HOUSTON, July 17
07/17/2014
By OGJ editors
Total US petroleum deliveries, a measure of demand, rose 1.5% in June vs. a year ago to average just above 19 million b/d, according to the American Petroleum Institute’s most recent Monthly Statistics Report. For the second quarter, petroleum demand increased 1.5% compared with the same period last year.
“A wide range of measures show continued strength in petroleum demand and domestic supply last month, with imports around 20-year lows,” said API Chief Economist John Felmy. “Increased US production in recent years has provided an almost barrel-for-barrel counterweight to various disruptions in global supply from overseas.”
Gasoline demand last month gained 4% from June 2013 to average 9.3 million b/d while distillate deliveries increased by 3% to average 3.8 million b/d.
Jet fuel demand also increased by 8.4% over the same period, while demand for “other oils” fell by 5.5%. Residual fuel deliveries fell by 10.9%, marking the lowest June level on record.
According to API’s report, crude oil production in June rose by 15.6% from the level of the previous year to just above 8.3 million b/d, the highest June output in 28 years. Natural gas liquids production gained 17.6% over the same period to set a record output level of over 2.9 million b/d.
According to the latest reports from Baker Hughes Inc., the number of oil and gas rigs in the US in June was 1,861, the highest count since August 2012. This compares with May’s count of 1,859 and June 2013’s count of 1,761.
Total oil imports in June decreased 5.7% from the prior year to average 9.2 million b/d, the lowest level for the month since 1993. Crude oil and refined product imports for the month fell 2.6% and 17.5% from a year ago, respectively, averaging 7.5 million b/d and 1.7 million b/d.
Meanwhile, exports of refined petroleum products in June rose 8.3% from last year, averaging nearly 3.8 million b/d.
Gasoline production last month increased 7.6% from the prior year to 10.1 million b/d, a new record for June and the second highest output level ever recorded. Production of distillate fuel grew 2.5% from last year to set a June record of 4.9 million b/d. “Year to date production was also at record highs for both gasoline and distillate,” API said.
Refinery gross inputs in June were down 2.5% from the prior year to 15.9 million b/d. The refinery capacity utilization rate averaged 88.8% in June, down 0.9 percentage points from May and 2.9 percentage points from the same period last year. API’s latest refinery operable capacity was 17.934 million b/d.
According to API’s data, crude oil stocks gained 1.4% from June 2013 to 380.8 million bbl—the second highest inventory level for the month since 1990. Stocks of motor gasoline fell 4.4% from last year to 215.1 million bbl. Stocks of distillate, jet fuel and “other oils” were also all down from their levels of the previous year.
WAEL MAHDI
RIYADH, Saudi Arabia (Bloomberg) -- Saudi Arabia, the world’s biggest oil exporter, shipped the least crude in almost three years in May as domestic refineries processed record amounts and power plants also increased consumption, official data showed.
The nation exported 6.99 MMbpd in May, down from 7.45 million a month earlier, according to data Saudi Arabia submits to the Joint Organisations Data Initiative in Riyadh. The shipments were the smallest since September 2011. Crude production rose to 9.71 MMbpd from 9.66 million in April.
Saudi Arabian refiners processed 2.14 MMbpd of crude in May, the highest since at least January 2002, the year when JODI started collecting data from member governments. Crude processing in May went up from 1.85 MMbpd in April, the data showed.
“The record refining volume shows that Saudi Arabia is fulfilling its plans to become a major downstream player,” said Julian Lee, a Bloomberg oil strategist in London who writes for First Word and whose observations are his own. The nation’s 400,000 bpd Jubail refinery is running at about 80% of capacity and a new Yanbu plant of the same size should start operations before the end of the year, he said.
Saudi power plants burned 680,000 bpd compared with 484,000 bbl in April, and 547,000 bbl a year ago. May crude burning was at highest level since August 2013, JODI showed.
07/17/2014
PRIYANKA SHARMA and LANANH NGUYEN
LONDON (Bloomberg) -- The U.S. shale-gas boom is placing 30 million jobs at risk in Europe as companies with greater reliance on energy contend with higher fuel prices than their American counterparts, the International Energy Agency said.
Manufacturers of petrochemicals, aluminum, fertilizers and plastics are leaving Europe to take advantage of booming U.S. production of natural gas from shale rock formations, Fatih Birol, chief economist for the International Energy Agency, a Paris-based adviser to 29 nations, said at a conference in London.
“Many petrochemicals companies in central Europe are moving out,” Birol said. “Thirty million jobs are in danger.”
The U.S. has become the world’s largest producer of oil and gas as hydraulic fracturing and horizontal drilling help producers extract resources from shale rock. The country’s refineries processed a record volume of crude last week as plants took advantage of cheaper domestic crudes. Chemical makers from Germany’s BASF SE to Brazil’s Braskem SA plan to invest as much as $72 billion in U.S. plants to take advantage of low-cost natural gas feedstock.
West Texas Intermediate crude traded at a discount of $5.85 a barrel to European benchmark Brent at 5:43 p.m. on the ICE Futures Europe exchange in London. U.S. August natural gas futures traded for $3.96 per million British thermal units on the New York Mercantile Exchange, compared with $6.49/MMBtu for the equivalent UK contract on ICE in London.
U.S. refineries are competing for market share and benefiting from margins that exceed those of European competitors by as much as $10 a barrel because of cheaper crude, Hermes Commodities said in a report.
07/17/2014
By OGJ editors
An Indonesian-Libyan joint operating company has taken a step toward development of an oil field in the Hamada area of the Ghadames basin about 200 km south of Tripoli.
The company, Nafusah Oil Operations BV Libyan Branch, let a front-end engineering design contract for the project to a joint venture of Foster Wheeler AG’s Global Engineering & Construction Group and Taknia Libya Engineering Co., a wholly owned subsidiary of Libya’s National Oil Corp. (NOC).
The Area 47 Development Project includes North Hamada field.
Foster Wheeler said the development will involve about 11 existing and 23 new wells, flowlines, and a common gathering trunkline to carry produced fluids to a central gas-oil separation (GOS) facility.
The planned design capacity of the GOS facility is 50,000 b/d of oil and 90 MMscfd of natural gas. Produced water will be injected into the reservoir.
After separation, oil and gas will move through new pipelines to connections with existing lines for transport to the Mellitah terminal on the Mediterranean Sea in northwestern Libya.
Production is planned to start by the end of 2016.
Partners in Nafusah Oil Operations are NOC, 51%, and Medco International Ventures Ltd. and Libyan Investment Authority, 24.5% each.
APA Azeri Press Agency
[ 17 July 2014 21:54 ]
Baku-APA. Takfiri ISIL terrorists have taken control of a gas field in Syria’s central region of Palmyra, an opposition source says, APA reports quoting Press TV.
The so-called Syrian Observatory for Human Rights said ISIL militants attacked the Sha’ar gas field on Thursday morning and killed some 23 guards.
Rami Abdel Rahman, the director of the UK-based observatory, said that the “fate of 340 National Defense Force ... members, guards, engineers and employees who were in the field, is unknown, as they were either taken prisoner, wounded or captured during the operation.”
Abu Bilal, an opposition activist linked to the militant group in Homs, said 12 ISIL militants were also killed in the clashes, adding the armed men “took eight checkpoints before taking over the gas field.
Homs governor Talal Barazi also confirmed that the militants seized the field, noting that the ISIL terrorists “were present in the area beforehand.”
Barazi further added that the government forces are trying to take the field back and that “There is fighting in the area.”
The development came as the Syrian army recaptured a large area of the city of Morek in Hama Province. The city had become the main stronghold of the Takfiri militants in the province since it fell to the control of the militants.
Takfiri terrorists have recently stepped up their attacks against civilians as Syrian army soldiers have achieved major victories in their battle against the foreign-backed militants
Syria has been gripped by deadly violence since March 2011. According to reports, the Western powers and their regional allies - especially Qatar, Saudi Arabia and Turkey - are supporting the militants operating inside Syria.
By Nick Snow
OGJ Washington Editor
US refiners continue to respond to a changed competitive environment with additional investments and aggressive oil product export deals, speakers said during the US Energy Information Administration’s 2014 energy conference’s opening day.
Flat US demand has made exports more attractive, but feedstocks and regulations continue to matter, “and the industry is deintegrating,” Joanne M. Shore, chief industry analyst at the American Fuel & Petrochemical Manufacturers, said during a July 14 session on changing global product trade flows.
“Our surplus has allowed the US to change from a net product importer to a net exporter,” Shore said. “Rail has been a tremendous boon in moving crude to refineries. So have pipelines.”
Not every US refinery has access to discounted crude, Shore said. Plants in the Midwest and Rocky Mountains have ample supplies, but situations for East Coast, Gulf Coast, and West Coast refineries have not changed much, she said.
Russian competition
US refiners should expect competition as other countries also plan to increase product exports, according to a second panelist, Antoine Halff, who heads the International Energy Agency’s Oil Industry and Markets Division.
“We see a very large increase in Atlantic Basin product trade,” Halff said, adding, “European demand is contracting, but its refining capacity is contracting faster.” Looking forward, IEA sees major growth in Russian product exports to Europe—largely residual and bunker fuel now, but growing into other products—competing with US refiners.
A third panelist, Terrence S. Higgins, executive director of global refining and special projects at Hart Energy, said condensate and NGL exports have grown more quickly worldwide than other products.
“The future in the export market is in the distillate streams,” he observed. “Gasoline won’t be as strong.” Higgins also said he sees a need for US refiners to export 250,000-300,000 b/d of naphtha by 2020. “There is a home for it: Asia, which is increasing its stream cracker capacity,” he said.
Higgins also said decisions to build more refining capacity in the Middle East and Latin America could be made for social, as well as economic, reasons.
Shore said most US refiners use a mixture of heavy, medium, and light crude. “We’re seeing more capacity to use light sweet crude,” she said. As for US light, sweet crude production possibly exceeding US capacity to refine it sometime soon, which speakers at the EIA conference raised earlier that day (OGJ Online, July 15, 2014), the AFPM official declared: “We’re not at the day of reckoning yet.”
Contact Nick Snow at nicks@pennwell.com.
By Nick Snow
OGJ Washington Editor
The US could find its light crude oil production growth stymied if it doesn’t allow more of it to be exported, speakers warned during the US Energy Information Administration’s 2014 energy conference’s first day.
John R. Auers, executive vice-president of Turner, Mason & Co. Consulting Engineers in Dallas, described what he termed “a day of reckoning” during a July 14 morning session. This day would come, he said, when US crude production exceeds refining capacity to a point that prices become so heavily discounted to comparable overseas grades that producers decide not to increase production further.
IHS Vice-Chairman Daniel Yergin agreed. “The rationales for a crude oil export ban are gone, but the ban is still in place,” he said during his luncheon remarks. “We see a risk of a $15-25/bbl domestic light crude discount being locked in during the next couple of years, potentially limiting additional investment.”
During the crude export discussion in which Auers participated, Jason Bordoff, who directs the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs, said, “Many people are concerned that if more US crude exports aren’t allowed, refineries will be so overwhelmed with domestic light crude that they’ll deeply discount the prices they’re willing to pay. This is a matter of crude quality, not adequate supplies like LNG exports. Recent experience suggests a lot of the US crude oil production growth forecasts have been conservative. We’re learning more as we produce more.”
Mixed message
Yergin maintained, “Lifting the ban on crude oil exports would signal the US government’s commitment to global markets and energy security. The US has preached to other countries for decades about the need for free flow of resources. How can we say to Japan that it can’t import any of our LNG but must not buy Iran’s oil?”
Meanwhile, US petroleum product exports have surged in recent years because they are not restricted. Questions arose over what constitutes a petroleum product after the US Department of Commerce’s Bureau of Industry and Security (BIS) gave Pioneer Natural Resources Co. and Enterprise Products Partners LP (EPP) permission on June 24 to export condensates (OGJ Online, June 25, 2014).
US Sen. Edward J. Markey (D-Mass.) characterized condensate as “ultralight crude oil” a day later and said the BIS approvals should not have been granted before Congress revised the crude export ban and allowed public comment. US Sen. Lisa Murkowski (R-Alas.) said on July 9 that DOC should align itself with other federal agencies and departments’ treatment of condensate, and allow more of it to be exported.
“Any solutions to the crude export paradigm must be implemented through laws and statutes,” said a third member of the EIA conference’s crude export panel, Jacob Dweck, a partner at Sutherland, Absill & Brennan in Washington who represented EPP before the agency. “By law, BIS must operate under strict confidentiality. But while its rulings are confidential, they can be relied upon by any exporter.”
Its decision that condensate is a product eligible to be exported apparently is based on an idea that crude becomes a product once it’s processed through distillation towers, Bordoff suggested. Continuing the crude export ban doesn’t make sense because the US has spent decades fighting resource nationalism in other countries and promoting free trade, he said.
Targeted investments
“The Saudis have been pricing their crude for US customers below what they might get in the Far East because they want to stay in the US market,” said Auers. “Industry is already making significant investments—mostly in refineries, but also midstream and upstream—to handle specific crudes.”
Many of these outlays will be for facilities with immediate paybacks so problems can be solved quickly, Auers said. A distillate hydroskimmer costing $600 million isn’t as expensive as a light crude refining unit with more capacity, Auers said.
Yergin noted, “Because of regulatory uncertainty, people are building toppers and splitters, but they’re not spending a lot of money on them because they don’t want to possibly be stuck with surplus equipment.”
Antoine Halff, who heads the International Energy Agency’s Oil Industry and Markets Division, said IEA’s latest midterm Oil Market Report found trade shifting from crude to products globally. It forecasts “a very dramatic refining transformation in the next 5 years” with “very significant growth in Asia, particularly east of Suez, and relatively minor growth in Latin America,” he said during an afternoon discussion of changing global product market flows at the EIA conference.
“We expect 95% of this growth to come outside the US,” Halff said. “It will increasingly compete not just with its weak European partners, but also with exports from India and the Middle East. We also expect overcapacity as oil products compete increasingly with products like biofuels and [natural gas liquids] that bypass refineries.”
By Nigel Wilson
Iraqi Kurds have begun pumping oil from the Kirkuk oilfields that were abandoned by central government security forces in June, rerouting it to the pipeline system that runs through its own territory.
Kurdish peshmerga forces took control of Kirkuk city after a coalition of Sunni militants, spearheaded by the ultra-violent Islamic State group, overran Iraq's northern capital of Mosul and surrounding areas.
The Kurds went on to seize oil production facilities at Kirkuk and Bai Hassan on July 11, in a move denounced by Baghdad.
"They are using a pipeline which was originally used to send crude from (Kurdistan), but they have now reversed it (to use it by the Kurdish region)," a senior oil official said, as quoted by Reuters news agency.
Around 20,000 to 25,000 barrels were being pumped daily, the official estimated.
Relations between Erbil and Baghdad have deteriorated in recent weeks as Iraq's caretaker Prime Minister Nouri al-Maliki struggles to contain a growing insurgency.
Kurdish lawmakers have withdrawn from central government meetings after Maliki accused the Kurds of providing a haven to terrorists. The Kurdish Regional Government (KRG) then called on its members to prepare for a vote on independence.
The two sides remain locked in a long-running dispute over the allocation of state money and the KRG's right to sell oil independently of Baghdad.
Iraq's oil ministry reacted furiously, saying the Kurds should "support security forces in confronting terrorist groups rather than using the conditions to raid and occupy oilfields."
The ministry estimates that the two oilfields at Kirkuk and Bai Hassan have a joint production capability of 400,000 barrels a day.
Maliki has struggled to form a government since elections were held in April. The situation has become significantly more complicated, with Isis advancing and Iraqi Kurdistan threatening to break away. Kirkuk has long been sought by Iraq's Kurds as a capital city for a future state.
By Futurity | Thu, 17 July 2014 21:27 | 0
Scientists say they’ve identified a more efficient and less expensive way to make hydrogen fuel.
The technology, based on carbon nanotubes, is a catalyst for electrolysis reactions, which use electric currents to split water molecules into hydrogen and oxygen.
“Hydrogen has long been expected to play a vital role in our future energy landscapes by mitigating, if not completely eliminating, our reliance on fossil fuels,” says Tewodros (Teddy) Asefa, associate professor of chemistry and chemical biology at Rutgers. “We have developed a sustainable chemical catalyst that, we hope with the right industry partner, can bring this vision to life.”
Finding ways to make electrolysis reactions commercially viable is important because processes that make hydrogen today start with methane—itself a fossil fuel. The need to consume fossil fuel therefore negates current claims that hydrogen is a “green” fuel.
Electrolysis, however, could produce hydrogen with electricity generated by renewable sources, such as solar, wind, and hydro energy, or by carbon-neutral sources, such as nuclear energy.
And even if fossil fuels were used for electrolysis, the higher efficiency and better emissions controls of large power plants could give hydrogen fuel cells an advantage over less efficient and more polluting gasoline and diesel engines in millions of vehicles and other applications.
In a recent scientific paper published in Angewandte Chemie International Edition, Asefa and colleagues reported that their technology, called “noble metal-free nitrogen-rich carbon nanotubes,” efficiently catalyze the hydrogen evolution reaction with activities close to that of costly platinum.
The researchers have filed for a patent on the catalyst, which is available for licensing or research collaborations through the Rutgers Office of Technology Commercialization. The National Science Foundation funded the research.
By Carl Blesch-Rutgers of Futurity
Cessation of oil exports via Kirkuk Ceyhan pipeline due to ISIL insurgents costing Iraq $1.5 billion per month.
Iraq is losing $1.5 billion per month as the Kirkuk-Ceyhan oil pipeline has stopped operation since March due to the insurgency led by Sunni fighters, according to an Iraqi oil ministry official.
The main oil pipeline between Iraq and Turkey has been out of action since March due to attacks on the pipeline by militants from the Islamic State in Iraq and the Levant, known as ISIL.
The Kirkuk-Ceyhan pipeline has a maximum operational capacity of 400,000 barrels per day, but actual flows were around 300,000 barrels per day due to attacks on the pipeline which frequently disrupted the operation, according to the Office of the Special Inspector General for Iraq Reconstruction.
Baghdad-based economist Jamil Anton said oil damages will increase the budget deficit.
"The Iraqi budget for 2014 is $151 billion and this is calculated with a maximum oil production of 3.4 million barrels per day," Anton said. "But Iraq currently exports 2.6 million barrels per day."
But the press adviser for the Kurdish Regional Government's Parliament, Tareq Jawhar, told The Anadolu Agency that statements regarding the economic damage caused by ISIL are only excuses for not being able to protect the pipeline.
Although the pipeline from Kirkuk has been out of operation since May 22, the Kurdish Regional Government has been exporting its own oil via a new pipeline to Turkey, despite long-standing disagreements with Baghdad over the sale of oil through Turkey to the international market.
englishnews@aa.com.tr - Bagdat
By Nick Cunningham | Thu, 17 July 2014 22:12 | 0
The South China Sea has enormous potential for oil and gas reserves but territorial conflict will likely hold it back for years to come.
On July 16, the China National Petroleum Corporation (CNPC) decided to remove its oil rig from contested waters, stating that its exploration mission was completed after finding “sings of oil and gas.”
While moving the rig out of waters claimed by both China and Vietnam could cool tensions, the intractable dispute over territory is holding back what could be massive investment in oil and gas exploration.
The Wall Street Journal reported on several major international oil companies that are steering clear of the South China Sea because of the conflict, despite the potentially huge reserves of oil and gas in its waters.
Back in 2006, Chevron (NYSE: CVX) signed a deal with Petronas, Malaysia’s state-owned oil company, to conduct exploration in disputed waters east of Vietnam. After China sent a stern warning that doing so would violate China’s sovereignty, Vietnam offered naval protection to Chevron. Despite assurances from Vietnam, in 2007 Chevron closed the door on its operations there, citing the ongoing territorial dispute.
Chevron continues to work in the area, but is staying within Vietnam’s undisputed territory.
Harvest Natural Resources Inc. (NYSE: HNR), a Houston-based oil and gas company, has secured rights from China to drill in the South China Sea. The only problem is that their block was also separately awarded by Vietnam to another company. The clash was enough to scare away the company – Harvest’s CEO James Edmiston said in June that his company was currently divesting from assets in China.
At the same time, some companies are braving the risk. ExxonMobil (NYSE: XOM) has already worked with PetroVietnam in the South China Sea, drilling two wells in 2011 and 2012, and a third expected this year.
Canadian company Talisman Energy (TSE: TLM) also expects to drill two exploratory wells in disputed waters this year. The company’s vice president for Asia-Pacific operations, Paul Ferneyhough, thinks the risk is worth the reward. “I would describe these as world-class exploration blocks,” he told The Wall Street Journal.
The U.S. Energy Information Administration estimates that the South China Sea holds 11 billion barrels of oil and 190 trillion cubic feet of natural gas. Malaysia likely holds the most oil, with an estimated 5 billion barrels in its waters; Vietnam has 3 billion barrels; Brunei has 1.5 billion barrels; and China 1.3 billion barrels.
On the other hand, the dispute over territory seems to have been blown out of proportion. Much of those oil and gas reserves are located within uncontested territory close to the various countries’ shorelines.
The disputed territory, around the Spratly and Paracel islands, has a smaller upside. The EIA doubts the Paracel Islands – where CNPC’s controversial rig was exploring – holds important reserves of oil and gas. “Geologic evidence suggests the area does not have significant potential in terms of conventional hydrocarbons,” the agency said in a report on the South China Sea. CNPC announced that it found “signs of oil and gas,” but without estimates on reserves, the statement was not exactly a ringing endorsement. The problem is that geologic data is imprecise, so for now no one knows what lies beneath the seabed.
Nevertheless, the conflict will likely continue. CNPC may have removed its oil rig from contested waters, but Vietnam only sees malice in China’s decisions. “China's South China Sea policy is aggressive, so the withdrawal of the oil rig is only a tactic, a responsive measure they need to take right now,” said Tran Cong Truc, the former head of Vietnam’s border committee.
For China’s part, the strong nationalist feeling amongst its population could make it difficult for the Chinese government to ratchet down tensions. After the decision by CNPC to move its rig out of disputed territory, commentary on China’s blogosphere erupted in outrage, questioning the courage of its leaders.
The dispute will prevent a better understanding of the resource base in contested areas, a critical prerequisite for actual oil and gas production. Whether or not there are vast reserves of oil and gas in the South China Sea, the conflict – which has escalated to the point of violence in 2014 – will scare away any development for the foreseeable future.
By Nick Cunningham of Oilprice.com
By Jacob Adelman and Chisaki Watanabe Jul 18, 2014 7:51 AM GMT+0700
Japan is poised to rejoin the world nuclear club -- barely.
Yesterday’s report vouching for the safety of Kyushu Electric Power Co. (9508)’s atomic station in southern Japan means the utility’s two reactors in Sendai may begin operating as soon as October or November, according to Yoko Nobuoka, a Tokyo-based analyst with Bloomberg New Energy Finance. Two more units may be working by the end of the year, she says.
The lengthy approval process -- utilities began applying to restart their reactors more than a year ago -- indicates Japan may remain nuclear-free throughout the summer when power demand is typically at its highest. Even with some nuclear capacity restored, the contribution to Japan’s energy mix will remain marginal, leaving the nation reliant on dirtier-burning fossil fuels such as coal, oil and liquefied natural gas.
“We still hold the view of not a wave of nuclear restarts, it’s more gradual than that,” Nicholas Browne, a Singapore-based analyst for energy consultant Wood Mackenzie, said by phone. “Consequently, we’re not forecasting a significant drop in LNG demand or coal demand.”
Japan spent 57 percent more on fossil fuels in the year ended March 31 compared with the year ended March 2011, when the Fukushima nuclear accident occurred. Traditional fossil fuels now account for about 88 percent of Japan’s power output, up from about 60 percent before Fukushima, according to the latest data from the nation’s utilities association.
LNG Prices
North Asia LNG prices have rallied 54 percent since Japan shut nuclear plants and boosted gas purchases for power generation. Several plants need to be reopened for prices to slump significantly, according to SMBC Nikko Securities Inc., a Tokyo-based brokerage.
By the end of this year, 5 gigawatts of nuclear capacity may be operating in Japan, Bloomberg New Energy Finance estimates. That may triple to 15 gigawatts in 2015, according to a June 20 report from the London-based researcher.
The regulator expects inspections on other units using the same pressurized water reactor technology as those used at the Sendai plant to go “more smoothly,” Chairman Shunichi Tanaka told reporters yesterday.
“It solidifies the fact that they are going to restart,” said Rob Chang, a Toronto-based analyst with Cantor Fitzgerald, who sees about two-thirds of Japan’s pre-Fukushima fleet of 54 reactors returning to operation. “It’s just two but it’s an important two because it signals Japan is back in terms of nuclear power.”
Nuclear Decision
Still, the decision is far short of a nuclear renaissance for Japan, which relied on atomic power for more than a quarter of its electricity needs before Fukushima. The nation’s fleet of operable reactors -- now down to 48 -- remain idled. Japan has been without nuclear power since July 2013, when Kansai Electric Power Co. (9503)’s No. 4 reactor at its Ohi plant went offline for maintenance.
The Sendai reactors, at 890 megawatts each, will do little to satisfy energy demands. Combined, the reactors represent just 5 percent of the 33.5 gigawatts of total nuclear capacity Japan had online in the week before the Fukushima disaster.
“This decision doesn’t do anything to resolve what happens in the longer term, like the decision whether reactors will be permitted to operate past a 40-year operating life,” said Browne from Wood Mackenzie. “There are these longer-term questions that will be very important for the longer-term Japanese fuel mix.”
Political Victory
Japan’s step toward the resumption of nuclear energy is a victory for Prime Minister Shinzo Abe. Unlike Germany, which under Angela Merkel has vowed to scrap nuclear energy altogether, Abe has held that atomic energy plays a vital role in his nation’s energy mix. The latest policy pronouncement on energy terms nuclear an important source of base-load power.
Abe took office on Dec. 26, 2012, replacing Yoshihiko Noda, whose party had aimed to phase out nuclear.
Uranium producers also stand to benefit. Uranium has fallen about 60 percent since Fukushima. The atomic fuel dropped to $28 a pound on May 19, the lowest since May 2005, according to data from Ux Consulting Co. in Roswell, Georgia.
Restarts are the “most important psychological catalyst for the uranium space,” David Sadowski, a Vancouver-based analyst at Raymond James Ltd., said on June 19. The financial adviser predicts a surplus of 10 million pounds this year.
Regulatory Structure
Yesterday’s report is the first safety assessment of a Japanese nuclear power plant from the Nuclear Regulation Authority, which was set up to replace a predecessor criticized for ignoring warnings before the Fukushima disaster.
“The government has stated it wants to see nuclear come back,” Browne said. “I think this will also indicate that the NRA isn’t just an agency that is looking to block nuclear power, that once their criteria are met that it will confirm that plants are safe to reopen. Clearly, that is a positive signal to other utilities which are also hoping to have their safety standards approved by the NRA.”
Still, Abe has a tough sell ahead in Japan, where nuclear energy remains unpopular. Fifty-nine percent of those who responded to a poll in March by the Asahi newspaper opposed its resumption.
“If anything, this will make public opinion think we’re back to business as usual,” said Daniel Aldrich, an associate professor of political science at Indiana’s Purdue University who focuses on Japan and disaster recovery. “We have a regulator who has perhaps drawn the process out, made it more challenging than in the past, asked more questions, but may not deny a license to anyone.”
Energy Mix
Besides regulatory oversight, the Fukushima accident is also transforming Japan’s energy profile. In July 2012, Japan introduced some of the world’s most generous incentives to attract clean-energy development. Renewable generation capacity has surged by 43 percent as a result.
Japan has added nearly 9,000 megawatts of clean energy capacity since the incentive program’s introduction, according to data from the Ministry of Economy, Trade and Industry. Clean energy, excluding hydro power, accounted for 4.6 percent of the nation’s total power output in April, trade ministry data show.
“In our view, only about 50 percent of nuclear will ultimately return,” said Wood Mackenzie’s Browne. “If you do want to replace and build new megawatts of capacity, renewables is clearly one of those options.”
To contact the reporters on this story: Jacob Adelman in Tokyo at jadelman1@bloomberg.net; Chisaki Watanabe in Tokyo at cwatanabe5@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Iain Wilson
By Mark Shenk Jul 18, 2014 2:00 AM GMT+0700
Total U.S. imports of crude and fuel in June dropped to the lowest level for the month since 1993 as domestic production surged, the American Petroleum Institute said.
Imports were below 10 million barrels a day for a 10th consecutive month, the industry-funded group said today in a monthly report. Total imports dropped 5.7 percent from a year earlier to 9.23 million barrels a day.
“A wide range of measures show continued strength in petroleum demand and domestic supply last month with imports around 20-year lows,” John Felmy, chief economist at the API in Washington, said in the report.
U.S. crude oil output increased 16 percent to 8.35 million barrels a day, the highest for June since 1986. Output of natural gas liquids, a byproduct of gas drilling, climbed 18 percent to a record 2.94 million.
Production of gasoline advanced 7.6 percent to 10.1 million barrels a day last month, a record for June and the second-highest level ever. Output of distillate fuel rose 2.5 percent to 4.91 million, a record for the month of June.
Total deliveries of petroleum products, a measure of demand, climbed 1.5 percent from a year earlier to 19 million barrels a day in June. It was the lowest level for the month since 2011. Demand increased for gasoline, distillate fuel and jet fuel.
Gasoline consumption increased 4 percent to 9.32 million barrels a day, the highest level for June since 2007. Demand for distillate fuel, which includes diesel and heating oil, climbed 3 percent to 3.78 million. Jet fuel consumption surged 8.4 percent to 1.55 million.
Demand for residual oil, used for commercial and industrial heating, electricity generation and ship propulsion, dropped 11 percent to 270,000 barrels a day.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Richard Stubbe, Stephen Cunningham
By Jennifer Oldham Jul 18, 2014 1:41 AM GMT+0700
Colorado Governor John Hickenlooper said he doesn’t have enough votes to pass legislation allowing more community control over oil and gas drilling, paving the way for a fight on the November ballot that is expected to be the most expensive in the state’s history.
Hickenlooper, a Democrat, had worked with energy companies, lawmakers and business groups since May to broker a compromise to appease activists pushing for restrictions on hydraulic fracturing, or fracking. He had hoped to head off a ballot measure that would amend the Colorado constitution by prohibiting drilling within 2,000 feet of structures -- a step energy companies say would effectively ban fracking in the state.
“Over the past several months, we have worked with a bipartisan coalition to explore a legislative compromise that would avoid a series of expensive and divisive ballot initiatives surrounding oil and gas development in Colorado,” Hickenlooper said in a statement yesterday. “We have not been able to secure the broader stakeholder support necessary to pass bipartisan legislation in a special session.”
The debate over fracking, in which water, chemicals and sand are injected below ground to bring oil and gas to the surface, has escalated as drilling moved closer to suburbs, raising concerns about water and air contamination. Five communities in the state have voted to ban or put a moratorium on hydraulic fracturing.
500 Feet
State regulations now require wells to be located at least 500 feet from occupied buildings. Activists are hoping to expand that barrier.
U.S. Representative Jared Polis, a Democrat from Boulder who is backing the initiative requiring 2,000 feet of space, said it’s now up to the people of Colorado to address the fracking issue. Supporters of the initiative must turn in 86,105 valid signatures of registered voters by Aug. 4 to place the measures on the Nov. 4 ballot.
“My one goal is to find a solution that will allow my constituents to live safely in their homes, free from the fear of declining property values or unnecessary health risks,” Polis said in a statement.
Anadarko Petroleum Corp. (APC), Whiting Petroleum Corp. (WLL) and Encana Corp. (ECA), which are drilling in the Denver-Julesburg Basin, one of the nation’s richest oil and gas fields, said yesterday they will spend $50 million to fight the measure. Drilling in the basin has helped make Colorado the nation’s sixth-largest natural-gas producer and ninth-biggest oil producer.
“Colorado is at the heart of this national debate,” said Matt Most, vice president of government relations for Encana. “The rest of the country is going to be looking here and if we lose it will embolden challenges elsewhere.”
The oil companies are supporting a ballot measure that would prevent communities that restrict drilling from receiving state tax revenue from the business.
Hickenlooper, who is running for re-election this fall, has been leading a campaign to persuade Coloradans that mineral rights owners must continue to have the ability to collect royalties by allowing energy companies to drill.
To contact the reporter on this story: Jennifer Oldham in Denver at joldham1@bloomberg.net
To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Jeffrey Taylor, Stephen West
Europe Risks Losing 30 Million Jobs to U.S. Shale Boom
By Priyanka Sharma and Lananh Nguyen Jul 18, 2014 12:04 AM GMT+0700
The U.S. shale-gas boom is placing 30 million jobs at risk in Europe as companies with greater reliance on energy contend with higher fuel prices than their American counterparts, the International Energy Agency said.
Manufacturers of petrochemicals, aluminum, fertilizers and plastics are leaving Europe to take advantage of booming U.S. production of natural gas from shale rock formations, Fatih Birol, chief economist for the International Energy Agency, a Paris-based adviser to 29 nations, said at a conference in London today.
“Many petrochemicals companies in central Europe are moving out,” Birol said. “Thirty million jobs are in danger.”
The U.S. has become the world’s largest producer of oil and gas as hydraulic fracturing and horizontal drilling help producers extract resources from shale rock. The country’s refineries processed a record volume of crude last week as plants took advantage of cheaper domestic crudes. Chemical makers from Germany’s BASF SE to Brazil’s Braskem SA plan to invest as much as $72 billion in U.S. plants to take advantage of low-cost natural gas feedstock.
West Texas Intermediate crude traded at a discount of $5.85 a barrel to European benchmark Brent at 5:43 p.m. on the ICE Futures Europe exchange in London. U.S. August natural gas futures traded for $3.96 per million British thermal units on the New York Mercantile Exchange, compared with $6.49/MMBtu for the equivalent U.K. contract on ICE in London.
U.S. refineries are competing for market share and benefiting from margins that exceed those of European competitors by as much as $10 a barrel because of cheaper crude, Hermes Commodities said in a report today.
To contact the reporters on this story: Priyanka Sharma in London at psharma142@bloomberg.net; Lananh Nguyen in London at lnguyen35@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron
By Ben Sharples and Winnie Zhu Jul 17, 2014 2:06 PM GMT+0700
Gains in crude prices driven by new sanctions on Russia will be limited because there’s sufficient spare export capacity and no shortage of global supply, according to Nomura Holdings Inc. and Sapient Global Markets.
Brent crude for September delivery was little changed at about $107 a barrel in London trading today after the U.S. Treasury Department said OAO Rosneft, Russia’s biggest oil company, and natural gas producer OAO Novatek are among those hit by the penalties. Futures rose 2 percent to $111.20 on March 3 after Ukraine mobilized its army reserves as its neighbor seized control of the Black Sea region of Crimea.
The measures are the latest response to what U.S. and European leaders say is President Vladimir Putin’s refusal to end support for rebels who have been battling Ukrainian government forces in the east. The Organization of Petroleum Exporting Countries, which last month pledged to replace any barrels lost during the conflict in Iraq, may cover any potential cut in supply from Russia, Nomura predicts.
“OPEC will step up and export more to replace the lost Russian crude and calm these oil-price spikes,” Gordon Kwan, the regional head of oil and gas research at Nomura Holdings Inc. in Hong Kong, said today. “The U.S. and EU are smart enough not to risk derailing the global economic recovery by choking off Russia’s oil exports.”
Spare Capacity
OPEC’s spare capacity is estimated at 3.25 million barrels a day, the International Energy Agency said in its monthly report on July 11. Saudi Arabia, the group’s biggest producer, pumped 9.9 million barrels a day of oil in June, according to data compiled by Bloomberg. The kingdom is capable of producing as much as 12.5 million.
Russia exported about 6.14 million barrels a day of crude in May, said the Paris-based agency, an adviser to developed nations. Commercial oil inventories held by members of the Organization for Economic Cooperation and Development rose by 44.2 million barrels in May to 2.639 billion, its report shows.
The EU said it would halt lending for new public-sector projects in Russia by the European Investment Bank, the bloc’s in-house lender, and will use its influence to stop new lending by the European Bank for Reconstruction and Development. The U.S. and EU are seeking to squeeze the nation’s $2 trillion economy by limiting access to financing.
At a news conference in Brasilia, Putin called the U.S. sanctions “aggressive policy” and will only end up hurting American companies. The sanctions will lead U.S.-Russia relations to a dead end, he said.
“People will be waiting to see what Putin does,” Chip Register, the New York-based managing director of Sapient Global Markets, a financial and commodity market consultant, said by phone from London yesterday. “The oil markets, there’s spare capacity in the world, so it’ll be a little harder to move them around.”
To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Winnie Zhu in Singapore at wzhu4@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Yee Kai Pin
By Matthew Campbell Jul 17, 2014 9:17 PM GMT+0700
July 16 (Bloomberg) -- American Action Forum President Douglas Holtz-Eakin and Bloomberg's Peter Cook react to President Barack Obama's comments on the new sanctions on Russia and the recent violence between Israel and the Hamas-ruled Gaza Strip. They speak with Pimm Fox on "Taking Stock." (Source: Bloomberg)
As the U.S. and Europe escalate sanctions against Russia over its role in the Ukraine crisis, companies such as Exxon Mobil Corp. (XOM), Airbus Group NV (AIR) and Daimler AG (DAI) are facing a threat to their multi-billion-dollar businesses in the country.
“We have enjoyed good relationships with Russian partners,” Airbus Chief Executive Officer Tom Enders said on the sidelines of the Farnborough Air Show near London. “I would only express my hope that these relationships and partnerships will survive the current political tensions.”
In contrast to sanction targets Iran and North Korea, Russia’s $2 trillion economy -- about the size of Italy’s -- is closely linked to global business as multinationals have piled into a promising consumer market and resource producer. That highlights the difficulty the U.S. and Europe face in trying to punish Russian President Vladimir Putin.
The U.S. has accused Russia of funnelling weapons to Ukrainian rebels, who continue to control key cities. President Barack Obama’s administration yesterday imposed new sanctions on large Russian banks, energy companies and defense firms. Among the companies hit were OAO Rosneft (ROSN), Russia’s largest oil company, natural gas producer OAO Novatek and OAO Gazprombank, the country’s third-largest lender, according to an announcement by the U.S. Treasury Department.
The penalties will prohibit any new financing of debt with a maturity of more than 90 days from U.S. sources.
The action also blocks the assets of eight state-owned defense firms, including weapons-maker Kalashnikov Concern, which manufactures the namesake assault rifle.
EU Measures
European Union leaders have imposed measures that would cut off some public financing of infrastructure projects in Russia, and are preparing a blacklist of companies. Their sanctions had so far focused on asset freezes and visa bans for small numbers of political and military figures close to Putin.
“The negative impact of the deepening crisis on Russia’s business ties with the West is almost unavoidable,” said Lilit Gevorgyan, a senior economist at research group IHS.
The highest-profile relationships are in Russia’s state-dominated energy sector, whose revenues have underpinned Putin’s revitalization of the military and welfare spending that’s boosted his popularity.
Cold War Wells
Exxon has bet heavily on its relationship with Rosneft, a state energy producer that’s led by Putin confidant -- and U.S. sanctions target -- Igor Sechin. Next month Exxon expects to begin drilling an Arctic well with Rosneft that will cost as much as $700 million, the most expensive such project ever in Russia. It’s also working on a $300 million shale well project in Siberia.
In a sign of the importance of its Rosneft ties, Exxon CEO Rex Tillerson rebuffed U.S. government appeals to skip an energy forum in Putin’s hometown of St. Petersburg in May, and appeared with Sechin in Moscow last month. An Exxon spokesman said the company’s Russia plans remain unchanged.
Providers of oilfield services have found a juicy potential market in Russia, which needs the latest technology to maintain production from declining Cold War-era fields.
U.S. energy service providers Halliburton Co. (HAL), Schlumberger Ltd. (SLB) and National Oilwell Varco Inc. (NOV) all have significant operations in Russia.
‘Bigger Play’
Halliburton has worked closely with energy group OAO Gazprom, which has threatened to cut off gas supplies to Ukraine over late payment. The Houston-based company, which signed a technology-sharing accord with Gazprom’s oil arm last year, “is certainly trying to make a bigger play” in Russia, said Alexander Robart, a principal at energy-strategy firm PacWest Consulting Partners.
Halliburton and Varco declined to comment. Schlumberger didn’t return e-mails seeking comment.
Threats to business in Russia go beyond the direct impact of sanctions as the economy sputters.
At Canadian airplane manufacturer Bombardier Inc. (BBD/B), “there’s been a little bit more apprehension from our Russian customers to get into big transactions, not just with us,” said Guy Hachey, president of the company’s aerospace business. Along with Airbus, Bombardier has sought to build manufacturing capacity in Russia to meet demand from local airlines.
Corruption Concerns
Yet fewer Russians may be flying soon, as the country’s finance ministry predicts economic growth will drop to about 0.5 percent this year, the slowest since 2009, and will be even lower if sanctions are toughened. Those measures would pile onto existing concerns about corruption, shoddy infrastructure, and stagnant population growth.
Before the current instability, automaker Daimler had backed away from increasing its stake in OAO KamAZ, Russia’s largest producer of heavy trucks, after making earlier plans to boost its shareholding to more than 25 percent. Daimler views its current 15 percent as “more than sufficient,” and the decision was made for “operational reasons,” spokesman Bernd Weber said.
Automakers that are strengthening their ties to Russia are hardly boasting about it. Renault SA (RNO) and Nissan Motor Co. (7201) last month completed a 2012 plan to tighten control of OAO AvtoVAZ, Russia’s biggest carmaker. The companies, which gained majority control of AvtoVAZ, once described the deal as a critical bridgehead into a key emerging market. Yet when the transaction was sealed June 18, they didn’t even put out a press release. Renault and Nissan declined to comment.
Unlikely Companion
Manufacturers and energy firms have an unlikely companion in their efforts to deal with the fallout of the Ukraine crisis: the Pentagon. The U.S. Department of Defense is looking to end its use of Russian-made rocket engines for launching satellites. The U.S. has 16 of the engines in stock, a two-year supply, but developing a homegrown alternative could take six years and cost $1.5 billion, a U.S. government study said in May.
“Because of the Russian actions in the Ukraine, the risk equation has fundamentally changed,” Frank Kendall, the U.S. undersecretary for acquisition, technology and logistics, said in an interview at Farnborough.
Strong sanctions on Russia may be easier for Western governments to contemplate in theory than to impose in practice. For evidence, look to France. Despite pleas from the U.S. to halt the sale, President Francois Hollande’s government is proceeding with the delivery of two Mistral-class assault ships to Russia’s navy, and last month France welcomed a contingent of Russian marines for training. French politicians have defended the deal, saying that cancelling the sale would mean hundreds of jobs lost in the country’s defense industry.
Even so, continued violence in Ukraine is likely to wear down resistance to stronger measures, even in European countries with much to lose, said Cliff Kupchan, the head of the Russia team at political-risk firm Eurasia Group.
“At a certain point, you clearly have a situation of Russian complicity in creating a dysfunctional Ukraine,” he said. “The argument will be very hard to make that it’s just ‘OK, business as usual.’”
To contact the reporter on this story: Matthew Campbell in London at mcampbell39@bloomberg.net
To contact the editors responsible for this story: Keith Campbell at k.campbell@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net David Rocks
By Chris Dalby | Thu, 17 July 2014 22:19 | 0
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1. Charles and David Koch ($68 billion jointly)
The bogeymen of the Democratic Party inherited their fortunes, along with the family business, from their father, Fred. But they’ve since shown a keen entrepreneurial spirit. Koch Industries’ claim to fame initially was a proprietary oil refining technique, but the brothers soon diversified the product portfolio to encompass refineries, pipelines, and the manufacturing of chemicals, polymers and fibers. This wide swathe of business interests is still focused on oil, but Koch Industries has now become America’s second largest private company, behind Cargill. Its main oil and gas subsidiary, Flint Hills Resources, processes well over 300 million barrels of oil a year. That figure is one reason the Kochs are vilified by environmentalists: Combined, their companies emit more than 300 million tons of greenhouse gasses a year, the equivalent of over 5 percent of the U.S. carbon footprint. But the reputations of Charles and David Koch are less based on their business success than on their staunch support of the Republican Party. The Koch’s political action committee is consistently the largest oil- and gas-money contributor to the Republican Party.
2. Mukesh Ambani ($21.5 billion)
Barons who obtained their fortunes from dearest dad occupy the top two spots on the list. Mukesh Ambani currently oversees India’s Reliance Industries. Having begun as a textiles maker, Reliance Industries created a dedicated subsidiary, Reliance Industries, which has had a spectacular run since it burst onto the world scene in 2008. It owns the world’s biggest refinery at Jamnagar in Gujarat, with a capacity of 1.24 million barrels per day. The mother ship of Reliance Industries is also the world’s foremost polyester producer, but it has taken steps to mitigate its environmental impact by opening the largest polyester-recycling center in existence. The power of running India’s second largest company has given Ambani a major pulpit from which to pursue his business and philanthropic ideals. However, his rise may not have been to everyone’s liking: one of the first actions of Narendra Modi’s new government was to hit Reliance with a $579 million fine, only the latest in a series of penalties stemming from the corporation’s failure to meet legally binding gas production commitments from the gas fields it operates in India.
3. Viktor Vekselberg ($17.2 billion)
Russian mogul Viktor Vekselberg’s list of friends is enviable, as it includes Russian President Vladimir Putin and Mikhail Fridman, his predecessor on this very list. Vekselberg also directly benefited from the rise and eventual sale of TNK-BP, having once been its deputy director as well as acting as chairman of TNK. His early wealth came from aluminum after he capitalized on the opportunities brought about by perestroika and glasnost to emerge as one of Russia’s first successful private entrepreneurs. He co-founded the Siberian-Urals Aluminum Company and took a nice profit when this company was absorbed by RUSAL, the largest company in the sector. His interest then turned to oil and gas when his holding company, Renova Group, founded TNK-BP with Alfa Group, in a merger with BP’s oil assets in the country. He has long had a keen interest in IT and telecoms, having been appointed by Putin in 2010 as the director of Skolkovo, a project seeking to build a Russian rival of Silicon Valley. Interestingly, Vekselberg’s oil profits have been poured into the world’s largest collection of Fabergé eggs: he owns 15 at an estimated cost of $100 million.
4. Mikhail Fridman ($16.5 billion)
A wise man once said that the friendships you make in college last for life. While there’s no record of how close Mikhail Fridman was in college with classmates German Khan and Alexei Kuzmichev, the three together run Russia’s Alfa Group conglomerate. In 2013, Alfa Group’s revenue came in at $16.8 billion. Today, Fridman’s interests are now mostly in industries such as banking and insurance, but most of his personal wealth can be traced back to last year when Alfa Group sold a 90 percent stake in TNK-BP to Rosneft. At the time, TNK-BP was Russia’s third-largest producer and the deal netted the three college buddies a combined $14 billion.
5. Vagit Alekperov ($14.8 billion)
Vagit Alekperov stands alone among the world’s five richest oil and gas barons as the only one who worked his way up in the trade. The current CEO of LUKoil, Russia’s second largest oil company, rose from the bottom: Emerging from Azerbaijan during the Soviet era, he worked as a drilling operator, then an engineer and on up until he became deputy director general of Bashneft and deputy minister for oil and gas for the Soviet Union. His fortune has skyrocketed since the fall of the Soviet Union. As head of LUKoil, Alekperov owns 20 percent of the company, which accounts for his billions. He has also engineered the company’s international expansion to over 40 countries, its listing on the New York Stock Exchange, and has used his links to Putin to secure LUKoil’s future as a pillar of support of the Russian economy. And just so the Alekperov name continues to be associated with the company, he has instructed his son Yusuf to hold on to his shares in LUKoil and is grooming him to take over as CEO.
By Chris Dalby for Oilprice.com
By Nick Cunningham | Thu, 17 July 2014 22:12 | 0
The South China Sea has enormous potential for oil and gas reserves but territorial conflict will likely hold it back for years to come.
On July 16, the China National Petroleum Corporation (CNPC) decided to remove its oil rig from contested waters, stating that its exploration mission was completed after finding “sings of oil and gas.”
While moving the rig out of waters claimed by both China and Vietnam could cool tensions, the intractable dispute over territory is holding back what could be massive investment in oil and gas exploration.
The Wall Street Journal reported on several major international oil companies that are steering clear of the South China Sea because of the conflict, despite the potentially huge reserves of oil and gas in its waters.
Back in 2006, Chevron (NYSE: CVX) signed a deal with Petronas, Malaysia’s state-owned oil company, to conduct exploration in disputed waters east of Vietnam. After China sent a stern warning that doing so would violate China’s sovereignty, Vietnam offered naval protection to Chevron. Despite assurances from Vietnam, in 2007 Chevron closed the door on its operations there, citing the ongoing territorial dispute.
Chevron continues to work in the area, but is staying within Vietnam’s undisputed territory.
Harvest Natural Resources Inc. (NYSE: HNR), a Houston-based oil and gas company, has secured rights from China to drill in the South China Sea. The only problem is that their block was also separately awarded by Vietnam to another company. The clash was enough to scare away the company – Harvest’s CEO James Edmiston said in June that his company was currently divesting from assets in China.
At the same time, some companies are braving the risk. ExxonMobil (NYSE: XOM) has already worked with PetroVietnam in the South China Sea, drilling two wells in 2011 and 2012, and a third expected this year.
Canadian company Talisman Energy (TSE: TLM) also expects to drill two exploratory wells in disputed waters this year. The company’s vice president for Asia-Pacific operations, Paul Ferneyhough, thinks the risk is worth the reward. “I would describe these as world-class exploration blocks,” he told The Wall Street Journal.
The U.S. Energy Information Administration estimates that the South China Sea holds 11 billion barrels of oil and 190 trillion cubic feet of natural gas. Malaysia likely holds the most oil, with an estimated 5 billion barrels in its waters; Vietnam has 3 billion barrels; Brunei has 1.5 billion barrels; and China 1.3 billion barrels.
On the other hand, the dispute over territory seems to have been blown out of proportion. Much of those oil and gas reserves are located within uncontested territory close to the various countries’ shorelines.
The disputed territory, around the Spratly and Paracel islands, has a smaller upside. The EIA doubts the Paracel Islands – where CNPC’s controversial rig was exploring – holds important reserves of oil and gas. “Geologic evidence suggests the area does not have significant potential in terms of conventional hydrocarbons,” the agency said in a report on the South China Sea. CNPC announced that it found “signs of oil and gas,” but without estimates on reserves, the statement was not exactly a ringing endorsement. The problem is that geologic data is imprecise, so for now no one knows what lies beneath the seabed.
Nevertheless, the conflict will likely continue. CNPC may have removed its oil rig from contested waters, but Vietnam only sees malice in China’s decisions. “China's South China Sea policy is aggressive, so the withdrawal of the oil rig is only a tactic, a responsive measure they need to take right now,” said Tran Cong Truc, the former head of Vietnam’s border committee.
For China’s part, the strong nationalist feeling amongst its population could make it difficult for the Chinese government to ratchet down tensions. After the decision by CNPC to move its rig out of disputed territory, commentary on China’s blogosphere erupted in outrage, questioning the courage of its leaders.
The dispute will prevent a better understanding of the resource base in contested areas, a critical prerequisite for actual oil and gas production. Whether or not there are vast reserves of oil and gas in the South China Sea, the conflict – which has escalated to the point of violence in 2014 – will scare away any development for the foreseeable future.
By Nick Cunningham of Oilprice.com
Proactive Investors
Carnarvon Petroleum delivers boost to Thailand oil production
Carnarvon Petroleum (ASX:CVN) is reaping the benefit of successful drilling in Thailand with the company reporting net production of 73,009 barrels of oil for the quarter ending 30 June 2014.
This is up almost 23% from the 59,383 barrels it produced in the previous quarter despite the sale of half its 40% interest in its Thailand concessions to Singapore’s Loyz Energy effective 31 March 2014.
The increased production also increased net revenue up 16% to $7.2 million and operating cash flow before tax of $5.4 million, up from $4 million in the March 2014 quarter.
It noted the overall success of the first drilling success in the 2014 calendar year had resulted in an increase in gross oil production rates to about 4,000 barrels of oil per day in the June 2014 quarter.
This is a significant improvement from gross production of 1,650bopd in the previous quarter.
Notably, this increase in production has more than offset the sale of half its 40% interest in the L33/43, L44/43 and SW1A Concessions to Loyz (SGX:594) for up to US$65 million.
Carnarvon is also well funded for its operations with $50.5 million in the bank as of 30 June 2014 due in large part to banking the first US$33 million from the sale of the assets.
Recent Work
The company is participating in the drilling of the Phoenix South-1 well off Western Australia that targets multi-trillion cubic feet of gas.
Operator Apache has recently commenced operations to sidetrack the well after the casing equipment became stuck in the well bore.
Apache and partner JX Nippon are earning a 40% and 20% interest in WA-435-P, where the well is located, by funding drilling of the well to a cap of US$70 million.
Carnarvon is responsible for 20% of any costs over this amount.
Success in the Phoenix South-1 well is likely to lead the Joint Venture to drill the Roc well in the adjoining WA-437-P permit.
Funding for this well has been secured through an agreement with Apache and JX Nippon.
In Thailand, operator Towngas has also kicked off a drilling program of between five and seven wells that could further increase production.
This is a mix of exploration, appraisal and development wells.
Carnarvon has also been awarded three new contiguous exploration blocks in the Carnarvon Basin in Western Australia.
Analysis
Despite the sale of half its 40% interest in its Thailand oil production assets, the successful drilling program has resulted in a 23% increase in net production for Carnarvon Petroleum.
There’s further production growth potential with the current drilling program of up to seven wells while the drilling of the Phoenix South-1 well is a potential game changer for Carnarvon.
Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.
By Lynn Doan Jul 18, 2014 6:01 AM GMT+0700
The four-decade-old ban on most crude exports from the U.S., now the world’s largest producer, will be weakened bit by bit by government rulings allowing exceptions, say energy analysts including IHS Inc.
The Commerce Department’s permission for Enterprise Products Partners LP (EPD) and Pioneer Natural Resources Co. (PXD) to ship abroad ultra-light oil known as condensate foreshadows a chain of incremental actions that will chip away at the restriction until it’s obsolete. As much as 1.2 million barrels a day may be freed for export on the recent rulings alone.
The ban was passed by Congress in 1975 in response to the Arab oil embargo that cut global supplies, quadrupled crude prices and created gasoline shortages in the U.S. at a time when the country’s own crude production was shrinking. Now that horizontal drilling and hydraulic fracturing are unleashing record volumes of light oil from U.S. shale formations and a glut of crude is pooling along the Gulf Coast, federal policy makers are facing increasing pressure to ease the restriction.
“They’re going to try and get around the export ban in a lot of ways, case by case, without lifting it,” Amrita Sen, chief oil analyst for the London-based research firm Energy Aspects Ltd., said by telephone from London July 16. “There are a lot of things they can do to alleviate this light crude overhang.”
Rising Output
U.S. crude production has surged to the highest level since 1986, propelled by the boom in “tight oil” drawn from low-permeable rock that now accounts for almost half of the total. Output of tight oil, almost all of which is light, will rise annually through 2021, peaking at 4.8 million barrels a day, the Energy Information Administration projects.
That may be a conservative prediction considering shale output has surpassed estimates over the past several years, Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy, said. “There’s reason to be optimistic that actual production may continue to exceed forecasts,” he said at an EIA conference in Washington July 14.
Policy makers have been eating away at the U.S. export ban for decades, said Daniel Yergin, vice chairman of the Englewood, Colorado-based consulting firm IHS. The prohibition was enacted to protect the price controls on oil and products including gasoline imposed because of the Arab embargo and to block Alaskan oil from being sent to Japan, he said.
Loosening Rules
Those price controls are long gone, refined products were cleared for export and President Bill Clinton granted an exemption in 1996 that allows Alaskan North Slope oil to be sent abroad. Shipments to Canada were approved in 1985 and California’s heavy-oil producers were freed in 1992 to export as much as 25,000 barrels a day.
“Most people recognize there’s no rationale for having this ban,” Yergin, author of “The Quest: Energy, Security and the Remaking of the Modern World,” said by phone on July 15. “In
Washington, they’re concerned, particularly in an election year, about doing anything that others would say affected the price of gasoline. It all comes down to gasoline.”
While the fear of rising pump prices may be paralyzing politicians, IHS (IHS) estimated in a May 29 report that lifting the restriction would cut retail gasoline prices 8 cents a gallon between 2016 and 2030 by increasing global oil supplies.
“Refiners are able to capture a lower cost to run their refineries, but the price they’re selling that product for is set in a global market,” Bordoff said.
Defending Ban
Valero Energy Corp. (VLO), the biggest independent refiner in the U.S., has said it doesn’t see a need to change the ban. In an April 29 call with analysts, Valero Chairman Bill Klesse described the surge in domestic energy production as “a windfall for the United States,” allowing the nation’s refiners to enjoy large crude discounts relative to the rest of the world.
The light-oil buildup has energy consultant John Auers betting on a “day of reckoning” when refiners like Valero reach their light-crude limits and drillers, without an international market to turn to, start scaling back production. That day could come as soon as next year, Auers, executive vice president at engineering consulting firm Turner, Mason & Co., said at the conference in Washington.
The pressure will probably spur the federal government to to weaken the ban “kind of one step after another until there’s a cumulative outcome instead of making one dramatic move,” Yergin said. “People are cautious. They have enough problems. They don’t want to take on a new risk.”
Republican Control
That could change if the U.S. elections in November lead to Republicans taking over the Senate and then having the power to include a reversal of the export restriction in a larger energy bill, Gayle Trotter, a Republican attorney and senior fellow at the Independent Women’s Forum in Washington, said by telephone July 16.
“They’re doing this piecemeal -- actually, I wouldn’t even call it piecemeal because it’s more just a sprinkle,” she said. “Republicans could have the numbers to roll back this retrograde policy.”
Rulings such as the Commerce Department’s decision to allow processed condensate exports are more likely to carve away at the restriction until “it may just slough off completely and then it’s gone,” Jamie Webster, IHS’s senior director of global oil markets, said at the EIA conference July 15.
Policy Change
Jacob Dweck, an attorney who represents Enterprise, said the condensates ruling in March has been misinterpreted as a significant policy change by the Obama administration.
“It was Enterprise asking for a ruling and getting the ruling it was entitled to,” he said at the conference July 14.
Enterprise’s request was a “technical legal exercise” confirming that, once condensates are run through a distillation tower, they’re broken down into distinct refined product streams that can be exported abroad under existing regulations, Dweck said.
Regardless of the Commerce Department’s intent, the rulings “told the world what needs to be done” to get condensates out of the U.S., Sen of Energy Aspects said.
“We can’t expect a lifting of the crude ban,” she said. “But there will be a lot of different ways to get around it.”
To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net; Dan Stets at dstets@bloomberg.net Dan Stets
By Global Risk Insights | Thu, 17 July 2014 22:05 | 0
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which mainly focused on strengthening the U.S. banking and financial system in the wake of the Great Recession, included a lesser-known provision.
The ‘conflict mineral’ provision required companies to conduct due diligence in their supply chains and certify whether their products incorporated tungsten, tin, gold, or tantalum and if so, whether these minerals were sourced from the Democratic Republic of the Congo (DRC) or neighboring states.
These four minerals all played a role in helping finance militias involved in the long-running internal conflict in the DRC, a particularly ugly struggle marked by widespread human rights abuses.
An April 2014, a U.S. appeals court ruling modified the rule’s impact, decreeing that a requirement for companies to positively ascertain whether their supply chains were “conflict free” was an unconstitutional violation of freedom of speech rights.
Nonetheless, publicly listed U.S. firms were still required to demonstrate that they had conducted an appropriate investigation, with the initial reporting requirements for the 2013 calendar year due at the beginning of this past June.
Approximately 1,300 companies (out of an estimated 6,000 companies required to do so) have filed reports with the U.S. Securities and Exchange Commission (SEC). Here are three key takeaways from the reports filed so far:
Baby steps first.
The initial set of submissions last month were a mixed bag, to put it gently. The majority of companies submitting reports declared no concrete information on the use of conflict materials in their products.
This was a predictable result – multinational corporations often rely on a large multitude of third-party suppliers and previously lacked incentive to closely track supplies sourcing. However, we can expect more detailed and more accurate reports in coming years as companies adjust to the new expectations of transparency and disclosure.
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Market pressure: a greater motivator than statutory requirements.
That only 25 percent of the initially estimated 6,000 companies required to comply with this SEC regulation have done so by the initial June deadline demonstrates the absence of a genuine enforcement mandate.
The conflict minerals provision is self-enforced – companies make the determination whether they are legally obligated to comply with the reporting requirement. Some reports indicate the recent U.S. appeals court ruling may have produced some confusion on whether the overall provision had been voided.
Although the SEC has the authority to sanction companies that fail to submit any reporting, it is less clear what, if anything, the agency can do to companies that provide low quality reports.
Some companies may be more influenced by social activists and NGO groups that apply public pressure for greater transparency and disclosure. Indeed, such groups are already reviewing the initial submissions and producing their own evaluations on whether companies have made the grade.
To the proactive go the spoils.
While many companies opted to provide minimal information or refrain from submitting a report at all, there were several notable exceptions. Companies like Apple, Boeing and Intel provided significant detail in their reports, not only summarizing their supply chains, but also identifying specific entities, allowing third parties to conduct further investigations and ensure accountability.
These firms chose to provide this level of detail for entirely pragmatic reasons – it furthers the principles laid out in their corporate responsibility statements and facilitates a bond with those consumers who prioritize such issues. These firms recognize that supply chain transparency is not only an inevitable cost of doing business in the 21st century, but if properly handled, can also represent a growth opportunity.
By Jofi Joseph
by Alan Greenblatt
July 17, 2014 6:42 PM ET
Libyan Foreign Minister Mohamed Abdelaziz asked the United Nations Security Council for help protecting the country's ports, airports and oil installations on Thursday, warning that the country could become a failed state.
He pleaded with the council "to take the case of Libya seriously before it is too late," to Reuters.
"We are not asking for military intervention to protect the oil but we need teams — experts, trained people — to work with Libyans ... so the Libyans can learn how to protect these strategic sites," he said.
The U.N. has pulled its personnel out of the country over the past two weeks because of growing violence. Rival militia groups have been battling each other in many parts of the country.
Fighting continued for a fifth day at the international airport in Tripoli. Several shells for the first time.
Air traffic controllers have stopped working, grounding flights throughout the western part of the country.
In Derna, an Islamist stronghold in the east, gunmen killed Fariha al-Barkawi, a former member of Parliament, Reuters .
Speaking from Lebanon via video link, U.N. special envoy Tarek Mitri warned the Security Council that the situation in Libya could further deteriorate.
"As the number of military actors mobilizing and consolidating their presence within the capital continues to grow, there is a mounting sense of a probable imminent and significant escalation in the conflict," Mitri said. "The stakes are high for all sides."
Houston (Platts)--17Jul2014/648 pm EDT/2248 GMT
Pipeline markets saw low liquidity for Canadian crude Thursday as the end of the August trading cycle approached, but both heavy and light benchmarks fell to new lows on limited trading.
Western Canadian Select, the benchmark heavy Canadian crude, was assessed down $1.00/barrel at WTI CMA minus $24.50/barrel, falling to its largest discount since hitting minus $25.75/b on March 3.
Syncrude, the benchmark light Canadian crude, was assessed down 40 cents/b at WTI CMA minus $4.50/b, falling to its lowest of the year for the second day in a row. Syncrude was last weaker when hit WTI CMA minus $7.00/b on December 16.
One trader said prices could jump more than $2/b with the upcoming roll to September trading and renewed demand, though the ongoing limitations of takeaway capacity could limit any such rise.
Both other heavy Canadian crudes strengthened notably against WCS, with Lloyd Blend rising 25 cents/b to flat with the benchmark and Cold Lake jumping 90 cents/b to a $1.60/b discount.
Traders said they saw no clear reason behind the rise, however, and both crudes still face the same takeaway limitations as WCS.
WCS also saw a modest decline in Cushing, despite overall strength in the US Gulf Coast and sharp stock draws last week in both Cushing and the Gulf Coast. WCS in Cushing was assessed down 25 cents/b at WTI CMA minus $7.1/b, its weakest differential since hitting minus $7.30/b on June 30.
As recently as Monday, WCS in Cushing was assessed $2.66/b above its most direct Gulf Coast competitor, Mexican Maya crude. On Thursday, Maya, which prices off a formula using Gulf Coast crudes and fuel oil, rose to a 4 cents/b premium over WCS in Cushing.
--Travis Whalen, travis.whalen@platts.com --Edited by Richard Rubin, richard.rubin@platts.com
New York (Platts)--17Jul2014/1208 pm EDT/1608 GMT
Oil futures pushed higher in afternoon New York trading Thursday on reports that a Malaysian airliner had crashed in eastern Ukraine.
A Ukrainian official told the Associated Press that an airliner was shot down in the eastern part of the country, according to an ABC News report.
NYMEX August crude was $1.39 higher at $102.59/barrel. ICE September Brent was 37 cents higher at $107.54/b at 1631 GMT.
Refined product futures were down, but off session lows with NYMEX August ULSD at $2.8521/gal, down 57 points, and August RBOB 19 points lower at $2.8806/gal.
AFP reported that a Malaysian airliner flying from Amsterdam to Kuala Lumpur crashed in eastern Ukraine, where pro-Russian rebels are battling government forces, Russian and Ukrainian newsagencies reported, citing aviation and security sources. Other media reports have indicated the plane may have been shot down in a hostile action in the crisis-hit region.
Analyst Gene McGillian of Tradition Energy said reports of the crash have prompted renewed supply-side concerns in the oil market.
"The idea that fighting in the Ukraine/Russia region is unresolved has led the market to price back in some of its geopolitical risk," McGillian said. "Any escalation from hot spots like Ukraine or Iraq will cause a rebound in prices and for WTI we are seeing it up over $3/b from a recent low. Tradingis pretty volatile."
McGillian noted though, that NYMEX crude was up more than ICE Brent, suggesting that a lot of the push higher has to do with data Wednesday that showed US crude stocks fell a larger-than-expected 7.5 million barrels in the week that ended July 11.
--Alison Ciaccio, alison.ciaccio@platts.com
--Edited by Keiron Greenhalgh, keiron.greenhalgh@platts.com
London (Platts)--17Jul2014/748 am EDT/1148 GMT
Libya has exported two cargoes of medium sulfur straight run fuel oil from Zawiya as the country begins to increase exports of crude and products following a recent deal with rebels, sources said Thursday.
"There are no low sulfur straight run cargoes being exported from Libya at the moment, but they have indeed exported two medium sulfur straight run cargoes of 1.5-1.7% sulfur," a trader said, adding that the Zawiya refinery recently bought a cargo of sourer Al Jurf crude which produced more medium sulfur straight run fuel oil.
Zawiya is usually fed by the Sharara crude field in the southwest corner of the country which produces a light, low-sulfur crude.
But the plant was forced to turn to alternative grades after protesters shut in the field in March, prompting flows of Sharara to dry up.
The refinery had been relying on crude supplies from Marsa al-Brega and Marsa el-Hariga, both of which supply sweet crude, while the Sharara field was off-line. Most of Libya's land-based crudes are light and sweet.
However, Marsa al-Hariga was briefly closed by renewed protests in early-June, prompting the country's state-owned National Oil Corp. to divert exports from the offshore terminals of Bouri and Jurf, which produce a much heavier, more sulfurous crude grade, and thus more medium sulfur straight run fuel oil.
Sources said Libya had in the past exported about eight cargoes a month of straight run fuel oil, but far less during the recent protests. The 120,000 b/d Zawiya refinery has been operational through most of the recent crisis in Libya, albeit at significantly reduced rates.
--Marko Trtica, marko.trtica@platts.com
--Paula Vanlaningham, paula.vanlaningham@platts.com
--Edited by Jeremy Lovell, jeremy.lovell@platts.com
Moscow (Platts)--17Jul2014/655 am EDT/1055 GMT
Moscow has so far calmly reacted to newly imposed US sanctions against Russian energy, finance and arms companies and individual government officials, with local analysts calling the US decision a "pretence of moving to sectoral sanctions."
The situation may change, however, if the White House expands sanctions or if Europe follows the US example with similar limitations, according to analysts.
The White House late Wednesday imposed new sanctions against Russia over Ukraine, including against Russian energy majors Rosneft and Novatek, and limiting the companies' access to US financing.
The sanctions are not only damaging to US-Russian relations, but will also have a negative effect on the long-term strategic interests of the US, Russia's President Vladimir Putin said Thursday.
"As I have said before, sanctions tend to have a boomerang effect and, without any doubts, drive the US-Russian relations to a standstill, damaging them very seriously," Putin was quoted as saying at a media briefing that closed his visit to Latin America, on the Kremlin's website.
"I am sure [the sanctions] damage the long-term national interests of the US, of the US people," Putin said.
Russia needs to look at the new sanctions closely before deciding on any response, he added.
Russian stock markets fell around 3% at the open Thursday in response to news of the US sanctions. The MICEX bourse fell 2.05%, while the RTS exchange was down 2.87% as of 0614 GMT, according to Russian news agency ITAR-TASS.
The new US sanctions "prohibit US persons and persons within the United States from transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity for... Novatek and Rosneft, their property, or their interests in property," according to a statement published late Wednesday on the US Treasury's website.
The same sanctions were applied to Gazprombank, Russia's third largest, and state development bank Vnesheconombank, or VEB.
The US also imposed sanctions on the Feodisiya oil terminal in the Crimean peninsula, saying any US assets of the entity must be frozen and any transactions by US citizens or within the US prohibited.
Sanctions were also imposed on several Russian arms companies and four governmental officials.
But notably left unsanctioned so far is Russian state-owned gas giant Gazprom, as well as its CEO, Alexey Miller. US officials, in a briefing with reporters Wednesday, declined comment on why Gazprom had yet to be sanctioned.
LIGHT TOUCH
Rosneft's financial standing is unlikely to feel the impact of the new sanctions, Rosneft CEO Igor Sechin said.
"[Rosneft's] financial standing is good... It allows us to implement our projects for a long time without getting access to any urgent credit lines," Sechin told reporters in Brazil, in a broadcast by state-owned Russia 24 TV channel.
At the end of the first quarter, Rosneft's net debt stood at around Rub1.6 trillion ($46.5 billion).
The sanctions are "illegal, subjective and ungrounded" as Rosneft has no role in the crisis over Ukraine, Sechin also said, according to a report by Russian news agency Prime.
The US decision damages interests of American banks that cooperate with Rosneft, he added, according to the report.
Sechin himself is subject to US sanctions imposed in April.
A Rosneft spokesman declined further comment, while Russia's largest independent gas producer Novatek was unavailable for comment when contacted by Platts Thursday.
The sanctions will likely have little immediate impact on the energy majors' operations, analysts at Russian VTB Capital said in a Thursday morning review titled "US Touches Russian Corporations, but Just Lightly."
"We deem the direct macro impact of this latest batch of measures as insignificant, and see them as deliberately designed in such a manner as to produce the maximum media effect with minimal economic cost for either side," the analysts said.
Analysts at Russia's Alfa Bank also deem as positive the fact that the new sanctions do not limit Rosneft's cooperation with such US companies as ExxonMobil and Shell in Arctic, Far Eastern and tight oil projects.
At the same time, analysts point out the US administration may widen the sectoral sanctions, as mentioned in the Treasury statement, which says that "the scope of the prohibited transaction types and the number of financial institutions/energy companies may be expanded.. if we decide to do so."
IMPACT IF EUROPE FOLLOWS SUIT
Rosneft may feel the squeeze if Europe follows suit and limits the company's access to its financial markets, Alfa Bank analysts said.
"In terms of European banks also suspending long-term financing, Rosneft will find it difficult to complete its investment plans that include brownfield maintenance, East Siberia oil greenfield development, refining modernization and boosting gas output," they said.
Rosneft's future extra borrowing needs will depend on cash prepayments under supply contracts with Chinese crude oil buyers, Alfa Bank said, adding Rosneft currently has the highest debt burden among Russian oil companies.
Novatek will likely be unaffected by the new US sanctions as its key investment project, the future Yamal LNG, apparently has support from Chinese financial institutions, Alfa Bank said, adding the limitations may still slow down the project's progress.
"Though Novatek seems to have moved toward the participation of Asian banks in the project's funding, holding in-depth talks with Chinese banks in particular, the possible limitation of access to international capital markets may also undermine the progress of its key investment project," they said.
Rosneft last December reached an agreement to buy the oil trading arm of Morgan Stanley. The deal is subject to approval by the Committee on Foreign Investment in the US.
Morgan Stanley spokesman Mark Lake declined comment on how the sanctions on Rosneft might impact the sale.
ExxonMobil spokesman Alan Jeffers likewise declined comment on whether his company's exploration agreements with Rosneft could be affected by the new sanctions.
The companies are set to begin exploring in the Kara Sea in August under a strategic cooperation agreement they signed in August 2011 that also encompasses joint exploration and development at a block in the southern Black Sea and tight oil reserves in West Siberia.
In addition, ExxonMobil and Rosneft are also working jointly on the construction of a 5 million mt/year LNG plant in Russia's Far East.
Novatek plans to launch the first of three 5.5 million mt trains at Yamal LNG in 2016, with the other two to follow in 2017 and 2018. It owns a 60% stake in the project, with China's CNPC and France's Total each holding 20%.
--Dina Khrennikova, dina.khrennikova@platts.com
--Edited by Wendy Wells, wendy.wells@platts.com
Singapore (Platts)--17Jul2014/602 am EDT/1002 GMT
* Focus on mixed ownership of assets and management reform
* Expected to bring in significant private capital
* Reform process likely to last a few years
China's State-owned Assets Supervision and Administration Commission on Tuesday announced six companies that would be involved in the first wave of state-owned enterprise reform -- the first major step taken by the commission after the central government first announced the move at its annual economic meeting in November last year.
None of six companies were from the oil and gas industry.
The aim of the SOE reforms is essentially to allow more private investment in existing state-owned companies, and in doing so turn them into more efficient and modern entities.
Peng Huagang, director-general at SASAC's research bureau, said in the commission's statement: "We hope these test cases will advance broader SOE reform in an orderly manner."
The reform will be in the form of three main models -- promotion of mixed ownership, a change in management structure, or the development of state investment holding companies.
Health care company Sinopharm Group, which was one of the six companies named, said late Wednesday in a filing to the Hong Kong Stock Exchange that it had been chosen to pilot reforms about the development of a mixed ownership entity and the appointment of a new board of directors exercising the power of appointment, performance review and compensation of senior management.
ENERGY SECTOR MOVING AHEAD
While no energy companies were named, state-owned oil giants Sinopec and PetroChina had already said earlier this year that they would undertake their own reforms in due course, mainly through mixed ownership of some of their existing assets.
Sinopec is in the process of divesting up to a 30% stake in its downstream marketing and distribution division, now called Sinopec Sales, to private and foreign investors, while China National Petroleum Corporation -- the parent company of PetroChina -- has said it will invite private investment in up to six business areas.
"These were led by the enterprises themselves, not the SASAC, but in the future SASAC is expected to take a leading role," UK research and consulting company NSBO said in a note on Wednesday, referring to the Sinopec and CNPC moves.
"Sinopec in theory could become more like an investment holding company, where it has multiple assets but spins off individual divisions and then gets private investment to come through either in the private market or through listing the subsidiaries," said Miranda Carr, NSBO's head of research in Beijing.
Sinopec has already done something similar, when it merged its various engineering units into a combined entity, Sinopec Engineering, which it then listed in a $1.9 billion initial public offering in Hong Kong last year.
MANAGEMENT REFORM
Last month, CNPC said it had appointed five external directors to help the company move ahead with reform and innovation.
The move was also seen as a step toward combating corruption. CNPC, in particular, has been embroiled in controversy in the past year, with its former chairman Jiang Jiemin as well as a number of other senior management officials under government investigation for corruption-related charges.
Jiang, who left CNPC to head the SASAC before being removed from it in September last year, was last month expelled from the Communist Part of China for serious disciplinary violations.
Part of the management reform at SOEs would likely be incentivizing top bosses through performance-based pay or share options to allow them to be directly invested in the performance of the business, said Carr.
FOREIGN PARTICIPATION WILL STILL BE LIMITED
While one consequence of the government's SOE reform plan might be to open up the energy sector to more foreign participation, it currently does not include significantly more incentives than the ones already in place to attract foreign investors or operators into the oil and gas sector. Foreign companies already present in China are usually involved in the downstream segment as joint venture partners with domestic companies in refinery or retail marketing projects, while in the upstream segment, they are typically signatories to production sharing contracts.
"Foreign investment may come in as part of mixed ownership where a lot of the reform is designed around using equity markets to bring in more private investment, and relying less on debt," said Carr. "But they probably will not want to open the core upstream assets to foreign investment, and [participation] will mainly be restricted to coal-to-chemicals [projects] or shale gas, where you're trying to get the investment as well as technology and expertise."
Credit Suisse said in a report Wednesday that while SOE reform, along with fiscal reforms, will be "China's most important theme in the coming years, with hybrid ownership as the main focus", progress this year will likely be on the formulation of guidelines, regulations and some signature deals, while the whole process of reform will take a few years.
Carr, echoed this, saying the reforms will likely take place over the medium term rather than the short term.
"In the medium term, we expect hybrid ownership to improve the performance of SOEs and unlock their underlying value, through the introduction of new investors, cutting operating expenses, management equity incentives"
However, Credit Suisse noted that the eventual consequence was not a foregone conclusion.
"In the long term, it's unclear where the hybrid ownership will finally lead to. Is it an expedient strategy to cope with current difficulties or a commitment to market economy? The answer is not clear yet," the bank said.
--Song Yen Ling, yenling.song@platts.com
--Edited by Deepa Vijiyasingam, deepa.vijiyasingam@platts.com
London (Platts)--17Jul2014/931 am EDT/1331 GMT
Fresh Western sanctions against Russia and escalating turmoil in Ukraine have led to an increase in UK gas prices, with the contract for deliveries during the coming winter moving to 58.50 pence/therm, 7% higher than its all-time low last week.
The US sanctions imposed Wednesday included two Russian energy giants, Novatek and Rosneft, amongst its targets in the latest blow aimed at punishing Moscow over the Ukraine crisis.
Russia, Europe's largest gas supplier, condemned the sanctions and spoke of retaliations.
"We do not intend to tolerate blackmail and reserve the right to take retaliatory measure," the country's foreign ministry said.
Meanwhile, Kiev on Thursday accused a Russian air force jet of shooting down a Ukrainian warplane over its own territory Wednesday, ratcheting up tensions between between Russia and the key transit state of Russian gas into Europe, Ukraine.
Gas prices across Europe have sporadically jumped over the past few months in response to violence and political disputes in the region. Overall, however, they have fallen as no physical volumes of gas to Europe have been impacted and the general supply situation is very healthy.
The Winter 2014 UK gas contract was at its lowest ever level last week since Platts began assessing the contract in 2011. It closed trading at 54.85 p/th on July 10. Over the course of 2013, the contract averaged a significantly higher 70.85 p/th.
The bumped up price Thursday, while remaining historically low, is the highest the contract has traded at since June 30.
--Nathan Richardson, nathan.richardson@platts.com
--Edited by James Leech, james.leech@platts.com
Similar stories appear in European Gas Daily See more information at http://www.platts.com/Products/europeangasdaily
Washington (Platts)--17Jul2014/315 pm EDT/1915 GMT
NYMEX August natural gas futures fell below $4/MMBtu early Thursday in intra-day trading for the first time since early January as storage data came in strongly above analyst estimates.
As of 10:54 am EDT (1454 GMT), the contract traded at $3.970/MMBtu, down 14.9 cents from Wednesday's close.
The US Energy Information Administration reported an injection of 107 Bcf. Analysts had estimated an injection in the range of 95 to 99 Bcf. The number was also well above the 62 Bcf build last year and the 65 Bcf five-year average, as mild-temperatures depressed cooling demand.
Working gas in storage was 2.129 Tcf as of July 11, according to EIA estimates. Stocks were 608 Bcf less than last year at this time and 727 Bcf below the five-year average of 2.856 Tcf.
The storage data pushed the contract well below the $4/MMBtu mark, which has held since January 10 as the cold winter pushed storage levels to record lows. The last close below that level was December 4, when the front-month contract closed at $3.96/MMBtu.
"The net injection of 107 Bcf was more than expected, implying a further weakening of the background supply/demand balance, presumably on a further increase in supply," said Tim Evans, analyst at Citi Futures Perspective. "This has bearish implications for the forward data as well."
Jay Levine, broker at Enerjay LLC, said the injection was "higher than anyone expected" and said market reaction to the downside is "exactly as expected."
"What can you say besides, where's the heat?" Levine said. The contract has traded Thursday between $3.956/MMBtu and $4.110/MMBtu.
--Christopher Tremulis, christopher.tremulis@platts.com --Edited by Derek Sands, derek.sands@platts.com
