed.”
Oil tumbled into a bear market this year as supply expanded from the U.S. to Libya. OPEC members Saudi Arabia and Kuwait have resisted calls to cut output while Libya, Venezuela and Ecuador have asked for action to prevent even lower prices.
Kuwait has no plans to cut its own crude production, which should increase to 4 million barrels from a current by 2020, Al-Omair said. Kuwait produced 2.85 million barrels a day in October, according to data compiled by Bloomberg.
Analysts Divided
OPEC’s decision on output will be unanimous, the United Arab Emirates’ Energy Minister Suhail Al Mazrouei said at the same conference, without indicating what the group will decide when its members gather this month in Vienna. The U.A.E. and the rest of OPEC are committed to supplying oil worldwide, and markets shouldn’t “panic,” Al Mazrouei told reporters.
Analysts are divided on what OPEC will decide on Nov. 27, with 10 of 20 surveyed last week predicting that the organization will announce an output reduction. BNP Paribas SA, Societe Generale SA and UBS AG are among those forecasting that the group will cut output with estimates for the reduction ranging from about 500,000 barrels a day to 1.5 million a day.
“OPEC is looking for a reasonable price where producers and consumers can live together,” Secretary-General Abdalla El-Badri said today in Abu Dhabi.
“Everybody was really happy” over the last four years with prices ranging near $95-$110 per barrel, El-Badri said. OPEC doesn’t want oil prices so high that they hurt demand nor so low as to cause a drop in investment, he said.
Volatile Prices
Oil will rebound by the second half of next year as supply and demand don’t justify the market’s collapse and prices are low enough to threaten investment in production, El-Badri said Nov. 6.
Weakness in the global economy and a significant increase in oil supply from different parts of the world is contributing to price volatility, Amin Nasser, senior vice president for upstream operations at Saudi Arabian Oil Co., known as Saudi Aramco, said at the Abu Dhabi conference. “I am confident that the long-term demand fundamentals remain robust, and our industry must remain focused on meeting this long-term demand.”
Oil markets shouldn’t be distracted by short-term price swings, Sultan Al Jaber, chief executive officer, energy, for Mubadala Development Co., said at the same conference. “The industry has always undergone short-term price fluctuations” and should be focused on long-term projects, he said. “The U.A.E. remains committed to supplying customers and partners.”
Libya Plans to Resume Output at Biggest Oil Field Today
Libya is planning to resume pumping crude within days from two deposits that together accounted for almost 45 percent of the nation’s output last month, the National Oil Corp. said.
The Sharara and Elephant fields in the south west should resume production on Nov. 12, Mohamed Elharari, a spokesman for state-run NOC, said by phone from Tripoli, the capital. The oil port of Hariga, the country’s most easterly, will also start “soon,” because workers there are about to receive overdue pay, he said.
An attack last week by gunmen on Repsol SA-operated Sharara, Libya’s largest producing field before it stopped, caused a loss of power that also affected Eni SpA-operated Elephant, also known as El-Feel, the spokesman said. Pumping should resume as staff are returning to work, he said.
The disruptions are a setback in the nation’s efforts to ramp up output that resumed in July after a yearlong power struggle between militias for control of the country.
Salaries to workers at Hariga, unpaid because of the deteriorating security situation, are “on their way” to the employees, Elharari said. Hariga is the fifth-biggest among Libya’s nine oil terminals with a daily loading capacity of 110,000 barrels.
Libya’s output rose to 850,000 barrels a day in October, from 215,000 barrels a day in April, according to Bloomberg estimates. Sharara contributed about 290,000 barrels a day to October’s production and Elephant about 80,000 barrels a day, according to NOC.
Weak Oil Prices Yet to Slow U.S. Shale Output: EIA Repor
Falling oil prices haven’t dimmed the U.S. Energy Department’s outlook for domestic crude output.
The country’s seven largest shale plays will produce 125,000 more barrels a day in December than in November, the Energy Information Administration said today in its monthly Drilling Productivity Report. The agency is the Energy Department’s statistical arm.
West Texas Intermediate futures on the New York Mercantile Exchange have fallen 28 percent since June. The contract for December delivery dropped $1.25 to $77.40 a barrel today. Hess Corp. (HES) said today it will reduce its rig count in the Bakken in 2015 because of lower oil prices.
“The effect of low oil prices is more likely to be felt in future years as a result of reduced investment rather than in short-term supply reductions,” Vienna-based JBC Energy said in a research note today.
The Permian Basin in west Texas and New Mexico will see output rise by 44,000 barrels a day to 1.85 million. Bakken production will rise 28,000 barrels a day to 1.22 million, and the Eagle Ford will increase pumping by 39,000 to 1.65 million.
The EIA estimates production by looking at how many drilling rigs are in each play, and how productive each rig is in adding new output, said Jonathan Cogan, the agency’s spokesman. It then compares that growth with the natural decline from existing wells.
The number of rigs drilling for oil in the U.S. has fallen by 41 since peaking at 1,609 on Oct. 10, according to Baker Hughes Inc.
Oil at $80 Is No Bar for BP, Total on Exploring for More Crude
Oil at $80 a barrel won’t stop BP Plc (BP/) or Total SA (FP) from exploring and developing crude deposits.
Oil has dropped into a bear market this year, with prices falling as much as 26 percent since June amid a global glut. OPEC won’t cut its collective output when it meets this month and global oil prices will stabilize once the surplus is absorbed by the market, Kuwait Oil Minister Ali Al-Omair said at an oil conference in Abu Dhabi, the capital of United Arab Emirates, yesterday.
All projects under way now will go ahead with oil at $80 a barrel, London-based BP Chief Executive Officer Robert Dudley said at the conference. Total, based in Paris, can proceeed with its projects at $80, Arnaud Breuillac, president of exploration and production, also said in Abu Dhabi.
Brent crude, benchmark for more than half of the world’s oil, rose 1.3 percent yesterday to $84.47 a barrel on ICE Futures Europe in London, paring this year’s drop to 24 percent.
“We have only sanctioned or approved projects based on an $80 oil price,” Dudley said. “We’ve been doing that three or four years so there isn’t any project that we’re working on today, particularly those big capital projects, that we have any different view of.”
BP produced 1.91 million barrels of oil a day in the first nine months this year, according to company data. It’s working to start at least five oil projects in Angola, the west of Shetlands, U.K. and Alaska in the next few years, it said. Five more may be approved, BP said.
The Organization of Petroleum Exporting Countries doesn’t want oil prices so high that they hurt demand nor so low as to cause a drop in investment, OPEC Secretary-General Abdalla El-Badri said yesterday in Abu Dhabi.
Aramco View
Weakness in the global economy and a significant increase in oil supply from different parts of the world is contributing to price volatility, Amin Nasser, senior vice president for upstream operations at Saudi Arabian Oil Co., known as Saudi Aramco, said at the Abu Dhabi conference. “I am confident that the long-term demand fundamentals remain robust, and our industry must remain focused on meeting this long-term demand.”
Oil markets shouldn’t be distracted by short-term price swings, Sultan Al Jaber, chief executive officer, energy, for Mubadala Development Co., said at the same conference. “The industry has always undergone short-term price fluctuations” and should be focused on long-term projects, he said. “The U.A.E. remains committed to supplying customers and partners.”
Total Aims
Total is aiming for year-end output of 2.2 million barrels of oil equivalent a day after reporting an 8 percent year-on-year slide to 2.1 million barrels in the third quarter. The French company has 14 projects set to start between the end of this year and 2017 ranging from the Shetland Islands to Australia and Angola. Almost a dozen more projects are slated to contribute production after 2017 including from the Canadian oil sands and Russian Arctic.
During a conference call on third-quarter earnings last month, Total Chief Executive Officer Patrick Pouyanne said the company would have to “adapt” projects should oil prices remain “lower for longer.” These changes would include re-examining projects to get better terms from suppliers and service companies while at the same time lowering the company’s exploration budget and delaying some spending on projects it operates, he and Chief Financial Officer Patrick de La Chevardiere said during the call.
Total’s ongoing projects are “resilient” with oil at $80 a barrel, the executives said. Total tests profitability of oil and gas projects before they are approved at this price as well as the so-called base assumption for oil prices which has been $100 a barrel.
Bullish Oil Wagers Cut in Sign of Growing OPEC Skepticism
Speculators are the least bullish on U.S. crude in 20 months as they lose faith in OPEC’s willingness to ease a global supply glut.
Money managers reduced net-long positions in West Texas Intermediate by 8 percent in the week ended Nov. 4, U.S. Commodity Futures Trading Commission data show. Long positions retreated to the least since May 2013 while short holdings rose.
WTI tumbled into a bear market this year as crude supply expanded from the U.S. to Libya and demand sputtered from Europe to China. Saudi Arabia cut its export charges to the U.S. this month, signaling a preference for market share over prices. The kingdom accounts for almost a third of OPEC’s output and the 12-nation group meets in about two weeks to debate supply.
“The market needs some OPEC action and the only thing we get out of the Saudis is the price cut to the U.S.,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Nov. 7 “That makes people think ‘Gee, this doesn’t look hopeful.’”
WTI fell $4.23, or 5.2 percent, to $77.19 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report, the lowest level since Oct. 4, 2011. Futures slipped $1.25, or 1.6 percent, to close at $77.40 today.
Saudi Prices
Saudi Arabia reduced the premium of Arab Light to U.S. Gulf Coast benchmarks on Nov. 4 by 45 cents a barrel to the lowest level this year. Discounts for Medium and Heavy grades widened for a fourth month, according to Saudi Arabian Oil Co., the state oil company.
“The Saudis declared open warfare with the price cut,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone on Nov. 7. “Traders dumped those positions.”
The Organization of Petroleum Exporting Countries, responsible for about 40 percent of the world’s oil supply, is scheduled to discuss output policy at a Nov. 27 meeting in Vienna. Its 12 members produced 30.974 million barrels a day in October, according to a Bloomberg survey, more than their collective target of 30 million.
OPEC cut forecasts on Nov. 6 for the amount of crude it will need to supply for most of the next two decades as the shale-energy boom in the U.S. lessens dependency on the group.
Brent for December settlement dropped $1.05, or 1.3 percent, to $82.34 a barrel on the London-based ICE Futures Europe exchange today, the lowest close since Oct. 21, 2010. Prices slid for a seventh week through Nov. 7, the longest run of declines since November 2001, and are 26 percent lower this year.
Bearish Sentiment
“The sentiment is really bearish; $75 is the technical target,” Kyle Cooper, director of commodities research at IAF Advisors in Houston, said by phone Nov. 6.
In the U.S., oil production climbed to 8.97 million barrels a day in the week ended Oct. 31, the most in weekly data going back to 1983, according to Energy Information Administration estimates.
Drilling rigs targeting oil in the U.S. fell for the third time in four weeks, a signal that the price drop is causing some producers to scale back plans. The Eagle Ford shale formation in south Texas lost the most, dropping nine to 197 rigs, Baker Hughes Inc. said on Nov. 7.
The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S., including the Bakken in North Dakota and the Eagle Ford in Texas.
“We are still in bearish mode and we could go a little further downward,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC., said by phone Nov. 7. “We are still substantially below $80 a barrel.”
Net Longs
Net longs for WTI declined by 14,580 to 167,906 futures and options combined, the lowest since March 2013, while short positions increased 13,734 to 81,089.
In other markets, bullish bets on gasoline slid 1.6 percent to 30,587 contracts. Futures tumbled 5.4 percent to $2.078 a gallon on Nymex in the reporting period, the lowest since October 2010.
Bearish wagers on U.S. ultra low sulfur diesel decreased 14 percent to 30,737 contracts. The fuel fell 2 percent to $2.4427 a gallon in the report week.
Net-long wagers on U.S. natural gas almost tripled to 57,517 contracts. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas jumped 13 percent to $4.129 per million British thermal units during the report week.
Oil rose to $78.65 on Nov. 7 after U.S. employment gains exceeded 200,000 for a ninth month and the jobless rate dropped to a six-year low.
“You’ve got to wonder how many people would be thinking, ‘Maybe we’ve hit the bottom, let’s go long now,’” Lynch said. “It’s the old adage: buy low and sell high. A lot of people don’t seem to implement it.”
Iraq Tracks Saudi Arabia With Discounts for Its Crude Oil Sales
Iraq priced its crude more competitively in the U.S. while raising costs for customers in Asia and Europe, mirroring moves a week ago by Saudi Arabia, the world’s largest oil exporter.
The second-biggest producer in the Organization of Petroleum Exporting Countries is offering December cargoes of its Basrah Light grade to the U.S. at a discount to the local benchmark, instead of a premium charged in November, the country’s Oil Marketing Co., known as SOMO, said today. Saudi Arabia reduced prices last week for December shipments to the U.S.
“The trend setter is Saudi Arabia, the others follow,” Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, said by e-mail.
Global oil prices slid into a bear market last month on speculation the biggest OPEC producers were discounting their crude to maintain market share, resisting calls to cut output amid slowing demand growth.
December shipments of Basrah Light to North and South America were set at a discount of 10 cents to the Argus Sour Crude Index, known as ASCI. They were set at premiums of 40 cents last month. Iraq also reduced U.S. prices for its Kirkuk grade to $1.75-a-barrel premium, from $2 in November.
Iraq narrowed the discount on sales of Basrah Light to Asia to $2.50 a barrel below the regional benchmark, from $3.15 in November. Discounts were also narrowed to Europe.
Here Are the Big Gaps Remaining in Iran Nuclear Talks
With less than three weeks before a Nov. 24 deadline to reach a deal preventing Iran from developing nuclear weapons, “big gaps” remain, in the words of U.S. Secretary of State John Kerry.
There’s no agreement on fundamental questions, including the scope of the country’s uranium enrichment program, how and when to lift economic sanctions and how long Iran’s nuclear program must remain under international inspections and safeguards. Fourteen months after the talks between Iran and six world powers began, Kerry and other diplomats will meet for talks this weekend in Oman.
Iran’s Nuclear Plan
President Barack Obama, beleaguered by conflicts in Ukraine, the Middle East and beyond and a midterm election defeat at home, has an added incentive to claim success in an Iran deal before Republicans take control of Congress in January.
In a secret letter to Iran’s Supreme Leader Ayatollah Ali Khamenei last month, Obama cited the two nations’ common interests in fighting Islamic State but said such cooperation depends on reaching a nuclear accord, according to two U.S. officials who confirmed a report yesterday in the Wall Street Journal. Iran’s parliamentary speaker Ali Larijani said this week that “viewpoints have gotten closer on many of the points discussed.”
While a deal would hold advantages for both sides, officials involved in the talks and nuclear specialists say an accord isn’t possible unless one or both sides make significant concessions they so far have rejected.
Getting to yes will depend on “hard political choices that neither party appears compelled to take until the eleventh hour,” said Ali Vaez, an Iran analyst at the International Crisis Group in Washington. Here’s a closer look at the main unresolved issues:
‘Break Out’
The U.S. is seeking constraints on Iran’s nuclear program that would extend from three months to one year the time the Islamic Republic would need to “break out” of a safeguards regime and produce enough fuel for one nuclear weapon. Iran says that its nuclear program is solely for energy and medical research.
The central disagreement is about the scope of Iran’s enrichment program because of concern that uranium enriched to fuel civilian reactors could be diverted by Iran and further enriched to make fuel for weapons.
Counting Centrifuges
Iran now has about 19,000 centrifuges, most of which are first-generation machines called IR-1s. About 9,400 such centrifuges are enriching uranium at two facilities, Natanz and Fordo. The rest -- including advanced IR2m centrifuges that have a higher capacity -- are installed but not operating. Khamenei has said Iran won’t dismantle its costly nuclear program, which is a source of national pride.
One U.S. official involved in the talks, speaking on condition of anonymity because of the sensitivity of the negotiations, said that while international negotiators had proposed a cap of 1,500 centrifuges, the U.S. would accept 4,000 if Iran eliminates its stockpile of enriched uranium.
“What’s not clear is whether Iran is prepared to move down from their position of 9,400 operating centrifuges,” said Robert Einhorn, a former State Department nonproliferation adviser who was on the U.S. negotiating team until last year.
The U.S. official last week described reviving an offer Iran rejected in 2009: For Iran to ship its enriched uranium to Russia, which would fabricate fuel for Iran’s reactors, ensuring that the Islamic Republic could use its uranium only for peaceful purposes.
The Obama administration floated that proposal in the press this week, to the surprise of several European diplomats close to the talks. Speaking on condition that they not be named because they weren’t authorized to be quoted, the Europeans said that this was the first their nations had heard of any such proposal.
Disabling Equipment
Then there’s the question of what happens to the centrifuges that aren’t operating. The U.S. has proposed that they be disabled, with piping and other key equipment removed so they couldn’t be easily put back into operation.
David Albright, the founder of the Institute for Science and International Security in Washington who worked with United Nations weapons inspectors in the 1990s, said both sides must agree on a conversion rate if any first-generation centrifuges are to be replaced by advanced ones that can enrich uranium faster.
Limiting R&D
Another major issue is what limits Iran is willing to accept on nuclear research and development. Iran says it needs more work toward an industrial-scale nuclear power-generation program. Advanced centrifuges would give the Iranians the ability to enrich more uranium, which in turn could enable the country to secretly produce highly enriched fuel for weapons.
Verifying an Agreement
Next is the question of how to verify that Iran is honoring any agreement. Last November, under an interim accord signed in Geneva, Iran agreed to more frequent and intrusive inspections of its nuclear facilities, giving UN inspectors daily access to the enrichment facilities at Natanz and Fordo, a heavy-water reactor at Arak that could be used to produce plutonium for weapons and Iran’s centrifuge-assembly facilities. Inspectors also are currently allowed into Iran’s uranium mines.
Military Sites
Negotiators are seeking access for inspectors anywhere in Iran, consistent with existing international safeguard agreements. A key point of contention is whether Iran will allow access to military sites, including its base at Parchin, which the U.S. and allies say may harbor evidence of Iran’s past research on detonating a nuclear device.
In violation of its UN safeguards agreement, Iran has clandestinely tested centrifuges and created secret uranium enrichment facilities, as well as the Arak reactor. The UN’s International Atomic Energy Agency reported in 2011 that it had “credible” information that Iran had tested explosive components that are needed to detonate a nuclear weapon.
Iran denies any such activities and has shown no willingness to acknowledge past military work, according to negotiators.
Sanctions’ Fate
Iran is demanding that all sanctions, including UN resolutions, be removed as soon as an agreement is reached. While Obama can rescind White House executive orders, he can only suspend congressional sanctions on oil and banking that have become law -- meaning they could easily be re-imposed if Iran were caught cheating.
Members of the U.S. Congress from both political parties have said they’ll fight any effort to lift those sanctions if they’re unhappy with a deal. Republican control of the Senate starting in January will remove Democratic Senator Harry Reid from the post of majority leader, where he fended off bipartisan efforts this year to add more sanctions.
A number of other sanctions have been imposed on Iran for human-rights violations and support for terrorist organizations, which the international community doesn’t want to remove.
Iran is especially keen for UN sanctions to be lifted, as they can be interpreted as support for multilateral action against Iran. Negotiators say those will remain unless Iran complies with UN Security Council resolutions, which demand that Iran clarify whether any of its activities were intended to build a bomb.
How Long
Even the duration of any accord remains in dispute. The U.S. and its negotiating partners are seeking a 20-year agreement before Iran would be freed from safeguards and treated like any other nation that produces nuclear energy. Iran has said those measures should last for no more than five years.
Kerry will be pushing Iran for concessions on Nov. 9-10 in the talks in Muscat, Oman’s capital, with Iranian Foreign Minister Javad Zarif and Catherine Ashton, the former European Union foreign policy chief who’s coordinating the talks. Negotiators from China, France, Germany, Russia, the U.K. and the U.S. will meet the following day with Iran’s team in Muscat, before convening again in Vienna on Nov. 18.
Iran wants the six powers to make the concessions. They must drop “illogical, excessive demands,” Deputy Foreign Minister Seyed Abbas Araghchi, one of Iran’s chief negotiators, said last week.
Despite optimistic words from Larijani and other Iranian officials, Einhorn, the former U.S. negotiator, said he thinks it’s “virtually impossible” for Iran and the international community to reach a final accord by Nov. 24. “The best that can be achieved is agreement on some key parameters and extend the agreement for several additional months,” he said.
Russia, China Add to $400 Billion Gas Deal With Accord
China and Russia deepened their energy ties with a second blockbuster deal that lessens Russian reliance on Europe and would secure almost a fifth of the gas supplies China needs by the end of the decade.
Russian President Vladimir Putin and Chinese President Xi Jinping signed the preliminary gas-supply agreement in Beijing as U.S. President Barack Obama arrived in the Chinese capital for the Asia-Pacific Economic Cooperation summit. The deal is slightly smaller than the $400 billion pact reached earlier this year, shortly after Russia annexed Crimea.
Russian oil firm OAO Gazprom is negotiating the supply of as much as 30 billion cubic meters of gas annually from developments in West Siberia to China over 30 years, it said. At the same time, another Russian producer, OAO Rosneft, agreed to sell a 10 percent stake in a Siberian unit to state-owned China National Petroleum Corp.
The export of new supplies to Asia increases the possibility of a glut on global energy markets by early next decade. Once deliveries begin, China would supplant Germany as Russia’s biggest gas market, even as relations have soured with the U.S. and Europe over the Ukraine crisis.
Huge Exports
The gas glut could resemble what’s happened in the iron ore industry, said Kenneth Courtis, chairman of Starfort Holdings and former Asia vice chairman at Goldman Sachs Group Inc. That industry has seen miners ramp up production in the teeth of falling prices, shaking out higher cost suppliers.
“There is going to be new supply of natural gas coming from everywhere,” including Australia, the U.S., Canada and Mozambique, Courtis wrote in an e-mail.
The accord “will make Russia rely more on China both economically and politically,” said Lin Boqiang, director of the Energy Economics Research Center at Xiamen University.
The Bank of Russia today cut its growth forecast for next year to zero, citing continuing sanctions and oil prices at $95 a barrel. The ruble has depreciated to record levels.
‘Sustainable Basis’
“China is probably the only country in the world that has both the financial ability and the market capacity to consume Russia’s huge energy exports on a sustainable basis over a long period of time,” Lin said today by phone.
It gives Putin an opportunity to show Europe and the U.S. that his country won’t be isolated over Ukraine, he said.
The two deals could account for almost 17 percent of China’s gas consumption by 2020, Gordon Kwan, a Hong Kong-based analyst at Nomura Holdings Inc., wrote today in an e-mail.
Russia may start selling gas to China within four to six years as part of its agreement with CNPC, Alexey Miller, the chief executive officer of Gazprom, told reporters in Beijing.
“Together we have carefully taken care of the tree of Russian-Chinese relations,” Xi Jinping said at a meeting with Putin at the economic forum. “Now fall has set in, it’s harvest time, it’s time to gather fruit.”
Australia Pressure
A second China-Russia agreement adds to pressure on liquefied natural gas suppliers, mainly in Australia where costs to build new plants are high, Adrian Wood, a Sydney-based analyst at Macquarie Group Ltd., said today by phone.
“There is a general view out there that China is going to underwrite all these projects, that Chinese demand is insatiable,” Wood said. “We’ve never shared that view. This is going to certainly weigh on demand, and therefore there will be even more competition for customers.”
Putin called the earlier agreement between state-run Gazprom and its Chinese partners “epochal.”
CNPC also signed an initial agreement with Rosneft to acquire 10 percent of the Vankorneft business. Russia and China also are considering gas supplies from Russia’s Far East, Gazprom’s Miller said.
Under the agreement earlier this year, China will import 38 billion cubic meters of gas from Russia annually over three decades starting as soon as 2018.
Gas will account for more than 10 percent of China’s energy consumption by 2020, compared with 6 percent currently, according to the National Development and Reform Commission, China’s national economic planner.
Putin Plan for Second China Gas Pipe Will Depend on Price
Russia’s plan to build a second gas pipeline to China would cement President Vladimir Putin’s policy of tilting energy exports toward Asia. Fulfilling his goal is likely to come at a price.
The pipeline from western Siberia to China has long been a Russian aim for two reasons -- it’s a relatively short distance from the fields to China’s border and the same deposits also serve European customers, allowing state gas company OAO Gazprom (GAZP) to switch supplies between the two markets.
China’s been less keen. The western route delivers gas to the country’s arid west, thousands of miles from industrial heartlands on the coast. That’s why the two countries agreed to a pipeline from eastern Siberia earlier this year with less ground to cover on the Chinese side of the border.
To get a final deal for the second route, Russia will have to offer a very attractive price compared with existing exports contracts, said Alexander Kornilov, an Alfa Bank energy analyst in Moscow.
“The new deal is less attractive to China, Gazprom might need to agree on a serious discount to get the contract,” Kornilov said yesterday in interview, adding he was skeptical of Gazprom’s statement that a binding contract could be reached within a year.
The preliminary agreement to build the second Russia-China link was announced by Putin and President Xi Jinping at an economic summit in Beijing two days ago. The pipeline would deliver as much as 30 billion cubic meters of gas a year for 30 years, adding to the 38 billion agreed in the first supply contract. That would see China overtake Germany as Russia’s largest gas customer.
Difficult Element
The framework deal between Gazprom and China National Petroleum Corp., one of 17 struck during Putin’s summit with Xi, didn’t include any price agreement. As negotiators who spent a decade trying to agree on the first contract can testify that’s the most difficult element of any deal.
The base price in the contract signed earlier this year is about $360 per 1,000 cubic meters (about $10 a million British thermal units), two Russian officials said in July. While precise payments will vary to reflect changes in global oil prices, that’s near the average $366 per 1,000 cubic meters that Gazprom charged Germany last year, which pays one of the lowest prices in Europe.
Gazprom Chief Executive Officer Alexey Miller told reporters after the signing that he hoped a binding contract could be completed next year. Deliveries would start four to six years after a final deal.
Optimistic Timetable
That timetable is optimistic given the history of the first pipeline project, said Valery Nesterov, an analyst at Sberbank Investment Research in Moscow. This week’s announcement should be seen in the context of Russia’s difficult relationship with Europe because of the Ukraine crisis, he said.
“It’s more a PR action now, more a war of nerves” with Europe and the U.S., Nesterov said.
Another complication is an existing pipeline linking China with Turkmenistan. Under agreements to expand that link, by 2020 China will import 65 billion cubic meters from the former Soviet republic, which has become a competitor for Russia in Asian energy markets.
It’s not clear that China needs all that Turkmen gas as well as a second pipeline from Russia and liquefied natural gas imports contracted from Australia and elsewhere.
“There is a general view out there that China is going to underwrite all these projects, that Chinese demand is insatiable,” Adrian Wood, a Sydney-based analyst at Macquarie Group Ltd., said yesterday. “We’ve never shared that view.”
Stretch Gazprom
Even if the second Russia-China route goes ahead, building two major pipelines while trying to complete the South Stream link from Russia to Europe could stretch Gazprom financial and technical capabilities.
All three projects would cost Gazprom about $90 billion, Alpha’s Kornilov estimates. That’s one reason Russia had sought a $25 billion pre-payment from CNPC to help pay for the first pipeline. Because China tried to link that to a gas-price discount it’s no longer on the table, Miller said.
By giving up upfront payments from China to protect its pricing power, Gazprom will be forced to prioritize projects with the quickest return, Russia’s Otkritie Bank (NMOS) wrote in an e-mailed note.
BP commits to big Egyptian investments
CAIRO, Nov. 10 (UPI) -- British energy company BP said Monday it was committed to investing heavily in the Egyptian energy sector for the benefit of the Egyptian people.
BP said it committed to invest $240 million on developing two new exploration blocks near the Nile Delta and in the northwestern Egyptian waters of the Mediterranean Sea through a partnership with Emirati energy company Dana Gas.
"Exploring the two blocks will require substantial investments to unlock their potential, and will be done as part of our commitment to meeting Egypt's energy needs," Hesham Mekawi, regional president for BP, said in a statement.
BP said it will spend at least six years on exploration and production in the area.
BP's announcement follows a downgrade from rival BG group, which said last month it expects its Egyptian gas production to decline.
BG Group said its activities in Egypt accounted for 10 percent of its production and around 3 percent of its earnings during the third quarter. Output from exploration and production operations in the country was 55,000 barrels of oil equivalent per day, 51 percent less than the same period for 2013.
BP said it produces almost 40 percent of the oil in Egypt through its regional partnerships and accounts for nearly 30 percent of total natural gas production.
Output should return soon for Libya oil
TRIPOLI, Libya, Nov. 10 (UPI) -- Oil should start flowing again from one of Libya's largest fields, just days after a militant takeover, a spokesman for the Libyan National Oil Co. said Monday.
Libyan oil production of around 800,000 barrels per day is about 45 percent above midsummer levels and close to two-thirds its optimal rate.
Security issues present stability challenges for the Libyan oil sector, however. Last week, militants closed operations at the Sharara oil field in the western Libyan desert. It has the capacity to produce 350,000 bpd and the incident was at least the second time bandits have shut in the field this year.
An NOC spokesman said the "worst case" scenario is that operations from Sharara resume by Wednesday.
The Organization of Petroleum Exporting Countries said in its October monthly market report commercial crude oil stocks in the European economy were up 37 million barrels above this time last year.
"European crude stocks have been accumulating more than 22 million barrels since May, driven by high supply from the Atlantic Basin as well as rising Libyan exports," it said.
Chinese oil imports up 18 percent
BEIJING, Nov. 10 (UPI) -- Chinese government data show crude oil imports were up 18 percent in October year-on-year, though down from the month prior by more than 10 percent.
Chinese average imports for October were 5.7 million barrels per day, up from the average 4.8 million bpd reported in October 2013. Levels last year represented a 14-month low, analysis from the Platts energy service found.
Though treading water, analysis from Platts last month found Chinese apparent oil demand, a reflection of how much oil goes into domestic refineries combined with net oil product imports, averaged 10.35 barrels per day in September, up 7.4 percent year-on-year.
The Organization of Petroleum Exporting Countries said in its October report the global economy should grow by 0.6 percent next year to 3.6 percent. The Chinese and Indian economies should remain flat, while Europe continues to falter.
OPEC in its annual world oil outlook report said more than 70 percent of growth in oil demand is coming from expanding Asian economies.
The Chinese government said Sunday inflation remained at a four-year low. Government-controlled fuel prices, meanwhile, continue to drop along with global oil prices.
Bob Liu, a senior analyst at China International Capital Corp., told state-run Xinhua News Agency inflation at the wholesale level was on the decline.
"The deterioration of producer price index deflation was mainly attributable to sharply lower oil prices and overcapacity industries," he said.
Putin: Russian economy is in check
BEIJING, Nov. 10 (UPI) -- Russian President Vladimir Putin said from an economic summit in Beijing there'd be no increase in state deficits despite sanctions on Russian energy companies.
Low oil prices for a Russian economy dependent on exports is exacerbating an already problematic situation brought on by sanctions targeting Russian energy companies. Last week, the Russian currency traded at an all-time low against the U.S. dollar.
The European Commission in an annual report said the Russian economy was entering a period of stagflation. But Putin said from the sidelines of the conference for the Asia Pacific Economic Cooperation the Russian economy would be held in check.
"There will be no growth in the state deficit," he said Monday. "We plan on holding it at a safe controlled level of no less than 15 percent of the gross domestic product."
The president said he'd draw on reserves accumulated in sovereign funds and improve its credit ratings in an effort to draw in more foreign investors.
In October, Russia's credit rating was downgraded by international ratings agency Moody's.
Sanctions were enacted in response to Russia's reaction to the move by Ukraine, a former Soviet republic, to move closer to the European Union. Russian oil company Rosneft and gas giant Gazprom were among the companies targeted by Western powers.
When British energy company BP released its third quarter results in October, it said the depreciation of the Russian currency in part had a "significant impact" on its financial performance. From its ties to Rosneft, BP said net income was down more than 80 percent to $110 million year-on-year.
From the sidelines of the APEC conference, Rosneft officials signed agreements to examine the feasibility of building an oil refinery in northern China through a partnership with the Chinese National Petroleum Corp. On Monday, Rosneft Chairman Igor Sechin said the separate sale of a 10 percent stake in ZAO Vankorneft, a Rosneft subsidiary operating northeast Siberia, was emblematic of the "systematic development of the large-scale cooperation with our Chinese partners, including the upstream area in the Russian federation."
Russian energy companies have expanded their focus to include growing Asian economies, where energy demand is growing. That move is mirrored by the effort in Europe to break the Russian grip on the energy sector.
Gazprom during the weekend signed agreements to delivery gas to China from what it calls the Western Route.
"Supplies will go from fields in West Siberia, the resource base we are using for supplies to Europe," Gazprom Chief Executive Officer Alexei Miller said.
Gas deliveries of are expected by 2019. The deal includes a take-or-pay clause, meaning Chinese partners are obligated to a set volume of gas regardless of actual levels of use.
In May, Gazprom and CNPC signed a 30-year sales agreement that calls for 1.3 trillion cubic feet of natural gas per year through another pipeline, the Power of Siberia.
Canada eager to tap into Chinese market
BEIJING, Nov. 10 (UPI) -- There are huge economic benefits to working with Chinese businesses in all areas, including the energy sector, Canadian Prime Minister Stephen Harper said.
Harper met with Chinese officials on the sidelines of the regional conference for the Asia-Pacific Economic Cooperation.
"With a population of well over a billion citizens and one of the top economies in the world today, China presents incredible opportunities for Canadian businesses which could translate into significant economic and job growth back home," the prime minister said in a Saturday statement.
Countries rich in oil and gas reserves are eager to tap into the growing Asian market. Oil production from Canada is expected to continue expanding, fed largely by oil sands production in Alberta, and the prime minister said he's eager to reach across the Pacific to find new energy partners.
Nearly all of the oil produced in Canada heads to the U.S. market. In Beijing, Harper's administration praised the expansion of Canadian company Suncor Energy in the Chinese market.
China National Offshore Oil Corp last year completed a $15.1 billion purchase of Canadian energy producer Nexen.
Both sides, the prime minister said, have set "a bold course for future engagement and prosperity."
A 2012 survey from Angus Reid Public Opinion of 1,000 Canadian adults found most were wary of Chinese companies moving into the Canadian market.
Report: Israel wants more U.S. gas partners
Israeli gas reserves an opportunity to 'find gold.'
HOUSTON, Nov. 10 (UPI) -- Israel is on the cusp of becoming a natural gas exporter and is inviting U.S. energy companies to join in reaping the rewards, an official said from Houston.
Amit Lang, director general of the Israeli Ministry of Economy, told the Houston Chronicle that U.S. companies "might find gold" in the form of natural gas through partnerships in Israel.
"All the predictions say that our gas discoveries are not done," he said in an interview published Sunday.
In September, Israel's Delek Group, alongside U.S. energy company Noble Energy, signed an agreement with the National Electric Power Co. of Jordan for natural gas deliveries from the Leviathan natural gas field off the Israeli coast to the delight of the U.S. State Department.
"We probably have more gas around the Leviathan," Lang said. "And we need more companies to come get licenses for exploration."
The State Department facilitated talks between the parties in February that led to the signing of a similar deal for gas from Israel's offshore gas field, Tamar.
Leviathan, with an estimated 18 trillion cubic feet of gas, should go onstream in 2016. Tamar is estimated to hold as much as 10 trillion cubic feet of natural gas.
Noble is the only U.S. partner working in Israeli waters, but Lang said he's in Houston hoping to court more U.S. investors to the offshore potential.
"We very much hope that other companies based in Houston, the big oil and gas companies, will also go into Israel and get a license for exploration so we have more competition," he said. "It's not good to be in one company's hands."
Cairn makes second oil find offshore Senegal
EDINBURGH, Scotland, Nov. 10 (UPI) -- Scottish energy company Cairn and its partners said they've made a major oil discovery in the deep waters off the coast of Senegal, their second this year.
Cairn is the operator of well SNE-1, located about 60 miles off the coast of Senegal in deep waters. The company said it ran into a 311 foot column of oil and estimates the discovery holds as much as 670 million barrels of recoverable reserves.
Cairn Energy Chief Executive Simon Thomson said the discovery is significant enough to move ahead with an appraisal program next year.
"Cairn has additional prospects and leads that offer further exploration potential across this large acreage position in West Africa," he said in a statement.
Cairn is a member of a joint venture that includes FAR Ltd., which said in a separate statement the discovery in SNE-1 is "highly likely to be a commercial discovery."
West Africa has drawn interest from international energy companies eager to tap into unexploited reserves and for Cairn, this is the second discovery off the coast of Senegal this year.
Joint venture partners working in the so-called FAN prospect announced a discovery of at least 250 million barrels last month.
In January, Cairn said frontier basins off the Senegalese coast were key components of its exploration agenda for 2014.
USGC VGO differentials hold despite expected imports
Houston (Platts)--10Nov2014/547 pm EST/2247 GMT
Differentials for vacuum gasoil on the US Gulf Coast have held steady for six consecutive trading days despite expectations of an influx of additional supplies from Europe in the second half of November, traders said.
Differentials for low sulfur vacuum gasoil ended Monday at WTI plus $9/barrel, unchanged since the end of October.
In late October, the restart of several Gulf Coast FCCs was expected to boost local demand and push differentials up further.
FCCs consume vacuum gasoil to produce gasoline and heating oil. When one goes down for maintenance, demand typically declines and differentials to crude frequently fall.
When one or more FCCs are brought back online, the reverse frequently occurs: demand picks up and differentials to crude rise again.
The expected rebound in VGO differentials in early November did not occur and many traders said last week they anticipated additional supplies from Europe.
The European VGO market is flush with supplies and looking to push cargoes to the US Gulf Coast despite a closed arbitrage. That possibility helped halt an expected rally in VGO differentials on the Gulf Coast.
In addition, reports that ExxonMobil's Baton Rouge refinery was scheduled to come offline for maintenance in December also suggested to some traders the Gulf Coast VGO market has reversed course and would decline again.
But traders on Monday said they saw differentials for both low and high sulfur VGO holding steady despite the expected influx of supply.
"There is a decent amount of oil coming and I think it's too much," one trader said.
The incremental supplies from Europe are unsold and expected to arrive in the second half of November, he said.
Los Angeles high sulfur bunker fuel falls to June 2009 low
Houston (Platts)--10Nov2014/539 pm EST/2239 GMT
High sulfur bunker fuel in Los Angeles Monday plunged to its lowest level since June 2009 on strong supplies and a weakening of the Brent crude contract.
At 3:15 pm EST (1815 GMT), Platts assessed IFO 380 CST Los Angeles at $362.50/mt ex-wharf, a $16.50/mt drop from Friday, to its weakest level since June 15, 2009, when Platts assessed the product at $360/mt ex-wharf.
High sulfur bunkers in Southern California have fallen for six consecutive trading days, sliding $102.5/mt since October 31. The dip has pressed down the product's 30-day average to $451.88/mt ex-wharf, putting the average price of Los Angeles high sulfur bunker fuel at a $26.10/mt discount to Singapore for the month. Monday's assessment at $362.50/mt ex-wharf was supported by trades completed during the Platts Market on Close assessment process.
During the MOC process, Chemoil placed an offer for 1,000 mt of IFO 380 CST to be delivered November 13-20. Beginning at the Platts peg of $377.50/mt ex-wharf, Chemoil gradually lowered its position throughout the window, completing six trades, down to a low of $362.50/mt ex-wharf
US crude stocks likely decreased 500,000 barrels last week: analysts
New York (Platts)--10Nov2014/408 pm EST/2108 GMT
US commercial crude stocks are expected to have fallen by 500,000 barrels in the reporting week that ended November 7, according to a Platts analysis and a survey of oil analysts Monday.
The American Petroleum Institute will release its weekly stocks data at 4:30 pm EST (2130 GMT) Wednesday and the US Energy Information Administration is scheduled to release its weekly data at 11:00 am EST (1600 GMT) Thursday.
Both sets of data are delayed one day due to the Veterans Day holiday. The EIA five-year average shows inventories rising slightly this reporting week by 232,000 barrels.
Refineries tend to enter into maintenance when the summer driving season concludes, causing stocks to accumulate through late October, stabilize for a few weeks, and then draw down in mid-November as demand returns.
US crude stocks are well supplied by recent historical standards. At 380.2 million barrels at the end of the week that ended October 24, crude stocks were 5.5% above the EIA five-year average (2009-13).
Analysts expect US refinery utilization rates to have increased 1 percentage point to 89.4%.
Crude runs have been high by historical standards. Refineries processed 15.5 million b/d of crude in the week that ended October 31, compared with 15.1 million one year earlier. Though crude runs are still below their levels during the summer when refineries were processing more than 16 million b/d each week.
DISTILLATE STOCKS SEEN FALLING
US distillate stocks are expected to have fallen 1.6 million barrels over the latest reporting week. The EIA five-year average shows US distillate stocks typically draw 150,000 million barrels in this reporting week.
Cold weather forecasts last week have spurred demand, drawing down distillate stocks, analysts said.
US gasoline stocks likely were 280,000 barrels lower last week, according to the analysts surveyed. The EIA five-year average shows inventory levels essentially unchanged this reporting week.
At 201.8 million barrels in the reporting week that ended October 31, US gasoline stocks were 2.7% below the EIA five-year average, after a 1.4 million-barrel draw.
Gasoline stocks on the US Atlantic Coast -- home to the New York Harbor-delivered NYMEX RBOB contract -- totaled 51.1 million barrels, 1.5% below the EIA five-year average.
NWE diesel cargo cracks highest in almost 2 years on tight supply, cheap crude
London (Platts)--10Nov2014/701 am EST/1201 GMT
The crack for Northwest European diesel cargoes reached their highest level in almost two years Friday, as cheap crude and healthy demand amid tight prompt supply supported margins.
Northwest European cargoes was assessed at an $18.28/barrel crack versus Dated Brent, its highest since November 30, 2012, according to Platts data.
Mediterranean cargoes reached their highest level in almost 21 months at $18.15/barrel, their highest since 22 February, 2013.
The lack of supply of diesel in Europe for prompt delivery has been exacerbated by a persistent closed arbitrage from the US due to poor economics.
The difference between front-month 0.1% ICE gasoil futures and the second-month NYMEX ULSD contract -- also known as the HOGO, and a key measure of the distillate arbitrage between the US and Europe -- rose sharply in October, reaching a 14-month high.
This, traders said, closed the arbitrage for swing barrels of diesel from the US, with instead only term volumes headed to NWE and the Med, which has left the market tight during a period of seasonal refinery maintenance.
Other supply balancers, including Russia, saw reduced export volumes out of Primorsk during October, and although export volumes for November are expected to return to normal levels of around 966,000 mt, it will struggle to correct the supply imbalance during November without a return of US flows, according to traders.
The attractive margins have been welcomed by European refiners, who did not undertake extensive refinery turnarounds, having benefited from cheaper feedstocks and reduced competition from distillate exports outside of the region.
December is typically a weaker month for diesel demand, and with refineries returning from maintenance and expectations of US exports to increase towards the end of the year, margins are unlikely to remain at elevated levels for an extended period of time, according to traders.
China is net exporter of oil products in October
Singapore (Platts)--10Nov2014/1216 am EST/516 GMT
China's crude oil imports in October were up 18% from the same month last year to 24.09 million mt, or an average 5.7 million b/d, preliminary data from the General Administration of Customs showed Saturday, November 8.
The volume, however, fell 15.4% month on month.
The elevated year-on-year growth rate last month was against a low base in October 2013, when China's crude inflows had slumped to a 14-month low of 4.83 million b/d.
China did not export any crude in October.
Over January to October, China's total crude imports rose 9.2% year on year to 252.6 million mt, averaging 6.09 million b/d. This is the highest rate of year-on-year growth for the 10-month period since 2010, when expansion was 19.5%.
LARGEST LEVEL OF NET OIL PRODUCT EXPORTS TO DATE
Meanwhile, China's October oil product imports slid 22.2% from a year earlier to 2.28 million mt, while oil product exports jumped 30.3% over the same period to 3.14 million mt.
This means China was once again a net oil products exporter last month. At 860,000 mt, this was the highest level of net exports on record.
China has flipflopped between being a net oil product importer and net exporter this year, and October was the fifth month of net exports.
Between January and October, China's oil product inflows declined by 26.9% to 24.41 million mt, while oil product exports were the exact same volume, although they edged up 2.7% from the same period of 2013.
This means China has turned from a historical net importer to becoming balanced in oil products, although if oil product exports were to continue outpacing imports in the next two months, China could for the first time become an overall net exporter of products in 2014.
This is a result of a surplus in refining capacity following rapid expansion in recent years, while consumption of key fuels such as gasoil and fuel oil has slipped.
In contrast, China's oil product imports were nearly 40% higher than its oil product outflows during 2013, while they were 64% higher in 2012.
The data released Saturday also showed that China's fuel oil imports, listed as No. 5-7 fuel oil by customs, tumbled 31.1% year on year in October to 1.15 million mt. Year-to-date inflows fell 26.9% year on year to 14.54 million mt.
Fuel oil demand in China is witnessing structural decline because of lower consumption by the country's independent refiners, known locally as "teapot" refineries, which have started using more crude oil and a bitumen-blend feedstock known as asphalt in the last two years.
Fuel oil now accounts for a fifth of the teapot refiners' overall cracking feedstock, compared with about 40% during the first half of 2013.
Pemex plan for a $6 billion LNG export terminal faces skepticism
Mexico City (Platts)--10Nov2014/402 pm EST/2102 GMT
A plan by Mexican state-owned Pemex to build a $6-billion natural gas liquefaction plant at Salina Cruz on the country's Pacific Coast has been met with skepticism by analysts.
The aim of the project is to cash in on the wide differentials in natural gas prices between Asia and North America. Speaking at a conference in Houston, Alejandro Martinez, director-general of the Pemex Gas subsidiary, said that the gas would be transported by a planned natural gas pipeline linking Pajaritos on the Gulf of Mexico and Salina Cruz on the Pacific Coast, a distance of some 120 miles.
"The aim is to take advantage of our country's geographical location and the business opportunities offered by the market conditions," Martinez said last week in a Houston presentation to potential project investors.
"The natural gas that we produce in the Gulf of Mexico can be processed and exported to Asia and Oceania," he added. The liquefaction plant could be coming on stream by 2020, he said.
Pemex provided a written statement and tweets with information from Martinez's presentation.
Pemex does not aim to go it alone with the venture. The company looks to form a consortium with "strategic partners that can contribute operational excellence and capital."
But George Baker, president of Houston-based consultancy Energia.com, said over the weekend that Pemex lacks a track record for a comparable operation. And independent, Mexico City-based analyst David Shields said: "There simply isn't enough gas in Mexico."
Year to date through September, Mexico has produced 6.52 Bcf/d of natural gas, up from 6.37 Bcf/d in 2012, though well short of the 7 Bcf/d that it notched up in 2010.
"And only this week, the ministry announced a new agreement to pipe gas from Mexico to Guatemala and the rest of Central America," said Shields.
In effect, the Guatemala project is a re-run. The 2000-2006 administration of Mexican President Vicente Fox planned a pipeline to link Mexico with Central America; it failed because there was no Mexican gas available. So far this year, imports of natural gas by pipeline have been 1.4 Bcf/d. The US Energy Information Administration estimates that Mexico last year imported the LNG equivalent of slightly more than 400,000 Mcf/d of gas, through its three reception terminals: Altamira, on the country's northern Gulf Coast; Costa Azul in Baja California; and Manzanillo, on the central Pacific Coast.
But very soon imports will surge. Next month, the first stage of the $3 billion Los Ramones pipeline will pump US shale gas into Mexico's industrial north. Phase two of Los Ramones is due to come on stream a year later, adding more than 2.1 Bcf/d to add to Mexico's imports.
Los Ramones is a Pemex project. Other pipelines are bringing more US gas from the Pacific Coast.
In southern Mexico, however, from where Martinez said the Salina Cruz liquefaction plant will be supplied, much will depend on the success of the energy reform and also on Lakach, a deepwater reservoir off the coast of Veracruz. Pemex officials believe that Lakach and the neighboring Piklis and Kunah have some 4 Tcf of reserves.
The first stage in the development of Lakach came recently in the form of a $290-million contract for subsea production systems won by OneSubsea, a Cameron-Schlumberger joint venture.
Italy's Saipem, a unit of Eni, will link the subsea system to onshore processing installations.
Meanwhile, the Salina Cruz project could face competition, said Baker. IEnova, the Mexican unit of Sempra and owner of Costa Azul, could be particularly well-placed for exports to Asia if its opts to build a liquefaction plant.
Moreover, Baker says, Cheniere Energy's plan to liquefy 2 Bcf/d at the Sabine Pass liquefaction plant it is now building in Louisiana could reach Asian markets via the expansion of the Panama Canal.
And Shields points out that the proposed $6-billion budget for Salina Cruz appears to be very low for a plant of such dimensions. "That would seem to point to a floating terminal," he says. "If it doesn't work out commercially, it could be rented to somebody elsewhere."
China, Russia sign new 30 Bcm/year framework gas deal using western route
Singapore (Platts)--10Nov2014/1228 am EST/528 GMT
Russia and China have signed a framework agreement which envisages an additional 30 billion cubic meters of gas delivered annually to China using the western Altai route, nearly doubling current proposed shipments.
The latest agreement between state-owned Gazprom and China National Petroleum Corp. was signed over the weekend following a meeting between China's President Xi Jinping and Russia's President Vladimir Putin on the sidelines of the Asia-Pacific Economic Cooperation Summit in Beijing.
It comes just months after both companies signed a landmark deal in May for Gazprom to send up to 38 Bcm/year of gas from East Siberia to China through the future Power of Siberia pipeline, beginning as early as 2018.
The 30-year supply deal is worth an estimated $400 billion.
In a report on the website of state-owned CNPC issued late Saturday, Putin was quoted as saying: "We have opened up cooperation with an in-principle agreement on the western route."
The Altai route will see gas from western Siberia transported to Wuqia county in China's Xinjiang province, CNPC said.
Following the latest deal, China will become Russia's largest natural gas buyer, with volumes totaling 68 Bcm/year.
Gazprom had last month indicated it was in negotiation with CNPC to nail down details over gas supplies using the western route, in line with a September 2010 legally binding deal with the Chinese company.
CNPC did not give any details of when gas deliveries through the western route would be launched, but Gazprom said previously that supplies could start even before the eastern route was commissioned.
OPENING NEW RUSSIAN FRONTIERS
Following the natural gas purchase agreement, CNPC said Russia has also allowed Chinese companies to invest in its domestic upstream sector.
"In September this year, Russia's Rosneft allowed Chinese ownership of a stake in the Vankor field in East Siberia, which has an estimated 52 million mt of oil and 95 Bcm of gas reserves," CNPC said, without confirming its exact investment or stake in the project.
Vankor is the biggest greenfield project in East Siberia. It is expected to produce 22 million mt, or 440,000 b/d, of crude oil in 2014. Rosneft said late last year that it envisages production at the cluster to peak at 25 million mt/year (500,000 b/d) by 2019.
Rosneft's potential deal with CNPC for a stake in Vankor first came to light in early September when Putin met with Zhang Gaoli, China's vice premier, although no details have been revealed since then.
Putin has been cozying up to China to mitigate any risk of isolation from the West over the Ukraine crisis.
During the first half of this year, Sino-Russian bilateral trade increased 3.5% from a year earlier to $59.1 billion and both sides have agreed to boost this to $200 billion/year by 2020.
China is Russia's second-largest trading partner currently, according to the CNPC report.
Russian ports' Jan-Oct crude oil, oil products throughput up 0.5% on year
London (Platts)--10Nov2014/951 am EST/1451 GMT
Russian commercial ports handled a combined total of 278.6 million mt of crude and oil products in January-October, up 0.5% year-on-year, the Association of Russian Commercial Seaports said Monday.
Crude oil accounted for 158.5 million mt of the total, down 8.4%, oil products for 107 million mt, up 15.1%, and LPG for 10.1 million mt, up 12.2%, the association said.
At ports in Russia's Far East, which include the main ESPO crude export terminal of Kozmino, liquid bulk exports during the ten-month period rose 7.8% year-on-year to 54.5 million mt, the association said.
Russia's Black Sea and Azov Sea ports handled 98.7 million mt of oil and products, up 6.2%.
In the Black Sea, total volumes handled by Novorossiisk rose 8.6% and at Tuapse by 27.9%, although both ports saw a drop in crude volumes last year.
Overall throughput rose at both Taman and Temryuk, the association said. According to traders, some of the volumes previously handled by Kerch in Crimea, especially of LPG, have been redirected to the two ports to avoid sanctions.
Crude and products handled through ports in northwest Russia were up 1.6% at 113.4 million mt.
At the Baltic Sea port of Primorsk, which used to be the main export terminal for crude and diesel, total throughput dropped 14.3% to 46 million mt.
At the Baltic port of Ust-Luga, where new crude and product terminals were launched in 2012, overall throughput rose 21.2% to 62.8 million mt.
Throughput at the port of Vysotsk, also used for transporting oil products -- mostly diesel as well as some fuel oil delivered by rail -- rose 10.4%.
Caspian Sea ports handled 3.7 million mt of liquid bulk, down 7.5%.
At the port of Makhachkala, through which Kazakh crude is delivered via the Baku-Novorossiisk pipeline, there was a 3.4% drop in overall throughput.
In the Arctic, there was a 27.1% drop at the port of Murmansk, which is used for crude oil exports.
Overall, Arctic ports handled 8.2 million mt of liquid bulk, or less than half January-October 2013's throughput.
Only the port of Varandey, through which crude from Komi is exported, saw overall throughput rise, up 9.5% at 4.9 million mt.
