OPEC must keep cutting prices to displace competing supplies from Latin America and West Africa, Indian refiners said.
Saudi Arabia, Iran and Iraq, which account for about half the output from the Organization of Petroleum Exporting Countries, will sell crude to Asia next month at the biggest discounts since at least January 2009. Hindustan Petroleum Corp. and Mangalore Refinery & Petrochemicals Ltd. say it’s not enough to undercut the alternatives.
The highest U.S. output in almost 30 years is reducing America’s demand for oil and giving consumers in Asia a greater choice of suppliers, from Venezuela to Alaska and Nigeria. The glut has driven futures into a bear market and prompted OPEC members to cut prices to defend their market share.
“Obviously the Middle-East producers want to retain market leadership in Asia,” said B.K. Namdeo, refineries director at Hindustan Petroleum, India’s third-biggest state refiner. “Availability is one thing, but the customers must get the price advantage as well.”
The U.S. imported 7.62 million barrels of crude a day in July, down 29 percent from the peak in June 2005, according to data from the U.S. Energy Information Administration. European demand is also shrinking as refineries are shutting or converting to storage depots at the fastest pace since the 1980s after demand for oil products dropped.
Crude that may have previously found a buyer in the U.S. or Europe is now available for Asia and competing with traditional suppliers from the Middle East, according to the International Energy Agency. Asia will account for more than half of global demand growth this year.
Alternative Supplies
South Korea is taking the first Alaskan export cargo since 2004 while Japanese traders are purchasing U.S. shipments of ultra-light oil from the Gulf of Mexico. India’s Reliance Industries Ltd. booked its second 1.2 million-barrel cargo of Carabobo crude from Venezuela this year.
Saudi Arabia lowered the November official selling price, or OSP, for its Arab Light grade to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest level since December 2008. Iran and Iraq followed with similar cuts in the following days.
“Middle-East producers have to respond with price cuts, or else they lose the market share,” said Vijay G. Joshi, refinery director at Mangalore Refinery & Petrochemicals. “We have term contracts with Middle-East suppliers, and that would continue. But we are increasingly looking at Latin American and West African crudes.”
Brent-Dubai
The cuts might not be enough to lure Asian customers because the slump in Brent crude, the benchmark for supplies from West Africa to the North Sea and Mediterranean, is keeping alternative grades competitive, according to Lalit Kumar Gupta, the managing director and chief executive officer of Essar Oil Ltd. Brent futures have collapsed 23 percent this year and traded as low as $83.87 a barrel yesterday in London.
“Brent has gone down, so Brent-related crudes are getting cheaper,” Gupta said in an interview from Mumbai. “The comparative advantage of other crudes remains.”
Brent’s premium to Dubai oil, the benchmark for Middle East crude, averaged $1.38 a barrel this quarter, the least since the three months through June 2010, according to data from PVM Oil Associates. It was as high as $4.87 in the second quarter of this year.
China, the world’s biggest oil consumer after the U.S., is also diversifying its suppliers. Growth in Latin American imports to China outpaced the expansion of purchases from the Middle East in the first eight months of the year, according to data from the country’s customs bureau. China bought 8.7 percent more Middle Eastern crude this year than in 2013, compared with a 20 percent increase in oil from South America.
China Contracts
Saudi Arabia’s share of China’s crude imports narrowed to less than 16 percent in the first eight months of this year from 19 percent last year.
An official from China Petroleum & Chemical Corp.’s Jinling refinery, asking not to be identified because of internal policy, said the Saudi price cuts wouldn’t have any immediate effect on the crude types Chinese refiners purchase because they import on the basis of long-term contracts.
While cuts prices may make Middle East crude “theoretically competitive” for refiners in Japan, the world’s third biggest oil user is unlikely to boost shipments because of low refinery utilization rates and weak demand, according to Shohei Setoh, a manager at Japan Biofuels Supply, a joint-venture between Japanese refiners, and former crude trader.
BG Group Plc (BG/) appointed Statoil ASA (STL)’s Helge Lund as chief executive officer, ending a leadership crisis at the U.K.’s third-largest oil and gas producer.
Lund, 51, who led Norway’s state-controlled oil company for 10 years, will start next March and become Europe’s best-paid oil-company boss with a compensation that could reach 14 million pounds ($22.3 million), BG said. He left Statoil with immediate effect, and marketing chief Eldar Saetre will serve as interim CEO, the Stavanger-based company said.
By poaching Lund, BG has brought in one of the industry’s most seasoned executives to take control after a turbulent period. Forged from the exploration arm of Britain’s former gas monopoly, BG was led for more than a decade by Frank Chapman, who retired at the end of 2012. His successor Chris Finlayson lasted little more than a year, quitting in March after production growth missed targets amid arguments with the board over the pace of asset disposals.
“Few will disagree that this is a great appointment from BG,” analysts at Bernstein Research, led by Oswald Clint, said in a note today. “Boasting experience in deepwater, gas markets and clear value over volume focus, he fits the requirements.”
‘Exciting Job’
Lund’s challenges at BG, where the stock has dropped 35 percent from 2011’s record, valuing the company at almost three-quarters of Statoil’s $74.3 billion market capitalization, include overseeing the start of an LNG export project in Australia, the development of offshore fields in Brazil and the possible sale of assets in the U.K.’s North Sea. “I’m not driven by whether a company is big or small, but more by the content of the challenges and how exciting the job is,” Lund said. “I’m looking forward to take up that challenge.” He declined to comment on his salary or BG’s operations in an interview in Oslo.
Shares in BG, based in Reading, England, fell 1 percent to 1,015 pence in London. Statoil fell 2.9 percent in Oslo, the most in five months.
The arrival of a heavyweight CEO may also help to stem takeover chatter around BG, heightened by the sudden departure of Finlayson. BG’s prospects for production growth have led to speculation the company could be a target for larger competitors seeking to boost output as existing fields decline
Ideally Suited
“Helge is ideally suited to lead BG Group in the next phase of its growth,” said Andrew Gould, chairman of BG Group, who’s been running the company day-to-day since Finlayson left. “Helge’s track record speaks for itself. He has built a world-class exploration and production portfolio at Statoil.”
Lund has been CEO at Statoil since 2004, joining the company after it had been involved in a bribery probe in Iran. He oversaw Statoil’s merger with Norsk Hydro ASA (NHY)’s oil and gas assets, reinforcing the company’s domination of Norway’s petroleum industry.
Even as Statoil remains the operator of more than 70 percent of the Nordic country’s oil and gas production, it expanded abroad under Lund’s leadership. Statoil has increased its exposure to countries from Brazil to Tanzania, and placed a significant bet on U.S. shale oil and gas, buying Brigham Exploration Co. for $4.4 billion in 2011.
More recently, Lund has been the architect of a sweeping efficiency and streamlining program set in motion earlier this year to raise shareholder returns as Statoil confronts cost and energy-price challenges afflicting the whole industry. Statoil, 67 percent owned by the state, scrapped production-growth targets and cut spending plans through 2016 while preparing larger cuts for the years ahead.
More Oil
Statoil has also sold off assets for more than $22 billion since 2010, including its retail business, as the company has focused its activities on upstream operations. Lund oversaw a series of exploration successes, with Statoil finding more conventional oil and gas than any rival in 2013.
Before joining Statoil, Lund was CEO of offshore-engineering company Aker Kvaerner ASA. A former consultant at McKinsey & Co., he has also been a political adviser to the parliamentary group of Norway’s governing Conservative Party.
“There comes a time for leaders when it’s right to move on -- not only for themselves, but also for the organization they lead,” Lund said at a press conference in Oslo. “I still have enough motivation, involvement, energy and drive. But for Statoil, I think renewal can be right and important.”
The lowest oil price in four years will provide stimulus of as much as $1.1 trillion to global economies by lowering the cost of fuels and other commodities, according to Citigroup Inc.
Brent, the world’s most active crude contract, closed at $83.78 a barrel in London yesterday. That’s more than 20 percent below its average for the past three years, amounting to savings of about $1.8 billion a day based on current output, Citigroup estimates. Savings will climb to $1.1 trillion annually as the slide cuts costs of other commodities, leaving consumers and companies with extra cash to spend and bolstering growth, according to Ed Morse, the bank’s head of global commodities research in New York.
Crude prices are plunging amid signs that OPEC, supplier of 40 percent of the world’s oil, won’t act to eliminate a surplus as global growth slows. Combined supplies from the U.S. and Canada rose last year to the highest since at least 1965 as producers tapped stores locked in shale-rock formations and oil sands. The global economy will rebound next year, with growth quickening to 2.98 percent, the fastest since 2010, according to analyst forecasts compiled by Bloomberg.
“A reduction in oil prices also results in a reduction in prices across commodities, starting with natural gas, but also including copper, steel, and agriculture,” Morse said yesterday in an e-mailed response to questions. “All commodities are energy intensive to one degree or another.”
Commodity Prices
Regular gasoline averaged nationwide in the U.S. dropped to $3.177 a gallon, the lowest in more than three-and-a-half years, Heathrow, Florida-based motoring group AAA said on its website yesterday. The Bloomberg Commodity Index slumped to a five-year low, about 50 percent below its peak in July 2008. Copper, natural gas, coal and iron ore are all far below their peaks.
“Cheaper oil is an advantage for both consumers as well as industrial and manufacturing operations, especially as winter approaches,” Myrto Sokou, an analyst at Sucden Financial Ltd. in London, said by e-mail yesterday.
As lower energy prices help reduce commodity costs, they can push down the inflation rate. While freeing up more money for consumers, outsized declines could become a concern in places like Europe, where policy makers are trying to stave off deflation, which can exacerbate an economic slump.
The euro area will have inflation of 0.5 percent this year, according to estimates compiled by Bloomberg. Consumer prices globally will increase by 2.47 percent in 2014, about the same as last year, the forecasts show.
Oil Analysts
Brent plunged to the lowest level in almost four years on Oct. 14, retreating 4.3 percent to close at $85.04 a barrel.
“Lower prices, for most economies, reduce the cost of doing business and support economic growth,” the International Energy Agency said in a report Oct. 14. “Lower prices offer a cushion of sorts against an otherwise vulnerable macroeconomic backdrop.”
The Paris-based adviser to governments said in the same report that oil demand will expand by about 650,000 barrels a day this year, half the pace it anticipated in July.
Nations in the Organization of Petroleum Exporting Countries may resist cutting output in response to the slowing demand growth to try and test the prices at which some North American supply is profitable, Antoine Halff, head of the IEA’s oil industry and markets division, said.
A decline to $80 would cost OPEC $200 billion of its recent earnings of $1 trillion, Morse said in an analysis on the topic that was published yesterday in the Financial Times.
Big Chunk
Oil prices rose to a record in 2008, boosting revenues for nations including Russia as well as Middle East states such as Saudi Arabia, Kuwait and the United Arab Emirates. It also increased prices for consumers in industrialized nations.
“It is a big chunk of stimulus,” Seth Kleinman, Citigroup’s head of European energy research, said by phone from London. “The macro economic analysis of higher oil prices was always that it is essentially a wealth transfer from leveraged spending U.S. consumers to saving Middle East sovereigns, so ultimately it reduces the global velocity of money significantly and it’s a net drag. Now a price fall reverses that.”
Petroleo Brasileiro SA (PBR), the state-run producer being probed for cost overruns, is set to spend 60 percent more than budgeted at one of its refineries, according to the tribunal overseeing state spending.
Petrobras, as the Rio de Janeiro-based company is known, will pay $21.6 billion to complete the Comperj complex that’s scheduled to open in 2016, Jose Jorge, a member of the TCU tribunal, said in documents released in Brasilia today.
Jorge said there are discrepancies between different government agencies, and within different Petrobras divisions, over investments required for Comperj. Management has been “reckless” with irregularities in the omission of technical analysis, overpaying for contracts and a lack of effective controls, according to the audit report. Petrobras’ press department didn’t immediately respond to an e-mail and phone calls seeking comment
“We’re basically investigating how the structure of Petrobras can undertake such a huge project in such a sloppy way,” Jorge told reporters after the tribunal session today.
He said there were irregularities in three contracts: two that were overpaid and one that was signed in an “emergency” time-frame that didn’t allow other companies to bid. Other tribunal members asked for more time to analyze the audit report and suggested issuing a warning to Petrobras to give the company time to explain the discrepancies.
Comperj will cost $130,000 for each barrel of production capacity, compared with $80,000 at the northeastern Abreu e Lima refinery which Petrobras CEO Graca Foster called in 2012 “an experience Petrobras should never repeat” for its increased costs and several changes in the project.
Petrochemical Plans
Comperj was initially planned as an industrial complex that would include petrochemical units. It now consists of just two refineries. The original project would cost $47.7 billion if fully executed, Jorge said.
The first of Comperj’s units has the capacity to process 165,000 barrels a day. Abreu e Lima, Petrobras’ first new refinery in 30 years, is scheduled to be operational by next month and is expected to cost $18.5 billion, for two units with a total processing capacity of 230,000 barrels a day, according to the company’s business plan. The cost per barrel is obtained by dividing the total cost by the refining capacity.
Project Changes
“I think when Comperj is investigated thoroughly, the situation will be more difficult than Abreu e Lima in the complexity of resolving the problem,” Jorge told reporters after the TCU session, in reference to the other refinery, also being probed for overspending.
Petrobras said in an April 16 statement that, just like Abreu e Lima, Comperj suffered a series of changes in its initial project. The cost in that statement was $13.5 billion, the same estimate the company used in its business plan for the period between 2014 and 2018, announced in February.
Jorge said he would review the suggestion to issue a warning to Petrobras and present his recommendation in the tribunal’s next session on Oct. 22.
U.S. railroads are rallying customers, including lumber and steel executives, to fight a government safety proposal to slow trains hauling another commodity: crude oil.
More than a dozen companies and business groups, urged by railroads including Union Pacific Corp. (UNP), are warning regulators that cutting speeds to 40 miles an hour from 50 would have a cascading effect, delaying other trains sharing the tracks carrying cargo such as furniture, grain and electronics.
“It would impact the whole rail system, is what it will do,” said Will Higman, chief operating officer for Reliable Wholesale Lumber Inc., a family-owned business in Huntington Beach, California, with about 100 employees. Slower trains would add days to a two-week trip for wood from Canada, raising costs and frustrating customers, Higman said in an interview.
Regulators in the U.S. and Canada are considering rules to prevent accidents involving trains hauling crude oil, such as one that killed 47 people in Lac-Megantic, Quebec, last year. Carloads of crude surged 40-fold since 2008, which safety advocates say poses a risk to communities near the tracks.
In addition to new speed limits, proposals have been issued to require sturdier cars that are less prone to puncture.
Some tank-car makers and companies that lease the cars, including Trinity Industries Inc. (TRN), have said the standards will cost more than regulators anticipate and will push more shipments onto trucks, increasing highway traffic.
Final Rules
Safety advocates say speed limits need to be reduced even lower than 40 mph and that other proposed regulations also are important to cut the risks of hauling crude. Former National Safety Transportation Board Chairman Jim Hall and Robert Chipkevich, a former member of the panel that investigates accidents, said the 40 mph limit is inadequate.
Tank cars ruptured in Pennsylvania, Ohio, Virginia and Colorado accidents even when trains were traveling at slower speeds, they said in written comments to the Transportation Department.
The agency is reviewing more than 1,000 comments submitted on the proposed standard. Final rules may be issued this year or in early 2015.
Regulators have to balance safety with mounting demands on the U.S. rail network, which hauls about 40 percent of all freight, such as vehicles, chemicals and commodities.
Grain Waiting
The harsh 2013-2014 winter clogged tracks, leading to delays that were exacerbated by the use of trains to move oil from states like Texas and North Dakota. In 2008, producers shipped fewer than 10,000 rail cars of crude oil. By 2013, the total exceeded 400,000, according to the industry.
Farmers in the upper Midwest have said some grain harvested this season is being left on the side of the tracks as trains move more crude from North Dakota’s booming Bakken field.
The Surface Transportation Board, which regulates railroads, this month started requiring rail operators to submit weekly reports that show delays in the system.
“We need to find a balance between improving safety on the rails and reducing delays,” said Senator Heidi Heitkamp, a North Dakota Democrat who has called on railroads to invest more to expand their networks.
Berkshire Hathaway Inc. (BRK/B)’s BNSF rail line has said it plans to invest $400 million in the state to expand capacity.
‘Key Piece’
As oil shipments rise, so do accidents. There were five each in 2013 and 2014, compared with none in 2010, according to the Transportation Department.
Speed restrictions are a “key piece of the puzzle in making crude by rail safer,” said Matt Krogh, a campaign director for ForestEthics, a Seattle-based environmental group that argues the proposed rules don’t go far enough in reducing the oil-train risks. “It’s very simple, slower trains mean fewer derailments, fewer spills and fewer fires.”
Regulators estimate that slowing trains to a maximum of 40 mph from 50 can reduce the severity of an accident by 36 percent.
The restrictions have drawn the ire of railroads. They’re turning to their customers to help lobby the agency. Union Pacific, an Omaha, Nebraska-based railroad, warned in a letter that slowing crude oil trains would have “wide-felt reverberations throughout both our network and the entire national rail system.”
‘Reverberations’ Widespread
Tom Lange, a spokesman for Union Pacific, said the company posted a letter to customers on its website last month because the speed restrictions could affect their service.
Higman at Reliable Wholesale Lumber included similar wording in his letter to regulators. Formosa Plastics Corp., a Taiwan-based company with a subsidiary in Livingston, New Jersey, also warned that proposed speed restrictions would have “wide-felt reverberations,” as did Arkansas Steel Associations LLC, in Newport, Arkansas, and others.
Railroads have agreed to slow from 50 mph to 40 mph when carrying crude through cities known as High Urban Threat Areas. The designation covers more than three dozen communities, including Boston, Chicago, Dallas, Los Angeles, New York and Washington, accounting for about 2 percent of the track miles, according to the Transportation Department.
One option under consideration would slow trains with 20 or more cars filled with flammable liquids like oil or ethanol to 40 mph nationwide.
Costs, Benefits
Another would set that limit in cities of greater than 100,000 people, which would cover about 10 percent of the nation’s rail lines.
Regulators acknowledge a cost: more than $2.6 billion for option one, and $240 million for the second option. That cost could be offset by as much as $636 million in benefits from fewer rail accidents, according to the Transportation Department.
The Association of American Railroads, a Washington-based lobbying group whose members include BNSF, said the proposed speed restrictions “could dramatically affect the fluidity of the railroad network and impose tremendous costs without providing offsetting safety benefits.” They haven’t offered a specific cost figure.
Fred Millar, a rail consultant who works with environmental groups, said U.S. regulations will probably fall short of providing sufficient safeguards.
“Are we going to get a significant reduction in speeds that would significantly impact the severity of accidents?” Millar said in an interview. “The signs are very, very gloomy.”
There hasn’t been a better time for Prime Minister Narendra Modi to deregulate diesel prices.
Oil prices are near a four-year low, and Reserve Bank of India Governor Raghuram Rajan has called on Modi to “seize this moment” while inflation is at a three-year low and refiners are selling at a profit for the first time in recent memory.
“There’s absolutely no reason for the government not to deregulate -- it’s probably the easiest thing they can do, a low-hanging fruit,” Upasna Bhardwaj, an economist at ING Vysya Bank Ltd., a unit of the biggest Dutch financial-services company, said by phone from Mumbai. “The markets have been awaiting reforms, and there has been nothing big, so if they fail to do this it will be treated very negatively.”
Steps to dismantle India’s subsidies would build optimism that Modi will follow through with a pledge to take tough steps to revive Asia’s third-biggest economy. Five months since winning India’s biggest electoral mandate in 30 years, he’s hesitated on major steps to curb one of Asia’s widest fiscal deficits while focusing mainly on attracting foreign investment and ensuring that bureaucrats make it easier to do business.
Brent crude has fallen 24 percent this year, and the median forecast of estimates compiled by Bloomberg shows it will linger near $100 per barrel through 2018. The price drop means the government and state-owned explorers including Oil and Natural Gas Corp. are no longer subsidizing diesel.
State Elections
Deregulation would ensure that the government won’t have to pay the subsidy if crude starts to rise again. Modi’s predecessor had already set the process in motion, eliminating controls on petrol prices in 2010 and last year raising diesel prices by 0.5 rupees a liter each month.
Oil Minister Dharmendra Pradhan said this week that election rules prevent the government from commenting on a diesel price reduction until after Oct. 19, when state legislative election results are announced in Maharashtra and Haryana. The two states, which voted yesterday, hold 11 percent of India’s population.
“We will take the right decision at the right time,” Pradhan told reporters on Oct. 14 when asked about deregulating diesel prices.
Other nations already have acted. Egypt raised fuel prices as much as 78 percent in July, a move the nation’s president said was 50 years overdue. Malaysia increased fuel prices for the first time in more than a year at the start of October. Nigeria in January 2012 lifted gasoline prices almost 50 percent. Indonesian President-elect Joko Widodo has pledged to curtail fuel subsidies in his nation.
‘Sweet Spot’
India budgeted 634 billion rupees ($10 billion) this fiscal year for petroleum subsidies -- including diesel, cooking gas and kerosene -- down 25 percent from the previous 12 months. Falling oil prices may help Modi narrow the deficit in the current fiscal year through March 2015 to about 4 percent of gross domestic product instead of the targeted 4.1 percent, according to Mizuho Bank Ltd.
While petroleum subsidies are coming down, they only account for a quarter of India’s 2.6 trillion rupee subsidy bill. Outlays on food are budgeted to rise 25 percent to 1.15 trillion rupees in the year through March.
“This is a sweet spot, a precious window of opportunity that must be used wisely by the government to push through reforms,” Vishnu Varathan, an economist at Mizuho Bank, said by phone from Singapore.
Diesel in India is used in everything from cars and trucks to back-up power generators and agricultural water pumps. The fuel accounts for 43 percent of Indian petroleum consumption.
Ballooning Bill
Back in 2002, Modi’s BJP freed prices of both petrol and diesel only to reverse the decision two years later when crude prices started rising. The party lost the 2004 election and spent 10 years in opposition before its victory in May.
India’s subsidy bill rose fivefold under Prime Minister Manmohan Singh as he implemented policies to buy farm produce at guaranteed prices, boost rural wages and distribute cheap food. In his first budget in July, Modi left subsidy targets largely unchanged while planning to create a commission that would recommend ways to better target food and fuel subsidies.
State refiners ONGC, Bharat Petroleum Corp. (BPCL), Hindustan Petroleum Corp. and Indian Oil Corp. are required to sell cooking gas and kerosene below production costs to keep prices affordable in a nation where 827 million people live on less than $2 per day.
Rajan on Oct. 11 called for changes to pricing of gas and coal to provide an incentive for companies to explore for new resources. He told a panel in Washington D.C. that he saw a new willingness to take tough decisions.
‘Talk Is Cheap’
“Talk is cheap,” Rajan said. “What we really have to do is deliver. We have to start delivering.”
Rajan has held the benchmark interest rate at 8 percent for the last four meetings as he fights Asia’s third-fastest inflation. He has called for a shift to cash transfers to eliminate graft and create competition in the private sector.
JPMorgan Chase & Co. cut its growth forecast for India to 5.1 percent from 5.3 percent as industrial production grew 0.4 percent in August, slower than the 2.6 percent median estimate predicted in a Bloomberg survey of economists. Consumer prices rose 6.46 percent in September, the slowest pace since the index was created in January 2012.
Modi may couple the deregulation in diesel prices with an increase in natural gas prices that would make exploration more attractive, according to U.R. Bhat, a director at Dalton Capital Advisors India Pvt. in Mumbai.
“The government is likely to take a holistic approach on prices of all fuels and realign the whole subsidy regime, which is arbitrary now,” Bhat said. “If ever there was the right time for a mega-reform in diesel pricing, this is it. If Modi fails now, it will be a big lost opportunity.”
Regular gasoline in the U.S. fell to the lowest level in more than three-and-a-half years as shale oil production and weak global demand spurred a four-month slump in oil prices.
The average retail price fell 0.9 cents a gallon to $3.177, Heathrow, Florida-based motoring group AAA said on its website today. That’s the lowest level since February 2011, when the uprising started against Muammar Qaddafi that disrupted oil supplies from OPEC member Libya.
Gasoline prices have fallen more than 50 cents this year since peaking at $3.696 in April. U.S. drivers are reaping the benefit of strong global crude production and weak demand causing oil prices to drop more than a quarter since June.
“That’s like somebody putting dollars right in your pocket,” said David Hackett, president of Stillwater Associates, an energy consulting firm in Irvine, California. “That sounds like Christmas presents, going out to dinner, being able to do something.”
Brent crude, the global benchmark, traded at $84.80 a barrel on the ICE Futures Europe exchange at 1:06 p.m. New York time today, the lowest level since November 2010. U.S. benchmark West Texas Intermediate dropped to as low as $80.01 a barrel today on the New York Mercantile Exchange.
Falling Apart
Global oil consumption will increase by about 650,000 barrels a day this year, the Paris-based International Energy Agency said in a monthly report yesterday. That’s a reduction of 250,000 from its prior estimate. The International Monetary Fund said on Oct. 7 that the global economy will expand by 3.8 percent in 2015, down from a July projection of 4 percent.
“The price of gasoline in America is tied to the global price of oil,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “It’s a global picture, and the rest of the world is falling apart.”
U.S. oil output increased to 8.88 million barrels a day the week of Oct. 3, the most since March 1986. U.S. production has increased 65 percent in the past five years as companies have used horizontal drilling and hydraulic fracturing to tap into hydrocarbon-rich layers of underground shale rock.
The Organization of Petroleum Exporting Countries increased oil production by 402,000 barrels a day in September to 30.47 million, the group said in its monthly oil market report. It was the biggest monthly gain since November 2011 and the largest production in more than a year.
South Africa’s government recognizes that it must create laws that encourage investment in its nascent oil and gas industry, President Jacob Zuma said.
“We are aware that we have to create the enabling environment to give industry the comfort to invest in this capital-intensive sector,” he told reporters in the eastern port city of Durban. “We have to provide clarity and stability in the legislative framework governing offshore oil and gas, ensuring a win-win outcome for government, industry, and society.”
Mineral Resources Minister Ngoako Ramatlhodi asked Zuma to hold off on signing changes to the 2002 Mineral and Petroleum Resources Development Act into law pending a review by some ministries. Exxon Mobil Corp. and Total SA (FP) are among those that have objected to it on the grounds that it’s too vague and will undermine their businesses.
Proposed changes to the act include giving the state the right to a free 20 percent stake in all new energy ventures and to buy an unspecified additional share at an “agreed price.” Exxon, Anadarko Petroleum Corp. (APC) and Royal Dutch Shell Plc (RDSA) have begun prospecting off South Africa’s coast as new technology boosts their ability to find and pump oil from deep beneath the seabed.
Proposed Changes
The nation may split rules for the oil and gas industry from the amended mining laws should the government find that the regulations are at odds with the constitution, Ramatlhodi said on Oct. 8. It can only be referred back to Parliament if its constitutionality is in doubt, even if the government is concerned that some of the proposed policy changes are inappropriate, said Ramatlhodi, who was appointed in May.
The country is also preparing draft regulations on oil and gas exploration that companies will be able to comment on, he said in July.
“We are waiting for the president to sign the mineral resources act and if he does, we are exploring whether the 20 percent free carry that will go to government from exploration profits should be outlined in the bill or the regulations,” Ramatlhodi said today. “I am looking at the process of the amendment of the minerals bill related to the oil and gas exploration to be completed by early next year.”
Possible Resources
South Africa’s coast and adjoining waters have possible resources of as many as 9 billion barrels of oil, enough to meet 40 years of local consumption needs, Zuma said. It also has 11 billion barrels oil equivalent natural gas, or sufficient to meet 375 years of current domestic demand. He said there is uncertainty about the extent of the resources.
“We have to build a one-stop shop within the Department of Mineral Resources to streamline and regulate the licensing process for offshore oil and gas exploration and production,” he said.
Royal Dutch Shell’s local unit plans to spend about $200 million building 24 of 30 exploratory wells in the Karoo Basin as soon as it obtains its exploration-rights agreement, Chairman Bonang Mohale told reporters.
South Africa’s shale gas reserves, concentrated in the semi-desert Karoo region, could be the world’s eighth-biggest, the U.S. Energy Information Administration said last year.
Ever since the oil shock of the early 1970s, central bankers have fretted that rising energy prices spelled recession.
Now they’re discovering cheaper energy can be a headache too, especially when warding off deflation is the economic challenge du jour.
Historically, the 27 percent drop in Brent crude from its June peak to its lowest in four years would have been a reason for happiness among policy makers. It makes it cheaper for companies to churn out everything from cars to toys and for consumers to fill their tanks, spurring demand.
A study published in August by the Federal Reserve calculated rising oil prices explained a 5 percent reduction in the size of the U.S. economy during the recent financial crisis.
So what could be wrong now? More than almost ever, central banks are as worried about low inflation as weak growth. What they’re working against is a deflationary spiral that will drive up debt burdens and derail demand as businesses and households retrench in anticipation of even lower prices.
Just yesterday, the U.K. reported the slowest inflation in five years and prices actually fell in Sweden for a second month. The euro area will say tomorrow that its rate is also the weakest since 2009.
A survey of fund managers by Bank of America Corp. yesterday reported global inflation expectations are at two-year lows and only a net 18 percent view monetary policy as too stimulative, down 14 percentage points from last month and the weakest since August 2012.
Oil Impact
Bank of America economist Gustavo Reis calculates a 20 percent drop in the oil price would shave 0.5 percentage points off global inflation in the next year, pushing the rate back toward the 1.7 percent it reached in 2009 from 2.2 percent.
A persistent decline in energy and agriculture costs “would put a significant downward pressure on headline inflation,” New York-based Reis wrote in an Oct. 10 report.
European Central Bank President Mario Draghi has particular reason to be anxious. He already blames energy and food prices for a “large extent” of the slowing in euro-area inflation to its weakest in almost five years.
Fed Chair Janet Yellen will be less concerned given she doesn’t face a deflation risk. What’s more, Deutsche Bank AG economist Joseph LaVorgna estimated yesterday that if the recent decline in energy costs is maintained, consumer cash flow would improve by $40 billion.
At the same time, the U.S. is now the world’s biggest oil producer and is again a net exporter.
“Cheaper oil is a good thing for the U.S. economy overall, but may be a reason the Fed errs on the side of keeping rates low or raising them more slowly,” said Andrew Kenningham, an economist at Capital Economics Ltd. in London.
The Bank of Japan is sounding more upbeat. “Japan imports massive amounts of oil so falling oil prices itself is a plus for the economy,” Bank of Japan Governor Haruhiko Kuroda said in Washington last week.
BAGHDAD, Oct. 15 (UPI) -- Conditions are right to move ahead with further development of the West Qurna oil field in Iraq, the director of Russia's Lukoil said Wednesday from Baghdad.
Iraqi Oil Minister Adil Abdul Mahdi hosted Lukoil President Vagit Alekperov at his Baghdad office to discuss commitments to raise output from the West Qurna field.
First oil was produced from West Qurna, located in southern Iraq, in March. Lukoil, Russia's largest private oil company, signed a contract revision in June to build two 75-mile pipelines and associated infrastructure.
Lukoil said West Qurna is producing more than 280,000 barrels of oil per day. The Oil Ministry said production could hit the 400,000 bpd mark by the beginning of next year.
Alekperov said that, so far, his company has invested $6 billion dollars on operations in Iraq.
"I believe the appropriate circumstances were made for investing in Iraq that guarantees the rights of the investors," he said.
Lukoil in August shipped its first batch of one million barrels from West Qurna from the southern Iraqi port city of Basra.
The shipment came as Iraq struggles to control an uptick in violence, though most of that is centered in the northwest and Kurdish parts of the country.
TEHRAN, Oct. 15 (UPI) -- The steep decline in oil prices is a momentary market phenomenon and does little to influence the economy long-term, an Iranian oil director said.
Iran this week said the decline in price for its grade of crude oil wasn't a parallel move to keep pace with Saudi Arabia's cuts designed to maintain its footprint in the global economy.
Rokneddin Javadi, managing director of the National Iranian Oil Co., said Iran wasn't bothered by an evolving bear market for oil.
"I think the oil market slump is momentary and does not affect Iran's budget for supplies," he said.
The price for the 12 crude oil blends that make up the reference basket from members of the Organization of Petroleum Exporting Countries, of which Iran is a member, was $85.14 for Wednesday, down from the $85.93 price for Tuesday.
An increase in oil production from North American shale deposits means market dynamics are skewed toward the supply side, pushing oil prices to historic lows. Some economies that depend on oil exports for revenue could start feeling the impacts, while producers elsewhere may find prices too low to sustain development.
The OPEC reference basket price was $105.75 in late July.
Iranian President Hassan Rouhani this week said the oil sector was the bright spot in an Iranian economy working to offset economic stagnation.
Iran under the terms of a multilateral nuclear agreement can export around 1 million barrels of oil per day, about half of what it exported before strict economic sanctions came into force in 2012.
MOSCOW, Oct. 15 (UPI) -- The European stance on the planned South Stream gas pipeline from Russia is unclear but the project is progressing, a Russian presidential aide said Wednesday.
The European Commission is working to fill its 28 seats with new members, something that happens every five years. Yuri Ushakov, an aide to Russian President Vladimir Putin, said some potential host countries were idled by the European movements.
"It has been made clear to Serbia that it will find it next to impossible to implement this project without a go-ahead from Brussels, although [Serbia] is more than ready," he told journalists.
Serbian Foreign Minister Ivica Dacic said from Moscow last week preparatory work for the project was proceeding as planned, but "all other matters" related to the pipeline need to be settled by Russia and Brussels.
Ushakov said that, with new members coming to the European Commission, pipeline planners are "still to learn about Brussels'" stance on the project.
Members of the European Parliament in September passed a resolution calling on "EU countries to cancel planned energy sector agreements with Russia, including the South Stream gas pipeline."
South Stream is touted by Russia as a way to add diversity to a gas transit network dependent on trilateral ties between Brussels, Kiev and Moscow.
Most of the Russian gas for Europe runs through Ukrainian pipelines and conflict there makes that conventional route risky.
OSLO, Norway, Oct. 15 (UPI) -- A new 24-inch oil pipeline from the Kurdish north of Iraq will facilitate exports through Turkey by the end of the year, DNO International said Wednesday.
Swedish energy company DNO, one of the premier operators in the Kurdish north of Iraq, said it was exporting an average 90,000 barrels of oil per day from its Tawke field in the region to Turkey.
Installation of a new 24-inch pipeline from the Tawke field is slated for completion by the end of the year.
"The new pipeline will increase export capacity and provide transportation system redundancy," the company said. "Other upgrades to infrastructure and facilities to increase production and processing capacity at the Tawke field are progressing as planned."
Baghdad and the semiautonomous Kurdish government are at odds over oil exports, with Baghdad saying it's the only one with the constitutional authority to approve oil exports.
DNO said it planned to have new wells in the Tawke field in production by early November. Elsewhere, the company said it found more oil than expected at a license area in Erbil, the Kurdish capital.
The company said this year it set three separate single-day production records at its Tawke field in the Kurdish north of Iraq -- daily production of 133,192 barrels of oil, daily deliveries to the Turkish sea port of Ceyhan of 126,048 barrels and daily sales of 114,760 barrels.
LONDON, Oct. 15 (UPI) -- European leaders are called to follow leading international companies in their push to advance a low-carbon economy, Greenpeace said.
The advocacy group applauded a decision from 11 companies, from IKEA to Philips, in their decision to push for a sustainable future.
"These companies know that their continued success depends on making better use of energy, having more secure sources for it and using the latest technologies to access it," Jorgo Riss, director of the European unit of Greenpeace, said in a statement Tuesday. "They are walking the walk in their own businesses."
The 11 companies said they're advocating an increase in the renewable energy footprint and improvements in energy efficiency by 40 percent each.
The European Union aims to cut greenhouse gas emissions and increase the share of renewable energy on the grid by 20 percent of from a 1990 benchmark by 2020. Targets for 2030 were criticized for lacking ambition.
European leaders meet next week to review their climate agenda.
ANKARA, Turkey, Oct. 15 (UPI) -- The State Oil Co. of Azerbaijan Republic announced it signed contracts in Turkey for the construction of the Trans-Anatolian natural gas pipeline.
SOCAR President Rovnag Abdullayev signed the documents in Ankara with Turkish Prime Minister Ahmet Davutoglu and Turkish Energy Minister Taner Yildiz.
The contract calls for a consortium of Turkish companies, and one Chinese contractor, to provide pipes for the TANAP pipeline.
"TANAP is not only an energy project, but also a huge peace project," the Turkish prime minister said in a statement Tuesday. "It builds a peace bridge between the Balkans and Caucasus."
TANAP will transport natural gas from the Shah Deniz complex off the coast of Azerbaijan through Turkey to the Greek border. British energy company BP leads the group that last year picked the Trans-Adriatic pipeline to carry Shah Deniz gas from there to the European Union.
Both pipelines are part of the so-called Southern Corridor of gas pipelines for Europe meant to break Russia's grip on the region's energy sector. Europe gets about a quarter of its gas needs met by Russia, though most of that runs through the Soviet-era transit network in Ukraine, where geopolitical conflicts present a risk to energy security.
SOCAR said the pipeline through Turkey should become operational by 2018.
LONDON, Oct. 15 (UPI) -- European leaders are called to follow leading international companies in their push to advance a low-carbon economy, Greenpeace said.The advocacy group applauded a decision from 11 companies, from IKEA to Philips, in their decision to push for a sustainable future.
"These companies know that their continued success depends on making better use of energy, having more secure sources for it and using the latest technologies to access it," Jorgo Riss, director of the European unit of Greenpeace, said in a statement Tuesday. "They are walking the walk in their own businesses."
The 11 companies said they're advocating an increase in the renewable energy footprint and improvements in energy efficiency by 40 percent each.
The European Union aims to cut greenhouse gas emissions and increase the share of renewable energy on the grid by 20 percent of from a 1990 benchmark by 2020. Targets for 2030 were criticized for lacking ambition.
European leaders meet next week to review their climate agenda.
OTTAWA, Oct. 15 (UPI) -- An agreement with Quebec outlines how best to manage offshore petroleum resources in eastern Canada, the Canadian prime minister said.
Prime Minister Stephen Harper announced a decision to move forward with plans to manage reserves in the Gulf of St. Lawrence with the provincial government in Quebec.
"The joint management of offshore resources will create new opportunities for economic growth in the province and make Quebec more prosperous," Harper said in a statement Tuesday.
The central government estimates the Gulf of St. Lawrence may hold as much as 1.5 billion barrels of oil and 39 trillion cubic feet of natural gas.
A 2011 draft agreement between the two governments envisions joint management during the pre-discovery phase in the gulf region. A discovery would trigger a new regulatory regime, which would be established by an independent offshore board.
The central government has similar arrangements with other eastern provinces.
The bulk of the Canadian oil reserves come from the heavier bitumen found in Alberta province. Offshore petroleum production accounts for about 6 percent of total crude output and 1 percent of natural gas.
STAVANGER, Norway, Oct. 15 (UPI) -- Helge Lund, president and chief executive officer of Norwegian energy company Statoil, announced Wednesday he's leaving to lead British company BG Group.
"I came to the conclusion that the time was right for a change," he said in a statement. "I have both the motivation and energy to take on a new leadership challenge, and found this opportunity to be the right one."
Since Lund's appointment as head of Statoil in 2004, the company increased production from its international portfolio by fivefold while at the same time increasing market capitalization from $29 billion to more than $76 billion.
The company has also unloaded key investments in recent years. This week, the company sold off its stake in the Shah Deniz natural gas field off the coast of Azerbaijan, a project touted as a means to wean the European economy off Russian gas.
In July, Lund announced the company was cutting as many as 1,400 positions in an effort to reduce costs and improve capital efficiency.
He now moves to BG Group, which is among the leaders in the natural gas sectors of Middle East and North Africa.
Upon his appointment, Lund described BG Group as "a company with a strong set of assets and opportunities."
Statoil appointed Eldar Saetre, executive vice president of markets in the Statoil's renewable energy business sector, to serve as interim chief executive officer.
BISMARCK, N.D., Oct. 15 (UPI) -- North Dakota is the "national powerhouse" when it comes to turning its vast energy resources into value for the state, Gov. Jack Dalrymple said.
Dalrymple and other high-ranking state officials addressed the Great Plains and Empower North Dakota Energy Conference, highlighting the billions of dollars in investments made in a state at the heart of the shale oil and gas boom.
"North Dakota is a national powerhouse in energy production and we have taken important steps to convert our energy resources into products of greater value," the governor said.
Dalrymple said the state has the right policies in place to empower all parts of the energy sector to work together to meet the growing demand for affordable energy.
Sen. John Hoeven, R-N.D., said at the conference the state stands as an example of what can be accomplished with a healthy business climate. It's among the national leaders in terms of economic growth.
The comments follow an announcement by Badlands NGL, LLC of plans to build a $4 billion processing plants to convert ethane gas taken from shale deposits in the state into polyethylene, which is used in the plastics industry.
While the state's Bakken oil reserve is one of the premier shale basins in the country, it lacks the infrastructure do utilize natural gas associated with oil deposits. The Badland project will help utilize that gas and represents the largest investment in state history.
New York (Platts)--15Oct2014/420 pm EDT/2020 GMT
The oil complex closed down Wednesday, but managed to pare early declines after the dollar weakened on expectations the US Federal Reserve would delay hiking interest rates.
Crude futures on both sides of the Atlantic saw prices plunge overnight before recovering slightly in New York trading.
Front-month NYMEX crude settled down 6 cents at $81.78/b, while ICE November Brent ended down $1.26 at $83.78/b.
In refined products, NYMEX November ULSD closed 1.36 cents lower at $2.4586/gal. Front-month NYMEX RBOB settled down 3.15 cents at $2.1487/gal.
Oil traders remained focused on the supply glut and OPEC's apparent inaction early in the trading session, until the dollar's value started declining, according to Price Futures Group analyst Phil Flynn.
"We came into the day all ready for OPEC to bury us with oil, but what turned us around was lousy US economic data," he said.
Producer prices fell more than expected in September, the Commerce Department said. And the New York Fed's Empire State Manufacturing Index dropped sharply in October.
The fresh data helped push the dollar lower, as investors bet the Federal Reserve would hold off raising interest rates in 2015, Flynn said.
A falling dollar helps boost oil demand, as greenback-denominated commodities, such as crude, become less expensive for holders of other currencies, he said.
Even though the price slide was arrested, crude futures still set multi-year lows Tuesday, underscoring how the momentum behind the current selloff has yet to be exhausted.
Front-month NYMEX crude last closed lower in June 2012. ICE Brent set a front-month low last seen in November 2010.
Despite the price drop, however, the market appears only "modestly oversupplied," Bank of America Merrile Lynch analysts said in a client note Wednesday.
Crude prices should rise in 2015 relative to current levels, the analysts said. They forecast Brent crude at $98/b and NYMEX crude at $90/b on average.
Increased supply and additional takeaway capacity has tapered the price spread between heavy Canadian crudes and the diluent used to transport them to its narrowest level in four years.
The premium for condensate's price differential to Western Canadian Select was $10.30/b Tuesday, the narrowest it has been since June 8, 2010 when it was $10.20/b.
WCS was assessed Tuesday at WTI CMA minus $12.55, a $9.45/b increase since the start of the year and its highest value since being assessed at WTI CMA minus $11.95/b on July 2, 2013.
Support for heavy crude differentials has mostly stemmed from the anticipated November start of Enbridge's 600,000 b/d Flanagan South pipeline, which will carry heavy crudes from Pontiac, Illinois, to Cushing, Oklahoma.
"Flanagan demand is helping boost heavy value," one trader said.
Weekly stocks in the US Midwest reached 91.602 million barrels the week ending October 10, their highest level since the week ending May 9, according to the most recent US Energy Information Administration data. But the cash market for condensate has fallen steadily since the beginning of the year, only rising for several weeks in late-August on unusually high demand in the US Midwest.
Condensate was assessed Tuesday at the calendar-month average of NYMEX light sweet crude (WTI CMA) minus $2.20/b, a $7.20/b fall from the beginning of the year. The price for the diluent started to plunge in May when Kinder Morgan started its 95,000 b/d Cochin pipeline, which transports condensates from Illinois to Alberta.
Several other projects will soon introduce even more condensate supply to the Canadian market.
TransCanada received regulatory approval last week to start construction on its Grand Rapids pipeline, which runs from Fort McMurray, Alberta to Edmonton. The line will have a total throughput of 900,000 b/d, including 330,000 b/d of diluent capacity.
Additionally, Enbridge is currently working to expand its Southern Lights diluent pipeline to 275,000 b/d from 180,000 b/d. The line runs from Illinois to Alberta.
Available diluent supply to the Edmonton area -- the largest terminal hub for Canadian crude -- is compounded further by Canada's own condensate production growth.
Condensate production in Western Canada was 144,000 b/d in 2013 and will grow to 160,000 million b/d by 2030, peaking in 2025-26 at 172,000 b/d, according to the Canadian Association of Petroleum Producers. That figure "is in contrast to the 2013 report, where condensate production was forecast to decline steadily," CAPP said in its 2014 report.
"Increased drilling in liquids-rich natural gas plays such as the Montney and emerging plays like the Duvernay has reversed the declining trend in condensate production, which was previously forecast to fall 94,000 b/d by 2030," CAPP said. "In this latest forecast, condensate production accounts for almost 170,000 b/d, on average, for the forecast period."
Despite the increase in domestic production, Canada still imported 5.874 million barrels of condensates from the US in July, the highest total so far this year, according to the EIA.
This influx of supply -- and subsequent lower prices -- could see an increase in interest as production of bitumen increases, a second trader said.
"As production from the oil sands grows so will condensate demand," he said. "It just depends on how fast the growth will come."
CAPP expects heavy crude production in Western Canada "to grow from 2.0 million b/d in 2013 to 3.6 million b/d in 2020 to almost triple the current volume in 2030 when it reaches 5.7 million b/d."
London (Platts)--15Oct2014/853 am EDT/1253 GMT
Outright prices for all middle distillates hit new lows in Europe Tuesday as ICE 0.1% gasoil futures fell to their lowest level since end of November 2010, following a continuing decline in the ICE Brent crude contract.
The ICE 0.1% gasoil futures October contract was assessed at $746/mt London 4:30 pm time Tuesday.
In the Wednesday morning trading session, the contract continued to fall, trading at $727/mt levels.
Crude oil futures, meanwhile, continued to test fresh multi-year lows Wednesday on further signs of weakening global oil demand and signals that OPEC is not ready to cut output to halt the sharp selloff.
Meanwhile, the contango structure on the forward 0.1% ICE gasoil futures has softened in the recent days and the November contract was seen trading just $1/mt below the December contract on Wednesday morning.
This follows an increase in high sulfur gasoil exports out of NWE and the Baltics towards the US East Coast and a closed diesel arbitrage from the US.
"With the contango we ended up building a lot stock, which is a lot to chew through but because the US feels so tight at the moment all of a sudden Europe's gasoil becomes the cheapest barrel to South America and even east coast US. So even if demand in Europe is limited it makes sense to start drawing down on those stocks. That and we are coming out of turnaround so we have had lower runs for September into October so less supply of product," said one trader.
Outright CIF Northwest European jet fuel prices fell $12.25/mt to $819.25/mt, their lowest since Dec 2, 2010, Platts data showed.
Outright prices for 10 ppm diesel reached similar lows, with FOB Rotterdam barges closing at $764.50/mt, CIF NWE cargoes at $773/mt and CIF Med cargoes at $774.75/mt.
0.1% gasoil outright prices followed the same trend, with FOB barges falling to $743.75, CIF NWE cargoes to $751/mt and CIF Med cargoes to $752/mt.
Singapore (Platts)--15Oct2014/336 am EDT/736 GMT
Exports of LPG from Iran to Asia eased to 264,000 mt in six cargoes for October loading, after rebounding to around 309,000 mt in September, with all shipments slated for China, shipping sources said Wednesday, October 15.
The October-loading program will take total exports from Iran since January to around 2.36 million mt, of which 1.96 million mt was for China, while the rest were shipped to India, South Korea and Southeast Asia, figures obtained from shipping sources showed.
LPG shipments from Iran, which resumed in May 2013 after an eight-month pause on concerns over an EU ban on shipping insurance, reached a high of around 319,000 mt in May after breaching above 300,000 mt in April, indicating that the Middle Eastern producer was almost returning to export volumes seen before the July 2012 sanctions, sources said.
Iran was able to continue exports due to its access to vessels while Chinese companies have also been building up a fleet of very large gas carriers, sources said.
With four Chinese propane dehydrogenation plants already in operation over the past year -- and two more due by mid-2015 -- the availability of cheaper LPG from Iran offers these plants a wider choice as they also import from the US, as well as major Middle East producers the United Arab Emirates, Qatar, Kuwait and Saudi Arabia.
Up to August, China imported a total 4.226 million mt of LPG, not including from Iran, customs data showed.
Jovo Energy, an importer and distributor of LPG in southern China, is slated to load two 44,000-mt cargoes from Iran this month under its annual term contract, on board the VLGCs Gas Crystal and Sea Dragon, sources said.
The 48,980-dwt Gas Crystal, owned by Sinogas Management, is now in the Arabian Sea en-route to Fujairah, after leaving Shekou, in Shenzhen, September 26, according to Platts ship tracking software cFlow.
The 50,357-dwt Sea Dragon, formerly Oval Nova, is in the Persian Gulf, after leaving Tianjin September 12, cFlow shows.
Hong Kong-based Triliance Petrochemical Co., is carrying a cargo aboard the 49,242-dwt Carmen, formerly Sam Russ.
The VLGC is now off the Indian West Coast en-route to the Khor Fakkan waiting zone in the Persian Gulf, after departing from Raoping, in southern Guangdong province September 30, cFlow showed.
Alpine International, a trading firm which has been regularly moving Iranian LPG to Asia since February, will load a cargo on board the VLGC Alpha, which is owned by Sinochem International, sources said.
The 53,208-dwt Hong Kong-flagged vessel, formerly Jeanne-Marie, departed from Jiangyin, near Shanghai October 2, and is now off the Indian West Coast, according to cFlow.
Alpine International will also load a cargo on board the 49,618-dwt Gas Jasmine, which left Zhapu port in Zhejiang province September 29 and is currently off India's south west coast en-route to Khor Fakkan, cFlow showed.
Thailand's Siamgas is moving a cargo aboard the 51,466-dwt Schumi after departing the Persian Gulf early October and is now off Sri Lanka en-route to Singapore, cFlow showed.
The vessel last departed August 30 from China's Zhuhai Gaolan port, where Siamgas has a 200,000-cubic-meter underground LPG storage.
AMPLE SUPPLY TO CHINA
Trade sources said some Iranian parcels have also been resold to the spot market in recent months, while ample supplies have also seen two shipments facing discharge delays off China's coasts end-September.
Recently, a unit of crude oil importer Zhuhai Zhenrong -- Guangdong Zhenrong -- which has a term deal with Iran was heard to have sold a 10,000-mt parcel to a domestic buyer, sources said.
Iran's main LPG exporter Petrochemical Commercial Co., or PCC, in May last year awarded its first export tender issued since the EU ban, followed by another one in August.
Since then, PCC and other exporters such as Kharg Petrochemical Co. and Iranian Gas Commercial Co. have regularly been shipping LPG to Asia mainly via direct negotiations, while National Iranian Oil Co. started exporting term cargoes since January 2014, sources said.
But in move seen as its attempt to test the market for better prices than the deep double-digit discounts that Iranian exporters had been selling to Chinese buyers, PCC last month issued another spot tender, offering a 45,000-mt mixed propane/butane cargo for late September loading.
The tender attracted no bids and was withdrawn, traders said, adding that it could have been placed back into the export program to China.
On top of the shipments to Asia, three smaller vessels -- the 5,000-mt White Pearl, 5,900-mt Black Pearl and 3,600-mt Liberty N -- also call at Assaluyeh three times a month to load a total of 50,000 mt for deliveries to Iraq under term deals, shipping sources said.
Iraq's State Oil Marketing Co., or SOMO, on Monday closed a term tender for a total of 445,500 mt of supplies for 2015 deliveries.
Houston (Platts)--15Oct2014/259 pm EDT/1859 GMT
North Dakota posted a record 1.132 million b/d of oil production in August, the state's Department of Mineral Resources said Wednesday.
That output was up 17,910 b/d from 1.114 million b/d in July, the agency said in a statement.
The number of producing wells also reached an all-time high of 11,563 in August, up from July's 11,293, the agency said.
August natural gas production in the state reached a record 1.34 Bcf/d, jumping from July's 1.294 Bcf/d.
About 94% of the state's crude production, or 1.067 million b/d, in August came from the Bakken and Three Forks intervals, the two producing geological formations in the play.
Transportation out of the Williston Basin saw little month-to-month change. Barrels transported via rail were unchanged at 60% in August, while pipeline transportation rose 1 percentage point to 34%, the agency said.
Tokyo (Platts)--15Oct2014/434 am EDT/834 GMT
The Japanese government Wednesday denied a newspaper report which said Russia has proposed building a pipeline to transport natural gas to Japan.
The Nikkei reported earlier Wednesday that Russia has proposed the plan to connect the gas-rich Russian island of Sakhalin with the northern Japanese island of Hokkaido, and presented it last month, citing diplomatic sources.
The Nikkei said an offer apparently aimed at strengthening economic ties between the two countries amid stiff economic sanctions imposed on Moscow by the West.
But a senior official at the Japanese Ministry of Economy, Trade and Industry denied the newspaper report.
"Japan has not received any such reported proposal [from Russia]," Ryo Minami, METI's Director, Petroleum and Natural Gas Division, told Platts. Russian gas giant Gazprom declined immediate comment Wednesday.
Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe could discuss the proposal when they meet on the sidelines of the Asia-Pacific Economic Cooperation summit in Beijing over November 10-11, the Nikkei said.
By dangling low-priced Russian gas to Japan, Russia seems to be trying to drive a wedge between Group of Seven members as they turn up the pressure on Moscow over Ukraine, the Nikkei said.
But some in the Japanese government are cautious about entering into a new energy deal with Russia as relations continue to worsen between Moscow and Washington, a key ally of Tokyo, the Nikkei reported.
"Construction of a pipeline will depend on the Ukraine issue and negotiations over the Northern Territories," the Nikkei quoted a senior official in the Japanese foreign ministry saying, referring to the Russian-controlled islands claimed by Japan.
In the past Russian gas giant Gazprom has indicated that it is not interested in building a pipeline to Japan, and saw its planned Vladivostok LNG plant as its priority project, as it would guarantee greater export flexibility.
In recent days, however, the company has said that it now sees increased pipeline supplies to China as an alternative to the Vladivostok LNG project, which it was aiming to launch in late 2018-early 2019 with a final capacity of up to 15 million mt/year.
It is unclear whether Gazprom is planning to stall or cancel the LNG plant and what this could mean for supply plans to Japan.
London (Platts)--15Oct2014/856 am EDT/1256 GMT
Dutch and German spot contracts were higher Wednesday, paring some of the sharp losses seen late Tuesday.
By midday UK time, the TTF day-ahead contract last dealt 12.5 euro cents higher at Eur21.025/MWh, while the corresponding German GASPOOL and NetConnect prices were up 62.5 euro cents and 27.5 euro cents, respectively, at Eur20.975/MWh and Eur21.425/MWh.
Norwegian flows were once again strong.
Real-time delivery rates into Emden-Dornum on the Dutch/German border were at a rate of 147.5 million cubic meters/day at around midday UK time, compared with around 143 million cu m/d at the same time Tuesday, according to network operator Gassco.
Norwegian flows into the Netherlands for Wednesday were nominated 8 million cu m up day on day at 53 million cu m, while nominated flows from Norway to Germany were up slightly at 90 million cu m.
Russian gas is also flowing strongly into European markets at 229 million cu m, with flows through Nord Stream, Yamal and Brotherhood at 89 million cu m, 80 million cu m and 60 million cu m, respectively.
CustomWeather forecast temperatures at 4 C and 3 C above seasonal norms in Amsterdam Wednesday and Thursday, respectively, while Berlin was seen 5 C and 3 C above norms for the same days.
By midday UK time, November TTF last dealt 12.5 euro cents lower at Eur22.575/MWh, while GASPOOL and NCG front-month prices were down 10 euro cents and 12 euro cents, respectively, at Eur22.65/MWh and Eur22.88/MWh.
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SINGAPORE (Reuters) - Singapore, the world's largest bunkering port, plans to supply liquefied natural gas (LNG) to fuel ships by 2020, Minister for Transport Lui Tuck Yew said on Wednesday, as part of a global trend to move away from oil to gas to reduce emissions.
"We are working towards LNG bunkering in Singapore by 2020, hopefully earlier if possible," Mr Lui said at an industry event.
Sinapore's plans to start a pilot programme by early 2017 to fund up to US$2 million (S$2.55 million) per vessel for up to six LNG-fueled vessels for the testing of safety procedures and standards, he said.
More than 42 million tonnes of marine fuel has been sold annually in Singapore in the past three years, making it the world's largest bunkering port.
By Nick Cunningham | Wed, 15 October 2014 22:25 | 0
Oil prices continue to slide, putting enormous pressure on oil producers around the world.
Saudi Arabia has insisted it is willing to live with lower prices for quite a while as it seeks to maintain a grip on its market share. Kuwait also indicated its willingness to slash prices in order to keep output level. That sent oil prices lower on Oct. 14, as the markets reacted with a bit of surprise to the unwavering stance by OPEC’s leading members: WTI dropped 4.5 percent.
Lower oil prices are putting a strain on all producers, including Saudi Arabia, but Riyadh is hoping that the economic pain will be much greater for some of its competitors. That includes U.S. shale producers, which have higher average production costs.
In fact, an estimated 2.8 percent of total worldwide oil production could become unprofitable if oil prices drop below $80 per barrel, according to a new report from the IEA. Canadian oil sands projects topped the list, but U.S. shale might not be far behind.
But while Saudi Arabia tests the mettle of North American producers, it could be Venezuela that is the most vulnerable. As a fellow OPEC member, Venezuela has been the most vocal about the need to cut oil production and has called for an emergency meeting of the 12-member oil cartel. That is because Venezuela is in a much weaker position than many of the other member countries, and the recent drop in prices has raised alarm in Caracas.
Using state-owned oil company PDVSA as a piggy bank has allowed the Venezuelan government to increase social spending over the last decade, a key political objective of the late President Hugo Chavez and his successor, Nicolas Maduro. However, using oil revenues for a wide array of spending priorities has also starved PDVSA of money needed for investment in order to boost oil production, let alone keeping output level. Since 2000, Venezuela has seen its oil output drop from 3.5 million barrels per day (bpd) down to 2.5 million bpd.
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The bad news for President Maduro is that there was major unrest earlier this year even when oil prices were above $100 per barrel. That is because oil makes up 97 percent of Venezuela’s foreign earnings, and the country needs oil prices of around $120 per barrel for its bloated budget to break even.
Venezuela is in an economic crisis. Annual inflation is estimated to be in excess of 60 percent. The country’s economy actually shrank at a rate of 5 percent in the first six months of 2014. Shortages of food, medicine, shampoo, diapers, and other basics are so common that the government rolled out a plan this past summer to fingerprint people at grocery stores.
Crime is so rampant in the capital that people are afraid to go out at night. For those who can afford it, leaving the country has become the best option.
The government is heavily indebted, and Venezuela’s bonds are now competing with Ukraine’s for the mantle of the world’s riskiest. With bond yields surpassing 16 percent, Venezuela cannot keep up. There is a 50-50 chance of default within the next two years, according to credit rating agency Standard & Poor’s.
The sudden 20 percent decline in oil prices since June is compounding the problem and has the potential to throw the country into crisis. “Venezuela’s oil prices have been high for several years now, and the country is still struggling to pay its debt at those prices,” Russ Dallen of Caracas Capital Markets told The Wall Street Journal. Lower oil prices could bring things to a head.
The Maduro government desperately needs a rise in oil prices, but Saudi Arabia has so far rebuffed calls for an emergency meeting as it pursues a strategy of waiting out higher cost competitors. OPEC does not plan on meeting until Nov. 27. That is an eternity for a country that is beginning to unravel.
By Nick Cunningham of Oilprice.com
By DAVID M. HERSZENHORNOCT. 15, 2014
MOSCOW — A steep decline in oil prices is straining the budgets of major petroleum-exporting countries around the globe, raising a specter of spending cuts in Russia, where the economy is under pressure from Western sanctions, and posing a potentially grave security challenge for Iraq, which is already struggling to finance its fight against the Islamic State.
From Moscow to Caracas, Riyadh to Baghdad, in Tehran, Algiers, Kuwait City and Lagos, political leaders, finance ministers and central bankers have been scrambling to confront the plunge in prices — roughly 25 percent since a peak in June — driven by increased production in the United States and by projections of sustained cuts in demand in many developed countries, as well as decelerating growth in China.
In October 1956, Secretary of State John Foster Dulles, center, spoke at the United Nations on the Suez crisis. Later, the United States would use threats to withhold oil from Britain and France to force an end to their attempt to seize the Suez Canal.Energy Special Section: Oil’s Comeback Gives U.S. Global LeverageOCT. 7, 2014
Cheaper crude oil has lowered gasoline prices. AAA reported a national average price of $3.33 a gallon for regular unleaded.Oil Prices Continue Decline, Pressured by Saudi Action to Defend Market ShareOCT. 2, 2014
The price drop is mostly welcome news in the developed world, and particularly in Washington. Countries like Russia, Iran and Venezuela that in recent years have sought to thwart America’s influence could begin to moderate their behavior, as they come under growing financial pressure.
While Russia maintains reserves of hundreds of billions of dollars as a cushion for precisely this sort of price drop, there are already signs of tensions here.
At a meeting in Moscow this week with a government human rights council, President Vladimir V. Putin pointedly rebuffed a request for increased financing, citing the pinch from declining oil revenues.
“You know that energy prices have fallen as well as for some of our other traditional products,” Mr. Putin said. “Due to that, would we not, on the contrary, reconsider the budget toward reducing some spending?”
It was a notable departure from the bravado that Mr. Putin has shown in responding to Western economic sanctions over Ukraine, dismissing them as little more than an annoyance.
In another sign of mounting pressure, a spokesman for the Russian state-controlled oil company, Rosneft, accused Saudi Arabia of secretly manipulating prices — an echo of conspiracy theories about American and Saudi collusion against the Soviet Union during the Cold War.
Last week, Venezuela, which depends on oil for 95 percent of its export revenues, called for an emergency meeting of the Organization of Petroleum Exporting Countries to address the steep slide in prices, a move that other members rebuffed in favor of a regular meeting next month.
The price of a barrel of Brent crude, a global benchmark, was $83.78 on Wednesday, down from about $115 per barrel since its high in June.
Experts on energy policy say that prices are nearly certain to rebound in response to normal market forces and continued strong demand, particularly in the developing world.
And some of the surplus that is dragging down oil markets is a result of production increases in Iraq and Libya, both struggling with instability that could shut down their oil fields at any time and send prices soaring.
But in the near term, the big producers will probably face budget problems in varying degrees of severity, with an array of economic, strategic and political ramifications.
“It depends how long and how sharp the decline, but if oil prices stay around 20 percent lower, that is going to be very challenging for countries that depend heavily on oil to meet their budget requirements,” said Jason Bordoff, the director of the Center on Global Energy Policy at Columbia University in New York. “Many of these countries have implicitly high break-even numbers.”
Professor Bordoff said that Russia and Iraq faced particularly difficult circumstances, partly because of broader geopolitical tensions in each region. Russia, already squeezed by inflation and a drastic decline in the ruble, has found its ability to borrow money severely constrained by the sanctions. Iraq is facing a costly, and potentially open-ended, military conflict against the Islamic State.
“If oil prices were to stay in the range they are in now, we’ll see the Russian budget fall into deficit next year; that’s on top of the economic challenges they are already facing from sanctions and the decline in the value of their currency,” Professor Bordoff said. “Iraq has its own set of challenges with skyrocketing public expenditure requirements, large public payroll, food and energy subsidies. They need to rebuild a dilapidated armed forces.”
Some major oil producers are already experiencing substantially more budgetary pain from the decline in prices, particularly Venezuela, because of underlying economic problems, and Iran, which has faced years of Western economic sanctions over its nuclear energy program. Nigeria faces particular political uncertainty because it has a presidential election coming up early next year.
Venezuela has limited options in responding to the price decline, which leaves less money for social spending, government payrolls and subsidized imports of vital goods. The government could scale back on subsidized oil that it supplies to allies in South America and the Caribbean, including Nicaragua, Bolivia and Cuba. There is also some talk of raising the domestic price of gasoline, which is the cheapest in the world.
In demanding urgent action by the Organization of Petroleum Exporting Countries, Venezuela’s foreign minister, Rafael Ramírez, has also thrown around conspiracy allegations. According to a government news release, Mr. Ramírez demanded “some kind of action to stop the fall in the price of oil, especially since we are convinced that it does not result from fundamental market conditions but that there is price manipulation to create economic problems for the large oil-producing countries.”
The major question now looming is if OPEC, led by Saudi Arabia, will cut production and stabilize prices at a meeting next month.
Some analysts say that is a logical step, while others suggest that Saudi Arabia may allow lower prices to persist, in part to squeeze its main rivals — Iran and Russia — and in part to put pressure on shale oil producers in the United States, whose higher production costs make it harder for them to compete when prices are lower abroad.
Saudi Arabia’s relatively low production costs and its domestic spending program allow for a balanced budget at a price of roughly $95 a barrel, compared with $100 or more for Russia and even more for Iran. Saudi Arabia also has huge cash reserves to prop up its budget while prices remain low.
“The question is how much are you willing to eat into your cash reserves and for how long until you adjust your production down,” said Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington research organization focused on energy issues. “In the November meeting of OPEC you are going to see some of their members saying, ‘We cannot live with those kind of prices; we are going bankrupt; we want to cut down production.’
“Then you will have others, mainly Saudi Arabia, who might say, ‘Well, we don’t want to overreact.’ In the short run, I think most of the players can survive,” Mr. Luft said. “In the long run, beyond a year, I don’t think they have the means.”
For the United States and most of the developed world, a decline in oil prices is generally regarded as a macroeconomic plus, reducing costs for consumers and businesses and often lifting stock markets.
That classical view has begun to change, however, as the United States has increased its own oil production, particularly in states like Texas and North Dakota.
In Russia, the Kremlin and the Central Bank have insisted that there is no cause for panic. Official projections show oil prices rebounding to about $100 a barrel over the next three years, and government officials are adamant that the country’s cash reserves are sufficient to weather temporarily low prices.
In testimony before the lower house of Parliament on Monday, the head of Russia’s Central Bank, Elvira S. Nabiullina, said that despite the government’s confidence, the bank was assessing the risks of a severe and prolonged decline in oil prices, to $60 per barrel.
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“The central bank is currently working on a so-called stress scenario, emergency scenario so to say, which includes an abrupt, more noticeable oil price fall in a forecasted time span,” Ms. Nabiullina said. “Nevertheless, I think there are low chances of this.”
Mr. Luft, the Washington-based analyst, said it was hard to say whether the Saudis would eventually tighten the spigots in an effort to prop up prices, as they have in the past, or pursue a strategy of preserving market share, which means keeping prices relatively low.
“From them, what matters is how much money goes through the door,” he said. “They don’t care how many barrels they sold or pumped, but how much money in billions goes through the door. In the end, that’s what it is all about. It’s about staying alive, staying in power, making sure you don’t end up like Mubarak.”
By Andy Tully | Wed, 15 October 2014 22:00 | 0
Iranian officials are taking the current drop in oil prices in stride and don’t plan to demand a cut in production by OPEC.
During previous price declines, Tehran has called for deep reductions in output, but on Oct. 14, Shana, the news agency of the Iranian Oil Ministry, quoted Deputy Oil Minister Rokneddin Javadi, as saying, “The drop in oil price is short-lived.”
The article said when asked if the global drop in prices would hurt Iran’s budget, Javadi replied, “I don’t think so.”
On Oct. 14, the current price of crude was below $90 a barrel – the lowest since 2010. Oil industry and political observers say Iran needs the price to be as much as $140 a barrel to sustain spending by Tehran.
Javadi’s comments are curious not only because they reflect a shift in Iran’s view of oil prices-it is true that demand for oil, and its price, tend to decline in the autumn once the summer travel season ends in the West- but also because the current slump has been caused by the oil boom in the United States due to new crude extraction techniques such as horizontal drilling and hydraulic fracturing, or fracking.
Ordinarily, Iran has been alone among Middle Eastern countries in demanding production cuts as a way to prop up the price of oil -- its Arab neighbors have taken previous slumps in stride. Most recently, for example, Saudi Arabian oil officials have been discreetly signaling that it is comfortable with oil prices, and its neighbor, Kuwait, said on Oct. 12 that OPEC probably won’t cut production.
Now it appears that Iran is taking the same view. “At this time of year, it is normal to have some price weakness,” one person knowledgeable of Iran’s oil policy told Reuters. “And oil price weakness has been compensated for by the appreciation of the dollar.”
Previously, OPEC members have used weaknesses in U.S. dollar to validate their calls for higher oil prices, further sap the dollar’s strength, and limit the value of oil revenues based on the U.S. currency. Now, though, the dollar is at a four-year high compared with other currencies, helping to strengthen the value of such income.
On Nov. 27, OPEC members will meet in Vienna to review their production policy. With Iran’s new attitude, the only member of the cartel calling for an emergency meeting before then is Venezuela, even as fellow members Kuwait and Algeria are saying publicly there will be no production cuts.
And even if OPEC decides to cut output to help boost prices, it would be the first such decision since the global financial crisis in 2008.
By Andy Tully of Oilprice.com
Oct 15 (Reuters) - Oil prices will rebound after hitting a "floor," President Nicolas Maduro said on Wednesday, insisting the current rout in crude markets will not harm Venezuela's economy or social spending plans.
"The price of oil will hit its floor, and it will rise again," Maduro said after being asked at a news conference how the OPEC nation plans to deal with falling prices. "Venezuela will continue with its social plans ... Venezuela will move forward."
He declined to comment on what measures the government was planning. (Reporting by Brian Ellsworth; Editing by Ken Wills)
Crude oil prices continue to slide with surging production and weakening economic news. Key benchmarks are near to at a four year low, with West Texas Intermediate (“WTI”) closing at $81.84, well below the $100 to $120 range reached between 2010 and 2012.
In fact, the drops have been startling, with WTI closing down $3.90, or 4.77% today alone, and other key benchmarks have not fared better. Until recently, Brent Crude Oil has traded significantly higher than WTI. Surging production and better transportation options have significantly whittled away at the typical $10 to $20 per barrel spread over the last several years. Today for example, Brent closed down $3.85 or 4.53% at $85.04.
While price drops are not unusual during periods of weak demand; this time however, it presents an interesting turn from decades of dependency on the political climate in the Middle East.
Historical pricing has been affected by, and dependent upon, turmoil facing the Middle East. In times of war and geopolitical instability, prices have historically increased rather quickly, often overnight. As turmoil eased, so too would oil and gas prices, albeit at a much slower pace.
Based on historical data, one would expect prices to be dramatically spiking given current events in Syria, Iraq and Libya, yet for all of this instability, prices continue to drop. This, in turn, directly translates into lower gasoline costs for drivers at the pump, with many drivers experiencing unleaded gasoline below $3.00 a gallon.
The drop in price may appear to some as an indication of a weakening market due to conservation, renewables, and weaker economic data. While partially true, the decline also validates the strength of the domestic energy market. While the U.S. is still dependent upon imports, surging U.S. production means the country imports far less than it has in years.
According to the U.S. Energy Information Agency, in 2013 the U.S. imported approximately 33% of the petroleum consumed, the lowest since 1985. Stated another way, net crude oil imports are down over 25% in the last five years while the country is still more than 20% below its peak production of 1970.
Not only has the amount of oil imported changed significantly, where the oil comes from, has changed significantly as well. Perhaps just as important is where the imported oil comes from now. At a little over 3 million barrels per day, Canada has replaced Saudi Arabia as the largest U.S. importer. Once thought unimaginable, the Organization of the Petroleum Exporting Countries known as OPEC has seen its influence and clout vanish practically overnight.
For many countries, the low price of oil directly translates into economic woes, including the possibility of a contracting economy. According to a recent article in Bloomberg Businessweek, if pricing remains under $104 a barrel, Russia will face a drop in its gross domestic product by up to 1.5 percent. Coupled with biting Western sanctions from Mr. Putin’s Ukrainian folly, the temperature may not be the only numbers falling in Russia this winter.
Other countries such as Iran and Saudi Arabia will also feel the pinch as the budgetary break-even point for each country is $115 and $93 a barrel respectively.
For U.S. producers, expensive production costs may force smaller companies to the sidelines. If the price falls too low, areas dependent upon fracking technology may find it harder to find a profit, especially if oil were to drop into the $60.00 to $75.00 range.
While such low prices seem unlikely for the moment, one thing is for certain; the U.S. energy market remains strong, despite cheaper prices at the pump, and for now at least, that’s good news for everyone.
By Global Risk Insights | Wed, 15 October 2014 21:53 | 0
https://oilprice.com/images/tinymce/Evan1/ada251.png
On September 29, representatives from the five Caspian littoral states (Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan) convened in Astrakhan, Russia for a fourth round of negotiations on the legal status of the Caspian Sea. An agreement among the states will prove highly beneficial to Iran and, if a deal is reached in talks on the Iranian nuclear program between Tehran and the P5 + 1 group, may lead to a reversal of the decline in the Iranian oil and gas industry.
The age of Iran’s oil industry means that some of the country’s oil fields are maturing and production rates are declining. Current estimates put the rate of decline in Iranian oil production at 500,000 barrels per day every year. To boost output in the short term, Iran’s national oil company, the NIOC, needs to employ enhanced oil recovery techniques, including reinjection of natural gas into oil fields.
The NIOC, however, has not shown itself capable of mustering the expertise and technology needed to develop these fields. Moreover, sanctions prevent Iran from accessing the financial capital necessary to shoulder the billions of dollars of required investment. International oil companies are prohibited by sanctions from partnering with Iran to increase output levels.
Sanctions have also hampered development of the resources that lie under the waters of the Caspian Sea, just to the north of Iran, though they are not the only obstacle. The legal status of Caspian Sea resources has been in dispute since the end of the Soviet Union.
In a series of treaties signed in 1921, 1935, and 1940, Iran and the Soviet Union agreed to divide the resources of the Caspian Sea between them. The status of these treaties was put in limbo by the collapse of the Soviet Union and the appearance on the Caspian of 4 new littoral states: Azerbaijan, Russia, Kazakhstan, and Turkmenistan.
At the Almaty Conference in December 1991, the Soviet successor states agreed to uphold the commitments and treaties of the former USSR. For Iran, this means that its treaties with the defunct USSR should be the basis for any new agreements on the status of Caspian resources, and that the Caspian Sea should be governed by the principle of “condominium”, meaning that all resources in the Caspian Sea would be jointly owned and managed by all of the 5 countries that border it.
The other 4 littoral states disagree, and instead prefer that sections of the Caspian Sea are accorded to each country based on its relative proportion of the Caspian coastline, and sections are configured such that no oil resources being developed by one country are shared with another. Under this arrangement, the distribution would be as follows: Kazakhstan, 28.4%; Azerbaijan, 21%; Russia, 19%; Turkmenistan, 18%; and Iran, 13.6% – in this arrangement, Iran is the loser.
Iran has countered that, in the absence of an agreement on communal use of the sea and its resources, the only equitable solution is to divide the Caspian into five equal sections (20% for each country). It has also stated that no country should develop Caspian resources until a resolution on the status of the Caspian has been agreed to by all members, and that interim bilateral agreements concluded between Kazakhstan, Russia, and Azerbaijan to allow development of subsurface resources in the short term are illegitimate.
These are not idle words, though Iran has not taken any action against the production occurring northern Caspian. On July 23, 2001 two Iranian fighter jets and a gunboat intercepted a BP Amoco exploratory ship from Azerbaijan that was exploring an oil field disputed by Iran and Azerbaijan, and forced it to return to Baku.
Until recently, Iran had an incentive to delay reaching a consensus with the other states on the use of the Caspian Sea. By threatening to disrupt exploration until the status was settled, Iran could deter investors from initiating projects in the region and impede competitors’ petroleum products from reaching the market. In addition, no sizeable discoveries had been made in Iran’s portion of the Caspian Sea that would spur it to reach a settlement that would allow for development.
The situation, however, has changed.
In April and May of 2012, Iran’s state news agency announced the discovery of two oilfields in the Iranian section. These oilfields also provide the potential for a significant amount of gas resources as well, and may convince Tehran that it has a vested interest in resolving the Caspian dispute, not least because they are closer to Iran’s population centers and it is less costly than transporting oil and gas from southern Iran all the way to the north.
Of course, once the dispute is resolved, Iran will still have to grapple with the sanctions that have stunted investment in its maturing fields and natural gas sector. Progress on that front has been slow, but there is growing optimism that 2014 will be a pivotal year for the long-term viability of Iran’s petroleum industry.
By Leroy Terrelonge III
(Source: www.globalriskinsights.com )
Up 400,000 Barrels Per Day from August, Led by Libyan Output Recovery
London - October 15, 2014
Oil production from the Organization of the Petroleum Exporting Countries (OPEC) totaled 30.6 million barrels per day (b/d) in September, up 400,000 b/d from August and the highest level since December 2013 when the oil producer group pumped an average 30.65 million b/d, according to the latest Platts survey of OPEC and oil industry officials and analysts.
A further recovery in Libyan production and higher volumes from Iraq drove the increase.
"It's numbers like this that are contributing to the enormous slide in oil prices," said John Kingston, global director of news for Platts, a leading global energy, petrochemicals, metals and agriculture information provider. "The projections of the International Energy Agency this week reveal that this much production out of OPEC is far more than the world needs to keep inventories balanced. It's the challenge OPEC faces at its meeting in Vienna next month."
Libya produced an average 780,000 b/d in September, 230,000 b/d more than August's 550,000 b/d and the highest volume since July last year when production fell to 1 million b/d as a series of strikes and protests shut in fields and facilities.
Libyan production ramped up quickly in September after key export terminals Es Sider and Ras Lanuf reopened, reaching 925,000 b/d at the end of the month. However, new strike action in the east of the country has pushed output back to around 765,000 b/d, raising a question mark about whether Libya can sustain the higher levels.
Libyan production had been running close to 1.6 million b/d in early 2011 before the beginning of the bloody uprising against Moammar Qadhafi, fell to negligible levels that summer and eventually recovered to 1.4 million b/d in early 2013.
Iraq, meanwhile, boosted output in September by some 200,000 b/d to 3.15 million b/d, the survey showed. This was the highest level since June but still below the 3.28 million b/d estimated for May. Pumping and storage constraints continue to limit Baghdad's export capability, which is now concentrated on its southern terminals because the advance of militant Islamists across the north of the country has closed the key export pipeline linking Kirkuk with the Turkish Mediterranean.
The September output total leaves OPEC exceeding its 30-million-b/d crude oil production ceiling by 600,000 b/d, at a time of rising non-OPEC supply, in particular from the United States where the shale boom has revolutionized production, and falling demand.
The International Energy Agency (IEA) on Tuesday cut its forecasts of the full-year 2015 call on OPEC crude by 200,000 b/d to 29.3 million b/d. The call is the amount of oil OPEC must produce to keep inventories flat; it's arrived at by estimating global demand, and then subtracting non-OPEC output, and OPEC natural gas liquid (NGL) output. What's left is the "call."
OPEC's Vienna secretariat took an even more pessimistic view late last week, estimating the call on its crude at 28.4 million b/d in the first quarter of next year and at 29.2 million b/d for 2015 as a whole.
Oil prices have fallen precipitously in recent weeks, weighed down by bearish outlook. Brent crude futures, which were valued at around $115 per barrel (/b) in mid-June, dipped below the $100/b level in early September and have continued to fall, trading at levels below $84/b earlier Wednesday.
A call from Venezuela for an emergency OPEC meeting has so far gone unheard by the group's powerful Gulf bloc -- Saudi Arabia, Kuwait, the United Arab Emirates (UAE) and Qatar. Recent crude price cuts by these countries and by Iraq and Iran have fuelled the perception that OPEC's Middle Eastern producers are prioritizing the defense of market share, especially in Asia, which is drawing in exports from Latin America and West Africa that have been pushed out of the U.S. market by rising shale oil output.
Several senior officials from OPEC countries have downplayed the likelihood of an emergency meeting before the November 27 scheduled conference.
At the same time, however, there have been no indications of what action OPEC might take -- if any -- to reduce supply in support of prices. The cartel had informally embraced $100/b as an acceptable price for both producers and consumers. But now analysts believe Saudi Arabia could be happy to see the price fall to render U.S. shale oil production less economical.
OPEC meetings have been largely peaceful affairs since the acrimonious conference of June 2011 that ended without an agreement when there was opposition to a proposal from the Gulf camp to increase production by 1.5 million b/d to 30.3 million b/d. This proposed increase was based on an estimated actual level of 28.8 million b/d rather than the notional quotas under a 24.845 million b/d target agreed in late 2008 when oil prices were plunging as the global recession took hold.
A few months later, in December 2011, ministers agreed to set an official production ceiling of 30 million b/d for the entire group, including Iraq, but without individual country quotas.
If OPEC does decide to reduce output, whether in November or earlier, there could be some hard bargaining over how any cut will be shared.
For output numbers by country, click here. You may be prompted for a cost-free, one-time-only log-in registration. For the latest OPEC news features, visit this OPEC Features link and for an OPEC guide, access this link: http://www.platts.com/news-feature/2014/oil/opec-guide/index.
KEVIN ALLISON
CHICAGO — Reuters Breakingviews
Published Wednesday, Oct. 15 2014, 2:49 PM EDT
Last updated Wednesday, Oct. 15 2014, 2:49 PM EDT
The oil price is in free fall, down 27 per cent since June and 13 per cent so far in October. Saudi Arabia, the world’s traditional swing producer, has done nothing to defend the $100 (U.S.) a barrel floor price for Brent crude, which had not been breached since July, 2012. Why?
The indifference seems to be intentional. The kingdom increased production last month despite concerns that rapid growth in U.S. shale oil production, recovering output in Libya and Iraq and a slowing pace of demand growth may tip the market into surplus. Reuters reported on Monday that Saudi sources were comfortable with the price trends – although Prince Alwaleed bin Talal, the billionaire Saudi businessman, has expressed reservations on Twitter.
The laissez-faire policy is not only at odds with the country’s historical practice. It also looks politically unsustainable. The current $84 a barrel price is below the $89 which the International Monetary Fund estimates the Saudi government needs to fund spending at the high level promised in the wake of the Arab Spring in 2011. The Saudis have big foreign currency reserves and can borrow if necessary, but the change of tack is still puzzling.
One theory is that the Saudis want to discourage investment in non-OPEC supply, to support higher prices in the long run. But while Western oil majors may struggle to justify new investments in deep water or Arctic wells at current prices, the most rapid growth in production is coming from U.S. shale oil. To discourage investment there, the oil price would have to fall below $80 a barrel and stay there.
A simpler explanation is that the Saudis are trying to browbeat other OPEC members into acting like members of a cartel. In recent years, the kingdom has been forced to act largely alone to steady the market. Letting prices fall should turn up the pressure on slackers like Venezuela and Iran, which need far higher crude prices than Saudi Arabia to pay their bills, ahead of OPEC’s next meeting in November.
Whatever the explanation, the Saudi brinkmanship is hardly a sign of strength. It suggests a once-mighty cartel is being driven by markets, rather than the other way around.
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By Edward McAllister
NEW YORK (Reuters) - Saudi Arabia effectively started a global oil price war this month aimed at quickly denting U.S. oil output. Slowing a U.S. drilling boom, however, could take more than a year.
Many observers expect a downward spiral of global oil prices to rapidly dampen shale oil drilling in the United States, slow production growth and help bolster prices. Small producers vulnerable to sudden price moves may have to slow spending, fast reducing the amount of oil gushing to market.
But even as drillers consider cutting budgets for 2015, output may continue to grow through next year and possibly into 2016, according to experts and industry insiders.
Existing wells that have been drilled but not yet fracked will keep output surging for months, they said. Many drillers have long-term rig contracts and are loathe to pay costly penalties for dropping equipment they may need soon after. Most have hedged next year's production at much higher prices and are racing to lock in 2016, protecting their revenue even if the free-fall in oil markets continues.
At stake is not just the fate of a U.S. drilling frenzy that has transformed the North American energy picture and powered the U.S. economy, but the shape of the global market as OPEC leader Saudi Arabia hopes to take share from U.S. producers.
Saudi Arabia has privately told the oil market that it is willing to allow prices to slide as low as $80 for a year or two, a strategy seen aimed at U.S. producers. Kuwait and Iran have since said that they have no plans to cut production.That is putting pressure on companies such as Continental Resources and EOG Resources , whose share prices have fallen sharply over the past month.
A four-month rout in oil markets that has driven Brent crude to a four-year low at $85 a barrel poses the first major challenge to the U.S. shale sector since it emerged four years ago and sent oil output to its highest in a generation.
Much depends on how the industry responds to an unfamiliar environment of lower prices. The shale revolution has been driven by hundreds of disparate U.S. companies drilling thousands of new wells.
"It is like turning an aircraft carrier - you can't do it on a dime," said Roland Burns, chief financial officer of Comstock Resources in Frisco, Texas, which has operations concentrated in Texas, Louisiana and Mississippi.
MORE RIGS THAN EVER
Until now, the small- and medium-sized companies driving the oil boom have rarely looked beyond drilling and drilling more.
Oil rigs in North America reached an all time high of 1,609 last week, up 17 percent from a year ago, according to a weekly survey by oil services company Baker Hughes. U.S. output is the highest in 30 years, thanks to output from newly tapped and prolific shale formations.
To be sure, many producers that are now preparing their capital budgets for next year are likely to consider scaling back. Some have seen their share prices drop on concerns they may be overspending in a low-price year.
Wells Fargo analysts this week said they expect U.S. exploration and production spending in 2015 to be unchanged from this year. Due to the rapid 70 percent decline rate in shale oil wells after the first year, flat spending would cut shale production growth to just 200,000 barrels per day. U.S. oil output has surged by 1 million bpd in each of the past three years.
Comstock Resources may reduce its five oil-drilling rigs to three next year, Burns said in an interview. Magnum Hunter Resources , an oil and gas producer with acreage in some of the major U.S. shale fields, divested some of its oil assets earlier this year, fearing a decline.
"There is no question that lower prices will affect the oil business. You will see a change in direction by some companies," Chief Executive Gary Evans said in an interview.
TIME TO FEED THROUGH
But even if spending declines, some say, it will take time for that to translate into a substantial slowdown in output.
A backlog of oil wells that have been drilled but have yet to come online could keep output steady. In North Dakota, where crude from the Bakken formation is now below $80 a barrel, there were about 630 wells waiting to be hydraulically fracked at the end of July, a backlog of at least three months.
"It is not as though oil goes to $75 and everyone just panics," said Mark Hanson, an energy analyst at Morningstar. Prices would have to remain below $75 a barrel for a prolonged period before drilling slows. Some plays are profitable as low as $50 a barrel, he said, let alone $80.
Matador Resources , an oil and gas producer with operations centred in Texas, said on Tuesday that it plans to keep spending flat in 2015 if oil prices remain in the low $80 per barrel range. Even so, it still expects oil and gas production to increase by about 50 percent next year in part because of growth expected at the end of this year.
Many companies have also already locked in their 2015 hedges at higher prices that will make next year's output profitable, according to company presentations.
Some nervous producers are now moving gradually to sell 2016 too, even with prices for that year having tumbled from $89 to $81 a barrel in three weeks, according to Andy Lebow, senior vice president at brokers Jefferies LLC.
Genscape analysts expect the oil rig count to fall by 300 by the end of 2015, but even that would only slow oil production growth to some 600,000 bpd, according to their models. That is nearly enough to meet the increase in global demand this year.
(Reporting By Edward McAllister; additonal reporting by Jessica Resnick-Ault and Sam Adams; editing by Jonathan Leff, Peter Henderson and Steve Orlofsky)
LONDON: Oil prices reached new multi-year low points on Wednesday owing to a supply glut and weak global demand, before clawing back some ground as poor US retail data pressured the dollar.
Brent struck $83.37 a barrel — the lowest level for nearly four years — and the WTI contract dropped to $80.01, a point last seen more than two years ago.
In later deals, Brent North Sea crude for delivery in November stood at $84.89 a barrel, down 18 cents compared with Tuesday’s close.
US benchmark West Texas Intermediate (WTI) for November was down 13 cents at $81.71.
Losses were reduced however after official data showed US retail sales had dropped 0.3 percent in September — the first fall in seven months — raising concerns even US growth may catch the cold that has hit Europe.
The data caused the dollar to slide, making crude oil priced in the US unit cheaper for buyers holding rival currencies, pushing up demand.
Prices are however likely to continue falling “as long as OPEC makes no move to tackle this threat of a massive oversupply by reducing production,” said Commerzbank analyst Carsten Fritsch.
Currently, members of the Organization of the Petroleum Exporting Countries, such as Saudi Arabia, are in fact slashing the prices they charge customers for their crude in order to gain market share.
The International Energy Agency on Tuesday said it expects demand to have risen by just 700,000 barrels per day to 92.4 million barrels per day this year, 200,000 fewer than its previous growth forecast.
Market-watchers have blamed the slump in demand on weak growth in China, the world’s biggest energy consumer, and the eurozone, which some analysts have warned is flirting with recession.
Adding to the pain is an oversupply of the black gold caused by strong US production of shale gas and a return of Libyan oil on to the market after facilities that were closed due to civil unrest resumed operations.
“At some point, dwindling oil prices should be a positive for businesses but global headwinds, which include an Ebola outbreak and signs of slowing growth in China and Europe, have the upper hand for now,” said Desmond Chua, market analyst at CMC Markets in Singapore.
DBS Bank of Singapore pointed to concerns over weak growth in Europe’s core economies France, Germany and Italy.
“We’re not talking about Portugal and Greece anymore. It’s the big guys that are shrinking,” it said, adding that “the eurozone is on the cusp of its third recession in five years.”
Oil prices are plummeting, and OPEC is not cutting production to keep prices up.
To oil trader Anthony Grisanti, that means the organization is creating a price war not only with the United States and Canada, but within OPEC.
"There are certainly some member nations that have lower production costs themselves that are going to say 'hey if Saudi Arabia is taking an every man for himself attitude, we are too. We are going to produce as much as we can,'" Grisanti, founder and president of GRZ Energy, said in an interview with CNBC's "Power Lunch."
That means prices may continue to fall. At this point, $60 per barrel seems to be the base price for U.S. shale oil, he added.
On Tuesday, U.S. crude fell $1 or 1.2 percent to $81.96 a barrel after hitting a low of $80.01 early in the trading session.
Brent crude for November delivery, which expires on Thursday, fell $1.03, to $84.01 a barrel by 1:45 p.m. EDT, after trading earlier as low as $83.37 a barrel, its weakest since 2010. It fell nearly $4 on Tuesday, the biggest drop in three years.
Oil prices are plummeting, and OPEC is not cutting production to keep prices up.
To oil trader Anthony Grisanti, that means the organization is creating a price war not only with the United States and Canada, but within OPEC.
"There are certainly some member nations that have lower production costs themselves that are going to say 'hey if Saudi Arabia is taking an every man for himself attitude, we are too. We are going to produce as much as we can,'" Grisanti, founder and president of GRZ Energy, said in an interview with CNBC's "Power Lunch."
That means prices may continue to fall. At this point, $60 per barrel seems to be the base price for U.S. shale oil, he added.
On Tuesday, U.S. crude fell $1 or 1.2 percent to $81.96 a barrel after hitting a low of $80.01 early in the trading session.
Brent crude for November delivery, which expires on Thursday, fell $1.03, to $84.01 a barrel by 1:45 p.m. EDT, after trading earlier as low as $83.37 a barrel, its weakest since 2010. It fell nearly $4 on Tuesday, the biggest drop in three years.
Jeff Kilburg, founder and CEO of KKM Financial, told "Street Signs" he thinks oil's slide will continue, and said it won't be long before U.S. crude hits $75 a barrel.
"The 70s are momentarily away. As we see the stock market selling off, crude is definitely going to go down with it."
Lincoln Ellis, managing director at Westwood Capital told "Power Lunch" the larger issue is deflation.
Read MoreAs oil tumbles, pros expect further declines
To him, it's about "this global production issue, and whether or not we actually have the consumer demand that is going to pull through interest in people rebuilding stocks and gaining supply and pulling demand back into the energy market."
—Reuters contributed to this report.
Washington, D.C. - October 15, 2014
The U.S. Energy Information Administration (EIA) on Thursday is expected to report a natural gas storage injection between 88 billion cubic feet (Bcf) and 92 Bcf for the week ended October 10, according to a Platts survey of analysts.
An injection within those expectations would be above the 79 Bcf injected at this period last year, as well as the 78-Bcf, five-year average, according to EIA data. For the week ended October 3, the EIA reported a 105-Bcf injection that pushed total U.S. natural gas storage inventories up to 3.205 trillion cubic feet (Tcf).
This week's report is unlikely to show a third-straight, triple-digit injection as demand pushed higher last week and curbed injections, particularly in the East region,* analysts said.
U.S. residential/commercial demand last week reached its highest level since early May. Demand rose to about 16.5 Bcf per day (Bcf /d), an increase of 4.1 Bcf/d from the previous week, said Jeff Moore, storage analyst at Bentek Energy**. That was partially offset by falling power-generation demand, which saw a week-over-week decline of 800,000 million cubic feet per day to an average 22.3 Bcf/d, he added.
If EIA reports an injection in the middle of the expected range on Thursday, it would boost stocks to near 3.3 Tcf and make it more likely that inventories would surpass 3.5 Tcf by the end of October, Moore said.
The gas industry has refilled 2.383 Tcf since the end of March, when inventories hit an 11-year low of 822 Bcf. In order to reach the 3.5 Tcf level most analysts are expecting, another 295 Bcf has to be injected by the end of this month, or an average of 73.75 Bcf per week over the next four reporting weeks.
For more information on natural gas, visit the Platts website www.platts.com.
The weekly analyst survey is conducted by Platts' editorial team, and is published every Wednesday morning, one day ahead of the 10:30 a.m. (ET) Thursday release of the weekly natural gas storage report of the U.S. Energy Information Administration. Platts has been conducting this survey since January 2007. The survey includes 15 to 25 analysts, some on a rotational basis.
*In its weekly natural gas report, the EIA divides the U.S. into three storage regions: East, West and Producing. The full listing of the states contained in each can be found here.
**Bentek is an analytics unit of Platts, acquired in 2011.
By Nick Snow
Europe’s natural gas supply mix likely won’t change much without drastic policy interventions despite recent renewed concern over instability in Ukraine, a new Brookings Institution policy brief concluded. This effectively will ensure a continuing significant market share for Russia, it said.
“Over 2 decades of market reforms in Europe, overdependence on Russian gas as a problem has been overstated,” said Tim Boersma, an Energy Security Initiative fellow in Brookings’s Foreign Policy program and one of the four authors. “But a lot more needs to be done, particularly attracting more infrastructure investment.”
The lack of market development and integration in central and eastern Europe appears likely to remain a problem in the near and medium term, according to the policy brief, “Business as Usual: European Gas Market Functioning in Times of Turmoil and Increasing Import Dependence.”
During an Oct. 14 discussion of the policy brief, Boersma said, “We’ve known for a decade now that much more work needs to be done in countries like Hungary.”
This is demonstrated by its scenario where Ukraine no longer functions as a transit state for gas headed to Europe, the study said. While this would not have a meaningful impact on seven of the eight trading hubs the study examines, it potentially could lead to price spikes during 2015 in the eighth, Austrian Baumgarten, the report said.
By constructing additional interconnectors, reverse flow options, and storage facilities, countries like Poland and the Czech Republic are better situated now to resist market abuse than they were 10 years ago, it indicated.
LNG, other alternatives
Another of the study’s authors—Tatania Mitrova, who heads the oil and gas department in the Russian Academy of Sciences’ Energy Research Institute—said the policy brief started with comprehensive gas production, LNG, and pipeline data bases with a moderate global gas demand assumption.
She said it predicted that the Southern Corridor Pipeline from Azerbaijan will be expanded only after 2030, and that only already planned LNG terminals would actually be built in Europe, including one in Croatia that has been long delayed.
The study’s baseline scenario used a $100/bbl Brent crude price, extensions of Russian contracts for 10 years with 35% spot pricing, Russia’s building its South Stream Pipeline, and transit through Ukraine remaining accessible, Mitrova said. “We expect North American LNG to be used primarily in Asia, but affecting prices globally,” she said.
LNG shipping costs to Europe likely will keep Russian gas competitive, she added. “The Russian gas presence still will be considerable, with more diverse supplies,” Mitrova said. With Europe’s gas prices tied to those of crude, Russia’s gas becomes even more competitive as crude prices drop, she said.
The US agrees that Russian energy will remain important in Europe, but would like to see countries there diversify more, said a third speaker, Robin Dunnigan, deputy acting assistant secretary for energy diplomacy in the US Department of State’s Bureau of Energy Resources.
“We don’t think US LNG exports are a panacea for Europe’s energy problems, although they are affecting pricing,” Dunnigan said. “The fact we are importing less and exporting more gas has given a lot of European utilities more leverage with [Russia’s state gas supplier] Gazprom.”
Ukraine concerns
More immediate problems loom in Ukraine, which does not have enough gas to get through a normal winter after barely making it through the previous year’s heating season, Mitrova said. She expressed hope that Russian President Vladimir V. Putin and his Ukrainian counterpart, Petro Poroshenko, reach an interim 6-month contract at their scheduled Oct. 16 meeting.
“We’ve been working closely with the [European Union] on a proposal, and hope to reach an agreement in the next few weeks,” Dunnigan said. “We’re also looking at ways Ukraine can increase domestic production and improve its efficiency to a point that it ultimately can choose, rather than need, to buy Russian gas.”
The US government also is working with Ukraine on regulatory reforms so it can attract the necessary outside investments, she continued.
The Brookings policy brief said that European regasification capacity is expected to increase substantially in coming years, and LNG from North America will become competitive in Western Europe, particularly the UK, the Netherlands, and Belgium. LNG imports could help offset Europe’s declining domestic gas production, but won’t be a substitute for Russian gas, it emphasized.
The report also examined other alternative gas supply sources for Europe such as the Southern Corridor and South Steam pipelines and increased domestic shale gas production, but saw no evidence that supply alternatives will be transformative in the European gas supply mix in the near future.
Russia’s South Stream project doesn’t make sense to the US government, Dunnigan said. “It’s the same gas that’s already moving on other routes at a higher cost,” she explained. “We’re asking our European allies to look more closely at the numbers on it.”
