By Mark Shenk Oct 17, 2014 3:55 AM GMT+0700 0 Comments Email Print
U.S. crude oil imports from Saudi Arabia rebounded last week from the lowest level in more than four years, government data show.
Shipments from the desert kingdom doubled to 1.23 million barrels a day the week ended Oct. 10, according to preliminary data from the Energy Information Administration. Rising U.S. output won’t replace all Saudi imports because of qualities of Arab Light that make it prized by some refiners, said Nilofar Saidi, a crude oil market analyst at ClipperData LLC in New York.
“There will continue to be demand for Arab Light because it can’t just be replaced easily,” Saidi said by phone. “The key point is the difference between sour and sweet crude. There are unique characteristics to the sour crude from Saudi Arabia that make it ideal for lubricant production.”
Saudi Arabian oil imports have fallen from their peak as the combination of horizontal drilling and hydraulic fracturing, or fracking, unlocks supplies from shale formations in states including North Dakota and Texas. Crude production rose to 8.95 million barrels a day in the week ended Oct. 10, the most since June 1985, according to EIA estimates. Output will climb to 9.5 million barrels a day next year, the most since 1970, the EIA estimated Oct. 7.
U.S. imports of Saudi Arabian crude are down from a record annual average of 1.73 million barrels a day in 2003, EIA figures show.
Domestic Production
“Domestic production is displacing the Saudi barrels that used to arrive on the Gulf,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone yesterday. “The shale oil from North Dakota and Texas is finding its way to the Gulf where it’s needed.”
The kingdom was the second-biggest source of imports last week behind Canada, whose shipments to the U.S. topped 3 million barrels a day for the first time in the week ended Oct. 3. Canadian oil output is projected to increase 6.8 percent to 4.38 million barrels a day this year and climb to 4.47 million in 2015, the EIA said Oct. 7.
Saudi Arabia bolstered output by 50,000 barrels a day to 9.65 million in September, according to a Bloomberg survey of oil companies, producers and analysts. The kingdom was responsible for 31 percent of the production by the 12-member Organization of Petroleum Exporting Countries last month.
By Moming Zhou Oct 17, 2014 3:29 AM GMT+0700 0 Comments Email Print
SaveU.S. crude oil output is forecast to reach a 45-year high next year, swelling inventories and pushing down forward prices.
December 2016 futures for West Texas Intermediate oil became more expensive than December 2015 contracts on Oct. 9 for the first time since 2011. The 2016 futures traded at a premium of 58 cents today, compared with a discount of $1.95 on Sept. 29.
U.S. crude production will reach 9.5 million barrels a day next year, the highest since 1970, according to the Energy Information Administration. Stockpiles at Cushing, Oklahoma, the delivery point for WTI futures, are poised to grow from near the lowest level in six years as new pipelines move more oil to the hub from the north.
“People believe that next year, we will have higher inventories at Cushing, and we will have excess crude in the U.S.,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. “Changes in pipeline infrastructure are going to restore the balance at Cushing, facilitating the rebuilding of stocks there.”
WTI for December 2015 delivery gained 69 cents to $79.86 a barrel on the New York Mercantile Exchange today. December 2016 fell 1 cent to $80.44 a barrel.
The futures curve is also shifting as oil producers sell their production forward, Seth Kleinman, Citigroup Inc.’s global head of energy strategy, said on a conference call today.
Significant Volume
“There’s been a significant volume of producer hedging going through the back of the curve,” he said.
Net-short positions on WTI futures held by producers, oil users, and other merchants increased 29 percent to 49,934 contracts of futures and options in the week ended Oct. 7, the most since July, according to Commodity Futures Trading Commission.
“It’s another sign how rising U.S. production is driving the markets,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
Output in the U.S. has increased as a combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies in shale formations in North Dakota, Texas and other states.
Crude inventories grew by 8.92 million barrels last week to 370.6 million, the biggest gain since the week ended April 11, the EIA, the Energy Department’s statistical arm, said today. Cushing stockpiles gained 716,000 barrels to 19.6 million.
Flows into the U.S. oil hub are set to rise as Enbridge Inc. fills the Flanagan South pipeline from Flanagan, Illinois, to Cushing in early November and then starts service.
Rates on Tallgrass Energy Partners LP’s newly-started Pony Express pipeline have slowly increased, according to data from pipeline monitoring firm Genscape Inc. The line moves crude from Wyoming to Cushing.
By Mark Shenk Oct 16, 2014 10:22 PM GMT+0700 0 Comments Email Print
U.S. crude production climbed to the highest level in more than 29 years last week as the shale boom moved the country closer to energy independence.
Output rose 0.9 percent to 8.95 million barrels a day, the most since June 1985, according to Energy Information Administration estimates. The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S., including the Bakken in North Dakota and the Eagle Ford in Texas.
Production gains helped bolster U.S. inventories by 8.92 million barrels to 370.6 million barrels in the week ended Oct. 10, according to the EIA report.
U.S. crude production will rise to an average 8.54 million barrels a day this year, up from 7.45 million last year, the EIA said in its monthly Short-Term Energy Outlook on Oct. 7. Output is projected to climb 11 percent to 9.5 million barrels a day in 2015, the most since 1970.
West Texas Intermediate crude for December delivery slipped 94 cents, or 1.2 percent, to $80.84 a barrel at 11:13 a.m. on the New York Mercantile Exchange. It touched $79.78, the lowest since June 29, 2012.
By Isaac Arnsdorf Oct 16, 2014 10:03 PM GMT+0700 33 Comments Email Print
The bear market in oil is showing the world there’s still only one country in a position to choose winners and losers in the global market: Saudi Arabia.
The world’s largest oil exporter is trying to protect its market share by keeping its production steady even as prices hit a four-year low. Energy producers in turmoil, such as Russia, Iran and Venezuela, stand to lose the most, U.S. shale drillers and other Saudi rivals will suffer and industrialized importing countries including Japan will get a boost from cheaper prices.
“Saudi Arabia is the only one in the position of putting more oil on the market when they want to and cutting production when they want to,” said Edward Chow, a senior fellow at the Center for Strategic & International Studies in Washington. “Consumers win, producers lose.”
Brent crude, the international benchmark, fell as much as 29 percent since June 19 to $82.60 a barrel, the lowest since November 2010. Prices have averaged above $105 a barrel since 2011, the four highest years on record. Brent will stay higher than $80 a barrel, analysts at Bank of America Corp. and BNP Paribas SA said yesterday.
While cheaper crude erodes Saudi Arabia’s income, too, the country has enough reserves and credit to withstand the slump, Chow said. The kingdom needs $83.60 a barrel to balance its budget, and the central bank has $734.7 billion in reserve assets, the International Monetary Fund said. The Saudis ran deficits from the mid-1980s until the late 1990s and may be prepared to do so again, according to Chow. Brent traded at $82.96 as of 12:58 p.m. in London.
Calls requesting comment from the Saudi Oil Ministry were not returned.
Increased Output
Kuwait, Qatar and the United Arab Emirates should be able to weather lower oil prices for the same reasons, Fahad Al-Turki, head of research at Jadwa Investment Co. in Riyadh, said by phone Oct. 15. Countries that haven’t been able to save, such as Iran and Iraq, will be more vulnerable, he said.
Saudi Arabia increased September output 0.5 percent to 9.65 million barrels a day, according to data compiled by Bloomberg. The Organization of Petroleum Exporting Countries pumped 30.9 million barrels a day, the most in a year. Saudi Arabia, Iraq and Iran are offering the biggest discounts to crude buyers in Asia since at least 2009.
“The Saudis are trying to protect their patch in Asia,” Daniel Hynes, senior commodity strategist at Australia and New Zealand Banking Group Ltd., said by phone from Sydney Oct. 15.
With new drilling technologies pushing U.S. output to the highest in 28 years, the International Energy Agency predicted the U.S. would pass Saudi Arabia to become the world’s top producer by 2015.
Shale Boys
The Saudis are having none of that, T. Boone Pickens, the founder and chairman of BP Capital LLC, said Oct. 9 on Bloomberg Television.
“They may be just teaching the crowd in the U.S., the shale boys, a lesson,” Pickens said.
Lower prices could slow the U.S. boom because extracting oil from shale costs $50 to $100 a barrel, compared with $25 a barrel for conventional supplies from the Middle East and North Africa, according to the IEA.
The Saudis, OPEC’s biggest member, might actually want the price collapse because it hurts rivals Iran and Russia in addition to slowing U.S. drilling, said Bruce Jones, a senior fellow at the Brookings Institution in Washington.
The government in Tehran faces falling energy sales, its main source of proceeds, because of international sanctions over its nuclear program. Revenue from oil and gas exports fell to $56 billion in the 2013-2014 fiscal year, from $118 billion in the year ending in March 2012, the IMF said. Negotiators are seeking a comprehensive nuclear accord by Nov. 24.
Vulnerable Russia
“Knowing that Iran is going to struggle, that’s something Saudi Arabia would certainly enjoy,” said Reva Bhalla, vice president of global analysis at Stratfor, a geopolitical intelligence and advisory company based in Austin, Texas. Falling oil prices “put all the more pressure on Iran to try to seal a deal.”
Russia is also vulnerable because of its dependence on oil sales at about $100 a barrel, Bhalla said. U.S. and European sanctions over Russia’s involvement in Ukraine sent the ruble to a record low and the IMF reduced its forecast of economic growth for 2015 to 0.5 percent.
Oil at $90 a barrel will cut 1.2 percent from Russia’s GDP, according to Sberbank CIB, an investment bank.
The Russian budget loses about 80 billion rubles ($2 billion) for every dollar the oil price falls, according to Maxim Oreshkin, head of strategic planning at the Finance Ministry.
Importers Gain
Consumers in importing nations also stand to gain, especially in Japan, China and Europe, said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics in Washington.
Japan imports all its energy after closing nuclear reactors because of the 2011 Fukushima disaster. It hasn’t restarted any of its 48 plants even as the country’s regulator cleared two to reopen. Japan bought 4.5 million barrels a day last year, outranked only by the U.S. and China, according to data from BP Plc.
The blow to U.S. drillers is more than offset by savings for consumers. The roughly $20 decline in oil prices should boost U.S. gross domestic product by about 0.4 percent, according to Ethan Harris, an economist at Bank of America Corp. The stimulus should appear quickly because about half of Americans live paycheck to paycheck and will spend the money they save, Harris said. Any decrease in oil-industry investment would take longer to register, he said.
Strategic Reserves
The price drop is an opportunity for China to build up its strategic reserves, according to Andrew Kennedy, a senior lecturer at the Crawford School of Public Policy at the Australian National University in Canberra. China relied on imports to meet 57.4 percent of its crude consumption in 2013, government data showed. In the first eight months of this year, China imported about $157 billion worth of crude, with the most coming from Saudi Arabia at about 16 percent of the total, followed by Angola at 13 percent and Russia at 10 percent, according to customs data.
“Generally, the declining price of oil is a good thing for China as it could reduce the cost for the oil-refining industry,” Chen Rui, oil market researcher of CNPC Economics & Technology Research Institute, said in phone interview.
While lower prices will reduce the profitability of deep-water oil and gas projects, Petroleo Brasileiro SA (PBR), Brazil’s state producer, known as Petrobras, will benefit in the short term by removing subsidies on fuel, Chris Kettenmann, chief energy strategist at Prime Executions Inc., a broker in New York, said in a phone interview.
Lower Prices
Petrobras was able to sell gasoline in Brazil at a premium to international prices in late 2008 and 2009 during the most recent slump in global oil prices. Petrobras’s fields in the so-called pre-salt region will remain profitable if Brent stays above $45 a barrel, according to the company.
Lower oil prices may lead to less of a bonanza for Mexico as it ends a 76-year-old state oil monopoly and opens up to private investment, according to Marco Oviedo, chief economist in the Latin American country for Barclays Plc. The nation is set to hold its first round of auctions next year for oil production contracts that’s forecast to attract nearly $13 billion of investment a year through 2018, according to the Energy Ministry. It will also offer joint ventures with state-owned Petroleos Mexicanos.
“Mexico is going to have a very, very important round-one bidding process in just a few months,” Marcelo Mereles, a former Pemex executive who’s now a partner at EnergeA, an energy consultant, said in a phone interview from Mexico City. “ The lowered oil prices could cause bidders to be less aggressive and or shy away from investing in Mexico immediately.”
Strained Venezuela
Venezuela is showing more strain than its OPEC peers and called for an emergency meeting of the group, the country’s foreign minister said on the ministry’s Twitter account Oct. 10. President Nicolas Maduro is contending with a dollar shortage caused by years of currency controls, supply shortages and the world’s highest rate of inflation that deterred foreign investment.
Venezuela’s oil industry accounts for 96 percent of the country’s dollar export earnings, according to Petroleos de Venezuela SA, the state producer. For each $1 a barrel drop in oil prices, Venezuela loses estimated revenue of $700 million a year, PDVSA estimates. An average of about $85 a barrel would deny PDVSA about $11 billion.
Wild Card
“The real wild card in this whole thing is Venezuela,” said Philip Verleger, an independent consultant who worked in the Ford and Carter administrations. “The economic situation is getting really bad. It’s just possible things could blow up and you could lose a couple million barrels a day of exports.”
The country’s information and oil ministries didn’t respond to e-mails seeking comment.
Yields on dollar bonds sold by Nigeria jumped yesterday the most since they were issued in July 2013 to the highest level since April. The currency of Africa’s biggest oil producer weakened as Standard Chartered Plc said the oil slump may curb the country’s ability to support the naira leading up to February elections.
Exports of oil and natural gas accounted for 96 percent of Nigeria’s export revenues in 2012, the IMF said. The government in Abuja budgeted for oil at $79 a barrel in 2013 and saves surpluses from higher-priced years to use when revenue falls below target, according to the IMF.
Budget Deficit
In Angola, oil’s contribution to GDP will fall 3.5 percent this year and the government also feels the impact of lower prices, President Jose Eduardo dos Santos told lawmakers in Luanda, the capital, yesterday.
The southwest African country depends on oil for 46 percent of its GDP, 80 percent of government revenue and 95 percent of exports, according to the African Development Bank. Angola will probably have to increase its budget deficit, already estimated at 4 percent for this year by the IMF, if prices stay below the $98 a barrel used in calculating the 2014 budget, Markus Weimer, director of Faktor Consult Ltd., a London-based consultant, said in an e-mail.
The countries most vulnerable to lower prices, as measured by the percentage of their 2014 economic output derived from oil exports, are Equatorial Guinea (at 79 percent), Brunei Darussalam (74 percent), Libya (60 percent), Republic of Congo (57 percent) and Kuwait (55 percent), according to April 2013 estimates by the IMF.
The biggest beneficiaries, measured by the percentage of GDP spent on importing oil, are Singapore (43 percent), Seychelles (25 percent), Lithuania (23 percent), Bahrain (23 percent) and Liberia (20 percent), data show.
The global crash in crude prices is reverberating through the oil and gas industry, pressuring producers to curtail investment to protect profits and avoid cuts to dividend payments.
Projects in the Canadian oil sands, offshore fields in Norway and drilling-intensive U.S. shale deposits are among the most vulnerable as oil prices come perilously close to production costs. The world’s largest oil companies have rarely spent so much for so little reward.
Even before this week’s sharp drop-off in prices, French research house IFP Energies Nouvelles expected investment in the industry to fall 8 percent this year. With oil approaching a four-year low, producers will be even more cautious about sanctioning investment, chairman Olivier Appert said yesterday.
“Oil companies will think twice before launching new projects,” he said.
Austerity will also be severely felt by oil services companies, which rely on drilling and construction contracts from producers. So far this month the Bloomberg World Oil & Gas Services Index has dropped about 13 percent versus a 8.4 percent decline in the same index for oil products.
Exxon Mobil Corp., Royal Dutch Shell Plc and Total SA are already paring back as new investment fails to yield positive returns. Total said last month that capital spending in 2017 will be 11 percent below 2013’s peak.
“The situation is not sustainable,” said Yves-Louis Darricarrere, head of exploration and production at Total, France’s largest oil company. “It’s jeopardized some projects and caused delays or cancellations of others.”
Oil Sands
Since 2000, the industry has seen investment almost triple while crude supply has gained only 11 percent, according to Mark Lewis, an analyst with Kepler Chevreux SA in Paris.
In the Canadian oil sands, among the most expensive oil deposits in the world to exploit, a slowdown is already evident, and the International Energy Agency estimates about a quarter of the projects are at risk as prices fall.
Norway’s Statoil ASA last month postponed work on its Corner field project in Alberta for at least three years, in an effort to “prioritize capital to the most competitive projects,” said Staale Tungesvik, the company’s president for Canada operations.
And in May, Total said it would delay a final investment decision at its Joslyn field because of escalating costs. As far back as 2010, CEO Christophe de Margerie said that crude prices need to be at least $80 a barrel to justify investments in projects in Alberta.
In Norway, falling crude prices will cause more delays to offshore projects already threatened by investment cuts and rising costs, Bente Nyland, director of the Norwegian Petroleum Directorate, said today in an interview.
Less Drilling
The most leveraged producers will come under investor scrutiny due to the oil price pullback, which may result in less drilling next year, Greg Pardy, a Toronto-based analyst at RBC Capital Markets, wrote in a research note Oct. 14.
“Oil-sands producers, mindful of their financial positions and large capital outlays associated with developments, would likely adopt a more measured and patient approach when it comes to embarking on new projects,” he said.
At home, Statoil has postponed development of the Castberg field in the remote Barents Sea.
The largest oil companies are also pulling back from U.S. shale projects to avoid the investment necessary to keep production buoyant. Shell, for example, sold acreage in August in the Haynesville and Pinedale shale areas.
Reviewing Projects
If major oil companies decide crude prices will remain around $90 for an extended period “the rate at which new projects will get to market will slow down,” Richard Griffith, an analyst at Canaccord Genuity Ltd. in London, said in an interview. “Big oil companies will go back to the drawing board and re-assess projects and possibly ask projects to be re-tendered.”
Major oil companies “have to go offshore, into deep waters or unconventionals so the incremental barrels they are finding are more expensive and are only just enough to offset the natural decline rates of fields.” Jeffrey Woodruff, senior director for natural resources & commodities at Fitch Ratings, said in an interview.
An illustration of the challenges oil companies have faced in recent years in bringing large discoveries to market is the $48 billion Kashagan venture. Partners in the Caspian Sea project include Exxon, Shell, Total and Eni SpA. Long-delayed and over-budget, it entered production only briefly last year before being shut down due to leaks. It’s now undergoing expensive repairs and may not start back up again before 2016.
Oil Prices
Despite cuts from the largest oil companies, total global spending will continue to rise this year and next because of national and independent oil companies, although at less than half the rate as in previous years, IFP said.
The move to lower spending comes amid a drop in oil prices. New York futures fell below $80 a barrel today for the first time since June 2012. Brent crude oil traded at $82.93 in London, a decline of 25 percent this year.
The International Energy Agency this week reduced its projections for demand this year, saying growth would be the weakest since 2009.
“What is fundamental is that we can’t keep up spending if costs don’t come down because some projects are no longer profitable and in the longer term this could lead to a shortage in supply and capacity,” said Total’s Darricarrere.
Saudi Arabia, the world’s largest crude exporter, may no longer be willing to act alone to cut production to bolster oil prices, according to Societe Generale SA.
The kingdom’s apparent refusal to reduce output unless other members of the Organization of Petroleum Exporting Countries do the same led Societe Generale to cut its fourth-quarter price forecast for Brent crude by $12 to $88 a barrel, Mike Wittner, the New York-based head of oil-market research at the bank, said in an e-mailed note today.
OPEC members Iran and Venezuela and major producers outside the group such as Russia are coming under increasing financial pressure from the drop in prices of more than a quarter since June. Saudi Arabia has larger cash reserves than any of its fellow exporters and can balance its budget at a lower crude price.
“They do not intend to be the sole swing producer any longer but will play the role if OPEC as a whole plays the role too,” Wittner said of the Saudis. “They are painting a very bearish picture of a market where prices go down to production costs.”
North Sea Brent, the benchmark for more than half the world’s oil, has fallen by more than $30 a barrel from its June high, closing yesterday at $83.78 a barrel, amid a supply glut and slower growth in world demand. Ministers from OPEC’s 12 members will meet in Vienna on Nov. 27 to discuss production and price levels.
Balancing Markets
Saudi Arabia needs to sell at $83.60 a barrel to balance its budget, the International Monetary Fund said, and the central bank has $745.9 billion in reserve assets, data compiled by Bloomberg show.
OPEC estimates that global production must fall by more than 2 million barrels a day in the first half of 2015 to balance the market. This is too much for Saudi Arabia to cover on its own, according to Bloomberg oil strategist Julian Lee.
Six OPEC producers plan to boost output next year, including Iraq, Iran and Venezuela, and this may prompt Saudi Arabia to seek individual output quotas for member nations before it agrees to any cutbacks of its own, Lee said in a report today.
Saudi Arabia increased output by 0.5 percent in September to 9.65 million barrels a day, according to data compiled by Bloomberg. OPEC as a whole pumped 30.9 million barrels a day in the same period, the most in a year.
Lower prices could help Saudi Arabia regain market share by slowing the shale-oil boom in the U.S. Extracting oil from shale costs $50 to $100 a barrel, compared with $25 a barrel on average for conventional supplies from the Middle East and North Africa, according to the International Energy Agency.
BAGHDAD, Oct. 16 (UPI) -- Baghdad sees the national constitution as the best venue through which to solve oil disputes with its Kurdish counterparts, the oil ministry said.
Iraqi Oil Minister Adel Abdul Mahdi hosted Iraqi Deputy Prime Minister Rowsch Nuri Shaways in his Baghdad offices to discuss bilateral ties and laws relating to the oil and natural gas sector.
Shaways is a member of the leading Kurdistan Democratic Party.
The oil minister's office said both sides agreed on solving any issues related to oil sales according to the terms of the Iraqi constitution.
The minister said he would increase efforts to find "positive" and "sober plans" to overcome obstacles in the national oil sector, his office said Thursday.
A constitution implemented in 2006 says the federal State Oil Marketing Organization has exclusive control over petroleum exports, with the semiautonomous Kurdistan Regional Government taking 17 percent of all oil revenues.
There are disagreements, however, over what level of control KRG has over contracts and exploitation of oil reserves in its northern territory.
Norwegian energy company DNO said Wednesday it was exporting an average 90,000 barrels of oil per day from its Tawke field in the region to Turkey.
ABERDEEN, Scotland, Oct. 16 (UPI) -- Oil services company Wood Group Kenny said Thursday it secured an engineering contract to help develop a Scottish carbon capture and storage facility.
"We are leading the way in Europe in developing this innovative low-carbon technology," British Business Minister Matthew Hancock said in a statement.
Wood Group Kenny was selected to lead front-end engineering design for a subsea pipeline for the Peterhead CCS facility off the Scottish coast. The project is the first of its kind in the world to utilize CCS in association with a gas-fired power station.
British and industry leaders tout Peterhead as a transformative part of the government's effort to collect emitted carbon dioxide from the power and industrial sectors.
The International Energy Agency said last year CCS is a "necessary addition" to other low-carbon energy technologies meant to drive down global greenhouse gas emissions.
The British government in August said it could be a world leader in commercial CCS development, boasting of close to $1.7 billion in program investments.
"Wood Group Kenny is well placed to deliver high-quality, cost-effective solutions that will help achieve the targets of the U.K. government," regional director Bob MacDonald said in a statement.
OKLAHOMA CITY, Oct. 16 (UPI) -- Chesapeake Energy Corp. said Thursday it was selling its Utica and Marcellus shale assets to rival Southwestern Energy Co. for more than $5 billion.
Chesapeake, which has headquarters in Oklahoma, agreed to sell more than 400,000 acres in the Marcellus and Utica plays spread out over West Virginia and Pennsylvania. As of December, the company said the net proved reserves in the acreage was around 221 million barrels of oil equivalent.
"Today's announcement marks a major step in Chesapeake's transformation and a dramatic improvement in our financial strength as we seek to maximize value for our shareholders," Chesapeake Chief Executive Officer Doug Lawler said in a statement.
The Marcellus shale is the most productive basin of its kind in the United States. While production is below Marcellus, drilling productivity in the Utica shale basin has outpaced others in the region, including Marcellus.
Dutch supermajor Shell in August unloaded some of its shale assets in the Western United States to focus more on the Marcellus and Utica plays.
There was no comment on the acquisition from Southwestern Energy Co.
MOSCOW, Oct. 16 (UPI) -- Russia's deputy foreign minister told state media Thursday the Kremlin has "every right" to counter U.S. sanctions on the energy sector with its own response.
Deputy Foreign Minister Sergei Ryabkov said the Kremlin likely won't issue reactive sanctions against the United States, but felt the measures targeting the Russian energy sector were reflexive.
"Strictly speaking, we now have every right amid this mass of anti-Russian US sanctions to impose sanctions against the United States non-stop and in all the areas," he told state news agency RIA Novosti.
The Russian economy is struggling to cope with sanctions imposed on its energy sector in response the Kremlin's posture on the conflict in Ukraine.
Exports of crude oil, petroleum products and natural gas accounted for nearly 70 of all Russian export revenues in 2013 and the Russian Central Bank said it was struggling to keep Russian inflation in check because of U.S. and European sanctions.
Ryabkov didn't say which U.S. actions were sanctionable offenses.
Ties between Russia and its Western counterparts have taken a turn for the worse since Ukraine, a former member of the Soviet Union, started pivoting toward the European Union.
BRUSSELS, Oct. 16 (UPI) -- Cities across Europe are lining up to join the regional effort to combat the threats from climate change, the European climate commissioner said Thursday.
Commissioner Connie Hedegaard said 100 European cities have committed to an initiative meant to shore up the resilience to climate change.
"Good preparation will be much cheaper than cleaning up afterwards -- and it can save lives," she said in a statement.
A mayor's initiative was launched in March. With major population centers vulnerable to the adverse effects of climate change, the European Union says cities can lead the way in adaptation and in efforts to cut greenhouse gas emissions.
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.
European leaders meet next week to review their climate agenda. Targets for 2030 were criticized for lacking ambition.
STAVANGER, Norway, Oct. 16 (UPI) -- Norwegian energy company Det norske said Thursday it's one of the largest operators in the region now that it closed on an acquisition of a Marathon subsidiary.
Det norsk oljeselskap paid $2.7 billion total for the subsidiary in a deal unveiled in June.
"The sale of the Norway business was one of Marathon Oil's strategic priorities for 2014 and a continuation of our portfolio optimization strategy," Marathon President Lee Tillman said in a statement.
The sale includes the Alvheim floating production, storage and offloading vessel and 10 licenses in the Norwegian waters of the North Sea. Marathon said it produced an average 80,000 barrels of oil equivalent from its Norwegian assets last year.
Det norske said Thursday the acquisition makes it one of the largest operators in the region.
"We are acquiring a solid portfolio with high production rates and significant operational experience that adds to Det norske's exploration and development capabilities," Chief Executive Karl Johnny Hersvik said in a statement.
The Norwegian Petroleum Directorate, the nation's energy regulator, said average daily production for September was about 1.47 million barrels of oil per day, 2.5 percent above what NPD had expected and 10 percent higher year-on-year.
BISMARCK, N.D., Oct. 16 (UPI) -- State wide, more of the natural gas associated with shale deposits in North Dakota has been captured, a state energy director said.
North Dakota oil production is setting routine state records, with most of the output coming from the Bakken shale oil area. Gas associated with the oil had been burned off, or flared, because of a lack of infrastructure to capture it.
Lynn Helms, director of the North Dakota Industrial Commission, said in a monthly report flaring was decreasing across the state.
"The August capture percentage was 73 percent with increased daily volume of gas flared from July to August of 23.5 million cubic feet per day," his Wednesday report read. "The historical high flared percent was 36 percent in September, 2011."
North Dakota Gov. Jack Dalrymple in May announced startup company North Dakota LNG will build a gas processing plant in Tioga, the first of its kind for the state, to reduce flaring.
This week, Badlands NGL, LLC announced 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.
MOSCOW, Oct. 16 (UPI) -- Russian gas company Gazprom said it may be interested in exploration and production in Argentina through an agreement with energy company YPF.Gazprom Chairman Alexei Miller hosted Miguel Galuccio, chief executive officer of YPF, at his Moscow office to discuss arrangements for liquefied natural gas to the Argentine republic and joint developments in the Latin American market.
"In particular, they looked at the possibility of undertaking joint projects in such areas as exploration & development in Argentina," Gazprom said in a Wednesday statement.
According to Gazprom, Argentina last year produced 1.2 trillion cubic feet of natural gas and 223 million barrels of oil.
Gazprom last year won a tender to supply Argentina with 15 shipments of LNG with a total of 1 million tons through 2015.
The Russian gas company has sought to expand its portfolio beyond the struggling European market.
Both sides have focused on development the Vaca Muerta shale site in Argentina's Neuquen province, which Buenos Aires wants developed with investor cash.
WASHINGTON, Oct. 16 (UPI) -- With a major oil company fearful of the security situation in Yemen, the U.S. State Department said it's confident the government in Sanaa will stay in place.
The Yemeni government is facing dueling threats from the northern Houthi rebel movement and southern separatist groups that at times have been associated with al-Qaida.
U.S. State Department spokeswoman Jen Psaki told reporters during her regular press briefing she was concerned especially by Houthi rebel action, adding they were inconsistent with existing national partnership agreements.
Longtime Yemeni President Ali Abdullah Saleh stepped down in the aftermath of the Arab democratic revolts known as the Arab Spring. Psaki said Wednesday she was confident the government of President Abd Rabbuh Mansur Hadi, which replaced Saleh's, would stay in place amid the latest pressure.
Her confidence came the same day that Norwegian energy company DNO International declared force majeure in Yemen, meaning it was freed from contractual obligations because of circumstances beyond its control.
"Production in the republic of Yemen remains stable at over 7,000 barrels per day across the operated and non-operated blocks, notwithstanding the current security and political environment," the company said. "However, DNO is not yet able to resume drilling activities or the development of previous discoveries [because of insecurity]."
Porlamar, Venezuela (Platts)--16Oct2014/548 pm EDT/2148 GMT
Venezuela could import as much as 100,000 b/d of light crude in the next two years to use in upgrading the extra heavy crude produced in the eastern Orinoco Belt, a source in PDVSA's business development department said.
"The import of light crude will progress along with [the advance of] new projects in the Orinoco Belt," said the source, who asked not to be identified.
The source was a participant in the Heavy Oil Latin America Conference and Exhibition held this week on Margarita Island.
Sources said PDVSA plans to use Saharan Blend crude from Algeria as diluent for its heavy crude production in the Orinoco Belt. The company also plans to import Urals crude from Russia as feedstock to restart the shuttered lubricants plant at the Isla refinery on Curacao, the sources said.
This week, Brian and Herman answer US crude policy questions, including discussions on Alaskan exports, the Jones Act, and Brent and WTI prices.
Importing light crude "is a business decision because we have to extract the extra heavy crude," Ramon Silva, manager of strategic planning for PDVSA, said during the conference.
"We have no other choice," he said.
Silva said the light crude will increase the value of the extra heavy crude from the Orinoco Belt that has a viscosity of 8.5 degrees API and a high content of metals and sulfur.
"We have to look for light crude where we can find it," he said.
Despite the fact Venezuela has proven reserves of light and medium crudes on the order of 20 billion barrels, the production in traditional fields is now insufficient to cover the upgrading requirements of the extra heavy crude produced in the Orinoco.
"The reserves of conventional crude in Venezuela are exhausted. The Furrial and Lake Maracaibo basin are fields in plain decline, where you have to make an effort to recover the remaining reserves," Silva said.
The Orinoco Belt is a huge reserve basin totaling as much as 250 billion barrels, or 84% of Venezuela's total reserves. PDVSA operates five ventures in the zone, four of which are with foreign partners; production in the area averages 738,000 b/d.
Seven new projects, including upgrading facilities, are planned with international partners. The projects are expected to result in new production of 2 million b/d by 2019.
"We have to build the new upgraders [to achieve] the additional production," Silva told the conference.
The new projects are behind schedule, however. PDVSA planned on adding new production this year of 46,000 b/d, but has thus far reached only 19,900 b/d, Ruben Figuera, director of PDVSA's Orinoco Belt business development, said at the Margarita Island conference.
For their part, PDVSA's foreign partners in the new projects are not convinced of the advantages of replacing naphtha with light crude to upgrade the extra heavy crude.
"In prior tests on extra heavy crude from the Orinoco Belt, imported condensate from Nigeria has been used as a diluent, but it was not recovered in the refining process that took place in Chalmette refinery in the United States," said a source with a foreign partner who asked not to be identified.
"Diesel has also been used in the mixtures to reduce the viscosity of extra heavy crude, and it has been recovered," the source said. "There was not a loss, but using light crude as a diluent is like putting good money in a bad business."
Washington (Platts)--16Oct2014/532 pm EDT/2132 GMT
The world's largest oilfield services company said Thursday that despite the ongoing drop in crude oil prices, global oil market fundamentals remain "relatively well-balanced."
In an announcement of its third-quarter results, Schlumberger said that the current prevailing market view of short-term over-supply will be balanced by challenges of maintaining non-OPEC supply outside North America, limited growth in OPEC "sustainable" production, and geopolitical risk in key producing regions, such as Russia.
These factors "lead to a supply-demand situation that is relatively well-balanced," the company said in a statement ahead of its earnings call scheduled for Friday.
Front-month NYMEX crude settled at $82.70/barrel Thursday, up 92 cents from Wednesday's close but a drop of $24.56 from June 20.
In an earnings call Thursday, Martin Craighead, chairman and CEO of Baker Hughes, said that despite the price drop, North American operators are expected to increase their well counts and per well spending as they ramp up production in the near term.
Schlumberger reported revenue of $12.6 billion in the third quarter, a $1 billion increase from the third quarter of 2013, but saw limited growth in Russia due investment delays caused by EU and US sanctions, the company said.
Lagos (Platts)--16Oct2014/747 am EDT/1147 GMT
Nigeria is proposing an oil price benchmark of $78/barrel for the purposes of revenue calculations in its 2015 budget, according to a government paper seen Thursday, amid concerns over falling oil prices in the international market.
The 2015 oil price benchmark, which is slightly higher than the $77.50/b price for the current 2014 budget, was contained in the Medium Term Expenditure Framework sent by President Goodluck Jonathan to parliament.
The oil production target was set at 2.278 million b/d, lower than the 2.38 million b/d of oil output assumed for 2014, as the government admitted that crude oil theft still posed a major threat to aims to increase oil production.
"Our [oil price] proposal is also driven by the need to be cautious in our revenue projections given the volatile nature of oil prices and the need to rebuild our fiscal buffers, which have been very useful in periods of revenue shocks," the president said.
"It should be recalled that the country has had painful experiences with regards to crude oil price swings."
Oil, which has been trading well below $90/b in the international market in recent weeks, accounts for around 80% of Nigerian government revenue. However, large-scale theft of its crude and a reduction in exports following the increase in shale oil production mainly by the US, has posed a major threat to Nigeria meeting its revenue targets.
The US, previously Nigeria's biggest crude importer, no longer imports crude from the West African country.
Data released Wednesday by Nigeria's central bank, for instance, showed Nigerian oil output averaged 1.9 million b/d in the second quarter, unchanged from the previous quarter but well below the government's output target of 2.38 million b/d for 2014.
"Despite the government's efforts to curb incessant crude oil theft in the Niger Delta region, the menace has continued to dampen crude oil production," the central bank said.
Nigeria's gross oil receipts also dropped by 0.7% to Naira 1.79 trillion ($11 billion) during the period, the bank said.
Analysts said a planned increase in spending in 2015, a general election year, may be behind the proposal to raise the oil price benchmark, with expenditures put at Naira 4.817 trillion compared with Naira 4.7 trillion in 2014.
London (Platts)--16Oct2014/708 am EDT/1108 GMT
The Azeri Light crude market has picked up sharply this week, with differentials to Dated Brent climbing to more than five-and-a-half-month highs, as firmer distillate margins and a substantially tighter loading program in November add support to the market.
On Wednesday, cargoes of Azeri Light crude, CIF basis Augusta, were assessed at a $3.40/barrel premium to the BTC Dated Strip, their highest level relative to the 13-33 day forward Dated Brent curve since May 1, Platts data shows.
Prices in the market have been climbing since mid-September after bottoming out at their lowest levels since 2010 at a $1.20/b premium on September 9, but have made a sharp acceleration since the beginning of October.
Traders said the market has strengthened sharply on a combination of firmer refinery yields -- Azeri is distillate-rich and the approach of colder weather has led to stronger gasoil and distillate cracks -- and a much tighter export program in November.
"It's a small program, and it's gasoil rich with winter [coming]," a trader said.
Scheduled Azeri loadings out of the Turkish port of Ceyhan, which sees the bulk of volume each month, are set to drop to 15.495 million barrels in November in the shortest loading program since at least April 2012 due to seasonal maintenance within the BTC system.
Similarly, Azeri exports out of the Georgian port of Supsa are set to fall back to three cargoes in November from the five seen in October.
"There has been a bit of a shift with refiners enjoying nicer margins over the last month and half," a trader said.
"Sellers have recovered and you can see that a bit on the premium. That being said, there is the feeling that good margins are more sustainable in the medium-term and that even the refiners that were hesitating are now ramping up production. But there is still that over-capacity in Europe."
London (Platts)--16Oct2014/643 am EDT/1043 GMT
As the global oil price plunge continues mostly unchecked, analysts have begun to focus squarely on how low the price can go and what -- if anything -- could halt the decline.
With crude futures on October 15 falling to new four-year lows, the market is still getting its direction from a weakening demand picture, as described by the International Energy Agency on Tuesday, and the fact that oil producer group OPEC has shown no sign of reining in supply.
ICE Brent crude hit its lowest level since November 2010 earlier October 15, falling to $83.74/b, while NYMEX WTI crude was hovering close to $80/b for the first time since June 2012.
"Oil markets are struggling to find a floor," Credit Suisse said in a note Wednesday.
The bank also said it was cutting significantly its oil price forecasts for the first quarter of 2015, reducing its estimate for Brent from $95/b to $87/b and WTI from $85/b to $77/b.
"There is no sign that futures markets or physical markets are any closer to balancing, or finding some stability," it said.
Other banks have also cut their oil price forecasts -- Bank of America Merrill Lynch said Wednesday it was reducing its Brent price estimate for 2015 as a whole from $108/b to $98/b, and for WTI from $96/b to $90/b.
Most analysts believe there is room still for prices to fall further from the current lows, especially if OPEC does not act decisively to cut supply at its next meeting at the end of November.
"If the price decline is viewed as fundamentally driven, then moves to rebalance the market will merit strong consideration," IHS Energy said in a note.
"If little or no action is taken, market momentum could push prices to $80/b or lower for Brent," it said.
SAUDI ACTION, INACTION
One of the main factors pushing the price down has been Saudi Arabia's move to cut its official selling price -- suggesting it is most interested in defending market share.
Analysts also believe Saudi Arabia could be happy to see the price fall to render US shale oil production less economical.
"Saudi Arabia appears willing to accept a lower oil price, but what is motivating the largest OPEC producer here?" analysts at Commerzbank ask.
"One goal could be to force the other OPEC members to accept a greater share of any later production cut so that it does not have to bear the main burden itself," they said.
"Another objective could be for a lower price level to put the brakes on supply growth in other countries -- worthy of particular mention in this context is the US, which in recent years has accounted for the lion's share of increased non-OPEC oil production."
Analysts at Bank of America Merrill Lynch agree.
"A dip in prices could benefit Saudi Arabia by slowing down American shale oil investments and thus keep the US engaged in the Middle East for longer," they said.
"Higher inventories reduce the risk of a major spike and thus mitigate the likelihood of a European or Asian recession."
But there is still Saudi Arabia's own budgetary needs to take into consideration.
"Saudi Arabia's government budget break-even oil price level is $85/b in our estimates," Bank of America Merrill Lynch said, adding that Riyadh could consider cutting output if prices remain low.
HOW LOW?
Much attention has been given to how low the oil price can fall before it makes significant chunks of production uneconomical, especially in the US light, tight oil sector.
The IEA said Tuesday that roughly 2.6 million b/d of oil production was vulnerable to a Brent oil price below $80/b.
But despite widespread speculation that US shale oil would be the biggest casualty from the price downturn, the IEA concluded that most light, tight oil production in the US would still be profitable at a Brent price below $80/b.
Only 4.2%, or some 150,000 b/d, of the total US shale oil and condensate production is under threat due to breakeven levels above $80/b Brent, it said.
But IHS Energy warned that the dynamics of tight oil production and the financial behavior of many tight oil producers do point to the possibility of a deceleration in the pace of US production growth in a falling oil price environment.
"Especially if prices for WTI tumble below the $70-$80/b range," IHS said.
It added that if demand weakened further and oil supplies were not curtailed, then an oil price collapse below $70/b could materialize.
"Given ample oil supplies, further signs of weakening demand could have a disproportionate impact on price -- and a potential price recovery," it said. But others believe the lower limits may be close to being reached.
"We think the market is close to fully pricing in downside risks. We think the talk of market oversupply is somewhat overdone, particularly in the US where product inventories are running well below the five-year average," analysts at ANZ Research said in a note October 15.
Brussels (Platts)--16Oct2014/902 am EDT/1302 GMT
The EU is well prepared for a worst case scenario where all Russian gas supplies are cut for six months over the winter, EU energy commissioner Guenther Oettinger said Thursday.
"If we work together, show solidarity and implement the recommendations of this report, no household in the EU has to be left out in the cold this winter," Oettinger said as he presented results of the European Commission's first detailed analysis of the EU's resilience to Russian gas cuts.
"We can show our Russian partners that there is no point in using energy as a political strategy as we are ready for it," he said.
EU leaders asked for the analysis on fears the ongoing gas debt and price dispute between Russia and Ukraine would disrupt Russian gas supplies to the EU through Ukraine this winter, as has happened in previous disputes.
EU-Russian political relations are also worsening, with the EU imposing a series of sanctions on Russia since March over its role in the Ukraine crisis.
Russia is the EU's single biggest external gas supplier, and around half Russian exports to the EU go through Ukraine.
Oettinger said the EC looked at both cuts to all Russian gas supplies and cuts to Russian gas supplies to Ukraine.
"We do not expect either of these to happen," he said. But it was useful to show Russia that the EU could still manage, even in the most difficult circumstances, he said.
COOPERATION ENSURES HOUSEHOLD SUPPLIES
The results were that if national governments keep their borders open and allow price signals to direct gas flows, all vulnerable customers -- including all households -- would be able to be supplied under average winter conditions even with a six-month cut in all Russian gas supplies, the EC said.
Even if national governments close their borders and focus on their own interests, only Estonia would not be able to ensure supplies to households, the EC said.
Estonia would need access to storage in Lithuania to make up for lost Russian gas supplies over a sustained period.
The EC said national governments' emergency plans envisaged various ways to cope with potential supply cuts, including alternative gas supplies, storage, cutting demand and fuel switching where possible.
"In general, these plans are often too much limited to the national market and resort too quickly to interventionist measures," the EC said.
A market-based approach should be the guiding principle, with non-market measures, such as releasing gas from strategic storage and forcing fuel switching and demand curtailment, "only kicking in when the market fails", it said.
The longest gas disruption the EC has faced was three weeks in January 2009 when Russian gas supplies through Ukraine to the EU were halted while Russia and Ukraine disputed prices.
This revealed how difficult the EU found it to flow gas from west to east to make up for lost supplies in eastern Europe, and prompted investments in so-called reverse flow capacity to improve this, among other things.
"We are much better prepared, much more ready to respond than we were five years ago," Oettinger said. There have been no disruptions in gas supplies from Russia or through Ukraine so far, he said, and there was no reason to assume Russia would not meet its supply obligations to the EU.
The EC is to present the report to EU leaders at their meeting October 23-24 in Brussels.
Dhaka (Platts)--16Oct2014/229 am EDT/629 GMT
Chevron Bangladesh expects its natural gas output to have increased 25.17% year on year to 1.492 Bcf/d by the start of 2015, following the inauguration of the Bibiyana gas plant expansion project in November, Petrobangla chairman Hussain Monsur told Platts Thursday.
Chevron plans to increase natural gas output gradually from the Bibiyana gas field -- the country's largest with an average output of 850,000 Mcf/d from 17 producing gas wells -- from November, Monsur said.
In July 2012, Chevron announced a $500 million investment plan for gas plant expansion, new development wells and an enhanced liquids recovery unit.
As part of this investment, total daily production at the Bibiyana field will increase by over 300,000 Mcf/d, with 4,000 barrels of condensate produced. Chevron has also proposed to drill three new development wells at its Jalalabad gas field in Sylhet, a senior Petrobangla official said.
A source at the company told Platts that if approved, Chevron will drill these three development wells in the coming winter, while Monsur confirmed Petrobangla was "scrutinizing the Chevron proposal."
Chevron Bangladesh is expected to invest $130 million in the Jalalabad Growth project, increasing natural gas output by a further 90,000 Mcf/d, up from 230,000 Mcf/d at present.
Chevron Bangladesh declined to comment Thursday.
Chevron alone is producing 1.168 Bcf/d of gas from three onshore gas fields in Bangladesh -- Bibiyana, Jalalabad and Moulavi Bazar -- located in blocks 12, 13 and 14, respectively, in the country's northeast.
Gas shortages in Bangladesh have prompted Petrobangla to ration new connections to industries, fertilizer factories and power plants, hindering economic growth since June 2009.
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.
Washington (Platts)--16Oct2014/329 pm EDT/1929 GMT
Southwestern Energy's CEO on Thursday said the company's $5.375 billion purchase of 413,000 acres of Chesapeake Energy's southwest Marcellus and Utica shale gas leases and wells would be profitable, even as Wall Street investors expressed displeasure at the company's move.
CEO Steve Mueller rationalized the deal by saying he expects natural gas to keep trading around $4/Mcf, but "the market is missing some of the signals" that future demand will be robust.
Either way, "at 3.50/Mcf forever, we still get good returns," Mueller said on a conference call with analysts following the deal's announcement Thursday.
The Houston-based pioneer of Arkansas Fayetteville Shale, Southwestern has made a name for itself as a low-cost producer.
In its most recent second quarter report, it reported it spent $2.33/Mcf for wells that produce $3.98/Mcf gas after hedging for a 71% internal rate of return.
For the remainder of the year, Southwestern gas said it has 61% of its gas production hedges at $4.35/Mcf.
However, while investors liked Chesapeake Energy's sale, they were not pleased with the buyer.
Share prices for the two companies shot off in different directions Thursday, with Oklahoma City-based Chesapeake's shares gaining 14% to 20.23/share in midday trading, while Southwestern's stock price dropped 9% to $32.74, hitting a 52-week low.
Southwestern is buying 413,000 acres, in West Virginia and Washington County, Pennsylvania, with roughly 1,500 wells, of which 435 are shale, the companies said.
Current production from the properties is 184,000 Mcf/d of natural gas, 20,000 b/d of natural gas liquids, and 5,000 b/d of condensate.
The sale leaves Chesapeake, once the leading leaseholder in the Marcellus with 1.5 million acres, with 230,000 acres of leasehold, mostly in northeastern Pennsylvania.
"Qualitatively not surprised by either side," analysts at Houston energy investment bank Tudor Pickering Holt said in a Thursday note to clients. "Chesapeake monetization somewhat expected and the feeling was Southwestern needed next leg."
TPH said the deal values the undeveloped leases at $8,000-$9,000/acre, which is about one-third less than prevailing prices for wet gas leases in the Marcellus and Utica.
Standard & Poor's Ratings Direct said Chesapeake would get its BB-plus credit rating bumped up if it used the proceeds to pay down its debt.
S&P, like Platts, is a McGraw Hill Financial company.
Pittsburgh, Pennsylvania (Platts)--16Oct2014/536 pm EDT/2136 GMT
Marcellus and Utica basin natural gas producers will still be able to make money even if long-term prices do not substantially rise from current levels, speakers at a Platts oil and gas conference said Thursday.
However, several panelists at Platts' annual Appalachian Oil & Gas conference in Pittsburgh agreed that prices would rise in the next several years. New markets for gas -- spurred by retirements of coal-fired electric generation plans, the growth of gas exports to Mexico and new exports of LNG -- combined with a strong markets for natural gas liquids produced in association with the gas stream, likely will incentive continued robust production growth in the Appalachian region, the speakers said.
"We see prices firming in the future," said panelist Kevin Petak, vice president of ICF International, on the sidelines of the Pittsburgh conference.
"That's premised on a few things," Petak said. "There's market growth behind that, significant market growth. LNG exports, Mexican exports, petchem load and gas-fired power generation, all of those are expected to develop robustly over the next few years."
Gas prices at the major Appalachian Basin pricing points should soon break out of the $2.50/MMBtu-$3/MMBtu range where they have been trending over the last year, Petak said.
"Low prices are kind of the cure to low prices," he said. "That motivates the market growth and then there's midstream infrastructure development, pipeline expansions that permit the molecules from the Appalachian Basin to get out of the area and get to the markets where the market growth is."
Future Marcellus and Utica gas production growth in the "is very much dependent on markets growing and infrastructure being developed" he added.
Offering an alternative scenario, in which gas prices remain relatively low, "eventually the capital markets would influence some degree of restraint on the producers," Petak said.
"At a certain point capex has to be rationalized and development has to be rationalized. If prices are relatively low, the capex can't continue at the rate it is continuing," he said.
Jeffry Lambujon, an associate with Tudor Pickering Holt, said Marcellus prices should increase somewhat in the near future as Northeastern midstream infrastructure is built out, alleviating some of the flow constraints in the basin. This in turn could help incentivize operators in the basin to continue to ramp up production.
Also speaking on the conference sideslines after the panel discussion, he said Tudor Pickering's modeling calls for a 65-cent differential to NYMEX gas price in the northeastern portion of the Marcellus and a 50-cent differential in the southwestern part of the basin in the 2015-16 time frame. Because different producers use different pricing metrics, this might influence their investment decisions and drilling schedules, Lambujon said.
Some producers base their price assumptions on a bid-week on a bid week average, while others might use a [Platts] Gas Daily last-day of bidweek price.
"It also depends on which company we look at," he said.
Lambujon cited a recent Tudor Pickering report that examined the breakeven economics for Marcellus producers to determine the conditions necessary for them to generate a 10% after-tax rate of return.
"We found of the rigs that are running, 80%-90% of them could generate returns still at sub-three bucks per Mcf with 55% of the rigs able to generate the returns at two bucks per Mcf," Lambujon said.
The latter conditions were found "in those counties where the returns were aided by strong liquids yield," he added.
"Depending on the operator and the quality of their acreage, some could still generate acceptable returns in poor pricing environments," he said.
LONDON, 1 days ago
Iran, in a change of tack, is saying it can live with lower oil prices, moving closer to the views of Saudi Arabia and other Gulf Opec members and reducing the likelihood of any collective cut in Opec output to support prices.
Opec's traditionally second-largest producer is normally among the first members of the Organization of the Petroleum Exporting Countries to call for supply cuts to support prices. Iran needs relatively high oil prices to balance its budget, analysts say.
But a drop in oil prices - which fell towards $86 a barrel, the lowest since 2010 - did not prompt calls for cuts in Opec supply.
"At this time of year, it is normal to have some price weakness," a source familiar with Iran's oil policy told Reuters. "And oil-price weakness has been compensated for by the appreciation of the dollar."
Opec's Gulf Arab producers are at ease with lower prices. Saudi Arabia has been quietly telling market participants it is comfortable with lower oil prices, a shift in policy that may be aimed at slowing the expansion of rival producers including those riding the US shale oil boom.
Another core Gulf Opec producer, Kuwait, said Opec was unlikely to cut production.
Western sanctions have drastically reduced Iranian oil output and exports and have limited its ability to participate in output cuts at a time when Tehran's energy-dependent economy is suffering from much lower oil revenues.
In the past, Opec countries have cited a weakening dollar as a reason to justify higher oil prices, which erode the purchasing power of dollar-based oil revenues.
But the dollar is close to a four-year high against a basket of currencies, helping offset the drop in prices.
"I am not worried at all," a second source familiar with Iranian thinking said recently, when asked about the drop in oil prices.
Opec meets to review policy on November 27 and such comments add to the sense that a collective cutback to support prices - which would be Opec's first since the 2008 financial crisis - looks unlikely - at least for now.
Iran's deputy oil minister said the recent drop in oil prices is short-lived, the oil ministry's news agency Shana reported.
Rokneddin Javadi, who is also the managing-director of the National Iranian Oil Company (NIOC), asked if the fall in oil prices would harm Iran's budget, said: "I don't think so."
The IMF has estimated that to achieve a zero fiscal balance Iran needs oil prices to be $130 a barrel, the second-highest after Libya of eight of Opec's 12 members it looked at.
Iran, traditionally the No 2 producer in Opec, was overtaken by Iraq in 2012 after European sanctions on Iran forced it to reduce exports and as Iraq expanded supplies with the help of foreign oil companies. -- Reuters
DUBAI, 1 days ago
The UAE has asked bidders for its biggest onshore oilfields to extend their offers by two months until December 31, sources familiar with the matter said, as the country considers bringing in Asian firms after decades-long partnerships with western majors.
Nine Asian and western firms have bid for stakes in the Abu Dhabi Company for Onshore Oil Operations (Adco) concession after a deal with western oil majors that dates back to the 1970s expired in January.
State-run Abu Dhabi National Oil Company (Adnoc) has asked the nine bidding companies to extend offers that were due to expire around October 22 until December 21, three sources said.
Industry observers say any changes in the concessions would be made at the highest decision-making body for the oil and gas industry, the Supreme Petroleum Council. They say there is a difference in opinion inside the SPC over whether to stick with western companies, or make room for newcomers from Asia, while some would like to see Adnoc operating the fields alone.
Adnoc could not be reached for comment and none of the nine companies would comment. One source said however that it was unlikely any company would refuse Adco's request.
"Is any company going to say 'no our bids have expired'? The answer is no. No company is going to go through this effort and then say our offers are not valid anymore," the source said.
ExxonMobil, Royal Dutch Shell, Total and BP – have each held 9.5 per cent equity stakes in the Adco concession since the 1970s. Portugal's Partex had a 2 per cent stake, and the rest was held by Adnoc.
After the deal expired in January, Adnoc took 100 per cent of the concession. Shell, Total and BP have made their new bids, which are being evaluated by the government of Abu Dhabi, the capital of the UAE, while Exxon has decided against bidding, sources have told Reuters.
US firm Occidental Petroleum, Italy's Eni, China National Petroleum Corp (CNPC), Norway's Statoil, Japan's Inpex and Korea National Oil Corp have also bid for the new deal.
Each company submitted two proposals last year - one for a 5 per cent stake and another for a 10 per cent stake, with a one year validity, the first source said. -- Reuters
DUBAI, 1 days ago
Dubai Petroleum Establishment (DPE) owned 100 per cent by the Government of Dubai and responsible for Dubai's offshore oil and gas development and production, has identified significant volumes of gas in its T-02 deep gas exploration well.
The high pressure and high temperature T-02 well was drilled to 18,248 feet (5,562 metres) into the Pre Khuff formation and is the deepest well in Dubai to date.
The well is in the offshore Fateh field where oil and gas was first discovered at depths of around 10,000 feet in 1966.
While drilling in the Pre Khuff, formation gas flowed into the T-02 well bore on a number of occasions. Current indications are that the gas is largely methane with no H2S content.
An earlier well, T-01, was drilled in to the Khuff formation in 1981 to a depth of 17,397 feet but test results indicated that significant levels of H2S and nitrogen were present which made gas production and treatment difficult and expensive in an offshore environment.
The new well has been wireline logged to evaluate the potential of the formations and there are some 390 feet of gas rich zones out of the 900 feet drilled and logged in the Pre Khuff.
The well is currently being suspended to allow for later re-entry, stimulation and long term production testing. Until the testing programme has been completed, potential reserves and possible production rates cannot be estimated accurately.
The planned production testing procedures require the use of specialist items and equipment that have long lead times of delivery.
Oil slide deepens as economic worries mount
SINGAPORE, 17 hours, 19 minutes ago
Oil fell more than $1 a barrel on Thursday, with Brent crude hitting a fresh four-year low at below $83, as growing concerns over the global economy stretched a four-month rout.
Brent has lost more than 28 per cent since June amid slow demand and abundant supply, with losses accelerating in recent weeks on signals that the Organization of the Petroleum Exporting Countries will not slash output to rescue prices.
Economic concerns accelerated losses in oil prices which have been hit hard by a global supply glut.
Brent crude for November delivery had dropped to $82.72 a barrel, the lowest since November 2010. The contract, which expires on Thursday, was down 53 cents at $83.25 a barrel by 0649 GMT.
US crude fell 99 cents to $80.79 a barrel. It hit a low at $80.01 on Wednesday, the weakest since June 2012.
The glut in the Atlantic Basin has helped fuel the collapse in oil prices, said Mark Keenan, head of commodities research in Asia for Societe Generale in Singapore.
"That's been well documented and well understood but it nevertheless is still a strong issue," he said. "You've got concerns about global growth, specifically in Europe and China as well."
Global economic worries deepened this week after China's consumer inflation fell to near five-year lows and US producer prices declined for the first time in more than a year, sparking a sell-off in risk assets.
The International Energy Agency this week cut its oil demand growth forecast for 2015 as global economies remain weak, with chief analyst Antoine Halff saying some Opec members might prefer to keep selling at lower prices than lose their market.
Venezuela is calling for an emergency meeting of Opec - ahead of its next scheduled gathering on November 27 - to halt the slide in oil prices.
"Concerns over weak demand continue to pervade, with weakness likely to persist until signs that the supply side is reacting," ANZ analysts said in a note.
US crude inventories rose 10.2 million barrels in the week to October 10 to 370.7 million barrels, data from industry group the American Petroleum Institute showed on Wednesday..
This was far higher than analysts' expectations for an increase of 2.8 million barrels. - Reuters
The St. Petersburg Times
Published: October 17, 2014 (Issue # 1833)
Russian billionaire Mikhail Fridman
Photo: Andrei Makhonin / Vedomosti
A $6.5 billion attempt by Russian billionaire Mikhail Fridman to buy the oil and gas operations of German utility firm RWE, which has operations in British coastal waters, could be blocked by London, the Financial Times reported Wednesday.
The purchase, if completed, would be the first major acquisition for Fridman's Luxembourg-based fund LetterOne. The fund was set up last year to invest proceeds from the sale by Russian tycoons of their stake in private Russian oil firm TNK-BP to state owned Rosneft last year.
United Kingdom Energy Minister Ed Davey was "not minded" to give official approval to the sale, the Financial Times reported citing unnamed sources.
The U.K. government is apparently reluctant to approve the sale due to Western sanctions imposed this year on Moscow for its annexation of the southern Ukrainian region of Crimea and support for separatist rebels in the east of the country.
Fridman is not among dozens of Russian businessmen and officials who have been hit with asset freezes and travel bans as a result of sanctions. LetterOne is not a sanctioned company.
A consortium of four Russian billionaires, including Fridman and German Khan, his business partner in LetterOne, were handed $28 billion for their stake in TNK-BP in a $55 billion deal last year. The sale turned Russia's state-owned Rosneft, a key target of Western sanctions, into the biggest publicly-listed oil company in the world.
By Anthony Zurcher
Lower oil prices, reflected in falling petrol prices at the pump, have been a boon for Western consumers. Are they also a potent US weapon against Russia and Iran?
That's the conclusion drawn by New York Times columnist Thomas L Friedman, who says the US and Saudi Arabia, whether by accident or design, could be pumping Russia and Iran to brink of economic collapse.
Despite turmoil in many of the world's oil-producing countries - Libya, Iraq, Nigeria and Syria - prices are hitting lows not seen in years, Friedman writes.
“This is business, but it also has the feel of war by other means: oil”
Thomas Friedman
New York TimesAnalysts identify a number of possible reasons for the steep drop - increased US production, slowing economies in Europe and China and steady production from the Organisation of Petroleum Exporting Countries (Opec).
Rather than look at the causes, however, Friedman says to look at the result - budget shortfalls in Russia and Iran - and what it means.
Who benefits? He asks. The US wants its Ukraine-related sanctions against Russia to have more bite. Both the Saudis and the US are fighting a proxy war against Iran in Syria.
"This is business, but it also has the feel of war by other means: oil," he writes.
Paul Richter of the Los Angeles Times agrees that both Russia and Iran are starting to feel the squeeze of lower prices, although he doesn't go as far as Friedman in speculating about a secret war.
New York Times columnist Tom Friedman says it's tough going for petro-dictators
"The economic pressure isn't expected to change Putin's aggressive efforts to retain strong influence over Ukraine, which he considers non-negotiable," Richter writes. "But they are causing strains in his relations with the Russian elite and business establishment, two pillars of his political support."
As for Iran, he writes, an oil price of anything less than $100 [£62.41] a barrel will create onerous budget deficits and undermine the nation's position in ongoing nuclear negotiations with the West. The closing price on Wednesday was $81.40.
“One can only hope that the oil sheikhs will come to their senses, curtail production and stabilize prices at least at $90 per barrel”
Nikolay Makeyev and Konstantin Smirnov
Moskovskiy Komsomolets
"Iran's economic resurgence had enabled Iranian officials to claim they could get by even if the talks collapsed without providing further relief from tough international sanctions," he writes.
In Russia, the media have taken notice.
"The Russian economy's dependence on energy resources, gas and oil first and foremost, is often compared to drug addiction; people say that it is 'on the oil needle'," write the editors of Nezavisimaya Gazeta (translated by BBC Monitoring).
"In this case, dealings to decrease oil prices on the global market can justifiably be compared to triggering agonies that are no less painful than withdrawal from a drug. And this is being done with obvious geopolitical aims to undermine the country's economy and its influence on the global arena."
Nikolay Makeyev and Konstantin Smirnov write in Moskovskiy Komsomolets that they fear a more severe replay of the 2008-09 economic crisis: "One can only hope that the oil sheikhs will come to their senses, curtail production and stabilise prices at least at $90 per barrel."
Friedman's neo-Cold War theories aren't the only speculation making the rounds at the moment, however. For some analysts, the oil drop has everything to do with increased US production threatening Saudi Arabia's standing as the pre-eminent oil-producing nation.
Russia and Iran, in this formulation, are just not-so-innocent bystanders.
"The Saudis have seen the oil price stable through international geopolitical crises, first by increasing production to accommodate Iran, Syria and Sudan's decreasing production and then by accommodating Iraq's rising production," writes Akhil Handa of the Indian Republic.
That's changed, however, with the 70% increase in US production over the last six years.
"In a bid to restore balance Saudi could be playing its cost advantage against the higher-cost shale oil producers," he continues. "Saudi will perhaps have to let oil prices slide to $75-80 and let it stay there for a while for some US drillers to move out of the businesses and hence pricing power to get restored back with Saudi."
What's clear is that the sharp drop in oil prices is creating very distinct winners and losers on the world stage. What's not so clear is who, if anyone, is pulling the strings.
It's human nature to speculate about the schemes of behind-the-scenes players when the stakes are so high. It can also be comforting - a much preferable alternative to a system where the health of nations is determined by the random permutations of fate and the chaotic fluctuations of an uncontrollable market.
7 hours ago | October 16th, 2014 17:39:16 GMT by Adam Button | 8 Comments
Venezuela has requested an extraordinary OPEC meeting to discuss the US flooding markets with oil, according to Maduro.
I can see how countries like Venezuela and Russia would think the US is trying to flood the market and crush prices. But what I think has happened is that shale producers and others have been caught out by the swift decline in prices over the past few months and begun to hedge aggressively.
That selling was compounded by oil funds getting blown out in the past week.
All and all, it’s been a dramatic decline and I think oil longs might want to dip their toes in here. The best trade I see is long Brent/short WTI.As an aside, I just learned that retail gasoline prices in Venezuela are the lowest in the world at less than 2-cents per litre. That’s insane.
EU’s simulation of gas crunch scenario finds ‘good neighbour’ policy could limit power cuts to just one nation: Estonia
Russia is the EU’s biggest fuel supplier, providing the bloc with 30% of its gas Photograph: ALEXANDER ZOBIN/AFP/Getty Images
A total shutdown of Russia’s gas supply to Europe will not cause blackouts this winter, the European commission said on Thursday, as Vladimir Putin warned of a potential repeat of 2008 when Russia turned off gas supplies to the Ukraine.
“If we see that our Ukrainian partners, just like in 2008, begin removing gas without permission from the export pipeline system, we, just like in 2008, will consecutively reduce the stolen volume at the cost of supplies,” Putin told reporters in Serbia.
The European commission’s gas stress tests report said that several states in eastern Europe and the Balkans would be hit by a six-month embargo of Russian gas exports. But so long as neighbouring countries supported each other, a predicted 3% shortfall in supplies would only trigger power cuts in one EU nation: Estonia.
Europe’s emergency 30-day gas stocks are 90% full and by utilising reverse gas flows to vulnerable countries, fuel switching and the demand reductions caused by price increases in a crisis, the commission believes that any collateral damage from the ongoing crisis in Ukraine can be managed.
“We are optimistic on the basis of our very intensive work that we will not be taken hostageover the gas supply issue and I believe we will manage to agree on a package to secure supplies [from Russia] at the beginning of next year,” the commission vice-president, Gunther Oettinger, said at a press conference in Brussels.
Russia is the EU’s biggest fuel supplier, providing the bloc with 30% of its gas. In the stress tests, EU countries simulated gas supply crises in scenarios where they cooperated with their neighbours, or did not.
A gas supply deficit of between 5-9bn cubic metres emerged, even after the reshuffling of energy mixes, which would have a “substantial impact” in the EU unless cooperative measures were taken.
“Finland, Estonia, the Former Yugoslav Republic of Macedonia (FYROM), Bosnia and Herzegovina, and Serbia would miss at least 60% of the gas they need,” the report says. “This means that even private households could be left out in the cold. If countries work together, instead of adopting purely national measures, then less consumers will be cut off from the gas. In this scenario, no household in the EU would have to be affected.”
Other countries that could be hit by significant shortfalls in gas supplies include Lithuania, Poland and Hungary, according to the commission’s latest assessment.
In 2006, several European countries suffered fuel shortages when Russia turned off the taps on its gas exports to Ukraine in a pricing dispute. The situation was repeated in 2009, leading countries such as Slovakia to declare a state of emergency.
A key element of the EU’s prescription for avoiding a gas crunch this winter is that member states “allow market forces to work for as long as possible,” even though the commission estimates that procuring liquefied natural gas on the global market could increase prices by up to 100%.
Beate Raabe, the secretary-general of Eurogas, which represents the natural gas industry, welcomed the EU’s call for market forces to be allowed a free hand for as long as feasible.
“It is the companies who have the greatest know-how and experience to procure the needed volumes of gas as quickly as possible and it is important that they are left the flexibility to decide whether they procure these via a pipeline, liquefied natural gas, by drawing from storage or via flexible contracts,” she said.
Raabe expressed concern at any suggestion that the volumes available for withdrawal form storage might be controlled by authorities.
Oct 16 (Reuters) - About $180 billion of contracts for new construction projects will be awarded in wealthy Gulf states this year, the largest amount for six years, despite falling oil prices, according to a study published on Thursday.
Brent crude oil sank to a four-year low below $83 a barrel on Thursday because of ample supply and the prospect of a weak global economy. It has dropped from a peak of $115 in June.
If current prices are sustained for a long period, perhaps a year or so, oil revenues of the Gulf states will be reduced and governments could become less willing to spend, and decide to cut back on projects, construction industry executives and analysts said.
So far, however, there is no clear sign that cutbacks are looming in the six-nation Gulf Cooperation Council, which comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, they said.
"We are going to beat the 2013 figure this year with $180 billion worth of contracts awarded," said Edward James, director of analysis at MEED Projects, an online project tracking firm which conducted the study.
"This is driven by substantial projects that were awarded this year by Qatar, the UAE and Kuwait."
Last year, $156 billion of projects were awarded in the GCC, largely by governments and state-backed companies, as most Gulf countries recovered strongly from the global financial crisis and spent on major infrastructure projects designed to help their economies diversify beyond oil. At the peak of the boom in 2008, GCC contracts totalled about $200 billion.
The concern for the construction industry is that oil prices could drop for an extended period below the "break-even" levels which governments need to balance their budgets.
This would not be disastrous for the governments; they have built up huge financial reserves which in many cases could cover heavy spending for years to come. Also, governments in the big GCC economies have little debt and could easily borrow from markets.
But the experience of running budget deficits could cause governments to become more cautious about spending. Saudi Arabia will have a break-even price of $90.70 a barrel in 2015, the International Monetary Fund has estimated; the UAE would face a level of $73.30, Kuwait $53.30 and Qatar $77.60.
"I would say Saudi Arabia and the UAE are most likely to delay projects or put some on hold if there's a sustained drop in prices," said Regard Aboo Yakou, Qatar country manager at construction consulting firm Hill International.
Steven Miller, senior vice president for business development at construction firm Shapoorji Pallonji, said: "I've heard that the time to worry is if it goes below the $80 mark."
He added, "We have not seen anything stopping yet, but if prices continue falling maybe it will. Metro projects may stop, but housing and hospitals will be built."
In the wake of the Arab Spring uprisings, Gulf governments are keen to buy social peace with welfare spending, so building projects in this area might be the last to be cut back.
David Clifton, regional development director for the Middle East at consultancy Faithful+Gould, said: "Should the oil price remain low for a sustained period or fall much further, it is quite reasonable to expect that there will be an evaluation of the feasibility of future government-related projects.
"This would appear to be an unknown at present. Should this occur, a slowing or suspension of some developments in the pipeline would almost certainly occur as governments look at the oil price barrel versus the break-even point for their budgets."
SAUDI SLOWS
One surprise in the MEED report was that Saudi Arabia, the biggest market in the region, looks set to slow its contract awards substantially this year. It is expected to award projects worth about $40 billion, down from $66 billion in 2013, MEED said.
This appears to be part of a trend towards fiscal prudence which started well before the oil price slide began. After years of rapid spending growth, the government last December announced a 2014 budget which envisaged total state spending rising just 4.3 percent - the slowest rate in a decade.
"Saudi's performance this year has been surprising...We were expecting a lot more contracts. We certainly have seen a decline in tendering and awarding projects," said James. "Whether or not that's related to the oil prices is not known."
Some construction firms in Saudi Arabia have blamed delays to projects on government bureaucracy, difficulties in making land available, and labour reforms designed to reduce the country's reliance on foreign workers.
An estimated one million foreign workers left Saudi Arabia last year during a crackdown on illegal immigrants, and construction firms have sometimes struggled to assemble enough staff. (Editing by Andrew Torchia)
By Michael Place - Thursday, October 16, 2014
Oil services firm Baker Hughes expects its growing deepwater portfolio in Brazil to soften the impact of plummeting global oil prices.
Brent crude fell to a four-year low of less than US$83/b on Thursday, amid concerns of a supply glut and weak demand.
But in an earnings webcast, Baker Hughes CEO Martin Craighead moved to allay fears of an imminent slump in upstream activity.
"For national oil companies and deepwater customers, two areas where Baker Hughes is in a very strong position, we don't see any meaningful change in activity any time soon," Craighead said.
"The deepwater market is based on lengthy planning cycles and long production horizons, [meaning] these projects are not likely to be impacted by today's oil prices."
Craighead conceded, however, that small customers could "curtail" activity – particularly those with marginal onshore and shallow water plays.
In the deepwater segment, Baker Hughes projects continued strong demand in Brazil, West Africa, Norway and Australia.
"In Brazil, new contracts with more favorable terms for stimulation, drilling and wireline services will contribute to profitable growth in both the near and long term," Craighead said.
The Houston-based firm reported a third-quarter profit of US$375mn, up from US$341mn a year earlier.
The company said growth was tempered by geopolitical instability in Libya, Iraq and Russia, in addition to weaker demand in the Gulf of Mexico.
BNamericas will host its 11th Southern Cone Energy Summit in Lima, Peru, on November 12-13. Click here to download the agenda.
KUWAIT CITY - Oil-rich Kuwait tripled the prices of diesel and kerosene on Wednesday, ending decades of heavy subsidies, while putting off a similar decision on electricity and water charges.
Planning Minister Hind al-Sabeeh said a joint meeting of the cabinet and higher planning council decided to hike the prices of diesel and kerosene to 170 fils (59 cents) a litre from 55 fils (19 cents).
Very few consumers in Kuwait use diesel or kerosene and instead prefer petrol whose price of about 22 cents a litre has been kept unchanged.
Sabeeh, who was cited by the official KUNA news agency, said the meeting also ended subsidies on aviation fuel for foreign carriers that make fewer than 5,000 flights a year into Kuwait.
The cabinet decided in May to end subsidies on diesel in principle and ordered a committee to study the impact of the move on consumers before its implementation.
Sabeeh said that at the latest meeting charges were also reviewed for heavily-subsidised electricity and water, but that further studies had been ordered into the issue before any decision is made.
Kuwait last year set up a special committee to revise various state subsidies offered under a very generous welfare system and costing an estimated $18 billion annually, or more than 20 percent of the budget.
In April, the OPEC member's government warned that spending outpaced revenues and that this could lead to a budget deficit in 2017-2018 after years of surpluses.
Oil Minister Ali al-Omair said ending subsidies on diesel would save about $1 billion each year.
The move comes as the price of oil, which contributes around 94 percent of Kuwait's revenues, shed more than 20 percent since June alone.
Even before the decline, Finance Minister Anas al-Saleh warned in April that if oil prices remained at about $100 a barrel, Kuwait would post an estimated budget deficit of $2.3 billion in 2017-2018.
Kuwait has boasted a budget surplus in each of the past 15 fiscal years, helping to increase its sovereign wealth fund to more than $500 billion, according to unofficial estimates.
By Margo Thorning, contributor
Four decades have passed since the oil crisis of 1973, when OPEC's embargo generated long gas lines and high tensions here in the U.S. In response to this predicament, Congress enacted the Energy Policy and Conservation Act of 1975 (EPCA), which made it illegal to export U.S. crude oil except in certain limited circumstances. In contrast, the export of gasoline and other refined petroleum products remained perfectly legal and has remained that way ever since. Today, gasoline and other refined product exports have increased by over 200 percent since 2000, to more than 2.7 million barrels per day. Unfortunately, crude oil still remains on the sidelines, despite robust growth in our domestic supply.
Today, EPCA is looking increasingly archaic and detrimental to U.S. growth. In view of the surge in domestic crude oil production in recent years, especially in light sweet crude (called light, tight oil or LTO) the crude export ban is limiting opportunities for future job growth in the oil and gas sector as well as in the many industries that support this dynamic part of our economy. If President Obama and/or lawmakers don't act to lift or ease these longstanding bans, there will soon be a "day of reckoning" when U.S. refineries will no longer be able to process the ever-increasing amounts of LTO. If that bottleneck does occur, U.S. oil production will slow due to lack of demand, with negative consequences on investment, job growth and state and federal tax receipts.
ADVERTISEMENT
According to a recent analysis by the Brookings Institution and National Economic Research Associates (NERA), the day of reckoning is likely coming. If we reverse course and lift bans, allowing crude oil exports from the U.S. will increase GDP by 0.4 percent to 0.7 percent annually, reduce unemployment by over 200,000 annually and slightly reduce gasoline prices in the U.S, according to the Brookings and NERA. By increasing the amount of crude oil supplied to international markets, the world price of crude falls and since gasoline prices are dependent on crude prices, they also decline. An analysis earlier this year by Resources for the Future (RFF) came to the same conclusion about the downward impact on domestic gasoline prices if crude exports are allowed.
In spite of the analyses by Brookings/NERA, RFF, IHS and other reputable economic modeling firms highlighting the positive economic impact of exporting U.S. crude, some groups support continuing the export ban and argue that U.S. refiners can process all the crude we can produce. For example, a recent report by Baker & O'Brien prepared for Consumers and Refiners United for Domestic Energy (CRUDE) contends that there is "no limit to the amount of LTO that the U.S. can absorb if refining companies are given proper economic incentives and sufficient lead time to modify and/or expand processing capacity." The Baker & O’Brien report overlooks several key factors impacting U.S. refineries' ability to continue to process ever-increasing amounts of LTO.
First, the Environmental Protection Agency's (EPA) pending change to ozone standards is likely to prevent much in the way of refinery expansion or enhancement to process more LTO. The EPA has proposed reducing the current ozone standard of 75 parts per billion to as low as 60 parts per billion. A large part of U.S. refining capacity is in states like New Jersey, Texas, Louisiana and California, which are in "non-attainment" because their current ozone levels are above 75 parts per billion. Thus, the EPA's proposed rule change is likely to curtail much new investment, especially in energy-intensive facilities.
Second, the maintaining the "proper economic incentives" called for in the Baker & O’Brien report to encourage U.S. refinery expansion will depend the price of West Texas Intermediate (WTI) remaining substantially below that of the international price (Brent crude). From January 2011 through July 2014, the WTI price has averaged $13.64 less per barrel than Brent crude. By not allowing U.S. crude to be exported, the price differential between U.S. and foreign crude will continue and could negatively impact U.S. exploration and development and reduce U.S. production. Third, the Baker &O'Brien report states that "no attempt has been made to assess refinery economics" of processing light versus heavy crude. Thus it's hard to justify the conclusion that U.S. refineries will be willing and able to process unlimited amounts of LTO.
Perhaps most important, forbidding the export of U.S. crude violates the principle of free trade. Scholarly research over the past several decades has shown that countries that embrace free trade enjoy faster growth in living standards than those with trade barriers and high tariffs. It makes no more sense to "lock in" a product like crude oil than it does to forbid the export of wheat or automobiles for fear that the price of food or autos will rise. EPCA's crude oil export ban is a classic example of a cure being worse than the disease. Allowing crude oil exports now before the day of reckoning will strengthen the U.S. economy and provide gains to consumers and the overall economy.
Thorning is senior vice president and chief economist for the American Council for Capital Formation, a nonprofit, nonpartisan organization promoting pro-capital formation policies and cost-effective regulatory policies.
By Jonathan Fahey - Associated Press - Thursday, October 16, 2014
NEW YORK (AP) — A sudden plunge in the price of oil is sending economic and political shockwaves around the world. Oil exporting countries are bracing for potentially crippling budget shortfalls and importing nations are benefiting from the lowest prices in four years.
The global price of oil is near $83 per barrel, down about $32, or 28 percent, from its high point for the year. Oil consumption globally is 91 million barrels per day. That means the world’s oil producing countries and companies are bringing in as much as $2.8 billion less in revenue every day — and consumers, shippers and airlines are saving a comparable amount on gasoline, diesel and jet fuel.
“The problem is that countries get accustomed to a certain level of income, and then spend,” says Edward Chow, a senior fellow at the Center for Strategic and International Studies. “It seems like a windfall at first but when it lasts long enough you get used to it.”
The global price of oil was relatively stable for nearly four years, averaging $110 per barrel. Increased production in the U.S., Canada, Iraq and elsewhere made up for declining supplies in nations such as Iran and Libya and helped meet rising global demand.
That delicate balance has been upended by a weaker global economy. Demand is slowing while production, particularly in the U.S., continues to surge.
Consumer-driven economies benefit. For example, drivers in the U.S. are paying the lowest gasoline prices since 2011, giving them more money to spend.
In general the plunge in prices is good for those who have to buy fuel, and bad for those who sell it. But it has far wider and more complex effects on economies around the globe that are only starting to be felt.
— MAJOR EXPORTERS
OPEC countries and other major exporters will feel the biggest impact. The cash-strapped governments of Russia, Venezuela and Iraq are among the most vulnerable.
Oil is cheap to produce in these countries, so they still make money at lower prices. But their government budgets are based on expectations of oil prices of $100 or more.
On Tuesday, Russian President Vladimir Putin expressed concern that lower oil prices could force the government to cut spending. Researchers at the state-owned Sberbank, Russia’s largest bank, estimate that the country needs an oil price of over $104 per barrel to balance its budget next year.
In Venezuela, the government leans heavily on oil revenue to fund spending on housing projects, community organizing and other social programs. Now, oil production is falling at a time when the country desperately needs cash. This month, the analysis firm Stratfor Global estimated that Venezuela needs oil at $110 to continue meeting its obligations.
Last week, Venezuelan Foreign Minister Rafael Ramirez called for an emergency OPEC meeting to allow member countries cut production to keep prices above $100.
Saudi Arabia, the world’s largest exporter and OPEC’s most influential member, might not rush to cut production, however, even though it would start running a deficit with oil at $85 per barrel, according to Merrill Lynch. With a large reserve fund — estimated to be $700 billion — it could withstand a longer period of lower prices.
Saudi Arabia may be interested in using lower prices to force Western oil companies to cut back on some less profitable production in an effort to secure market share.
Iraq is counting on rising revenue both from high oil prices and increasing production to help it fight the insurgency gripping the country and recover from war. Revenue may now fall instead.
— ASIA
The picture is reversed in Asia, where most countries are major importers and some subsidize the price of fuels.
China is the second-largest oil consumer and on track to become the largest net importer of oil. Falling prices will provide China’s economy some relief, according to Huang Bingjie, professor from the School of Economics and Management at China University of Petroleum. But lower oil prices won’t fully offset the far wider effects of a slowing economy.
India imports three-quarters of its oil and analysts say falling oil prices will ease the country’s chronic current account deficit. Samiran Chakraborty, head of research in India for Standard Chartered Bank, also says the cost of India’s fuel subsidies would fall by $2.5 billion during its current fiscal year if oil prices stay low.
Japan imports nearly all of the oil it uses. Following the accident at the Fukushima Dai-Ichi nuclear power plant in 2011, Japan has turned more to oil and natural gas, which is priced based on oil, to generate electric power. But the lower prices are a mixed blessing. Rising energy prices have helped to push inflation higher — a key aim of Prime Minister Shinzo Abe’s deflation-fighting “Abenomics” growth strategy.
— NORTH AMERICA, SOUTH AMERICA, AND EUROPE
Low prices could eventually threaten the boom in oil production in such countries as the U.S., Canada, and Brazil because that oil is expensive to produce. Investors have dumped shares of energy companies in recent weeks, helping to drag global stock markets lower.
For now, lower crude oil and fuel prices are a boon for consumers. In the U.S., still the world’s biggest oil user, consumer spending accounts for two-thirds of the U.S. economy, and lower energy prices give consumers more money to spend on things other than fuel.
The same is true in Europe. Christian Schulz, senior economist at Berenberg Bank, says that a 10 percent fall in oil prices would lead to a 0.1 percent increase in economic output. That’s meaningful because the 18-country currency union didn’t grow at all in the second quarter.
By Nick Cunningham | Thu, 16 October 2014 22:16 | 0
The rapid decline in oil prices may be almost over.
That prediction comes from several big banks that say oil prices are nearing their floor. Bank of America and BNP Paribas see $80 as a floor price and argue there is a high likelihood Brent oil will not crash through that key threshold.
Global supplies are strong and demand remains relatively tepid, so why would oil prices suddenly stop dropping when they reach $80 per barrel? There are several built in stabilizers that could act to support prices.
First, high cost production could begin to go offline when prices drop to that point. $80 a barrel is where some of the world’s most expensive oil starts to become unprofitable. With high cost producers knocked out of the market, supplies tighten and prices rise.
However, there would be a lag effect for this, as it is likely that drillers would keep pumping at wells that are already completed, and just put off plans for new drilling projects. So production would not necessarily decline immediately, but would drop over a period of time as wells deplete and no new wells come online to replace that lost production.
A second reason for the $80 floor price is related to the global economy. With oil prices now about 30 percent lower than their peak in June 2014, fuel costs for consumers around the world are going down. That acts as an enormous stimulus. For every $20 decline in the price of a barrel of oil, U.S. GDP increases by 0.4 percent. Put another way, American drivers save around $120 per year for every 10-cent drop in the price of gallon of gasoline.
And with a jolt to consumer economies, demand could begin to come back and push up oil prices. “You have to believe there’s a cyclical rebound coming in the next three months,” Francisco Blanch, a top commodities researcher at Bank of America, said in an interview with Bloomberg. “A lot of emerging economies are going to benefit from a strong dollar, strong U.S. economy and lower energy prices. The drop in prices will be pretty stimulating for demand.”
Citigroup estimates that lower oil prices are going to pump $1.1 trillion into the global economy. That’s because consumers are not only saving at the pump, but also because lower oil prices will trickle down to affect many other consumer products.
“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,” Ed Morse, Citigroup’s head of commodities research, told Bloomberg. “All commodities are energy intensive to one degree or another.”
But most important for the short-term swing in prices is what OPEC does next. OPEC is set to meet on Nov. 27, unless it responds to Venezuela’s plea for an emergency meeting. Saudi Arabia, the only country that really matters when it comes to changes in short-term supply, has shown a willingness to tolerate lower prices to maintain market share.
However, according to Reuters, Saudi Arabia is reportedly eyeing prices of around $80 per barrel as an acceptable level. Should prices drop well below that figure, the calculations could change in Riyadh, prompting a reevaluation of Saudi production levels. They could act in November to cut back on production in order to stop the slide. Already, one billionaire Saudi prince has written a letter to Saudi Oil Minister Ali Al-Naimi warns of a “catastrophe” if oil prices slide too far.
That means these combined forces could halt oil’s slide at around $80 per barrel. And with Brent trading around $83 on Oct. 15, we are zeroing in on that crucial price point. BNP Paribas sees oil prices rebounding to $95 per barrel by the end of the year.
By Nick Cunningham of Oilprice.com
By Andy Tully | Thu, 16 October 2014 21:53 | 0
Russian President Vladimir Putin has assured Western Europe that there won’t be any interruption of natural gas supplies from his country this winter unless Ukraine again tries to meet its own energy needs by stealing fuel from the pipeline running through its territory.
“I can reassure you that there will be no crisis that could be blamed on Russian participants in energy cooperation,” the Russian leader said Oct. 16 during a visit to Serbia. He added, however, that “transit risks” are looming.
“If we see that our Ukrainian partners, just like in 2008, begin removing gas without permission from the export pipeline system, we, just like in 2008, will consecutively reduce the stolen volume,” Putin said.
Already this year, on June 16, the Kremlin-run gas monopoly Gazprom cut back on its supply of gas through Ukraine over what it said were Kiev’s billions of dollars of unpaid bills for previous gas deliveries. There are fears that as winter sets in, Ukraine may have to divert gas from the pipeline meant for Western European customers.
Russia is the European Union’s biggest gas supplier. EU countries now get about 30 percent of their gas from Russia, half of it piped through Ukraine.
Twice, in 2006 and 2009, that flow has been interrupted. The stakes this time are higher, though, because of Russia’s unilateral annexation of the Crimean peninsula in March and its suspected support in arms and manpower for pro-Russian separatists in Ukraine. And the EU, along with the United States, has responded to that conflict with strict sanctions that mostly target the Russian energy sector.
Nevertheless, Putin said his government would do everything to prevent a reduction in the westward flow of gas. “We wouldn’t want any crisis to occur during the winter period,” he said. “Russia has always been a reliable supplier, and we have enough resources to satisfy our own demand and the growing demand of our clients in Europe or Asia.”
Putin says Europe can ensure a stable supply of gas by supporting alternative pipeline routes. Already, some Russian gas is being shipped west in a pipeline that crosses the Baltic Sea to Germany. Another option is the proposed South Stream pipeline, which would ship Russian gas across the Black Sea, then into Central and Southern Europe.
Both the Nord Stream and the South Stream pipelines bypass Ukraine altogether.
“As for the future of Russian gas exports to Europe, the problem of transit across the Ukrainian territory remains. One of the more obvious solutions might be to diversify the delivery routes,” Putin said in an interview published Oct. 15 in the Serbian newspaper Politika.
Putin is scheduled to meet on Oct. 17 in Milan with Ukrainian President Petro Poroshenko to discuss the two countries’ differences, including the dispute over gas.
By Andy Tully of Oilprice.com
By Dave Summers | Thu, 16 October 2014 21:36 | 0
The oil markets are concerned that there is too much oil currently available on the market, and that, as a consequence, oil prices may continue to tumble. Saudi Arabia is reportedly telling Reuters that it is happy with prices that may fall as low as $80 a barrel. As I mentioned the other day, some of this has to do with market share, and the KSA increasing production, and thereby seeking to weaken the likelihood of investment in other places, in turn ensuring their share holds up, not just now, but also down the road. The effect on gas prices has been rapid, with prices in parts of Missouri down to $2.65 a gallon – about a dollar less than I was paying only a week ago.
The effect will also have the benefit of a boost to the economy, which of course can’t hurt in the run-up to an election. But in the longer term it is hard to see how this boost can be sustained for more than a year. In the last post on this I mentioned that, outside of the US, Russia and KSA global oil production had dropped around 3 mbd over the past couple of years. Yet increased production (KSA raised production by 100 kbd in September as part of a total 400 kbd increase from OPEC overall) has, for now, been able to match and surpass this in order to meet the global demand. OPEC continues to expect that demand will increase by a million barrels a day this year and 1.19 mbd next. They further expect that the increased production to meet this will be met from outside the cartel, with the gain declining from 1.68 mbd this year, to 1.24 mbd next year, holding OPEC production to a decline of 300 kbd from the current 29.5 mbd. Simplistically the gains are maximized in increased production from the United States (880 kbd); Canada (250 kbd) and Brazil (190 kbd). They are anticipating a slight drop in Russian production, as part of an overall decline of 80 kbd for the FSU countries.
Part of the problem in projecting the balance revolves around estimating the production from Libya, Iraq and Iran (LII). Libya has reported raising production back to around 800 kbd, but some of that comes from the Shahara field, which was still involved in factional fighting, even as it came back on line at some 20% of normal. The three countries produce around 7 mbd (Iran 3 mbd, Iraq 3.2 mbd; Libya .8 mbd) so that the fluctuations in their production and sales can have a very significant impact on the global oil market, and the prices that are paid – but they function within OPEC, and it may be that the current drops in price are reminder that the big dog in that trailer is KSA, currently running at around 9.7 mbd.
It is foolish to try and predict, over the immediate short-term, how the fighting in Libya and Iraq will progress. Similarly it is hard to see how relations with Iran will change, potentially easing sanctions and allowing them to sell more product into the global market would upset the current balance in trade, and could, in the short-term, increase the glut and lower prices.
But supplies from those outside the cartel and the Americas are continuing to decline. That is not going to change. The rates may fluctuate a little (though the current drop in prices is not going to encourage large scale investment in declining fields) but the overall trend is steadily downward. And it is within that picture that potential changes in the production from the three LII countries have to be placed.
Figure 1. Libyan oil production through September 2013. (EIA)
Yet, as the fields have brought oil back to the market, there is a concurrent fall in global prices, as the EIA note.
Figure 2. Recent oil production from Libya and the price of Brent Crude (EIA)
Pre-conflict Libya was producing over 1.6 mbd, it recovered to 1.4 and is now struggling at around 0.8 mbd. But the prospects for the levels of peace required to sustain even that level do not seem promising. The conflict is worsening and seen as spiraling out of control.
Moving East to Iraq, despite the use of air power, the situation in the North is not improving, although the Kurds have now a pipeline to carry oil up into Turkey that is not controlled by the Islamic State. While it is still a matter of debate how much oil they will be able to sell, they hope that, by the end of next year they may be able to pump as much as 1 mbd, up from the initial 0.1 mbd when the pipeline went on line. At the same time, in the South, the oil fields lie some distance from the conflict, and there seems little threat, at the moment, to the plans to increase production, and move the majority of the oil to the coast for export. It is, therefore possible to foresee an increase in Iraqi production of perhaps a million barrels a day in the next couple of years. Is it likely? It is hard to say. Factional fighting is always hard to predict, and the willingness of those involved to use explosives makes it even more of a problem to predict what will occur, given the vulnerability of pipelines to attack.
Predicting how Iran will change is similarly conflicted, in that it is hard to predict the behavior of those who control the country, and in turn impact oil exports.
But putting this within the context of OPEC, I suspect that overall production will not fall much outside of the current volumes that the MOMR are predicting – which is sensibly overall stable output over the next year or so. And if that is the case, then I would, as mentioned last time, expect to see that the global surplus of oil supply over demand will gradually disappear over the next year, with the impact becoming evident once we reach the summer of 2016. It would be nice to be wrong, but I think it unlikely.
By Kurt Cobb | Thu, 16 October 2014 20:48 | 0
I've been advancing a thesis for several months with friends that World War III is now underway. It's just that it's not the war we thought it would be, that is, a confrontation between major powers with the possibility of a nuclear exchange. Instead, we are getting a set of low-intensity, on-again, off-again conflicts involving non-state actors (ISIS, Ukrainian rebels, Libyan insurgents) with confusing and in some cases nonexistent battle lines and rapidly shifting alliances such as the shift from fighting the Syrian regime to helping it indirectly by fighting ISIS, the regime's new foe.
There is at least one prominent person who seems to agree with me, the Pope. During a visit to a World War I memorial in Italy last month Pope Francis said: "Even today, after the second failure of another world war, perhaps one can speak of a third war, one fought piecemeal, with crimes, massacres, destruction."
In citing many well-known causes for war, he failed to specify the one that seems obvious in this case: the fight over energy resources. It can be no accident that the raging fights in Syria, Iraq, Libya, and the Ukraine all coincide with areas rich in energy resources or for which imported energy resources are at risk. There are other conflicts. But these are the ones that are transfixing the eyes of the world, and these are the ones in which major powers are taking sides and mounting major responses.
In Syria, Iraq and Libya, of course, it is oil and also natural gas that underlies the conflict. The ISIS forces in Syria and Iraq have seized oil refineries to power their advance. They and every fighting force in the world understands that oil is "liquid hegemony."
In the Ukraine natural gas supplies lurk in the background as rebels (supposedly with Russian help) fight to separate parts of eastern Ukraine from the country. The Russians who hold one of the largest reserves of natural gas in the world have threatened to cut off Ukraine, a large importer, this winter and to curtail supplies to Europe which depends on Russia for about 30 percent of its gas. The threat against Europe is in response to trade sanctions levied on Russia for its alleged role in helping Ukrainian insurgents.
Since summer, a friend and I have been periodically reviewing the World War III game board to assess whether the war is heating up or cooling down. The temperature changes as we have gauged them would look like a sine wave on a graph revealing no definitive trajectory. And, that is just the kind of war that I believe World War III will be--years of indecisive battles, diplomatic ploys, half-hearted engagement by major powers, and new, unexpected conflicts arising in unexpected places.
There are, of course, many other reasons for the conflicts I cite. But I wonder if the major powers would be much engaged in these conflicts if energy supplies were not at stake. So, the resource wars that are developing, especially those relating to energy, are not about direct conquest so much as concern about access to energy resources, or to put it more clearly, concern about possible interruptions to the flow of energy resources.
The low-intensity confrontation in the South China Sea between China and its neighbors, Vietnam and the Philippines, is the most prominent dispute over actual ownership of energy resources rather than the mere flow of those resources. But in the article cited, the Indians, while laying no claim to resources in that area, have said publicly that they are worried that shipping through the South China Sea could be affected if the conflict heats up. Again, we are back to concern about the flow of resources by countries not directly a party to the dispute--yet.
Traditional diplomacy among great powers does not seem to have been effective at resolving these conflicts. And, traditional military operations seem less than effective as well. Kurds in Syria report that U.S. airstrikes against ISIS are not working. This conflict and others like it which are characterized by poorly defined boundaries, shifting participants and unclear goals are confounding major powers and wreaking havoc on countries where these conflicts rage.
One of the most obvious strategies for responding to these conflicts--deep, rapid and permanent reductions in fossil fuel energy consumption through efficiency measures, conservation, and expansion of renewable energy--does not seem to be a prominent part of the policy mix. Such a reduction would not necessarily cause these conflicts to disappear; but they might become far less dangerous since the major powers would be less interested in them and thus less likely to make a miscalculation that would lead to a larger global conflict.
That is the danger that lies in my version of World War III--that it could morph into the kind of global conflict that risks nuclear confrontation between major powers--not because those powers would seek such an obviously insane outcome, but because they might miscalculate and by mistake push the conflict in this terrible direction.
It is not clear how this danger can be avoided given the current trajectory of world energy use. And, it is not clear how to get the world's leaders to focus on the obvious need to reduce not only fossil fuel energy use, but use of all the world's nonrenewable resources in order to forestall conflict.* That humans can have good lives without perpetual growth in the consumption of resources is simply not a possibility in the minds of most world leaders. And that means we should prepare for a very long World War III.
*Such reductions imply the reorganization of our daily lives with an emphasis on conservation as an ingrained habit. They also imply significant changes to our infrastructure. But they do not necessarily mean that we cannot have the essential services that the current system provides while using far less in the way of inputs. The main impediments to moving rapidly down this road are vested interests such as the fossil fuel industry which profit from the current wildly inefficient and wasteful global system. I agree that this is no small obstacle.
By Kurt Cobb
By Climate Progress | Thu, 16 October 2014 20:40 | 0
German farm house with solar panels.
CREDIT: Shutterstock
For the first time ever, German consumers are about to see a drop in the surcharge they pay for renewable energy.
Germany’s green energy policies include long-term contracts that require feeding renewables like wind and solar into the grid while guaranteeing them above-market rates. The goal is to build out the country’s renewable generation capacity, but the costs of the scheme are passed on to consumers through a surcharge on their electricity bills. It was introduced in 2000, and has risen every year since — including a fivefold jump since 2009 — and currently stands at 6.24 euro cents (7.99 U.S. cents) per kilowatt-hour.
But Germany’s four major grid operators recently released a joint statement saying that surcharge would fall to 6.17 euro cents (7.8 U.S. cents) in 2015, according to Renewable Energy World. The surcharge is expected to drop again in 2016 to 6.05 euro cents, then tick back up slightly to 6.2 euro cents in 2017.
As of now, the average German home pays around 220 euros ($281.53) a year to finance the country’s clean energy through the surcharge. That’s left the country’s household power costs the second-highest in the European Union.
“[The reduced price] shows that we have successfully stopped the cost dynamic of the past years,” said Germany’s Economy Minister Sigmar Gabriel in a statement e-mailed by his ministry. “This will help stabilize power prices for consumers.” Federations representing large swaths of German industry insist, however, that much more needs to be done to bring the costs down, and the surcharge has been a political thorn in the side of Chancellor Angela Merkel’s government for years.
However, support for the country’s green energy policies remains high among the German populace, arguably because the citizens themselves locally own half the country’s renewable capacity — meaning they benefit from the returns on investment even as they pay the surcharge.
Interestingly, Germany also enjoys unusually low prices in its electricity wholesale market — where the big producers and distributors buy and sell power before turning around and repackaging it with the surcharge for everyday customers. Many of the long-term contracts that underlie Germany’s green energy push are set to expire in the next few years, which should bring residential costs more in line with prices in the wholesale market.
And while Germany faces high costs, it also enjoys one of the most reliable grids in the advanced world. Its power went offline an average of only 16 minutes per customer in 2008, beating out almost every other developed western country, and leaving the U.S. — which lost an average of 244 minutes per customer — far behind in the dust. That’s not what’s generally expected from big efforts to expand renewable generation, which observers assume will increase grid unreliability because of the intermittency of wind and solar. But Germany has successfully put together a national policy to coordinate different forms of power on its grid at different times, smoothing out transitions and allowing the grid to make do with less of the baseload power fossil fuels have traditionally provided. The costs of this coordination often get passed on to consumers again, but it results in reliable power consumption.
In the short term, the internal dynamics of Germany’s power grid and its policies have perversely led to a modest increase in coal power generation, thanks to a drop in natural gas generation and the country’s decision to phase out its nuclear power after the Fukushima disaster. But Germany remains committed to getting 80 percent of its power from renewable sources by 2050. And it successfully took one third of its power green in the first half of 2014.
by Jeff Spross
(Source: www.thinkprogress.org)
U.S. crude oil stocks increase 8.9 million barrels
Geoffrey Craig, Platts Oil Futures Editor
New York - October 16, 2014
U.S. commercial crude oil stocks rose 8.9 million barrels to 370.6 million barrels during the reporting week ended October 10, according to U.S. Energy Information Administration (EIA) oil data released Thursday. Normally published on Wednesdays, the weekly data was delayed by one day due to the U.S. Columbus Day holiday on Monday.
Analysts surveyed Monday by Platts had been expecting a 2.5 million-barrel increase.
Current inventories are well-supplied by historical standards. At 370.6 million barrels, crude oil stocks were 4.4% above the EIA five-year average (2009-13).
The build in crude oil stocks was largest on the U.S. Gulf Coast (USGC), where inventories rose 5.3 million barrels to 190.4 million barrels, for a total 5.8% above the five-year average. This time last year, USGC stocks were 188.6 million barrels.
A drop in crude oil runs contributed to the USGC build. The amount of crude oil processed at USGC refineries fell 175,000 b/d to 7.9 million b/d, helping pull the region's refinery utilization run rate 1.3 percentage points lower to 88.9% of operable capacity.
Overall U.S. refinery utilization fell 1.2 percentage points to 88.1% of operable capacity, as crude oil runs declined 233,000 barrels per day (b/d) to 15.3 million b/d. Analysts had expected 0.54 percentage-point drop in the refinery rate.
Crude oil stocks at Cushing, Oklahoma -- delivery point for the New York Mercantile Exchange (NYMEX) crude oil contract -- were up 716,000 barrels to 19.6 million barrels.
The build in crude oil inventory was also aided by imports, which rose 28,000 b/d to 7.74 million b/d. It was the third week in a row imports increased.
The biggest jump was seen on the U.S. Atlantic Coast (USAC), where imports were up 377,000 b/d to just above 1 million b/d the week ended October 10. It was the first time imports have topped the 1 million b/d mark since September 2013.
In the U.S. Midwest, imports fell 432,000 b/d to 2.1 million b/d, reversing course after the previous week saw the region import a record-high 2.5 million b/d, EIA said.
Imports from Canada fell 181,000 b/d to 3.1 million b/d, the second highest total after setting a new high in the reporting week ended October 3. Most imports from Canada enter the U.S. via the Midwest.
Imports from Saudi Arabia increased 620,000 b/d to 1.2 million b/d, and imports from Mexico were up 19,000 b/d to 836,000 b/d.
USAC GASOLINE STOCKS FALL
Gasoline stocks decreased 4 million barrels to 52.3 million barrels, a larger-than-expected draw. Analysts had expected gasoline stocks to be 1.6 million barrels lower.
Stocks on the USAC -- home to the New York Harbor-delivered NYMEX RBOB contract -- were down 2.6 million barrels.
At 52.3 million barrels, USAC gasoline stocks were at their lowest level since December 2012 and 2.1% below the five-year average.
Gasoline stocks would be higher, but the U.S. Department of Energy (DOE) purchased 1 million barrels of gasoline from commercial inventories to put into a strategic reserve over the summer.
DOE established the reserve to protect against storms, like Hurricane Sandy, which wreaked havoc on fuel supplies in the U.S. Northeast region in 2012.
EIA data shows 700,000 barrels are stored in New Jersey, 200,000 barrels in Massachusetts, and 99,000 barrels in Maine. The terminals involved are privately owned.
Implied* gasoline demand was up 398,000 b/d to 9 million b/d the week ended October 10.
Midwest gasoline stocks were up 223,000 barrels to 49.5 million barrels. Current levels stand 6.1% above the five-year average.
USGC gasoline stocks fell 583,000 barrels to 71.8 million barrels.
DISTILLATE STOCKS DOWN
Diesel remains well-supplied on the USAC. Combined low- and ultra-low-sulfur diesel increased 268,000 barrels to 35.9 million barrels the week ended October 10, EIA data showed. The region's diesel stocks stand at a 31% surplus to the five-year average.
USGC inventories fell 1.4 million barrels to 30.8 million barrels, representing a 21.4% deficit to the five-year average. Total distillate stocks fell 1.5 million barrels to 124.6 million barrels. Analysts had expected distillate stocks to fall 1.8 million barrels.
*Implied demand is the amount of product that moves through the US distribution system, not actual end consumption.
10/16/2014
Oct 16 (Reuters) - The global oil market slump looks likely to continue, with prices possibly nearing $70 a barrel in the short term, an official of Russian gas producer Gazprom said.
Crude fell more than $1 a barrel on Thursday to a four-year low below $83 a barrel as growing concerns over the global economy stretched a four-month rout.
"It could be at $70-75 in a question of months," Gustavo Delgado, head of Gazprom in Venezuela, told Reuters on the sidelines of an oil conference on Margarita Island. He did not specify if he was speaking of Brent prices or U.S. crude.
The Russian company participates in several gas and crude projects with Venezuelan state oil company PDVSA.
"Investments right now in oil and energy are being affected by the price fall," Delgado added in the interview late on Wednesday, attributing the drop to economic slowdowns in both Europe and China, plus the rise of new technologies like shale.
A senior official from another Russian company, Rosneft , said the crude price fall could be partly for "speculative" reasons but nevertheless obliged all producers to seek cost reductions.
All eyes were on OPEC, the Rosneft Venezuela official told Reuters at the conference.
"We need to wait for the cartel meeting to see if they are going to reduce or maintain production," he said.
"Depending on that, we will take actions," he added.
Rosneft's various joint ventures in Venezuela produce about 125,000 barrels per day. (Writing by Andrew Cawthorne; editing by Matthew Lewis)
Era of record budget surpluses is finally coming to an end
By Jasim Ali, Special to Gulf NewsPublished: 19:31 October 16, 2014Gulf News
Share on facebookShare on twitterShare on emailShare on printMore Sharing Services1
The steady decline in oil prices, and with no end in sight, is bad news for the Gulf states’ fiscal regimes. The bloc has traditionally been on the conservative side in preparing annual budget forecasts and particularly in the way they forecast oil prices.
This allowed them to post handsome budget surpluses because oil prices were invariably higher than the forecasts. This is what is being put to the test in the coming months with the current lower bound tendency of oil prices.
This sector is exceptionally vital for the well-being of GCC economies on the back of constituting about three-quarters of treasury revenues and exports and one-third of gross domestic product (GDP).
In 2013, all GCC countries except for Bahrain enjoyed lavish budgetary surpluses on the back of firm oil prices. Looking back, Bahrain reported a budgetary shortage of $1.1 billion in fiscal year 2013 while assuming $90 a barrel. The IMF had stressed that Bahrain needs a price of $119 a barrel in order to achieve equilibrium in its budget, and clearly something not attainable in current market conditions.
The budget of Saudi Arabia, in turn the largest among GCC and Arab countries, enjoyed a surplus of $55 billion (Dh202 billion) in 2013, almost half of that achieved in 2012. The sharp drop reflected stronger spending on housing projects and socioeconomic priorities, notably the challenge to create jobs among the youths.
By one account, the equilibrium oil price for the Saudi budget this year was $90 a barrel, which is the level below market prices nowadays. Certainly, Saudi officials can rely on the country’s massive sovereign wealth fund (SWF) of $750 billion to address fiscal deficit. To be sure, the Saudi SWF, which serves as a cushion if and when needed, is one of the highest in the world and behind those of Norway and the UAE.
Qatar had an surplus of $17 billion in fiscal year 2013-14, or 9 per cent of the country’s GDP while assuming an oil price of $65 per barrel. Interestingly, the budget makers assumed a similar price in the 2014-15 budget, though in different circumstances.
The original forecast calls for a shortage of $2 billion for the fiscal year ending March 2015, therefore the possibility of the eventual figure being in the red cannot be ruled out. The other option for Qatari authorities would be to curtail spending, though not possible as the country prepares to host World Cup 2022. Qatar is said to have plans for investing as much as $200 billion on an array of projects ahead of the sporting event.
Kuwait prepared its budget for fiscal year 2014-15 using an average oil price of $75 per barrel, with a projected shortage of $5.6 billion or 3 per cent of GDP. In reality, Kuwait has a history of reporting extraordinary budgetary surpluses, through the familiar formula of stronger revenues and lower expenditures. But this could undergo a real test in the next few months.
Oman prepared its 2014 budget by assuming an average price of $85 a barrel, and therefore a shortage of $4.7 billion. It is suggested Oman’s budget requires an equilibrium price of $100 per barrel.
In totality, the final results for fiscal year 2014 could bring some disturbing news due to steady decline in oil prices, reaching way below the level of $90 per barrel for the first time since 2010 and with warnings of further drops. Still, the full effect may not be realised by year-end, as the fiscal year in two of the states — Qatar and Kuwait — ends in March.
WASHINGTON, DC, Oct. 15
10/15/2014
By Nick Snow
OGJ Washington Editor
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.”
Contact Nick Snow at nicks@pennwell.com.
NEW YORK, 13 hours, 19 minutes agoSaudi Arabia effectively started a global oil price war this month aimed at quickly denting US oil output. Slowing a US 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 US, 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 US drilling frenzy that has transformed the North American energy picture and powered the US economy, but the shape of the global market as Opec leader Saudi Arabia hopes to take share from US 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 US 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 US 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 US 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 per cent from a year ago, according to a weekly survey by oil services company Baker Hughes. US 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 US exploration and production spending in 2015 to be unchanged from this year. Due to the rapid 70 per cent decline rate in shale oil wells after the first year, flat spending would cut shale production growth to just 200,000 barrels per day. US oil output has surged by 1 mbpd 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 US 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 centered in Texas, said 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 per cent 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. -- Reuters
KUWAIT, 13 hours, 25 minutes ago
The oil price drop to four year lows will not affect Kuwait's output plans or rate of production, the head of its state oil company said.
Speaking to reporters, Hashem Hashem, chief executive of Kuwait Oil Co, said the company was continuing its long-term plans to raise production capacity.
"Our production is 2.9 million to 3 million barrels per day, we didn't reduce production, we are continuing at the same current output rate," Hashem said.
"When it comes to developing the fields and raising production capacity, we are looking at the long-term. We will not be affected by such prices."
The company intends to spend some KD12 billion ($42 billion) on oil and gas projects over five years, he added.
His comments, when Brent crude fell to below $83 a barrel, were a further sign that Gulf Opec producers see little effect of the price drop on their economies and are unlikely to cut output when Opec meets in November.
Fellow Opec member Saudi Arabia has been quietly telling market participants it is comfortable with lower oil prices, while Kuwait Oil Minister said Opec was unlikely to cut production to prop up prices.
Kuwait plans to raise its production capacity to 4 mbpd by 2020. Hashem told Reuters earlier this month that KOC was in talks with five oil majors to help boost crude production and develop some of its oilfields including Burgan, the world's second largest. -- Reuters
Yemen's main oil pipeline attacked, crude flow halted
SANAA, 13 hours, 28 minutes ago
Tribesmen attacked Yemen's main oil export pipeline, halting the flow of crude, a local official said.
Yemen's oil and gas pipelines have been repeatedly sabotaged by tribesmen feuding with the state, especially since mass protests against the government created a power vacuum in 2011, causing fuel shortages and slashing export earnings for the impoverished country.
Yemen has said oil flows through the Marib pipeline, one of its main petroleum export routes, at a rate of around 70,000 barrels per day (bpd).
The pipeline carries crude from the Marib fields in central Yemen to the Ras Isa oil terminal on the Red Sea. Before the spate of attacks began three years ago, the 270-mile (435-km) pipeline carried around 110,000 barrels per day to Ras Isa.
It was unclear when the pipeline would be repaired.
Heavily-armed tribes carry out such assaults to extract concessions from the government - to provide jobs, settle land disputes or free relatives from prison.
Most of Yemen's output is from the Marib-Jawf area in the north, with the rest coming from Masila in the southeast. --Reuters
LONDON, 1 days ago
Iran, in a change of tack, is saying it can live with lower oil prices, moving closer to the views of Saudi Arabia and other Gulf Opec members and reducing the likelihood of any collective cut in Opec output to support prices.
Opec's traditionally second-largest producer is normally among the first members of the Organization of the Petroleum Exporting Countries to call for supply cuts to support prices. Iran needs relatively high oil prices to balance its budget, analysts say.
But a drop in oil prices - which fell towards $86 a barrel, the lowest since 2010 - did not prompt calls for cuts in Opec supply.
"At this time of year, it is normal to have some price weakness," a source familiar with Iran's oil policy told Reuters. "And oil-price weakness has been compensated for by the appreciation of the dollar."
Opec's Gulf Arab producers are at ease with lower prices. Saudi Arabia has been quietly telling market participants it is comfortable with lower oil prices, a shift in policy that may be aimed at slowing the expansion of rival producers including those riding the US shale oil boom.
Another core Gulf Opec producer, Kuwait, said Opec was unlikely to cut production.
Western sanctions have drastically reduced Iranian oil output and exports and have limited its ability to participate in output cuts at a time when Tehran's energy-dependent economy is suffering from much lower oil revenues.
In the past, Opec countries have cited a weakening dollar as a reason to justify higher oil prices, which erode the purchasing power of dollar-based oil revenues.
But the dollar is close to a four-year high against a basket of currencies, helping offset the drop in prices.
"I am not worried at all," a second source familiar with Iranian thinking said recently, when asked about the drop in oil prices.
Opec meets to review policy on November 27 and such comments add to the sense that a collective cutback to support prices - which would be Opec's first since the 2008 financial crisis - looks unlikely - at least for now.
Iran's deputy oil minister said the recent drop in oil prices is short-lived, the oil ministry's news agency Shana reported.
Rokneddin Javadi, who is also the managing-director of the National Iranian Oil Company (NIOC), asked if the fall in oil prices would harm Iran's budget, said: "I don't think so."
The IMF has estimated that to achieve a zero fiscal balance Iran needs oil prices to be $130 a barrel, the second-highest after Libya of eight of Opec's 12 members it looked at.
Iran, traditionally the No 2 producer in Opec, was overtaken by Iraq in 2012 after European sanctions on Iran forced it to reduce exports and as Iraq expanded supplies with the help of foreign oil companies. -- Reuters
DUBAI, 1 days ago
The UAE has asked bidders for its biggest onshore oilfields to extend their offers by two months until December 31, sources familiar with the matter said, as the country considers bringing in Asian firms after decades-long partnerships with western majors.
Nine Asian and western firms have bid for stakes in the Abu Dhabi Company for Onshore Oil Operations (Adco) concession after a deal with western oil majors that dates back to the 1970s expired in January.
State-run Abu Dhabi National Oil Company (Adnoc) has asked the nine bidding companies to extend offers that were due to expire around October 22 until December 21, three sources said.
Industry observers say any changes in the concessions would be made at the highest decision-making body for the oil and gas industry, the Supreme Petroleum Council. They say there is a difference in opinion inside the SPC over whether to stick with western companies, or make room for newcomers from Asia, while some would like to see Adnoc operating the fields alone.
Adnoc could not be reached for comment and none of the nine companies would comment. One source said however that it was unlikely any company would refuse Adco's request.
"Is any company going to say 'no our bids have expired'? The answer is no. No company is going to go through this effort and then say our offers are not valid anymore," the source said.
ExxonMobil, Royal Dutch Shell, Total and BP – have each held 9.5 per cent equity stakes in the Adco concession since the 1970s. Portugal's Partex had a 2 per cent stake, and the rest was held by Adnoc.
After the deal expired in January, Adnoc took 100 per cent of the concession. Shell, Total and BP have made their new bids, which are being evaluated by the government of Abu Dhabi, the capital of the UAE, while Exxon has decided against bidding, sources have told Reuters.
US firm Occidental Petroleum, Italy's Eni, China National Petroleum Corp (CNPC), Norway's Statoil, Japan's Inpex and Korea National Oil Corp have also bid for the new deal.
Each company submitted two proposals last year - one for a 5 per cent stake and another for a 10 per cent stake, with a one year validity, the first source said. -- Reuters
DUBAI, 1 days ago
Dubai Petroleum Establishment (DPE) owned 100 per cent by the Government of Dubai and responsible for Dubai's offshore oil and gas development and production, has identified significant volumes of gas in its T-02 deep gas exploration well.
The high pressure and high temperature T-02 well was drilled to 18,248 feet (5,562 metres) into the Pre Khuff formation and is the deepest well in Dubai to date.
The well is in the offshore Fateh field where oil and gas was first discovered at depths of around 10,000 feet in 1966.
While drilling in the Pre Khuff, formation gas flowed into the T-02 well bore on a number of occasions. Current indications are that the gas is largely methane with no H2S content.
An earlier well, T-01, was drilled in to the Khuff formation in 1981 to a depth of 17,397 feet but test results indicated that significant levels of H2S and nitrogen were present which made gas production and treatment difficult and expensive in an offshore environment.
The new well has been wireline logged to evaluate the potential of the formations and there are some 390 feet of gas rich zones out of the 900 feet drilled and logged in the Pre Khuff.
The well is currently being suspended to allow for later re-entry, stimulation and long term production testing. Until the testing programme has been completed, potential reserves and possible production rates cannot be estimated accurately.
The planned production testing procedures require the use of specialist items and equipment that have long lead times of delivery.
Currently DPE expects to have the test results in late summer 2015. -- Reuters
SINGAPORE, 17 hours, 19 minutes ago
Oil fell more than $1 a barrel on Thursday, with Brent crude hitting a fresh four-year low at below $83, as growing concerns over the global economy stretched a four-month rout.
Brent has lost more than 28 per cent since June amid slow demand and abundant supply, with losses accelerating in recent weeks on signals that the Organization of the Petroleum Exporting Countries will not slash output to rescue prices.
Economic concerns accelerated losses in oil prices which have been hit hard by a global supply glut.
Brent crude for November delivery had dropped to $82.72 a barrel, the lowest since November 2010. The contract, which expires on Thursday, was down 53 cents at $83.25 a barrel by 0649 GMT.
US crude fell 99 cents to $80.79 a barrel. It hit a low at $80.01 on Wednesday, the weakest since June 2012.
The glut in the Atlantic Basin has helped fuel the collapse in oil prices, said Mark Keenan, head of commodities research in Asia for Societe Generale in Singapore.
"That's been well documented and well understood but it nevertheless is still a strong issue," he said. "You've got concerns about global growth, specifically in Europe and China as well."
Global economic worries deepened this week after China's consumer inflation fell to near five-year lows and US producer prices declined for the first time in more than a year, sparking a sell-off in risk assets.
The International Energy Agency this week cut its oil demand growth forecast for 2015 as global economies remain weak, with chief analyst Antoine Halff saying some Opec members might prefer to keep selling at lower prices than lose their market.
Venezuela is calling for an emergency meeting of Opec - ahead of its next scheduled gathering on November 27 - to halt the slide in oil prices.
"Concerns over weak demand continue to pervade, with weakness likely to persist until signs that the supply side is reacting," ANZ analysts said in a note.
US crude inventories rose 10.2 million barrels in the week to October 10 to 370.7 million barrels, data from industry group the American Petroleum Institute showed on Wednesday..
This was far higher than analysts' expectations for an increase of 2.8 million barrels. - Reuters
