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Oil Bear Market Tests OPEC Unity as Venezuela Seeks Meeting
Oil ministers from Kuwait and Algeria dismissed possible production cuts as crude’s slump to a four-year low prompted Venezuela to call for an emergency meeting of the Organization of Petroleum Exporting Countries.
Kuwait hasn’t received an invitation for any urgent OPEC meeting to discuss a reduction in output, Oil Minister Ali Al-Omair said in comments reported by the official Kuwait News Agency. His Algerian counterpart Youcef Yousfi said yesterday he knew of no plans for any emergency session and was unconcerned by current price levels.
Bear markets for Brent and U.S. crude are putting pressure on OPEC’s consensus on output ahead of the group’s scheduled Nov. 27 meeting in Vienna, according to Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland. OPEC supplies 40 percent of the world’s oil, and its largest Persian Gulf producers, including Saudi Arabia, Iraq and Iran, are offering deeper discounts to buyers in Asia to maintain market share amid a global glut.
“If we had a way to preserve the stability of prices or something that would bring it back to previous levels, we would not hesitate in that,” Kuwait’sAl-Omair said in remarks reported by KUNA yesterday. “There is no room for countries to reduce their production,” he said, without giving details.
Surging Output
Ample supply, helped by surging U.S. and Russian output, pushed Brent crude into a bear market last week. The European benchmark slumped more than 20 percent from its peak for the year on June 19, meeting a common definition of a bear market. Brent fell on Oct. 10 to its lowest since December 2010. It declined as much as 2.7 percent today and was at $88.41 a barrel at 3:20 p.m. in London.
“This is going to increase pressure for Saudi Arabia to cut output to raise prices,” Jakob of Petromatrix said by telephone today. The kingdom holds most of OPEC’s unused production capacity and can influence global prices by adjusting the amount of crude it pumps. “They are increasingly giving signs they won’t do it on their own. Saudi Arabia doesn’t want to lose market share in Asia,” he said.
Venezuela’s Unease
OPEC is boosting production as its members fight for market share and seek to meet rising domestic demand. The group pumped 30.47 million barrels a day in September, the most since August 2013, it said Oct. 10 in its latest monthly Oil Market Report.
Saudi Arabia, Iran and most recently Iraq all widened the discounts they’ll offer on their main grades sold to Asia next month to the most since at least 2009.
Venezuelan President Nicolas Maduro gave instructions to ask for an extraordinary OPEC meeting, the country’s foreign ministry said in a post on its Twitter account on Oct. 10.
“The price of oil is important for our country, and we’ll start actions to stop its fall,” the ministry cited former oil minister Rafael Ramirez as saying.
Spreads Contract
The slump in prices may by coming to an end as the global economy is unlikely to deteriorate further, according to Bank of America Corp. The discount on front-month Brent futures, also known as its time-spread, has diminished, signaling that the glut weighing on short-term prices is dissipating, head of commodities research Francisco Blanch said on Oct. 7.
“The fact that time-spreads are starting to narrow is an indicator that the supply overhang is starting to clear,” Blanch said by phone from New York. “The downside is going to be somewhat limited, unless the macro turns a lot worse, and there aren’t a lot of reasons to believe the macro is going to turn a lot worse.”
Crude prices have fallen because of several factors, including U.S. shale production, geopolitics and speculation, Algeria’s Yousfi said yesterday at a news conference in the city of Oran. “We follow with great attention the level of oil prices, but we are very tranquil,” he said.
Crude probably won’t fall below $76 to $77 a barrel because that price level represents the highest cost of production in the U.S. and Russia, Al-Omair of Kuwait said. Both countries have abundant supply and are outside the group.
Russia is concerned about volatility in oil prices and will continue regular consultations with OPEC on ways to steady markets, Deputy Energy Minister Yury Sentyurin told reporters in Abu Dhabi yesterday.
Bakken Drillers Poised to Curb Exploratory Spending
Bakken shale-oil producers are under pressure from tumbling prices to scale back their 2015 drilling plans in a region that accounts for one of every eight U.S. barrels of crude.
Bakken oil fell 1 percent to $79.40 a barrel today, the first time it’s dropped below $80 in 11 months, according to data compiled by Bloomberg. Crude prices have been declining worldwide as ample North
American supplies tempered the U.S. appetite for imports and Persian Gulf producers signaled they’re prepared to keep output high to protect their market shares in Asia.
Companies drilling expensive, experimental wells in frontier regions such as the Tuscaloosa Marine Shale beneath Louisiana and Mississippi will be first to feel pinched by the drop-off in prices, said Gabriele Sorbara, an analyst at Topeka Capital Markets in New York. Bakken producers will soon feel the pain as well as their returns dwindle.
“There is going to be a quick response” among explorers to lower prices, Sorbara said in a telephone interview today. “The body language from the companies I follow is that capital expenditures next year will be flattish or slightly up, when the expectation had been for increases in the 5 to 10 percent range.”
Bakken producers need oil prices between $70 and $80 a barrel to earn a 15 percent to 25 percent return, a typical profit target for shale drillers, Sorbara said.
High-Pressure Wells
Companies drilling parts of the Bakken where very high underground pressure forces more oil to the surface in each well -- such as the Nesson Anticline or the western Williston -- are best-positioned to withstand the slump in prices, Sorbara said. Conversely, the northernmost areas of the region where geological conditions are less favorable will be hardest hit, he said.
During the past six months, Bakken has lost 21 percent of its value, making it the second-worst performing domestic crude. Only Kern River crude, a thick, sulfury oil produced in southern California, fell more with a 24 percent decline during the period.
Bakken wells produced a record 1.047 million barrels of crude in July, accounting for 12 percent of total U.S. output, according to data compiled by Bloomberg.
Kuwait Joins Saudi View of No Immediate OPEC Supply Cuts
Two of OPEC’s biggest members say they won’t immediately reduce oil production to offset tumbling prices, a signal the group is unlikely to heed Venezuelan calls for an emergency meeting.
While oil-producing nations would like higher prices, there’s “no room” for them to achieve that by lowering supply, Kuwait’s oil minister told the official Kuwait News Agency yesterday. Saudi Arabia, which pumped almost one-third of the group’s oil last month, won’t alter its supplies much between now and the end of the year, a person familiar with its oil policy said Oct. 3.
“Saudi action is what matters most and we have yet to see anything,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said yesterday by phone. “There’s not a lot the Venezuelans can do, either by action or rhetoric, that will change things.”
OPEC’s largest Persian Gulf producers, including Saudi Arabia, Iraq and Iran, are offering the biggest discounts to buyers in Asia since at least 2009 to maintain market share amid a global glut that has sent oil into a bear market. Venezuelan President Nicolas Maduro gave instructions to ask for an extraordinary meeting, the country’s foreign ministry said in a post on its Twitter account on Oct. 10.
Ample supply, helped by surging U.S. and Russian output, pushed Brent crude, the benchmark for more than half the world’s oil, down more than 20 percent from its peak for the year on June 19, meeting a common definition of a bear market. Brent fell 1.5 percent yesterday to $88.89 a barrel, the lowest since Dec. 1, 2010.
OPEC Basket
The OPEC crude basket, made up of the group’s main export grades, fell to $86.43 Oct. 10, near a four-year low.
The Organization of Petroleum Exporting Countries boosted production in September, pumping 30.47 million barrels a day, the most since August 2013, it said Oct. 10 in its latest monthly Oil Market Report. Saudi Arabia told OPEC it increased output 107,000 barrels to 9.704 million. The group’s next meeting is scheduled for Nov. 27 in Vienna.
“If we had a way to preserve the stability of prices or something that would bring it back to previous levels, we would not hesitate in that,” Kuwait’s Oil MinisterAli Al-Omair said in remarks reported by KUNA. “There is no room for countries to reduce their production,” he said, without giving details.
Kuwait hasn’t received an invitation to hold an emergency meeting to consider cutting output, he told KUNA.
Youcef Yousfi, Algeria’s energy minister, said Oct. 12 they are ‘tranquil’’ about prices and hadn’t received any invitation to attend an emergency meeting.
Market Share
“Saudi Arabia doesn’t want to lose market share in Asia,” Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, said by phone yesterday. “They are increasingly giving signs they won’t do it on their own.”
Crude probably won’t fall below $76 to $77 a barrel because that price level represents the highest cost of production in the U.S. and Russia, Al-Omair of Kuwait said. Both countries have abundant supply and are outside the group.
Russia is concerned about volatility in oil prices and will continue regular consultations with OPEC on ways to steady markets, Deputy Energy Minister Yury Sentyurin told reporters in Abu Dhabi Oct. 12.
The Saudi government may face more internal pressure to support oil prices sooner rather than later. Saudi billionaire Prince Alwaleed bin Talal Al Saud sent a letter in Arabic dated yesterday to oil minister Ali al-Naimi, saying that the kingdom needed to start to worry about the decline in oil prices.
“There’s not a sense of urgency yet, at least from the actors that matter,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. “The Saudis could take action immediately if they choose to.”
Statoil Sells Shah Deniz Stake to Petronas for $2.25 Billion
Statoil ASA (STL), Norway’s biggest energy company, will sell its 15.5 percent stake in the Shah Deniz field in Azerbaijan to Malaysia’s Petroliam Nasional Bhd for $2.25 billion as it seeks to reduce investment and prioritize high-value projects.
The transaction includes sales of the interests in the field’s production-sharing agreement, the South Caucasus Pipeline Co. and its holding company, and a 12.4 percent stake in the Azerbaijan Gas Supply Co., the Stavanger-based company said in a statement today. The deal reduces Statoil’s capital-expenditure commitments by about $4.3 billion as the Shah Deniz partners, led by operator BP Plc (BP/), invest to expand gas exports in the project’s second phase, Knut Rostad, a spokesman, said in a phone interview.
“This is yet another sign of Statoil’s priority of value over volume, focus on return on average capital employed, cash flow and dividend capacity,” Teodor Sveen Nilsen, an analyst at Swedbank AB, said in a note to clients. The deal increases the probability that Statoil will further reduce its investment plans for next year, he said.
Statoil’s exit follows Total SA’s $1.5 billion sale of its 10 percent stake in the Shah Deniz project in May as big oil companies seek to rein in investments to fight rising costs and falling returns. The second phase of Shah Deniz in the Caspian Sea, which will boost gas production for export through new pipelines as far as Italy and reduce Europe’s dependency on Russian fuel, is expected to cost $28 billion.
Asset Sales
Statoil, which has scrapped production-growth targets and reduced investment plans until 2016 as it seeks to raise returns for shareholders, has sold assets for more than $22 billion since 2010, including a 10 percent stake in Shah Deniz in 2013.
“The divestment optimizes our portfolio and strengthens our financial flexibility to prioritize industrial development and high-value growth,” Lars Christian Bacher, executive vice president for development and production international, said in the statement.
The stock closed 1.2 percent higher at 160.2 kroner in Oslo, snapping eight days of declines.
Statoil’s second-quarter production from the Shah Deniz field was 38,000 barrels of oil equivalent a day. The transaction, effective from Jan. 1, 2014, is expected to close in early 2015, according to Statoil. The accounting gain is expected to exceed $1 billion, Rostad said.
Petronas Assets
Petronas, Malaysia’s state-owned energy company, has exploration and production ventures in at least 22 countries in Southeast Asia, the Middle East, Central Asia, Latin America and Africa, accounting for almost a quarter of its total oil and gas reserves, it said on its website.
The company last month announced it signed agreements with Mexico and Argentina to expand its operations in the region. Petronas said this month it may delay construction of its C$10 billion ($8.9 billion) Canadian liquefied natural gas project past 2030 unless proposed taxes are lowered.
Statoil remains a stakeholder in the Azeri, Chirag and Gunashli oilfield in Azerbaijan, as well as the Trans Adriatic Pipeline.
(An earlier version of this story was corrected because of an error in a company name.)
OPEC Tension, Lower Oil Prices May Hit Oilfield Firms
By VANCE CARIAGA, INVESTOR'S BUSINESS DAILY
Reports that Iran will follow Saudi Arabia in cutting oil prices will likely create "stiff headwinds" for companies in the oilfield services industry, according to a new report from Sterne Agee, though bigger players such as Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) should weather things better than others.
IBD's Oil & Gas-Field Services industry group has been hard-hit in the stock market, down 18% since the end of August and down 11% for the year to date.
In a note released Friday, Sterne Agee analyst Stephen Gengaro said "crude oil price weakness likely persists short term" amid tensions within the OPEC cartel.
These tensions are leading to an "apparent price war," Gengaro added, "with Iran cutting oil prices for crude buyers in Asia. This appears to be the result of Saudi Arabia's decision to lower prices last week without typical discussions with other members of the cartel."
A rise in oil and gas production in North America, combined with slowing demand in Asia and political strife in the Middle East, are behind the lack of cooperation between OPEC members, Gengaro noted. Although he expects this to have minimal impact on oilfield activity for the balance of 2014, a continued slide in crude oil prices "will likely hamper 2015 activity," especially in North America.
"We continue to prefer large cap, diversified names in our coverage universe," Gengaro said. "Our favorites remain Schlumberger and Halliburton."
Both of those stocks are part of the Oil & Gas-Field Services group, which ranks No. 182 out of 197 industries tracked by IBD. Schlumberger and Halliburton are far and away the biggest players in the group. Oceaneering International (NYSE:OII) ranks third by market cap. No stocks in the group currently get very high Composite Ratings from IBD.
Cheaper Saudi Oil To Pressure Iran, Russia, Venezuela
By CIARAN McEVOY, INVESTOR'S BUSINESS DAILY
Saudi Arabia's newfound tolerance for lower oil prices will further stifle the already weakened economies of Iran, Russia and Venezuela, energy experts say.
Reports that the world's top oil exporter is quietly telling other producers to get used to lower prices sent U.S. crude futures down 8 cents to $85.74 a barrel Monday, down 19% from a June high and the lowest settlement since December 2012. Brent crude fell 1.5% to $88.89, the lowest since December 2010.
After adhering to an unofficial Brent target of $100, Saudi Arabia's shift may be rooted in three factors: spiting competitors such as Iran and a resurgent U.S. oil industry, the need for more revenue since lower oil prices typically mean more oil is purchased, and further discord at OPEC, according to Chris Lafakis, senior economist at Moody's Analytics.
"The whole notion of a cartel may be falling by the wayside," he said. "In the past, all these countries have been able to work together."
Oil-rich and politically stable nations such as Kuwait and the United Arab Emirates will feel a pinch, but an era of cheaper crude won't bring dire economic circumstances, he said.
OPEC InfightingSanction-afflicted Iran and Russia, however, as well as the economic basket case of Venezuela, likely will face budgetary problems, higher inflation and stagnant or contracting economies, Lafakis added.
Venezuela called for an emergency OPEC meeting ahead of the cartel's annual summit next month. The expected dismissal of the request, coupled with Saudi Arabia's refusal to cut oil production, will further highlight the growing discord between OPEC members.
Complicating matters more for Venezuela are the years of government mismanagement of the economy, rising unemployment, political turmoil — as evidenced by the massive street protests in its major cities this year — and runaway inflation.
"They're in some real trouble," said William Arnold, a professor of energy management at Rice University.
Iran, the target of economic sanctions for years, has seen its economy substantially slowed after being starved of Western capital. While the West eased some sanctions early this year amid negotiations over Tehran's nuclear program, U.S. prosecutors have shown renewed vigor in cracking down on violators.
BNP Paribas, France's largest bank, pleaded guilty this summer and agreed to pay an $8.9 billion fine for violating sanctions against Iran, Cuba and Sudan.
Russia, with its petroleum-dominated economy, was hit with sanctions this year due to its role in the ongoing political crisis in Ukraine, including its annexation of Crimea.
"The Iranians are used to dealing with this kind of thing on and off through the years," said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University's Cox School of Business. "The Russians — not so much."
Political tension between Russia and the West has made Western companies more reluctant to invest there. Cheaper oil won't help either. Exxon Mobil (NYSE:XOM) is already pulling out of an exploration venture in Russia's Arctic.
Falling crude prices also reduce the return on investment for drilling in far-flung areas. Royal Dutch Shell (NYSE:RDSA) has again delayed a project in Alaska.
A $10 billion North Sea joint-venture project between Chevron (NYSE:CVX) and Austria-based OMV is now on hold too.
Meanwhile, BP (NYSE:BP) is reviewing plans for the Mad Dog Phase 2 deepwater drilling project in the Gulf of Mexico.
If prices fall below the $80-per-barrel range, U.S. shale drillers are expected to cut investments in fracking projects, which have been getting more expensive.
"Saudi Arabia is sending a clear signal with their statements that they want to preserve and maintain their market share," Bullock said.
Kiev agrees to pay some Russian gas debt
http://cdnph.upi.com/sv/em/upi/UPI-2781413207138/2014/1/91768f891fbb7b3aa9ffe67423243b36/Kiev-agrees-to-pay-some-Russian-gas-debt.jpg
MOSCOW, Oct. 13 (UPI) -- Kiev is ready to settle a little less than half of its gas debt obligations to Russian energy company Gazprom by year's end, the Kremlin said Monday.
Russian Energy Minister Alexander Novak said Ukraine was ready to pay $1.45 billion of the $3.1 billion owed by the end of the year. The rest of the debt would be settled by March 2015.
Novak said the repayment was among the conditions for new gas deliveries to Ukraine.
Gazprom this year disrupted gas supplies to Ukraine because of lingering debt issues. Similar rows in 2006 and 2009 left downstream consumers in Europe in the cold for weeks as most of the Russian gas bound for western markets runs through the Soviet-era pipeline network in Ukraine.
European, Russian and Ukrainian leaders are trying to resolve the latest debt crisis in order to ensure adequate winter supplies. Novak said the next round of talks with European and Ukrainian officials was scheduled Oct. 21 in Berlin.
The World Bank and United Nations issued separate statements last week saying the gas issue was having secondary impacts on Ukraine's economy and its people.
Novak said resolving the issue rests with a Ukrainian government the Kremlin sees as hesitant to broker a deal.
Endeavor goes bust on North Sea operations
North Sea delays push oil producer Endeavor International into bankruptcy. UPI/Maryam Rahmanian
HOUSTON, Oct. 13 (UPI) -- Delays in getting developments in the North Sea into production were part of the reason behind a bankruptcy filing, oil producer Endeavour International said.
Endeavor said the Bacchus and Rochelle developments in the North Sea were delayed by more than a year. This, in turn, caused to the company to exceed original cost projections.
By filing for Chapter 11 bankruptcy protection, the company said its existing debt obligations would be cut by $568 million.
Apart from operations in the North Sea, the company holds interests in the Marcellus shale reserve area in the United States. It holds an estimated 23.5 million barrels of oil equivalent reserves and said it would still produce oil while in bankruptcy.
"It has been a significant accomplishment by the company and a very long process to get our North Sea developments online," company director William Transier announced Saturday. "We continue to believe that these are quality long lived assets that can generate substantial returns for the company's stakeholders."
100 million barrels pulled from Varg oil field
TRONDHEIM, Norway, Oct. 13 (UPI) -- A Norwegian energy company said Monday it pulled barrel No. 100 million from the Varg oil field in the North Sea, more than 50 percent above what was expected.
Norwegian energy company Det norske oljeselskap said production from the field begin in 1998 and it was slated for closure in 2002.
"The plan for decommissioning of Varg was approved by the [Norwegian government] in 2001, but new discoveries, drilling of new wells and gas production has made the field viable until today," the company said in a statement Monday. "Production is currently stable and is expected to last for several more years."
Norway has more oil reserves than any other European country. Last year, it exported 1.19 million barrels per day worth of oil, with most of that headed to the British and Dutch economies.
The Norwegian Petroleum Directorate, the nation's regulator, said average daily oil production of 1.48 million barrels per day in August, the last full month for which data are available, was 10 percent above what was expected and 1 percent about what was produced during the same month in 2013.
So far this year, oil production is about 2 percent above the NPD's prognosis.
Iran denies mirroring Saudi oil price move
TEHRAN, Oct. 13 (UPI) -- Iran isn't following the Saudi example of cutting oil prices in an effort to maintain any sort of market presence, a senior oil manager said from Tehran.
Mohsen Qamsari, director of international affairs of the National Iranian Oil Co., said Iranian oil prices aren't falling because of any rivalry with the Saudis.
"Economic conditions, the market supply and demand and the price of petroleum products in the market are some factors behind the price slide," he said Saturday.
Signs of a Chinese economic slowdown and decreased North American demands given the glut of oil there means members of the Organization of Petroleum Exporting Countries are sparring for market shares.
Industry insiders told The Wall Street Journal the Saudis were making an "aggressive" market move by slashing the price at which it sells its oil.
Though Iran and Saudi Arabia are considered strategic rivals, Qamsari said the discount for Iranian crude had nothing to do with historic differences.
OPEC in its latest monthly market report said Iranian crude sold for $96.14 per barrel in September, versus the $95.98 for Saudi blend Arab Light. Both grades for September traded an average 5 percent less than the August price.
African energy sector lopsided, IEA finds
LONDON, Oct. 13 (UPI) -- A lopsided energy sector in sub-Saharan Africa is inhibiting the region's economic and social development, the IEA said in a report Monday from London.
IEA Executive Director Maria van der Hoeven said during an energy conference in London the region could grow if it had a better functioning energy sector.
Nearly two thirds of the investments in sub-Saharan Africa have focused on exports for oil and natural gas. The region accounts for nearly 30 percent of the oil and gas discoveries made in the last five years, though some parts of the economy still lack adequate supplies to electricity.
"The energy sector is acting as a brake on development, but this can be overcome and the benefits of success are huge," van der Hoeven said in a statement.
A base assessment from the Paris-based IEA finds energy demand from sub-Saharan Africa grows by 80 percent by 2040. The region may need at least $450 billion in power sector investments to address some of the expected demand shortfall.
The IEA report finds that every dollar in investments in the power sector translates to an equivalent $15 in economic growth.
"A better functioning energy sector is vital to ensuring that the citizens of sub-Saharan Africa can fulfil their aspirations," van der Hoeven said.
Iraq reviews oil ties with United States
BAGHDAD, Oct. 13 (UPI) -- U.S. energy companies need to stay invested in Iraq's oil sector as the war-torn country continues on the path of reconstruction, the Iraqi oil minister said.
Iraqi Oil Minister Adel Abdul Mahdi met U.S. Ambassador to Iraq Stuart Jones in Baghdad to discuss progress in the Iraqi oil sector. The oil minister's office said Sunday he stressed that U.S. energy companies need to stay invested in Iraq, especially in the oil sector.
The Organization of Petroleum Exporting Countries said member state Iraq produced 3.16 million barrels of oil per day in September, up 4.4 percent from the previous month.
Much of Iraq's oil sector has been spared from violence from the insurgency waged by the Sunni-led group calling itself the Islamic State. Most of the export terminals in Iraq are in the south of the country, far away from the territory controlled by the terrorist group.
U.S. officials, meanwhile, have stayed in Baghdad's corner in a spat with the semiautonomous Kurdish government over oil exports. Some of the oil produced in the Kurdish north has left for international markets through a Turkish export pathway, though few buyers have surfaced publicly.
Three American companies -- Chevron, Exxon Mobil and Phillips 66 -- are among the dozens of companies receiving oil from the official Iraqi State Oil Marketing Organization.
Statoil dumps stake in Shah Deniz gas field
STAVANGER, Norway, Oct. 13 (UPI) -- Norwegian energy company Statoil said Monday it sold off its stake in the Shah Deniz gas field offshore Azerbaijan to Malaysia's Petronas for $2.25 billion.
"The divestment optimizes our portfolio and strengthens our financial flexibility to prioritise industrial development and high-value growth," Lars Christian Bacher, an executive vice president for international production at Statoil, said in a statement.
Statoil sold its 15.5 percent stake in the Shah Deniz production agreement and pipeline infrastructure in Azerbaijan. The Norwegian energy company said it produced about 38,000 barrels of oil equivalent per day from Shah Deniz during second quarter 2014 and would remain a committed player in the Azeri energy sector.
There was no statement on the transaction from Petronas. Statoil keeps some of its production interests in Azerbaijan and a stake in the Trans Adriatic Pipeline meant to deliver natural gas from Shah Deniz to the European market.
Shah Deniz will deliver about 560 billion cubic feet of natural gas per year, with sales scheduled for Georgia and Turkey in 2018 and the rest to Europe the following year.
Europe views Shah Deniz as a means to diversify a natural gas market dependent on Russia.
China a top trading partner, Medvedev says
MOSCOW, Oct. 13 (UPI) -- China is one of Russia's top foreign trading partners, a partnership that will strengthen through the energy sector, the Russian prime minister said Monday.
Russian and Chinese officials meeting in Moscow are expected to ratify a long-term natural gas deal during trade meetings Russian Prime Minister Dmitry Medvedev said had a "very ambitious agenda."
"China is our top foreign trade partner," he said Monday.
A contract between Russian natural gas company Gazprom and China National Petroleum Corp. calls for 1.3 trillion cubic feet of natural gas per year through the 2,500-mile Power of Siberia pipeline.
China's state-run Xinhua News Agency said Chinese Premier Li Keqiang is scheduled to sign off on at least 50 different agreements with his Russian counterpart extending into the finance, rail and energy sectors.
Li's visit is his first to Russia since he took office in March 2013. For the Kremlin, it's an opportunity to advance a trade shift away from a European community growing increasingly frustrated with Russia's influence in the energy sector.
Santos responds to divestment trends
Australian energy company Santos defends its position in the regional economy. UPI/Hamid Forotan/ISNA
ADELAIDE, Australia, Oct. 13 (UPI) -- Australian energy company Santos responded to a regional divestment campaign by saying it's in the business of building nations through sound fiscal discipline.
"Santos is passionate about paving the way for brighter futures," Santos Chief Executive Officer David Knox said in a statement Monday. "We are built on strong foundations of environmental, sustainable and social responsibility, and have the right mechanisms in place to prepare for the next 60 years of gas supply to Australia and our Asian neighbors."
The council of The Australian National University in early October said it was divesting from seven energy companies, including Santos, following a review of domestic equities.
Critics of the divestment said it was a disgrace to the national economy.
Santos leads an $18.5 billion project designed to convert coal seam natural gas to liquefied natural gas for exports to the global market.
"Santos is no longer in the business of just producing oil and gas; we are helping to build nations," Knox said.
In September, the Rockefeller Brothers Fund announced its decision to divest from fossil fuel interests.
5 Reasons Oil Prices Are Dropping
By Chris Pedersen | Mon, 13 October 2014 22:09 | 1
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As oil prices continue to fall, analysts and producers are trying to wrap their heads around the reasons and identify a floor price. Even though crude benchmarks like Brent and WTI keep dropping, the cost of finding oil continues to rise. What are some of the key drivers that have created this paradox?
1. The U.S. Oil Boom
America’s oil boom is well documented. Shale oil production has grown by roughly 4 million barrels per day (mbpd) since 2008. Imports from OPEC have been cut in half and for the first time in 30 years, the U.S. has stopped importing crude from Nigeria.
2. Libya is Back
Because of internal strife, analysts have until recently assumed that Libya’s output would hover around 150,000-250,000 thousand barrels per day. It turns out that Libya has sorted out their disruptions much quicker than anticipated, producing 810,000 barrels per day in September. Libyan officials told the Wall Street Journal last week that they expect to produce a million barrels per day by the end of the month and 1.2 million barrels a day by early next year.
3. OPEC Infighting
There have been numerous reports about the discord between OPEC members, leading many to believe that OPEC will not be able to reign in production like it has done so in the past. The Saudis and Kuwaitis have reportedly been in an oil price war, repeatedly lowering their prices in order to maintain their market share in Asia. John Kingston, the news director at Platts, believes that the Saudis will not be willing to give up market share like they have done during previous price drops.
4. Negative European Economic Outlook
European Central Bank president Mario Draghi has left investors concerned about the continent’s slow growth. Germany’s exports were down 5.8 percent in August, stoking the fears of anxious investors that the EU’s largest economy had double dipped into recession last quarter. Across the Eurozone, the IMF again lowered its growth forecast to 0.8 percent in 2014 and 1.3 percent in 2015.
5. Tepid Asian Demand
Beyond slow economic growth and currency depreciation, a number of Asian countries have begun cutting energy subsidies, resulting in higher fuel costs despite a drop in global oil prices. In 2012, Asia’s top spenders on energy subsidies, as a percentage of GDP included: Indonesia 3 percent; Thailand 2.6 percent; Vietnam 2.5 percent, Malaysia 2.3 percent, and India 2.3 percent. India is a primary example. Between 2008-2012, India’s diesel demand grew between 6 percent and 11 percent annually. In January 2013, the country started cutting the subsidies of diesel. Since then, diesel consumption has plateaued.
By Chris Pedersen for Oilprice.com
BoA oil analyst who predicted downturn now sees floor
NEW YORK, 12 hours, 31 minutes agoAs Iraqi militants advanced on Baghdad with M-16s and stolen tanks in June, most investors and traders in the jittery oil markets believed oil prices would spike even higher. But not so, Francisco Blanch, a Bank of America analyst who predicted that oil prices would moderate in the fourth quarter.
As oil prices crested at $115 in mid-June, there were clear indications of the drop that has ensued and shocked markets in the past weeks, according to Blanch.
Blanch told Reuters in an interview that graphs of the forward price curve and signals from leaders of Saudi Arabia that they were comfortable with lower prices pointed to increasing supplies and a decline in prices.
Still, even Blanch, who has been one of the most bearish analysts in the industry this year has been surprised by the size of the recent rout that has wiped more than 20 per cent off the oil price since the start of September.
Now, Blanche expects Brent to stabilise in the next few weeks, but sees the potential for deeper declines in WTI.
Brent forward spreads - the difference between the nearby and future prices - paint a picture of growing stability, Blanch said.
"Front to second and front to third-month differentials in ICE Brent are narrower than they were 2 to 3 weeks ago," he said. "I think we can go a little bit lower for Brent."
FIRST CONTANGO IN FOUR YEARS
His downbeat assessment was particularly stark in an increasingly bullish market on June 16 when Secretary of State John Kerry warned of air strikes in Iraq.
That news sent prices to $113 a barrel.
But Blanch reaffirmed his more moderate views with Brent at $104 and WTI at $90. A risk even remained that WTI oil could slip to $50 within two years, his team said in a research note.
Brent and WTI were firmly in backwardation, with cash prices sharply higher than forward prices, but pockets of narrowing time spreads along the forward signalling increased supply.
"We started to see a weakening in time spreads," he added.
At the time, analysts generally expected fourth-quarter Brent prices of about $110 a barrel, and WTI prices of about $100.
A month later, Brent's inversion had disappeared, returning the market to contango for the first time in four years, a market structure that allows traders to sell stored crude for a profit at a later date.
That effectively gave the Saudis the chance to build inventories as supply outpaced demand, Blanch said.
Beyond the time spreads, the response from the Saudis to weak prices has been measured.
"The Saudis seem to be perfectly complacent with the dropping oil price," he said.
For now, he expects a relatively healthy global economy will limit the losses, although a range of potential issues could derail that stability, said Blanch.
The Ebola virus, a disease that has already resulted in stepped-up airport security could curtail flights, and cut demand for jet fuel. -- Reuters
Kuwait says Opec unlikely to cut output to support prices
DUBAI/KUWAIT, 12 hours, 37 minutes ago
Opec is unlikely to cut oil production in an effort to prop up prices because such a move would not necessarily be effective, Kuwait's oil minister Ali Al Omair was quoted as saying by state news agency Kuna.
Oil ministers from the Organization of the Petroleum Exporting Countries (Opec) are scheduled to meet in Vienna on November 27 to consider whether to adjust their output target of 30 million barrels per day (mbpd) for early 2015.
"I don't think today there is a chance that (Opec) countries would reduce their production, especially since the target that Opec has given itself is 30 mbpd, which we have not reached until now," Omair said, according to Kuna.
Kuna also quoted Omair as saying $76-77 a barrel might be the level that would end the oil price slide, since that was the cost of oil production in the US and Russia.
He said cutting output would not necessarily prop up prices and indicated that oversupply in crude output was mainly because of an increase in production from Russia and shale oil from the US, Kuna cited him as saying.
"If we have something (to do) to preserve the stability of the prices or bring it back to previous levels, we would not hesitate in doing it, but it is known that this fall is not because of a decision taken by Opec," the minister said.
Some Opec countries are becoming more worried about the drop in oil prices and Venezuela has called on Opec to hold an emergency meeting to arrest the price slide.
The differing views within the 12-member group highlights a split between Saudi Arabia and its Gulf Arab allies and other members, such as Iran, who face greater budget pressures from sub-$100 a barrel oil.
In a monthly report issued, Opec said the more than $20-a-barrel price fall since the end of June reflected weak demand and ample supply, but echoed the view of core Gulf Opec members in saying winter demand would revive the market.
Opec left its forecasts for global oil demand growth unchanged and still expects an acceleration of demand growth in 2015. Total Opec output grew by 400,000 bpd to 30.47 mbpd, a rise led by Libya and Iraq.
Omair also said the oil price decline in recent weeks was expected, adding: "We are still able to adapt".
Oil prices are expected to rise "or at least to keep their current level" when seasonal demand pick up in winter, he said. -- Reuters
Iraq follows Saudis in oil price cuts for Asia, Europe
LONDON, 12 hours, 43 minutes ago
Iraq has cut its November oil prices for customers in Asia and Europe following a similar move by top global exporter Saudi Arabia as Opec producers compete for market share in the face of weaker global oil demand and prices.
Strong supplies and weak demand are forcing oil producers to lower prices, with Saudi Arabia - the world's largest crude exporter - cutting November prices for customers last week.
The move was largely interpreted as a move by the kingdom to launch a price war against fellow Opec members despite calls from some within the organization for action to cut output and shore up prices.
International benchmark Brent crude oil fell below $90 a barrel to near a four-year low due to weak demand and abundant supplies. -- Reuters
Privately, Saudis tell oil market: get used to lower prices
LONDON/NEW YORK, 12 hours, 47 minutes ago
Saudi Arabia is quietly telling oil market participants that Riyadh is comfortable with markedly lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the US shale patch.
Some of the Organization of the Petroleum Exporting Countries (Opec) members including Venezuela are clamouring for urgent production cuts to push global oil prices back up above $100 a barrel. But Saudi officials have telegraphed a different message in private meetings with oil market investors and analysts recently: the kingdom, Opec’s largest producer, is ready to accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.
The discussions, some of which took place in New York over the past week, offer the clearest sign yet that the kingdom is setting aside its longstanding de facto strategy of holding prices at around $100 a barrel for Brent crude in favour of retaining market share in years to come.
The Saudis now appear to be betting that a period of lower prices – which could strain the finances of some members of Opec – will be necessary to pave the way for higher revenue in the medium term, by curbing new investment and further increases in supply from places like the US shale patch or ultra-deepwater, according to the sources, who declined to be identified due to the private nature of the discussions.
The conversations with Saudi officials did not offer any specific guidance on whether - or by how much - the kingdom might agree to cut output, a move many analysts are expecting in order to shore up a global market that is producing substantially more crude than it can consume. Saudi pumps around a third of Opec’s oil, or some 9.7 million barrels a day.
Asked about coming Saudi output curbs, one Saudi official responded "What cuts?", according to one of the sources.
Also uncertain is whether the Saudi briefings to oil market observers represent a new tack it is committed to, or a talking point meant to cajole other Opec members to join Riyadh in eventually tightening the taps on supply.
One source not directly involved in the discussions said the kingdom does not necessarily want prices to slide further, but is unwilling to shoulder production cuts unilaterally and is prepared to tolerate lower prices until others in Opec commit to action.
OPEC ANGST
With most other members of the group unable or unwilling to reduce their own output, the group's next meeting on November 27 is set to be its most difficult in years. Opec has agreed to cut production only a handful of times in the past decade, most recently in the aftermath of the 2008 financial crisis.
Venezuela - one of the group's most price-sensitive members - became the first to call openly for emergency action even earlier. Foreign Minister Rafael Ramirez said "it doesn't suit anyone to have a price war, for the price to fall below $100 a barrel."
Ali Al Omair, oil minister of Saudi Arabia's core Gulf ally Kuwait, appeared to be the first to articulate the emerging view of Opec's most influential member, saying output cuts would do little to prop up prices in the face of rising production from Russia and the US.
"I don't think today there is a chance that (Opec) countries would reduce their production," state news agency Kuna quoted him as saying.
Omair said that prices should stop falling at around $76 to $77 a barrel, citing production costs in places like the US, where a shale oil boom has unexpectedly reversed dwindling output and pushed production to its highest level since the 1980s.
Saudi oil officials have made no public comments on the deepening swoon in markets. Senior officials did not reply to questions from Reuters about recent briefings.
DON'T BE SURPRISED BELOW $90
Global benchmark Brent crude oil futures have fallen steadily for almost four months, dropping 23 per cent from a June high of over $115 a barrel as fears of a Mideast supply disruption ebbed, US shale production boomed and demand from Europe and China showed signs of flagging.
Until recently, Gulf Opec members have been saying that the price dip was a temporary phenomenon, betting on seasonal demand in winter to prop up prices. But a growing number of oil analysts now see the latest slide as something more than a seasonal downswing; some say it is the start of a pivotal shift to a prolonged period of relative abundance.
Rather than fight the decline in prices and cede market share in the face of growing competition, Saudi Arabia appears to be preparing traders for a sea change in prices.
The Saudis want the world to know that “nobody should be surprised” with oil under $90 a barrel, according to one of the people. Another source suggested that $80 a barrel may now be an acceptable floor for the kingdom, although several other analysts said that figure seemed too low. Brent has averaged around $103 since 2010, trading mostly between $100 and $120.
While the latest discussions are the bluntest efforts yet to signal the shift in Saudi strategy, early signs had already begun sending shivers through the oil market. In early October the kingdom cut its official selling prices more sharply than expected in a bid to maintain customers in Asia, widely seen as the opening shots in a price war for Asian customers.
“Riyadh's political floor on oil prices is weakening," Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, wrote in a note to clients following a trip to Saudi last month.
McNally said he is not aware of any specific Saudi price or timing strategy, but told Reuters that Saudi Arabia "will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the US shale oil sector.”
As that message began to dawn last week, the price rout quickened, with Brent lurching to its lowest level since 2010.
“Until about three days ago the absolute and total consensus in the market was the Saudis would cut," said McNally. That is no longer a foregone conclusion, he said. "The market suddenly realises it is operating without a net." -- Reuters
Oil price: Saudi Arabia prepares market for lower prices
Saudi Arabia has been "quietly telling" fellow oil producing nations to prepare for an extended period of significantly lower prices, in a move designed to halt the advance of rivals, such as shale gas producers, Reuters reports.
Unnamed sources, who declined to be named due to the confidential nature of the discussions, said that Saudi officials have made it clear to oil market investors and analysts that they may be willing to accept oil prices below $90 per barrel and potentially even as low as $80 per barrel.
The move indicates that the kingdom, the largest oil producer in the Organisation of the Petroleum Exporting Countries (Opec), is ready to abandon its longstanding strategy of regulating supply to hold the price of oil at around $100 per barrel in favour of a new scheme designed to maintain market share in the face of increasing supply from the shale oil and gas boom and ultra-deepwater explorations.
Sources suggested that the policy of controlling supply could be about to change and that Saudi officials had not made it clear whether they had any plans to cut production. In July, Saudi Arabia pumped a third of Opec's total output, around ten million barrels of oil a day, but in August the Gulf nation cut production by around 400,000 barrels to 9.6 barrels per day – a move possibly designed "to keep global supply in check and support prices", the Financial Times says.
When asked whether the country would respond to calls from other Opec members clamouring for further production cuts to push global oil prices back up above $100 a barrel, one Saudi official responded "what cuts?" Reuters reports.
Meanwhile, the United States is expected to become the world's largest producer of liquid petroleum this week, supplanting Saudi Arabia at the top of the table first time in 20 years, says The Times.
The swift rise of shale oil and gas in America has seen output increase from about eight million barrels a day in 2011 to almost 12 million barrels today.
Doubts remain, however, as to whether the US will be able to maintain its position ahead of Saudi Arabia. Unlike traditional wells that may produce oil for years, shale gas tends to tail off very swiftly, the Times notes.
"The idea that the US will be able to sustain much higher production than the Saudis is yet to be proven," said Richard Mallinson, an analyst at Energy Aspects, a research firm based in London. ·
COLUMN-The Saudi oil enigma: Kemp
By John Kemp
Oct 14 (Reuters) - "I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma," Winston Churchill told his listeners in a radio broadcast in October 1939.
Much the same can be said about Saudi Arabia - one of the most compulsively secretive countries in the world at the start of the 21st century.
Almost nothing is known about how the kingdom's rulers reach decisions on political and economic reform, foreign policy and oil market strategy (or indeed about anything else).
Outsiders are strongly discouraged from enquiring into matters of long-term policy and how decisions are made.
The kingdom's rulers have a communications strategy, reaching out privately to friendly journalists, analysts and other opinion formers.
But for the most part it is deployed to shut down discussion and speculation they consider unhelpful rather than to convey or explain the context for long-term policy and strategy decisions.
In almost 20 years of writing about oil markets and the Middle East I have not come across anyone who could consistently offer a deep insight into the government's policymaking.
MYTHS ABOUT OIL POLICY
In the absence of hard information, plenty of theories have grown up around Saudi Arabia's strategy in the oil market, most of which contain some truth but are often incomplete or misleading.
The first myth is that there is a "grand bargain" in which Saudi Arabia provides a secure, reliable and affordable oil supply in exchange for a U.S. security guarantee.
This myth conveys an essential truth but does not help much in understanding the complex relationship between the world's largest oil exporter and its greatest military power.
Saudi Arabia and the United States have enjoyed a uniquely close relationship ever since the kingdom chose to sign a concession agreement with the Standard Oil Company of California in 1933 and King Abd al-Aziz met President Franklin Roosevelt on board on the U.S.S. Quincy in the Suez Canal in 1945 ("King Faisal of Saudi Arabia: personality, faith and times" 2012).
U.S. petroleum engineers and geologists developed the kingdom's oil industry throughout the 1940s, 1950s and 1960s. The United States has had a discreet military presence since 1946 and the two countries were close allies throughout the Cold War in opposing the spread of communist influence through the Middle East.
More recently, the two countries found common cause opposing Iran's revolutionary government following the overthrow of the shah and were allied throughout the Iran-Iraq war and both the first and second Gulf Wars.
But the overall closeness of the relationship did not prevent them ending up on opposite sides during the Six Day and Yom Kippur wars, or the Saudis imposing an oil embargo on the United States in 1973, and the kingdom has pursued a contradictory line to the United States following the Arab revolutions that erupted in 2011 ("The caravan goes on: how Aramco and Saudi Arabia grew up together" 2013).
More generally, the close military and strategic links have not translated into an agreement on oil prices and production: it is emphatically not the case that pricing policy is the result of discreet negotiations between Washington and Riyadh. To their chagrin, a succession of U.S. presidents has discovered the limits of their influence over the Saudis when it comes to oil prices and production.
QUESTIONS ABOUT CAPACITY
Diplomats and even some economists often assert Saudi Arabia upholds its part of the bargain, in part, by holding spare production capacity with which to meet disruptions in oil supplies from other producers. Only Saudi Arabia has the financial capability and the foresight to invest in spare capacity to help stabilise global oil prices.
The problem is that there is almost no evidence to support this claim. Since the kingdom's exports peaked at almost 10 million barrels per day in 1980, most of the spare capacity has been in the form of reduced output from older fields as new ones have come onstream.
Most spare capacity appears to have been the result of past errors in forecasting oil demand and efforts to increase the amount of oil eventually recovered by lowering production rates from ageing fields like Ghawar to sustain reservoir energy and prevent water inundating the wells while bringing on new fields like Manifa.
Nearly all of the kingdom's reported spare capacity has followed a downturn in prices and demand, notably during the 1980s and 1990s, which suggests that capacity is the result of planning errors rather than deliberate policy.
There is no evidence that Saudi Arabia has deliberately developed large new fields simply to allow them to left idle "just in case" there is a supply interruption elsewhere in the world.
RELUCTANT SWING PRODUCER
Saudi Arabia is often described as the oil market's "swing producer", a role which senior policymakers are said to dislike after the trauma of seeing exports shrivel from almost 10 million barrels per day in 1980 to less than 3 million in 1985.
But if Saudi Arabia once played that role, it does so now to a much smaller extent, if at all.
According to the BP Statistical Review of World Energy, Saudi Arabia's share of world oil production has been remarkably stable at around 12-13 percent and at about 30-35 percent of OPEC output since the mid-1990s (link.reuters.com/sam23w).
Some observers have suggested Saudi Arabia has stepped in to fill the supply gap left by sanctions on Iran and the turmoil which has cut output from Libya, Sudan and Syria.
But Saudi exports have remained broadly stable since 2011, and are essentially unchanged since 2003-4. U.S. shale oil, not Saudi Arabia, has filled the supply gap (link.reuters.com/vam23w).
The kingdom is sometimes likened to a central bank managing the global oil market, adding or withdrawing supplies to control prices. But that vastly overstates the degree of influence, let alone control, which the kingdom can really exercise over the market.
In the short term, the Saudis, acting in concert with close allies Kuwait and the United Arab Emirates or OPEC as a whole, may exercise a mild restraining influence on price movements.
But there is no evidence that Saudi Arabia, or OPEC, has had a decisive impact on medium and long-term price trends. The big price movements of the last 30 years have all originated outside the cartel ("OPEC: 25 years of prices and politics" 1988).
LIMITS OF OPEC'S INFLUENCE
OPEC members accounted for just over 50 percent of world oil production in 1973. In recent years that share has been as low as 40 percent.
The big movements in prices have been the result of production trends in countries outside OPEC, whether the development of Alaskan, Russian, Chinese and North Sea oil in the late 1970s and through the 1980s, or the shale revolution in the United States since 2008.
"Unless it controlled the world's entire production, OPEC could not possibly maintain the new status quo forever," one historian wrote of the cartel's difficulties in the mid-1980s ("A century in oil: the Shell transport and trading company" 1997).
OPEC has never come anywhere near that degree of control since the mid-1970s. It can slow the rate at which prices move by adding or removing some barrels from the market, but there is no evidence that Saudi Arabia or OPEC can choose the level of prices or guide the market to a particular level and keep it there.
The Saudis themselves seem aware of their limitations. In the last two decades, pricing and production policy appear to have been geared to maintaining market share rather than grander strategic aims which are the stuff of international relations specialists (such as bankrupting Iran and Russia, stifling the U.S. shale revolution, or strengthening ties with the United States).
REALISM ABOUT LOWER PRICES
The recent drop in Brent oil prices below $100 per barrel has encouraged much speculation about whether Saudi Arabia would respond by cutting production, either on its own or as part of a wider package of agreed reductions within OPEC.
Saudi officials have tried to squash the rumours in a series of meetings with customers and market analysts over the past week, Reuters reported on Monday ("Privately, Saudis tell oil market: get used to lower prices" Oct 13).
There is a widespread view Saudi Arabia might permit prices to trade below $100 per barrel, and perhaps even below $90 or $80, for an extended period to curb the amount of shale drilling in the United States as well as investment in high cost production outside OPEC such as deepwater off the coasts of Africa and Latin America.
In practice, the kingdom has little choice but to follow this course. Oil prices above $100 appear unsustainable because they incentivise too much growth in shale production as well as high-cost offshore drilling, and because they are encouraging too much conservation, efficiency and substitution.
If Saudi Arabia, with or without OPEC support, cut its own output in a bid to keep prices high, it would be buying a temporary reprieve on prices but only at the expense of market share. With the shale boom continuing, and demand stagnant, any reprieve could only be temporary. In a few months or a year, Saudi Arabia and OPEC would need to cut again, and again.
Ultimately, Saudi Arabia and OPEC would end up with a combination of lower market share and lower prices, the worst of all outcomes, just as they did in 1985. The best strategy for the Saudis, indeed the only effective one, is to allow prices to fall until the market rebalances naturally, with slower growth in shale and bigger increases in demand.
Allowing prices to fall is not a matter of choice but necessity. If the Saudis, and OPEC, choose to trim their output slightly in the months ahead, it would be an attempt to smooth the process of adjustment, not arrest it. (Editing by William Hardy)
Saudis To The Oil Market: Get Used To Lower Prices
LONDON/NEW YORK (Reuters) - Saudi Arabia is quietly telling the oil market it would be comfortable with much lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch.
Some OPEC members including Venezuela are clamoring for production cuts to push oil prices back up above $100 a barrel.
But Saudi officials have given a different message in meetings with investors and analysts: the kingdom, OPEC’s largest producer, will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.
The discussions, some in New York over the past week, offer the clearest sign yet that the kingdom is setting aside its longstanding de facto aim of holding prices at around $100 a barrel for Brent crude
The Saudis appear to be betting lower prices – which could strain the finances of some members of the Organization of the Petroleum Exporting Countries – will be necessary to pave the way for higher revenue in the medium term, by curbing new investment and further increases in supply from places like the U.S. shale patch or ultra-deepwater, according to the sources, who declined to be identified due to the private nature of the discussions
The conversations with Saudi officials did not offer any specific guidance on whether - or by how much - the kingdom might agree to cut output, a move many analysts are expecting in order to shore up a global market that is producing substantially more crude than it can consume. Saudi Arabia pumps around a third of OPEC’s oil, or about 9.7 million barrels a day.
Asked about coming Saudi output curbs, one Saudi official responded "What cuts?", according to one of the sources.
Also uncertain is whether the Saudi briefings to oil market observers represent a new tack it is committed to, or a talking point meant to cajole other OPEC members to join Riyadh in eventually tightening the taps on supply.
One source not directly involved in the discussions said the kingdom does not necessarily want prices to slide further, but is unwilling to shoulder production cuts unilaterally and is prepared to tolerate lower prices until others in OPEC commit to action.
With most other members of the cartel unable or unwilling to reduce their own output, the group's next meeting on Nov. 27 is set to be its most difficult in years. OPEC has agreed to cut production only a handful of times in the past decade, most recently in the aftermath of the 2008 financial crisis.
On Friday, Venezuela - one of the cartel's most price-sensitive members - became the first to call openly for emergency action even earlier. Foreign Minister Rafael Ramirez said "it doesn't suit anyone to have a price war, for the price to fall below $100 a barrel".
On Sunday, Ali al-Omair, oil minister of Saudi Arabia's core Gulf ally Kuwait, appeared to be the first to articulate the emerging view of OPEC's most influential member, saying output cuts would do little to prop up prices in the face of rising production from Russia and the United States.
"I don't think today there is a chance that (OPEC) countries would reduce their production," state news agency KUNA quoted him as saying.
Omair said that prices should stop falling at around $76 to $77 a barrel, citing production costs in places such as theUnited States, where a shale oil boom has unexpectedly reversed dwindling output and pushed production to its highest level since the 1980s.
Saudi oil officials have made no public comments on the deepening swoon in markets. Senior officials did not reply to questions from Reuters about recent briefings.
DON'T BE SURPRISED BELOW $90
Global benchmark Brent
Brent fell below $88 a barrel on Monday, hitting its lowest in almost four years, after news of the Saudi and Kuwaiti statements.
"In light of these comments, one should not expect any OPEC output cuts before the Nov. 27 meeting," said Bjarne Schieldrop, chief commodity analyst at SEB in Oslo.
An OPEC delegate from outside the core Gulf Arab group said he did not think OPEC would cut output at the November meeting but added he believed the Saudis should cut output unilaterally:
"The question should be posed to Saudi Arabia"
The growing difference in opinions means OPEC is heading for its most tense meeting since mid-2011 when it failed to agree on an increase in output despite a loss of Libyan production
Until recently, Gulf OPEC members have been saying that the price dip was a temporary phenomenon, betting on seasonal demand in winter to prop up prices. But a growing number of oil analysts now see the latest slide as something more than a seasonal downswing; some say it is the start of a pivotal shift to a prolonged period of relative abundance.
Rather than fight the decline in prices and cede market share in the face of growing competition, Saudi Arabiaappears to be preparing traders for a sea change in prices.
The Saudis want the world to know that "nobody should be surprised” with oil under $90 a barrel, according to one of the people. Another source suggested that $80 a barrel may now be an acceptable floor for the kingdom, although several other analysts said that figure seemed too low. Brent has averaged around $103 since 2010, trading mostly between $100 and $120.
While the latest discussions are the bluntest efforts yet to signal the shift in Saudi strategy, early signs had already begun sending shivers through the oil market. In early October the kingdom cut its official selling prices more sharply than expected in a bid to maintain customers in Asia, widely seen as the opening shots in a price war for Asian customers.
"Riyadh's political floor on oil prices is weakening," Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, wrote in a note to clients following a trip to Saudi last month.
McNally said he is not aware of any specific Saudi price or timing strategy, but told Reuters that Saudi Arabia "will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the U.S. shale oil sector.
As that message began to dawn last week, the price rout quickened, with Brent lurching to its lowest level since 2010.
"Until about three days ago the absolute and total consensus in the market was the Saudis would cut," said McNally. That is no longer a foregone conclusion, he said. "The market suddenly realizes it is operating without a net."
(Additional reporting by Rania el Gamal in Dubai and Timothy Gardner in Washington; editing by Jonathan Leff, Christopher Johnson and Jason Neely)
Saudi Arabia's Oil Price 'Manipulation' Could Sink The Russian Economy
TOMAS HIRST
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Brent crude oil spot price.
The vice-president of Russia's state-owned oil behemoth Rosneft has accused Saudi Arabia of manipulating the oil price for political reasons. Mikhail Leontyev was quoted in Russian media as saying:
Prices can be manipulative. First of all, Saudi Arabia has begun making big discounts on oil. This is political manipulation, and Saudi Arabia is being manipulated, which could end badly.
The news comes as Reuters reports Saudi officials have been privately admitting to oil market participants that they are comfortable with lower oil prices. According to the news service, the Organization of the Petroleum Exporting Countries (OPEC) is willing to accept prices as low as $80 a barrel for as much as the next two years.
Falling prices are of particular concern to Russia. Russia needs high oil prices to buoy its economy. The country has seen its economic performance slow under the weight of sanctions over Ukraine and weakening domestic demand. The Russian Central Bank forecasts growth over 2014 to be a meager 0.4%, improving marginally to between 0.9%-1.1% in 2015.
The problem is that Russia's latest budget requires oil prices to average at least $100 a barrel in order to cover the government's spending promises. The government already needs to borrow around $7 billion from foreign investors next year and as much as 1.1 trillion rubles ($27.2 billion) from domestic investors. Given the country's sanctions-imposed isolation from international bond markets, any additional borrowing would be a big concern for policymakers in Moscow.
Finance Minister Anton Siluanov has already acknowledged that the budget forecasts for both Russian GDP growth and oil prices are "optimistic." During the Reuters Russia Investment Summit in September he was quoted as saying:
There are risks to economic growth rates. It is a rather optimistic forecast; there are risks to the oil price. Without a doubt, this and the next year we will have to try very hard to ensure the planned growth rates.
If the forecast growth fails to materialize and the oil price continues its slide it could force the Russian government into an embarrassing retreat on spending commitments and increase the country's economic woes.
How will shale oil producers react to the rout in oil prices?
The continued growth in US oil production has been one of the key factors moderating global oil prices over the past few years, seemingly mirroring unplanned oil production outages from other large oil producers affected by geopolitical problems. Shale oil production appearing to be more price elastic than from conventional wells. With oil prices (WTI) down by $20 per barrel since June to almost $85 per barrel will output now be similarly flexible in the face of price falls?
The cost of production is often thought to be the floor for many commodity prices, but in reality this may not be true, at least not in the short term. As a general rule of thumb, if prices start to fall below the 90th percentile in the cash cost curve then production is likely to be curtailed. However, there are numerous cases in the commodity world when a market price remained well below the cost of production for months or years at a time.
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Even if a particular mine or oil well is operating at a loss, there is a good chance it will continue to operate for some time. The primary reason for this is that it costs a significant amount of money to close and eventually re-open a mine or a well — so producers will tend to keep operating it for much longer than they would ideally want to. The question is will US shale oil producers react in the same way?
According to IMF estimates, oil from shale formations costs $50 to $100 a barrel to produce, compared with $10 to $25 a barrel for conventional supplies from the Middle East and North Africa. Estimates from Deutsche Bank suggest that as much as 40% of US shale oil production would become uneconomical below $80 per barrel.
Given this high cost business model many of US shale oil producers are likely to have hedged against oil prices falling below their marginal cost. Although this may delay a supply reaction, the length of the price protection clearly depends on how long it is in place. However, given that oil prices have been incredibly stable over the past few years this may have lured many into believing that oil prices would continue to stay high, forgoing price protection.
In contrast to conventional oil production, shale oil producers are likely to react much more rapidly to lower prices. Aside from the relatively low engineering and cost impact from curtailing output from a well relative to conventional oil production, the high level of leverage among US shale oil producers may also serve to hasten a supply reaction. The high depletion rate of shale oil wells has meant that producers have had to go on a drilling treadmill, funded largely by debt in order to maintain production volumes.
Investors have been beguiled by the US shale revolution and have ploughed billions into shale – $156 billion in 2014 alone according to estimates from Barclay’s. Of the 97 US energy exploration and production companies rated by S&P, 75 are rated as below investment grade. According to an analysis of 37 firms junk-rated exploration and production companies spent $2.11 for every $1 earned last year. With US interest rates set to increase in 2015, raising the cost of borrowing and lower oil prices reducing returns a switch in investor sentiment may yet force shale oil producers hand.
KURDISH OIL HITS 17 MILLION BARRELS
ANKARA — The Marshall Islands-registered crude oil tanker, the United Leadership, loaded with 1 million barrels of Kurdish crude oil left the southern Turkish port of Ceyhan on Monday, from where the Kurdistan Regional Government (KRG) started exporting oil on May 23. According to sources from the Turkish state-owned pipeline operator BOTAŞ, including this shipment KRG oil exports have hit 17 million barrels.
After months of negotiations between the Iraqi central government and the KRG, the parties have been unable to reach an agreement on the revenue sharing of exported oil. The United Leadership, which one of two tankers carrying Kurdish oil, became a symbol of the KRG's disputed steps to establish independent oil sales. Despite Baghdad and Washington continuing to oppose the sale of KRG oil to international markets via Ceyhan, Kurdish crude has managed to find buyers. However, due to international pressure, most of the buyers of Kurdish oil remain anonymous.
As opposed to other tankers, the United Leadership has been stationed off the Moroccan coast for almost four months while the United Kalavrvta has been stranded in international waters off the U.S. coast since August. However, last week the Marshall Islands-registered vessel transferred its cargo to another tanker off the coast of Malta and sailed toward Ceyhan for new cargo. Sources from the Ceyhan port management confirmed that the United Leadership left the port on Monday afternoon loaded with 1 million barrels of Kurdish crude.
A high-level source from BOTAŞ told Daily Sabah on Monday that including this shipment, the KRG has shipped a total of 22 tankers carrying 17 million barrels of crude oil since May 23 via Ceyhan. Sources from the pipeline operator also remarked that, on a daily basis, slightly more than 200,000 barrels of Kurdish oil continually flow to Ceyhan via the pipeline and the oil flow is not encountering any problems due to threat of the Islamic State of Iraq and al-Sham (ISIS) and other conflicts in the region.
Oil industry sources recently reported that the new Iraqi government and the KRG administration have reached a consensus to set up a commission for monitoring Kurdish oil exports to Turkey. Sector sources also believe that Kurdish forces' effort to help push back ISIS militants in Iraq could boost the prospects of a resolution to the long-running dispute between Baghdad and Irbil over oil exports and revenue sharing.
Platts Pre-Report Survey of Analysts’ EIA/API Estimates Suggests 2.5 Million-Barrel Build in U.S. Crude Oil Stocks
Crude oil stocks up 2.5 million barrels
Gasoline stocks down 1.6 million barrels
Distillate stocks down 1.8 million barrels
Refinery utilization, or run rate, down 0.54 percentage point to 88.76%
U.S. commercial crude oil stocks are expected to have increased 2.5 million barrels during the reporting week ended October 10, according to a Platts analysis and survey of oil analysts Monday.
The American Petroleum Institute (API) will release its weekly stocks data at 4:30 p.m. EDT (2030 GMT) Wednesday and the U.S. Energy Information Administration (EIA) is scheduled to release its weekly data at 11 a.m. EDT (1500 GMT) Thursday.
The EIA five-year average shows inventories have typically risen 410,000 barrels during this reporting week.
U.S. crude oil stocks are well-supplied by recent historical standards. The total U.S. crude oil inventory rose 5 million barrels the week ended October 3, led by record-high imports from Canada. At 361.7 million barrels, crude oil stocks were 2% above the EIA five-year average (2009-2013).
Analysts expect U.S. refinery utilization rates to have fallen 0.54 percentage point to 88.76%. EIA data showed U.S. refinery runs at 15.55 million barrels per day (b/d) the week ended October 3, which is about 1% above the five-year average.
Some refineries have delayed performing maintenance, instead choosing to continue processing crude oil to take advantage of relatively strong margins. Meantime, market sources said a crude oil unit restarted at ExxonMobil's 149,500 b/d Torrance, California, refinery over the weekend of October 4-5.
GASOLINE STOCKS SEEN FALLING
U.S. gasoline stocks likely were 1.6 million barrels lower the week ended October 10, according to analysts surveyed. The EIA five-year average shows inventories often decrease over this reporting week by 2.2 million barrels.
At 209.7 million barrels for the reporting week ended October 3, U.S. gasoline stocks were 1% below the five-year average of EIA data.
Gasoline stocks on the U.S. Atlantic Coast -- home to the New York Harbor-delivered New York Mercantile Exchange (NYMEX) RBOB contract -- were at 54.3 million barrels for the reporting week ending October 3, which is 1.1% above the EIA five-year average, after a 1.4 million-barrel increase.
U.S. distillate stocks are expected to have decreased 1.8 million barrels during the latest reporting week. The EIA five-year average shows U.S. distillate stocks typically fall 1.9 million barrels this reporting week.
One seasonal source of distillate demand comes from the agriculture sector, helping pull inventories lower.
"Despite lower prices for the grains market, they still need to harvest the fields," noted Carl Larry, president of Oil Outlooks.
"That said, I'm hearing that we're barely halfway through harvest and that's going to eventually give way to commercial demand for holiday sales: jet and diesel," he said.
The amount of distillates carried by vessels departing the U.S. for Europe fell 170,000 metric tonnes (mt) the week ended October 10 to 200,000 mt, according to Platts cFlow ship-tracking software.
Venezuela's PDVSA to import Urals crude from Russia for test runs: source
Caracas (Platts)--13Oct2014/452 pm EDT/2052 GMT
Venezuelan state-owned oil company PDVSA plans to import from Russia between 750,000 and 1 million barrels of Urals grade crude to be processed in the 335,000 b/d Isla refinery in Curacao, a PDVSA source, who asked not to be identified, said Monday.
"It is expected that the shipment will be available by mid-November," said the source.
The Urals crude will be used for testing in different manufacturing processes of products, according to the source.
"PDVSA is evaluating various options to revive crude complex lubricants," said the source.
The company also has plans to import some Saharan Blend crude from Algeria, both as diluent for heavy crude production in the Orinoco Belt and as a feedstock to restart the shuttered lubricants plant at the Curacao refinery, industry sources said in early September.
PDVSA has operated the Isla refinery since 1985 under a lease agreement with the government of Curacao. The lease has been renewed several times and which runs through 2019.
Crude futures close lower as spotlight on OPEC grows stronger
New York (Platts)--13Oct2014/429 pm EDT/2029 GMT
Crude futures settled lower Monday as price cuts from key OPEC members bolstered the view that these producers may choose to fight for market share instead of trimming output.
Front-month ICE November Brent closed $1.32 lower at $88.89/barrel, while NYMEX November crude settled 8 cents lower at $85.74/b.
In refined products action, NYMEX November ULSD settled 34 points lower at $2.5568/gal and front-month NYMEX RBOB finished 22 points lower at $2.2553/gal.
Saudi Arabia is understood to have indicated over the weekend, in private discussions, that it would be willing to accept prices at $90/b or lower for the next two years, analysts said.
Market chatter about Saudi Arabia's position was "sufficiently widespread" that it appeared to represent an "official leak," Citi Futures Perspective analyst Tim Evans said in a client note.
"In our experience, Saudi Arabia takes a longer-term view than other market participants, which adds some credibility to the idea that Saudi Arabia might take short-term pain for a longer-term gain of market share," he said.
A question moving forward is whether Saudi Arabia will make good on its intentions, or is it trying to exert influence over fellow OPEC members ahead of the bloc's next meeting, which is scheduled for November 27.
"This is the first time Saudi Arabia is targeting market share, but we'll have to wait and see if it is not just getting [OPEC] in line and flexing its muscle, or whether this really is a sea change," Matt Smith, an analyst at Schneider Electric, said.
Crude prices may continue to experience volatility for the next few weeks until greater clarity emerges on the Saudi position, he said, adding that support may be found for front-month NYMEX crude at $85/b.
The last time the front-month NYMEX crude contract settled below $85/b was in November 2012.
Iran, Iraq and the UAE have followed Saudi Arabia in cutting official crude selling prices.
Kuwait's oil minister said on Sunday that there was no need for OPEC to reduce supply flows. Ali al-Omair said a cut in OPEC production "may not necessarily boost prices" because of high output by other producers, especially Russia and the US.
Quoted by the official KUNA news agency, Omair said he believed that oil prices would not drop below $76-77/b, as that is the production cost in Russia and the US.
Nigeria issues permits to import 600,000 mt of gasoline for Oct
Lagos (Platts)--13Oct2014/836 am EDT/1236 GMT
Nigeria has issued supplementary permits for the import of 600,000 mt of gasoline in October, under the third quarter import program as Q4 allocations have yet to be approved, the state-owned downstream regulator Petroleum Products Pricing Regulatory Agency said Monday.
"The supplementary allocation was approved last week and it will be just for the month of October," a PPRA source said. Import permits for October were also issued in the June-July period, but the total volume of those allocations are unclear.
Another PPRA source said the supplementary allocations would serve as a stop-gap measure while the agency awaits final approval from the oil ministry for Q4 allocations.
Nigeria typically imports around 1 million mt of gasoline each month.
With the latest permits, local trading companies Oando, Conoil, Aiteo, NIPCO and Folawiyo Petroleum, each got allocations to import 90,000 mt of gasoline in October, the source said, adding that other small fuel marketers got permits to import 45,000 mt of gasoline each.
Africa's top crude oil producer usually aims at building gasoline stocks to the equivalent of 30 days' consumption to prevent shortages.
But domestic fuel supplies have dropped following declining capacity utilization at the four state-owned refineries.
Data released last week by state-owned Nigerian National Petroleum Corp. showed that the ailing refineries had operated at an average of 10.5% of their combined nameplate capacity of 445,000 b/d in June this year.
Only three of the four the refineries -- the two in Port Harcourt and one in Warri -- operated in June, NNPC data showed.
China to raise oil, gas upstream resource tax to 6% from 5% starting Dec 1
Singapore (Platts)--13Oct2014/746 am EDT/1146 GMT
China will raise the upstream resource tax on crude oil and natural gas to 6% from a current 5% although this will be offset by the abolition of the mining compensation fee, the government announced over the weekend.
In a notice issued Saturday, the Ministry of Finance and the State Administration of Taxation said the government will eliminate the mineral resource compensation fee and stop collecting other fees for the coal, oil and gas sectors starting December 1 this year.
In return, it is raising the resource tax on oil and gas to 6% and implementing a 2% to 10% rate on coal.
The government said the measure was aimed at unifying the tax systems in the mining sector.
China first introduced the existing oil and gas resource tax in 2011, overhauling the system to levy the tax based on selling price or value, rather than production volume of crude oil and natural gas.
The reform at the time was mainly aimed at energy and resource conservation.
The government had said the tax would start at 5% although this would be gradually raised to 10%.
The mineral resource compensation fee was introduced in the 1990s, assessed at 1% of sales revenues from oil and gas production, although foreign operators were exempt to encourage investment.
In 2012, the Ministry of Land and Resources reinstated the compensation fee on foreign companies involved in production sharing contracts signed after November 1, 2011.
Research house NSBO Beijing noted Monday that the increase in the oil and gas resource tax "will be totally offset" by the removal of the mineral resource compensation fee.
"Similar with the coal industry and others, it is part of a broader nationwide initiative to move from fees to taxes and remove some illegal or unnecessary fees," it said.
The oil and gas tax however will not be applied uniformly across China.
Preferential rates will be given to fields undergoing enhanced oil recovery -- through the use of polymer flooding, water flooding, carbon dioxide injection and other technologies -- and heavy oil and high sulfur oil and gas fields.
Similarly a lower tax rate will also apply on offshore fields lying in water depths of over 300 meters.
According to the circular issued by both ministries, Sinopec's high sulfur Puguang gas project in central Sichuan province will enjoy an effective resource tax rate of 3.6% while China National Petroleum Corp.'s Daqing project will see a new resource tax rate of 5.22%.
CNPC's listed subsidiary PetroChina paid Yuan 28.4 billion ($4.6 billion) in resource taxes last year, according to PetroChina's annual report.
Besides the upstream resource tax, oil companies in China are also subject to a range of taxes, including business and enterprise taxes, value added tax, consumption taxes on oil products and a crude oil special gain levy, effectively a windfall tax on crude oil when prices are over $55/barrel.
UK wholesale gas prices fall on higher Norwegian supply, temperature forecasts
London (Platts)--13Oct2014/903 am EDT/1303 GMT
UK wholesale gas prices fell in early Monday trading due to higher Norwegian gas imports than late last week and UK temperature forecasts being revised higher in the short term, with continuing falls in Brent crude oil prices acting as a bearish influence on the NBP curve.
National Grid gas demand forecasts at 10:00 am London time were 207 million cubic meters, 11 million cu m above the seasonal norm, but physical flows were seen at 203 million cu m despite no gas being withdrawn from UK gas storage facilities.
Within-day gas prices were seen trading at 49.50 pence/therm at 11:00 am, down on Friday's close of 51 p/th -- day-ahead gas was changing hands at 49.30 p/th, a 1.35 p/th drop from the previous assessment.
Norwegian gas imports via the Langeled pipeline have recovered after having fallen at the end of last week due to an unplanned outage, which has now been resolved according to Gassco.
Flow rates from the Norwegian continental shelf via Langeled Monday morning were at 67 million cu m/day compared with Friday afternoon flow rates of below 40 million cu m/d.
UK gas production nominations for Monday were 82 million cu m according to Platts unit Bentek Energy, well up on the figure from Friday of 67 million cu m, with higher flows out of the St Fergus terminal in northeast Scotland.
LNG sendout nonetheless has dropped further, with only the South Hook LNG terminal active Monday morning with sendout rates down at 5 million cu m/d despite the Mozah Qatari LNG tanker having berthed at the terminal over the weekend.
Storage withdrawals were seen from the Holford medium-range facility overnight, however these ceased at 6:00 am Monday.
The UK's largest gas storage facility Easington Rough suffered from an unplanned outage over the weekend, with Centrica Storage reporting that injections may be at zero for up to two weeks, although Rough is currently 99.9% full according to National Grid data.
Flows between the UK and continental Europe are weighted towards UK imports Monday, with Interconnector export nominations at 7 million cu m according to IUK at 10 am compared with BBL imports running at 12 million cu m/d at the same time.
Met Office temperature forecasts suggest that temperatures are set to fall Tuesday, but will rise steadily heading toward the weekend with 19 degrees Celsius forecast for London Friday.
The NBP curve has dropped lower due to the weaker spot and further losses on the Brent crude front-month contract -- November 14 was seen trading at 54.025 p/th against the previous close of 54.90 p/th with Summer 15 valued at 52.75 p/th, near to the record low of 51.85 p/th, according to Platts data.
Texas leads US in gas production, employment: report
Houston (Platts)--13Oct2014/502 pm EDT/2102 GMT
Texas' pro-energy industry stance has resulted in the state once again leading the nation in oil and gas production, jobs and other economic benefits last year, according to a report issued by the Texas Independent Producers and Royalty Owners Association.
Total natural gas production for the state was 8.3 Tcf (22.74 Bcf/d) in 2013, compared with 8.2 Tcf (22.47 Bcf/d) the previous year, according to the 33-page State of Energy Report, which measures energy production and economic trends for the Lone Star State and the US as a whole.
"The second-largest producer of natural gas in 2013 was Pennsylvania with 3.3 Tcf (9.04 Bcf/d), followed by Alaska with 3.2 Tcf (8.77 Bcf/d)," the report said.
Texas also led the nation in total crude production with 923 million barrels in 2013, an increase of 198 million barrels compared with 2012.
The second-largest producer of oil in 2013 was North Dakota with 313 million barrels, followed by California with 199 million, the report said.
"Texas leads the country in employment and production, due in part to our pro-business environment and progressive, yet sensible approach from a legislative and regulatory perspective," TIPRO President Ed Longanecker said in a statement.
The US oil and gas industry contributed to job growth in Texas and across the US, the report said. The industry employed 1,012,800 in 2013, an increase of 3%, or 30,800, from the previous year.
Additionally, industry job growth throughout the US continued to rise in the first quarter of 2014, adding an additional 12,400 jobs, for a total of 1,025,200, according to a supplemental report, which TIPRO released and which provides updated employment data for the first quarter.
The lion's share of the energy industry job growth occurred in Texas, where oil and gas industry employment totaled 411,600 in 2013. This represented an increase of 23,100 jobs from 2012 levels, representing 75% of all new jobs created by the oil and natural gas industry last year.
Texas was followed by the other states with thriving exploration and production industries, including North Dakota, which added 2,100 industry jobs; Oklahoma, 1,800 jobs; and New Mexico, 1,700 jobs, the report said.
Employment growth continued in Q1 for many leading oil- and gas-producing states. Texas again led the country, adding another 2,400 jobs in Q1, for a total of 414,000; followed by Colorado, 2,200 jobs; North Dakota, 1,900 jobs: New Mexico, 1,200 jobs; and Oklahoma, 820 jobs.
The report found that on the national level, the oil and gas industry paid an annual average wage of $103,400 in 2013, 108% more than the average private sector wage and higher than average wages for construction, manufacturing, health care and other industries. Payroll in the US oil and gas industry totaled $105 billion in 2013, an increase of 1% from 2012.
The report goes on to decry attempts to impose additional regulatory restrictions on the industry, claiming that proposed environmental rules, particularly those of the federal government, threaten to kill the goose that is laying the economic golden eggs.
"A number of state and federal issues threaten to slow progress and stifle economic growth," TIPRO said.
The report also blasted attempts by municipalities to impose local bans or moratoria on oil and gas drilling or hydraulic fracturing.
Longanecker claimed that such bans would "only result in more litigation, loss of jobs and income for mineral owners, higher taxes, and an increased financial burden for city government."
He blamed "radical groups" as being behind these efforts in an attempt to stymie the industry's continued growth.
Sharon Wilson, a North Texas environmental activist and organizer with Earthworks, took issue Monday with Longanecker's assertion that outside groups were driving anti-fracking efforts across the country, saying the industry's own missteps led to the creation of the nationwide anti-fracking movement.
"This industry is stuck on stupid. They keep doing the same things that bring them these problems," Wilson said.
She pointed to the North Texas city of Denton, where voters next month will vote on an ordinance to ban fracking, the first such ban to be proposed in Texas.
"This is an industry that refuses to follow any rules," she said. "What's happening in Denton is their own fault because they have refused to follow even the most sensible reasonable rules and regulations."
North Sea sweet crude oil differentials recover amid flat-price sell-off
London (Platts)--13Oct2014/833 am EDT/1233 GMT
Behind the bearish headlines on global oil market fundamentals, many North Sea sweet crude grades are staging a recovery to their highest in several months, driven by improved refining margins and higher freight costs for rival imported grades.
Ekofisk reached Dated Brent plus $0.365/b Friday, its highest since late July, while Oseberg was assessed at Dated Brent plus $0.565/b, its highest since July 1, according to Platts data.
Less buying from alternative regions to the North Sea has played a part in supporting the North Sea market, traders said.
"High freight from West Africa is basically directing the attention of buyers to local grades," one trader said Monday. "And the Mediterranean has been very quickly traded. Saharan blend, which is a nice replacement for Ekofisk, is almost done, probably just some cargoes at the back end of the month left."
A tight Mediterranean sweet market has meant fewer incoming cargoes to Northwest Europe, but has also seen North Sea fixtures into the Mediterranean.
The Kilimanjaro Spirit was heard fixed to carry Oseberg to Cartagena, Spain, where Repsol's refinery is currently in partial maintenance.
The Oseberg fixture is unusual as Ekofisk, a more well-known grade internationally, more commonly goes to the Mediterranean.
Prompt refining margins remain very good, according to traders, led by a strong light ends complex, which has boosted demand for naphtha-rich grades such as Ekofisk over the last month.
However, momentum on sweet North Sea grades may be fading, as traders point to worsening margins in the last few days.
"Margins are coming off, especially with fuel oil and naphtha being the biggest losers," the trader said.
Another trader said he thought the recovery of North Sea sweet grades was "a shorter term phenomenon. And we correct back down."
China's September crude oil imports rise 7% on year to 6.74 mil b/d, exports fall to nil
Singapore (Platts)--13Oct2014/1251 am EDT/451 GMT
China's crude oil imports in September rose 7.4% year on year to 27.58 million mt or an average 6.74 million b/d, the second highest on record, preliminary data released Monday by the General Administration of Customs showed.
Crude imports were last higher in April this year, when it averaged 6.81 million b/d. The volume last month was also up 13.1% compared with August.
The growth rate in September however, eased from the 26% year-on-year surge seen in the same month of 2013 on the back of a low base in September 2012.
Over the first three quarters of this year, China's total crude imports were up 8.3% year on year to 228.5 million mt, or an average of 6.14 million b/d, according to the data.
The year-on-year growth rate outpaces the 5.3% seen over Q1-Q3 last year.
GROWTH EASING IN RECENT MONTHS
The higher crude imports this year have been attributed to expanded refining capacity as well as the need to build both strategic and commercial stocks, analysts have said.
The decline in crude prices since the peak in mid-June this year, when Dated Brent was around $115/barrel, has also supported buying.
However, the growth in China's appetite for imported crude has eased in recent months.
In the third quarter alone, China's crude imports averaged 6.1 million b/d, rising 4.6% year on year. This compares with a 12.1% increase in the second quarter and 8.3% expansion in Q1.
According to Platts ship tracking software cFlow, at least 61 VLCCs arrived in China to discharge crude last month.
Among the total arrivals were at least two VLCCs and two Suezmaxes from Iran as well as a Suezmax from the Russian port of Novorossiisk, where Russia's Urals and Kazakhstan's CPC blend crude are loaded.
One VLCC from the UK's Hound Point Terminal in Scotland, where North Sea Forties Blend crude is loaded, also arrived in Tangshan in northern China early in September.
China did not export any crude oil in September.
Crude outflows have only occurred in January, February and August this year, bringing year-to-date volumes to just 360,000 mt, a 72.7% drop from January to September last year.
China's net crude imports therefore have risen 8.8% over the same period to 6.13 million b/d.
NET OIL PRODUCTS IMPORTER IN SEP
Meanwhile, China's oil product imports tumbled 18.8% year on year to 2.47 million mt in September while outflows edged up 0.5% to 2.15 million mt.
This means China was still a net importer of oil products in September, although net imports at 320,000 mt were 64.4% lower than a year earlier.
The drop in imports was partly due to a decline in fuel oil inflows.
Imports of No.5-7 fuel oil totaled 1.17 million mt in September, declining 17.6% year on year and 18.8% month on month, the customs data showed.
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.
From January to September, total oil product imports slid 27.4% year on year to 22.13 million mt, with No. 5-7 fuel oil imports falling 26.5% to 13.39 million mt, the data also showed Monday.
Oil product exports over the first nine months of the year fell 0.4% to 21.27 million mt, meaning China's net oil product imports were just 860,000 mt over the same period.
This is a huge 90.6% drop in net oil product imports from the first three quarters of 2013.
Detailed customs data, including imports and exports for other oil products, as well as output data from the National Bureau of Statistics, including refinery runs, is expected to be released next week.
Four Lessons the EU Should Learn about Energy Security
Diversification of gas supply has been a strategic priority for the European Union since its dependence on imports began to grow in the early 2000s. The crisis in Ukraine has heightened concerns that the flow of Russian gas passing through this country may be interrupted and has reignited calls for dependency on Russian gas to be reduced. As a new European Commission takes over energy policy in Brussels, it is worth examining the lessons the EU ought to learn from the Southern Gas Corridor project, which for a decade was seen as key to enhancing energy security.
As late as 2013, the Southern Gas Corridor was regarded, at least by the EU commission, as synonymous with the Nabucco pipeline project. Nabucco, named after the Verdi opera which tells the story of a Babylonian king who converted to Judaism after being outmanoeuvred by his Hebrew captives, was conceived in 2002 as a way to link the EU gas market to the world’s largest gas deposit in the Caspian/Middle East basin. The project was led by a consortium of six energy-buying companies, from Austria, Hungary, Bulgaria, Romania, Turkey and Germany.
At its most ambitious, the Nabucco pipeline was to span more than 3,900km, cross five countries and bring 33 billion cubic metres of gas a year to the EU from Azerbaijan, Turkmenistan, Iraq and Iran – some 8 per cent of EU’s gas demand at the time. With the EU importing about 120 billion cubic metres of gas a year from Russia, of which 25 per cent passes through Ukraine, the commission saw Nabucco as the silver bullet that would eliminate Europe’s dependencies as to route and source of gas. If only things were that simple.
Encouraged by the United States, the commission ignored all concerns about the bankability of the project. It insisted that the consortium own the pipeline along the entire route from the eastern borders of Turkey via Bulgaria, Romania and Hungary to Baumgarten an der March in Austria. In July 2009, an inter-governmental agreement was signed between Austria, Hungary, Bulgaria, Romania and Turkey under which Ankara agreed that the part of pipeline going through its territory would be governed by EU law, a key requirement of the EU.
The commission never hid its preference for Nabucco over other possible projects. In December 2003 it gave it a generous grant towards the cost of the feasibility study. It appointed a Nabucco coordinator in 2007 to secure political support. Everything changed, however, in November 2011. The commission was taken by surprise when Azerbaijan and Turkey agreed to transport Azeri gas to the EU-Turkish border via a new pipeline or through the existing network of Botas, the Turkish gas company. The following year, the two countries signed an agreement to create a Trans-Anatolian Pipeline (Tanap) under which 6 billion cubic metres a year of gas from the Shah Deniz 2 field in Azerbaijan was to flow to Turkey and only 10 billion cubic metres a year to the EU. The Southern Gas Corridor now had a non-EU element to which no EU gas buyer was a party. Moreover, under this agreement Turkey was granted a right to buy any additional Azeri gas that became available in the future.
Outmanoeuvred, like the protagonist of the eponymous opera, the now considerably shrunken Nabucco project was renamed Nabucco West – since it now started on the Turkey’s western border with Bulgaria.
By this point in time other commercially driven projects, including the Trans-Adriatic Pipeline (TAP), which planned to transport gas from Turkey’s western border to Italy, were quite advanced in their negotiations with the Shah Deniz 2 consortium. The commission, however, still continued to back Nabucco West.
Outmanoeuvred again
Both Nabucco and the commission insisted the Shah Deniz 2 consortium should prefer Nabucco West. They argued that it had two key advantages: the first was that the 2009 inter-governmental agreement provided the most advanced legal framework. The second that Nabucco had been granted an exemption from having to offer third parties access to 50 per cent of the pipeline under the Second Energy Package in 2008.
However a shrunken and delayed project meant that these needed to be revisited: Turkey, which had been party to the 2009 agreement, was no longer involved; the entry points named were on the wrong border of Turkey, its eastern side; and the exemption granted to the consortium needed to be extended and updated in view of the adoption of the Third Energy Package. Fearing mistakenly that such a revisit would weaken Nabucco West, the commission resisted doing so.
On May 17, 2013, less than a month before the Shah Deniz 2 consortium was to announce which pipeline would transport its gas to the EU, the commission extended the exemption to Nabucco West in an attempt to address these concerns. By then, TAP had become the front runner in the race. And in early June the Shah Deniz 2 consortium duly announced that TAP would transport its gas to the EU.
Lessons to be learnt
There are four lessons that ought to be learnt. First, despite the commission’s efforts, in the end the project that made more sense commercially won out. The BP-Azerbaijan executive responsible for developing the Shah Deniz 2 gas field, vicepresident Al Cook, described TAP as ‘significantly more efficient than Nabucco-West from a gas price and tariff point of view’.
The commission must learn that its role is solely to ensure a stable legal framework and provide a level playing field for energy companies to operate in.
The second lesson is that any future pipeline project to bring gas to Europe will need to be supplier-led. The Shah Deniz 2 consortium, which includes some of the largest gas suppliers, now has a stake in TAP and Tanap. The idea that a pipeline owned by buyers of gas could be bankable was unrealistic from the start.
Third, an energy project needs a well-defined legal framework. The expectation that energy companies looking to invest more than €40 billion to bring gas from Azerbaijan would accept the risk associated with the legal fudges in the 2009 intergovernmental agreement suggests a lack of understanding of how companies operate in a non-digiriste market.
Fourth, it must be acknowledged that the Southern Gas Corridor has not achieved the objective of diversifying routes and sources of gas. Only 10 billion cubic metres of Azeri gas is expected to arrive in the EU from 2019 onwards. This is less than a third of what was promised when the project was first developed and represents about 2 per cent of the EU’s current demand. Future EU energy strategy must be based on commercially reliable and viable assessments.
It is unclear, however, whether any of these lessons have been or will be heeded. Recently calls were made for an Energy Union – a ‘single European body charged with buying its gas’ – to be set up. Similar calls were made in 2010. At that time they were dismissed as incompatible with EU competition law
The Ukraine crisis is being invoked as justification for such a union. Some argue that the EU is on the brink of war and that an Energy Union is justified as an emergency measure. However, data from Platts-Bentek, the energy information provider, shows that the Ukraine crisis has had no effect on the price of gas in the EU. Russia’s share of gas imports to the EU has, in fact, increased in 2014, as it has stepped in to cover shortfalls in deliveries from Norway and Algeria.
One can only wonder, then, why the incoming commission president, Jean-Claude Juncker, is appointing a commissioner for the Energy Union. To those of us who grew up under communism, he seems to be toying once again with an idea that smacks of a centrally planned economy.
If the EU adopts this approach, it is difficult to see how it will attract the €1 trillion worth of investments in energy infrastructure that it says are needed by 2020 to achieve energy security and ensure economic growth. EU energy law and policy must not be allowed to become a deterrent to energy investment.
Ana Stanič is an English solicitor advocate and an Honorary Lecturer at the Centre of Mining and Natural Resources at the University of Dundee. The article was first published in The World Today, the Chatham House magazine www.theworldtoday.org
Why drop in oil prices could squeeze US economy
If you're a driver, a shipper or an airline, low oil prices sure feel nice. But there are downsides to the recent plunge in oil prices—for the oil industry and for the economy.
Low fuel prices can help boost economic growth by reducing fuel bills and leaving consumers and companies with more money to spend on other things. Problem is, two factors behind the oil-price drop—a weaker global economy and a stronger dollar—could hurt the U.S. economy by reducing exports, employment and spending. And all that, in turn, could outweigh the economic benefit of cheaper fuel.
"Initially, (a lower oil price) will provide a boost to an economy that already has some momentum," says Diane Swonk, chief economist at Mesirow Financial. "It's like a tax cut. The problem is that it will come back to haunt us in 2015."
A boom in U.S. oil production has helped sharply reduce dependence on foreign oil, a result of drilling in some of the highest-cost areas on earth. Drilling in areas of North Dakota and Texas, for example, produces only a slight output per day. If prices fell further, drilling would have to slow because it would no longer be profitable.
Oil hasn't fallen quite far enough for that to happen, analysts say. Even the more expensive drilling operations are still profitable when oil sells for $85 a barrel, near where oil traded Monday. In general, oil companies would have to expect oil prices to stay below $80 a barrel for many months to scale back their drilling plans.
Unless supplies drop, perhaps from a cut in production from Saudi Arabia or OPEC, or a sudden turnaround in the global economy that would increase demand, prices could fall further.
"It's problematic," says Gary Ross, CEO of PIRA Energy Group. "The wake-up call is on its way."
In the meantime, drivers will be enjoying the lowest gas prices in four years. Tom Kloza, chief oil analyst at the Oil Price Information Service and Gasbuddy.com, say the national average could fall under $3 a gallon before year's end for the first time since 2010.
Benchmark U.S. crude oil peaked in late June at $107 after Islamic State fighters seized control of some cities and Iraq and seemed capable of disrupting exports from OPEC's second-largest exporter. Upheaval in Libya sharply cut its output.
Global supplies were unstable, and demand appeared robust. U.S. refiners were churning through more oil than ever and making and exporting records amounts of fuel.
The picture soon flipped. The threat to Iraq's exports diminished. Libyan exports returned to the market. And refineries in the U.S. and Asia slowed for seasonal maintenance. At the same time, slower growth in Europe and China led forecasters to reduce expectations for oil demand.
The weak global economic forecast, combined with a relatively strong one for the United States, raised the dollar's value to a four-year high against other currencies. Because oil is priced in dollars, a stronger dollar makes oil more expensive and tends to reduce demand.
Suddenly there was plenty of supply and not enough demand. By the end of last week, oil had plunged $20 a barrel from its peak. It ended the week below $86 a barrel for the first time in nearly two years. Energy company stocks have fallen 16 percent since late June, compared with a drop of 2 percent in the Standard & Poor's 500 stock index, according to FactSet.
Lower fuel prices have followed. The average prices of gasoline, heating oil, diesel and jet fuel are all on track to be the lowest in four years, giving drivers, travelers and fuel-hungry companies a break. Savanthi Syth, an airlines analyst at Raymond James, recently increased her earnings forecast for United Airlines by 31 percent for the fourth quarter because of lower fuel prices.
When energy prices fall because of rising supplies, it can help the economy. U.S. natural gas prices fell even as the economy was recovering from the financial crisis. Those lower prices helped manufacturers by lowering electricity prices and raw material costs.And increases in U.S. oil production have protected the U.S. economy by keeping fuel prices from soaring in recent years during a period of turmoil in the Middle East.
But a sharp fall in energy prices often results from weakening economic growth, and the benefit of lower fuel costs isn't enough to offset it.
The lower global economic growth that's pulling down oil prices and U.S. stocks will also squeeze U.S. companies. The stronger dollar can hurt the U.S. economy because it makes U.S. goods costlier than foreign goods, so exports fall and imports rise. That can reduce domestic economic activity and job growth.
Some attribute the price drop mainly to seasonal factors and expect OPEC to cut production to help send oil prices back up. At the start of the year, many analysts expected the 2014 annual average for oil to be $90 to $95 a barrel. The average is still above that despite the recent price plunge.
Judith Dwarkin, chief energy economist at ITG Investment Research, expects global supply and demand to balance out soon.
"The sky may be sagging a bit but it isn't falling," she said.
How Long Can U.S. Production Survive Low Oil Prices?
By James Hamilton | Mon, 13 October 2014 21:42 | 0
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For the last 3 years, European Brent has mostly traded in a range of $100-$120 with West Texas intermediate selling at a $5 to $20 discount. But in September Brent started moving below $100 and now stands at $90 a barrel, and the spread over U.S. domestic crude has narrowed. Here I take a look at some of the factors behind these developments.
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Price of crude oil in dollars per barrel, Jan 4 2005 to Oct 6 2014. Data source: EIA.
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Price of Brent minus WTI, Jan 4 2005 to Oct 6 2014.
Prices of many other industrial commodities have also declined over the last year, silver and iron ore more than oil. One factor has been weakness in Europe and Japan, which means lower demand for commodities as well as a strengthening dollar. The decline over the last year in the price of oil when paid for with Japanese yen is only about half the size of the decline in the dollar price.
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Percent change in dollar prices of selected items, Oct 2013 to Oct 2014. Data sources: Oil-Price.net, Wall Street Journal and x-rates.
In terms of factors specific to the oil market, one important development has been the recovery of oil production from Libya. The latest Monthly Oil Market Report from OPEC shows Libyan production up half a million barrels per day since this summer. Libya is hoping to add another 200,000 barrels/day this month and 200,000 more by early next year. This would be a significant addition to the market, though the situation in Libya remains quite unstable.
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OPEC figures for Libyan oil production in thousands of barrels per day. Source: peakoilbarrel.
But the biggest story is still the United States. Thanks to horizontal drilling which gets oil out of tight underground formations, U.S. field production of crude was 2 million barrels/day higher in 2013 than it had been in 2011. And the EIA’s new Short-Term Energy Outlook released this week expects we’ll add another 2 million b/d over the next two years. That’s unquestionably enough to start moving the world price.
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U.S. field production of crude oil. Blue: historical production, 1900-2013, from EIA Green: projected for 2014-2015, from Short-Term Energy Outlook.
As I’ve noted before there’s a basic limit on how much U.S. production is capable of lowering the world price. The methods that are responsible for the U.S. production boom are quite expensive. Just how low the price can go before some of the frackers start to drop out is subject to some debate. A report in the Wall Street Journal last Thursday provided assessments like these:
“There could be an immense amount of pain,” said energy economist Phil Verleger. “As prices fall, you will see companies slow down dramatically.”
Paul Sankey, an energy analyst with Wolfe Research LLC, said the first drillers to react to declining crude prices would be some in the least productive fringes of North Dakota’s Bakken Shale. “We’re not quite there yet,” he said, but a further drop of $4 or $5 a barrel will force companies to begin trimming their capital budgets”….
Some U.S. oil fields, including the Eagle Ford Shale and Permian Basin in Texas, would remain attractive for drillers even at much lower oil prices. An analysis by Robert W. Baird & Co. said prices could drop to $53 a barrel in certain parts of the Eagle Ford and still be profitable to drill.
And here are some of the estimates reported by Bloomberg:
Shale oil is expensive to extract by historical standards and only viable at high-enough prices, Ed Morse, Citigroup Inc.’s head of global commodities research in New York, said by phone Sept. 23. Oil from shale formations costs $50 to $100 a barrel to produce, compared with $10 to $25 a barrel for conventional supplies from the Middle East and North Africa, the Paris-based International Energy Agency estimates.
“There is probably something to the notion that if prices fell suddenly to $60 a barrel, the production growth would turn negative,” he said.
Brent crude could drop to $80 a barrel before triggering a slowdown in investment from U.S. shale-oil drillers, Fitch Ratings said in a report today.
If Europe’s woes worsen, U.S. tight oil production continues its phenomenal recent growth, and Libya can continue to increase production, we may soon find out who is right.
By James Hamilton
(Source: www.econbrowser.com)
No Shale Revolution For Europe
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It’s looking increasingly unlikely that Europe will be able to sever its reliance on Russian energy supplies by developing its own shale gas industry.
For years, Poland has been regarded as the European Union’s biggest hope for developing indigenous sources of natural gas because it sits on large reserves of natural gas trapped in shale. According to the U.S. Energy Information Administration, Poland has 148 tcf (trillion cubic feet of technically recoverable shale gas reserves and 1.8 billion barrels of shale oil. By comparison, Russia has an estimated 285 tcf of shale gas.
Poland represents the European Union’s best hope at breaking Russia’s grip over natural gas supplies, and its government has been highly supportive of shale gas development, which is rare in the green-tinged political circles of Europe.
But things have not gone according to plan. Dozens of wells have been drilled since 2010, but almost none have been successful. In fact, Bloomberg reports, the most productive shale projects have returned gas flows that were just 30 percent of what is needed to be commercially viable.
Difficult geology has been a huge obstacle. ExxonMobil’s CEO Rex Tillerson said that the technology used to successfully extract enormous volumes of shale gas in the United States has not been successful in Poland. The geological conditions are simply not as favorable as they are in the U.S.
In 2012, in a sign of the country’s unmet expectations, ExxonMobil pulled out of Poland after drilling two wells that came up dry. Talisman, Marathon Oil, and Eni, three other relatively large oil companies, also gave up on Poland. Chevron is pushing forward with more plans to drill in Poland despite the setbacks. Active permits are now 43 percent below their peak in early 2013.
Complicating matters further is an array of “above the ground” problems in Poland. An effort by the Polish government to prematurely cash in on a shale revolution cast a cloud of uncertainty over the industry.
Several taxation proposals were circled in 2013, with tax schemes ranging from 40 percent to 80 percent tax on profits. Poland also wanted to require any international oil companies exploring in Poland to work with local Polish firms. One oil executive from Talisman described the moves as “dividing up the bear hide before you’ve shot the bear.”
Another problem is the fact that Poland’s population, as well as the rest of Europe’s, is much more densely located. In the United States, companies can drill wells far away from people’s homes (although that is certainly not always the case). But in Europe, the most promising plays are located much closer to local communities.
More importantly, local communities see much less of the benefit, since they do not own the mineral rights beneath their properties. In the U.S., landowners can get paid to lease their rights to drillers, but that is not true in most of Europe.
The laundry list of problems could be insurmountable for Poland, dashing hopes of replicating the shale gas revolution.
But the dream is not over yet. The potential of European shale deposits became even more urgent this year, with Russia’s annexation of Crimea and intervention in the brewing civil war in Ukraine.
In September, Russia’s state-owned natural gas company Gazprom cut back on natural gas flows to Poland in response to Warsaw’s efforts to supply Ukraine with gas. The move was seen in European capitals as a warning not to come to Ukraine’s aid.
Poland is dependent on Russia for 60 percent of its natural gas needs. Along with other EU member nations, it is seeking a way to diversify away from Russian energy, with shale gas high up on the list. The EU’s most recent appointment of a former oil executive as its top energy commissioner is an indication of the bloc’s determination to keep at it. And in May 2014, the EU released an energy security strategy that called for greater development of shale gas in the coming years.
If Poland’s experience is any indication, however, that is easier said than done.
By Nick Cunningham of Oilprice.com
