EU examines risks of Russian gas shortage
BRUSSELS, Oct. 17 (UPI) -- If members of the European Union show some solidarity, they'll be able to cope with a potential Russian gas shortage, the European energy commissioner said.
The European Commission unveiled a report Friday highlighting the short-term recommendations needed to stave off a possible winter gas shortage.
"For the very first time, we have a complete picture of the risks and possible solutions," Energy Commissioner Gunther Oettinger said in a statement. "If we work together, show solidarity and implement the recommendations of this report, no household in the EU has to be left out in the cold this winter."
Multilateral meetings in Milan are aimed at resolving a geopolitical crisis in Ukraine that spills over into the regional energy sector. Ukraine's political upheaval in November left an already battered economy short on cash and the billions of dollars Kiev owes to Russian energy company Gazprom leaves downstream European consumers at risk.
Europe gets about a quarter of its gas needs met by Russia, though most of that runs through the Soviet-era pipeline network in Ukraine.
Oettinger said if EU member states coordinate their energy responses, rather than rely on national measures, there will be few impacts from a Russia gas shutoff. Any government intervention should come as a last resort, the report finds.
LONDON, Oct. 17 (UPI) -- A new oil discovery in northern Iraq moves the region closer to a 1 million barrel per day production goal, a Kurdish government official said Friday.
British energy company Gas Plus Khalakan Ltd. announced an oil discovery in the Shewashan reserve area of the Kurdish north of Iraq had commercial prospects.
"We are pleased with this new light oil discovery which will contribute to our stated target of 1 million barrels of oil per day by the end of 2015 or early in 2016," Kurdish Minister of Natural Resources Ashti Hawrami said in a statement.
GPK offered no estimate of the reserve's potential, though it said exploration well Shewashan-1 would be put into production to gather data for a future field development plan.
The semiautonomous Kurdistan Regional Government has capitalized on oil wealth emerging in the wake of the U.S.-led offensive in 2003. Debate over provisions in the national constitution put the KRG at odds with Baghdad, however, over budget shares and sector control.
Energy company DNO International this week said it was exporting an average 90,000 barrels of Kurdish oil per day.
WASHINGTON, Oct. 17 (UPI) -- Striking fixed Islamic State targets in Syria, including oil facilities, is part of the strategic effort to cripple the group, a Pentagon official said.
The group calling itself the Islamic State is said to be financing itself in part through a regional black market for crude oil. Pentagon spokesman John Kirby said U.S. military effort to defeat the group is about hitting where they operate.
"There's been a lot of strikes in [the strategic border town of] Kobani, dynamic tactical strikes," he told reporters during a Thursday press briefing. "But there's also been almost an equal number of total strikes against fixed facilities, command and control, finance centers, oil refineries [and] fixed sites."
The spokesman countered that the U.S. effort was in support of national ground forces and not so much "about going after sniper positions."
Iraqi Oil Minister Adel Abd al-Mahdi met earlier this week with Tony Blinken, the U.S. national security adviser, and other top officials to discuss the threat from the Islamic State.
The minister said there was "full coordination" on both sides on the field to fight and defeat the Sunni-led terrorist group.
NEW YORK, Oct. 17 (UPI) -- West Texas Intermediate and Brent crude oil prices each climbed toward the $85 per barrel mark, trading data Friday show.
WTI, the U.S. benchmark, for November delivery was up $1.43 to $84.14 in trading on the New York Mercantile Exchange. The benchmark climbed more than 90 cents Thursday, marking its first gain in four days.
For Brent, prices were up from $85.82 to $86.76 in early Friday trading. Brent, the international benchmark, crashed after Arab members of the Organization of Petroleum Exporting Countries cut their prices to shore up market share.
A sustained discount in crude oil prices has sparked fears that some countries that depend on oil export revenue may be adversely impacted, while producers, notably those in North American shale, could find it uneconomic to continue exploration and production.
Oil services company Schlumberger said despite the economic and oversupply fears driving prices down, the global economy is in good shape.
"While market sentiments are currently driven by fear of short-term over-supply, and although the oil demand outlook has been revised slightly downwards, we see little reason at the present time to change our view that the challenges of maintaining non-OPEC supply outside North
America, the lack of growth in OPEC sustainable production capacity maintaining tightness in OPEC spare capacity, and the continuing geopolitical risks in some key producing regions all lead to a supply-demand situation that is relatively well-balanced," it said in a Thursday note.
TOKYO, Oct. 17 (UPI) -- Japanese energy company Inpex Corp. disclosed Friday it started producing oil for the first time at a field off the coast of Abu Dhabi.
Subsidiary Japan Oil Development Co. said production started from the Umm Lulu oil field off the Emirati coast. The company said it expected the field will eventually produce at a peak rate of around 105,000 barrels per day.
Parent company Inpex said oil taken from the field will be transported to an island facility for exports to Japan and other Asian economies.
October analysis from the Platts energy service finds Japanese crude oil demand is at levels not seen since the 9-magnitude earthquake in 2011. Chinese crude oil demand in September was its second highest on record, Platts finds, even though the Chinese economy is slowing down.
The Japanese company is developing the Umm Lulu field through a partnership that includes the Abu Dhabi National Oil Co., British energy company BP and French giant Total.
WASHINGTON, Oct. 17 (UPI) -- U.S. crude oil imports for the first full week in October were down by more than 7 percent from one year ago, the U.S. Department of Energy found.
The department's Energy Information Administration released weekly data on the domestic energy sector. For imports, EIA found the United States imported around 7.4 million barrels of oil for the week ending Oct. 10, down 7.4 percent from the same week in 2013.
For production, EIA data show the United States produced 8.8 million bpd for the first full week of October, up nearly 18 percent from the same time last year.
By next year, EIA expects total U.S. crude oil production to reach 9.5 million bpd, which would be the highest annual average crude oil production since 1970 if realized.
The Organization of Petroleum Exporting Countries said in its latest monthly market report the United States was becoming more self-reliant because of oil production from inland shale deposits.
U.S. President Barack Obama in an early October economic address said the country is producing more than it imports for the first time in nearly two decades. He set a goal in 2012 to cut imports by half by 2020, but expects to meet that goal six years ahead of schedule.
Kinder Morgan operates and owns a 20 percent interest in systems for Natural Gas Pipeline Co. It said it was soliciting industry interest in the possible expansion of a pipeline system in Illinois to carry another 430 million cubic feet of natural gas per day.
"This project will enable Chicago-area markets to diversify their gas supply portfolios and access additional prolific gas production from the Utica and Marcellus shale areas," Kinder Morgan Natural Gas Pipelines Central Region President David Devine said in a statement Thursday.
Total production from Utica shale should increase from 155 million cubic feet per day in January 2012 to an expected 1.3 billion cubic feet per day by September. By 2020, Marcellus could be responsible for about 25 percent of the total U.S. natural gas supply.
If there's enough industry interest, Kinder said the $100 million expansion could be in service by late 2016.
Salmond addressed a report from a former British regulator who said Scotland's renewable power sector was helping ensure adequate electricity supplies across all of the United Kingdom. Some management mechanisms, particularly those on transmission charges, were discouraging investment in Scotland, he said.
"Scotland is a resource rich country, and our energy capabilities and needs are different to those of the United Kingdom as a whole," he said Thursday. "It is imperative that we have the power and responsibility to decide how best we might develop that potential and meet those needs."
Earlier this month, the Scottish government said it was frustrated with British policy decisions that translated to an extra $60 million per year in charges for its power sector.
The Scottish government has put pressure on its British counterparts after a failed bid for independence, arguing for a more diluted power structure when it comes to energy sector management.
The Scottish government says its power systems account for 12 percent of the region's electricity capacity, but it pays 35 percent of the charges.
WASHINGTON, Oct. 17 (UPI) -- Acreage set for auction in the Gulf of Mexico may hold as much as 894 million barrels of oil and 3.9 trillion cubic feet of gas, the U.S. government said.
Bureau of Ocean Energy Management Acting Director Walter Cruickshank announced more than 40 million acres off the southern U.S. coast will go on the auction block in March as part of a five-year lease program ending in 2017.
"As one of the most productive basins in the world, the Gulf of Mexico is a cornerstone of our domestic energy portfolio, offering vital oil and gas resources that further economic growth and continue to reduce our dependence on foreign oil," Cruickshank said in a Thursday statement.
BOEM estimates the lease area could yield between 460 million and 894 million barrels of oil and between 1.9 trillion and 3.9 trillion cubic feet of gas.
The last lease in the Gulf of Mexico in August drew criticism from environmental group Friends of Earth, which said the "addiction to fossil fuels threatens the health and vitality of the waters, wildlife and coastal communities in the Gulf of Mexico."
The first six lease sales under the five-year plan netted $2.4 billion.
Nairobi (Platts)--17Oct2014/625 am EDT/1025 GMT
Somalia's federal government on Thursday called on major international companies to resume hydrocarbons exploration in the country.
Petroleum Minister Daud Mohamed Omar said a new framework for oil and gas exploration is in process of being created in an effort to attract investors, given that Somalia has lagged behind Kenya, Tanzania and Uganda in exploration for hydrocarbons.
"This not only demonstrates a commitment to re-opening the oil and gas industry, which will [lead to] economic and social development, but further confirms historic security risks associated with Somalia are continuing to diminish," he told the East Africa Oil & Conference.
Shell, along with other companies that acquired onshore and offshore blocks in the 1980s, stopped exploration activities and declared force majeure when civil war erupted in Somalia after President Mohamed Said Barre was deposed in 1991.
Omar said Somalia is discussing with Shell and ExxonMobil a way forward for the joint venture's blocks that would enable exploration activities to restart and develop the country's hydrocarbons resources potential.
"Companies with contested blocks ought to come. We hope discussions will help pave the way towards long-term development of a sustainable oil and gas industry as one way of rebuilding of the economy," he said.
Shell was awarded a concession for offshore five blocks (M3-M7) in 1988 and was later joined by ExxonMobil in a 50-50 joint venture.
Omar said the security threat from al-Shabaab militants had been reduced as a result of other African nations deploying solders in Somalia to assist the government and offshore pirate attacks subsiding as a result of international naval patrols.
International oil companies are expected to weigh the security situation and the risk of becoming entangled in political disputes as a result of contested exploration deals being inked at different times in the past.
Analysts say Somalia wants to catch up with Kenya, Tanzania and Mozambique to the south, where recent hydrocarbons discoveries have the potential to transform the region into an exporter of oil and gas starting in 2018.
Kenya has discovered 600 million barrels of oil onshore and Tanzania about 50 trillion cubic feet of gas in place.
Mozambique has discovered vast quantities of gas while landlocked Uganda has 6.5 billion barrels of oil.
On August 28, Somalia began proceedings against Kenya at the International Court of Justice in a dispute over maritime borders in the Indian Ocean.
Somalia wants the ICJ to determine the maritime boundaries of Somalia and Kenya in the Indian Ocean, including the continental shelf beyond 200 nautical miles.
Kenya has awarded oil and gas exploration blocks in an area that Somalia contends is its territory because the boundary into the ocean runs diagonally southeast instead of east in a horizontal line.
Kenya and Somalia signed a memorandum of understanding in 2009 that the border would run east along the line of latitude, but the agreement was later rejected by Somalia's parliament.
The presidents of Kenya and Somalia met in New York in late September to try to diplomatically resolve the dispute.
London (Platts)--17Oct2014/842 am EDT/1242 GMT
The recent issuing of 600,000 mt of gasoline import allocations into Nigeria for October has not resulted in fresh demand for spot European gasoline because Nigerian stocks remained ample.
Nigeria had issued supplementary permits for the import of 600,000 mt of gasoline in October, under the third-quarter import program as fourth-quarter allocations were yet to be approved.
Prior to the issuing of the permits, there was a buying spree of summer-grade gasoline around the end of September, before Europe's transition to winter-grade.
WAF typically imports summer-grade material all year round.
"No real fresh buying -- people are still blending barrels sold earlier," a gasoline trader said.
As of Friday morning, Platts cFlow ship-tracking software indicated a number of clean products vessels offshore Lagos, which could indicate gasoline vessels waiting to discharge into the port.
Freight rates on the UK Continent-WAF route were assessed at Worldscale 140 Thursday, or $25.40/mt for a 37,000 mt clean tanker, steady on the day.
London (Platts)--17Oct2014/843 am EDT/1243 GMT
The Mediterranean desulfurization margin -- the diesel cargo premium over gasoil -- has risen to a more than six-month high on the back of continued prompt tightness in the diesel market and good availability of gasoil cargoes.
CIF delivered Mediterranean diesel cargoes closed at $26.25/mt above gasoil cargoes on Thursday, the widest difference between the two since May 4.
The desulfurization margin has been above $20/mt for the last several weeks, with traders saying refineries had taken advantage of the weakness in gasoil to buy cargoes and refine them into diesel over that time period.
Most of the gasoil purchased is typically higher in sulfur content than the standard Spanish B&C grade winter heating oil traded in the region.
According to traders, refineries typically look to lock in the difference in price between the two products in the swaps market.
November CIF Mediterranean swaps were last seen trading at $28/mt on the ICE block while the November Mediterranean gasoil swaps were last seen trading at $6.75/mt -- putting the spread between the two at an attractive level of $21.25/mt, traders said.
The diesel market in the Mediterranean has faced some prompt tightness of late, following a closed arbitrage from the US over the last several weeks and strong demand in the east Med, particularly Turkey.
"In Turkey demand is not too bad... Israelis aren't selling, there's a little less from the Black sea as well and good demand in the east Med," said one trader.
Meanwhile in the gasoil cargo market, several trades were seen at the close over the last several days, although volumes continue to be offered in the region.
Despite the continued increase in the desulfurization margin, traders said that current refinery maintenance in the Mediterranean was also a contributing factor in the latest increase in the margin.
"It's a bit circular. Yes the desulfurization margin is increasing but at the same time it's because some of the refineries are in turnaround and won't buy these cargoes," said a second trader.
New York (Platts)--17Oct2014/408 pm EDT/2008 GMT
Crude futures rose modestly Friday after strong US economic data helped offset ongoing concerns over anemic demand and plentiful supplies.
Front-month NYMEX crude closed 5 cents higher at $82.75/b, while ICE December Brent settled up 34 cents at $86.16/b.
In refined products, NYMEX November ULSD settled up 2.73 cents higher to $2.4976/gal. NYMEX November RBOB closed 2.18 cents higher at $2.2327/gal.
Housing starts grew in September, the Commerce Department said. Another report showed the Thomson Reuters/University of Michigan preliminary consumer sentiment in October at its highest level since July 2007.
While Friday's economic news helped lift oil prices, other bearish factors continue to weigh on the market, Tradition Energy analyst Gene McGillian said.
"Selling pressure eased, but fears of slowing economic conditions in Europe and supplies sloshing around continue to be the driving features," he said. "Next week, the market could search for a new bottom."
Crude futures had plunged to multi-year lows this week before recovering after the US Energy Information Administration reported a larger-than-expected US gasoline draw last week.
EIA also said the amount of crude processed last week by US refineries rose to more than 15 million b/d, a level not seen for the same reporting week since 2007.
Some analysts see the crude run rate as evidence of still-robust demand, while others believe refineries will end up flooding the market and depressing product prices.
The broader debate involves whether oil prices have fallen enough to stimulate demand and whether supply will start to decline because OPEC members cut output or some production become uneconomic.
In a research note Friday, Goldman Sachs called the price drop "too much too soon."
The selloff was driven by expectations of a "supply glut," but oil prices are based on current conditions and the physical market does not now show such an overhang, the bank analysts said.
"OECD inventories remain below the five-year average, the recovery in Libyan output has yet to materially hit markets, and demand has likely already started to respond to the sharply lower prices," they said.
Another indication of the physical tightness in the market is that most timespreads are in backwardation, providing an incentive to pull oil from storage, not store it, the analysts said.
"Some markets like WTI and Dubai are in extreme backwardation and even Brent has recently flipped into a backwardation on a spot basis," Goldman Sachs said.
Dated Brent was assessed at 15 cents/b over the North Sea Dated Strip Thursday, up from a 49 cents/b discount September 25.
However, the timespread for one major product -- ICE Brent futures -- exhibits the opposite shape: contango. The front month/second month spread flipped from backwardation to contango July 8.
According to Energy Aspects, oil prices have not been low enough for long enough to cycle through to demand.
Refineries have been running at high rates to capture healthy margins, rather than responding to demand, the consultancy said in a note this week.
"But this will simply transfer the crude overhang to the products market, as refineries run down their crude stocks and essentially translate them into products stocks."
Houston (Platts)--17Oct2014/506 pm EDT/2106 GMT
US Midwest ULSD differentials continued their climb Friday as supply in the region remained tight and agriculture demand stayed strong for the fall harvest.
Platts assessed the Chicago ULSD differential up 18.75 cents/gal to NYMEX November ULSD futures plus 29 cents/gal, the highest that differential has been since May 8, 2013, when it was 33.9 cents/gal.
Three refineries in the region are undergoing some sort of maintenance: Phillips 66's 306,000 b/d joint-venture refinery in Wood River, Illinois; BP's 425,000 b/d refinery in Whiting, Indiana; and Flint Hills Resources' 320,000 b/d Pine Bend Refinery in Rosemount, Minnesota.
"There is no fuel at Northern Tier to load, so they are buying in Chicago," one broker said.
Additionally, market sources have said agricultural demand is strong for the fall harvest season.
Midwest stocks for the week ended October 10 fell 624,000 barrels 28.642 million barrels, while production dipped 48,000 b/d to 981,000 b/d, US Energy Information Administration data released Friday showed.
Group 3 ULSD rose 5.25 cents/gal to plus 26.25 cents/gal, the highest the differential has been since it started being assessed against the NYMEX ULSD futures contract in April 2013. Prior to that, the heating oil futures contract was used as the basis for the Platts distillates assessments.
Group 3 ULSD has rallied four straight days.
Gulf Coast ULSD increased 80 points/gal to minus 1.45 cents/gal.
The 30.45 cents/gal premium for Chicago over Gulf Coast is the highest since it was 35.9 cents/gal on May 8.
Group 3 ULSD's 27.7 cents/gal premium over the US Gulf Coast is the highest since the NYMEX basis switch in April 2013.
"Both Group 3 and Chicago are having a lot of plant work done and harvest demand is beginning to hit," a second broker said.
At 3:15 pm EDT (1915 GMT), Platts assessed the NYMEX November ULSD futures contract at $2.501/gal, up 2.70 cents/gal.
By Mark Shenk Oct 20, 2014 6:01 AM GMT+0700 3 Comments Email Print
Plunging oil prices spurred hedge funds to cut bullish wagers by the most in six weeks, losing confidence in the willingness of producers to constrict supply.
Money managers cut net-long positions in West Texas Intermediate by 8.1 percent in the week ended Oct. 14. Short positions jumped to the highest level in 22 months, U.S. Commodity Futures Trading Commission data show.
WTI tumbled 9.2 percent this month as U.S. production expanded to a 29-year high. That added to signs of a global supply glut just as the International Energy Agency cut its forecast for demand growth. Crude is now trading in a bear market, underpinned by speculation that OPEC members are favoring market share over prices.
“The price action this week is a reflection of the positioning,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone Oct. 17. The speculative betting makes further declines more likely, he said.
WTI fell $7.01, or 7.9 percent, to $81.84 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures increased 5 cents to close at $82.75 on Oct. 17.
Global crude consumption will rise by about 650,000 barrels a day this year, the Paris-based IEA said in its monthly market report on Oct. 14. That was 250,000 fewer than last month’s estimate and the slowest growth since 2009. The adviser to energy-consuming countries cut its 2015 demand growth forecast by 100,000 barrels a day to 1.1 million.
OPEC Production
U.S. crude output reached 8.95 million barrels a day in the week ended Oct. 10, the most since June 1985. Production will climb to 9.5 million next year, the most since 1970, the Energy Information Administration said in its monthly Short-Term Energy Outlook on Oct. 7.
The Organization of Petroleum Exporting Countries pumped 30.935 million barrels a day in September, the highest since August 2013, led by surging output from Libya, a Bloomberg survey of oil companies, producers and analysts showed.
Bank of America Corp. and BNP Paribas SA predict prices will hold above $80 a barrel and Goldman Sachs Group Inc. said that the drop in crude was excessive because there’s no oversupply.
Price Outlook
Goldman Sachs is “near-term constructive about prices” after they fell too much, too soon, analysts including Jeffrey Currie, the head of commodities research in New York, wrote in a report e-mailed Oct. 17.
“It looks like we’ve seen the peak in downside momentum and the peak of the fear factor,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone on Oct 17. “That doesn’t mean we can’t fall anymore. Prices may grind lower and test $80 again rather than plunging to new lows.”
Net-longs for WTI declined by 15,537 to 176,671 futures and options combined during the week ended Oct. 14, the least since the period ended Sept. 2. Shorts climbed 12,617 to 86,650. Long positions slipped 2,920 to 263,321.
“The data reflects Tuesday, when prices were down sharply,” Evans said. “This was an exceptional period. This report should be an interesting benchmark going forward.”
In other markets, bullish bets on gasoline increased 18 percent to 23,969 futures and options, the highest level in two months. Futures declined 7.9 percent to $2.1802 a gallon on Nymex in the reporting period.
Pump Price
Regular gasoline at the pump, averaged nationwide, slid 1.2 cents to $3.113 a gallon Oct. 18, the lowest since Feb. 1, 2011, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.
Bearish wagers on U.S. ultra low sulfur diesel increased 13 percent to 34,470 contracts. The fuel decreased by 5.2 percent to $2.4722 a gallon in the report week.
Net-long wagers on U.S. natural gas dropped 18 percent to 68,609 contracts, the lowest since January 2013. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract.
Nymex natural gas fell 14.1 cents, or 3.6 percent, to $3.816 per million British thermal units during the report week.
Crude prices may increase as U.S. refinery activity climbs in the weeks ahead, said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. Refineries operated at 88.1 percent of their capacity in the week ended Oct. 10, the lowest level since June, according to EIA data. Refiners schedule maintenance for September and October as they transition to winter from summer fuels.
“The market has found an area of support around $80,” Schork said by phone on Oct. 17. “With so many people going short and the turnaround season soon coming, I think this is a good time to buy.”
Saudi Arabia and Kuwait halted production at a jointly run oil field late this week, a move that could help ease a supply glut that has pushed global prices down 25 percent.
The 300,000-barrel-a-day Khafji field, located in the neutral zone between the two countries, was being shut because of environmental concerns, a person familiar with Saudi Arabian oil policy said yesterday, who asked not to be identified because the information isn’t public.
The shutdown comes as Saudi Arabia and other OPEC members face increasing pressure to scale back production while supply expands from the U.S. and other countries and demand growth slows. Asia’s oil market has become particularly flooded as the U.S. imports fewer cargoes.
“This shutdown comes at an opportune time for Kuwait and Saudi Arabia given the current perception of an oversupplied market,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone yesterday. Cutting Khafji’s production is more advantageous for the countries because the oil generates less revenue for them than their light crude supplies, he said.
The countries’ Khafji Joint Operations venture started gradually curtailing output Oct. 16, an internal memo signed by company chairman Abdullah al-Helal and obtained by Bloomberg shows. The field will resume operations once it’s in compliance with emissions standards issued by the Saudi Presidency of Meteorology and Environment, according to the memo.
The state-owned Saudi Arabian Oil Co. and Kuwait Oil Co. didn’t immediately respond to e-mailed requests for comment sent after business hours.
Offshore Field
The joint venture runs the offshore area of a partitioned neutral zone between Saudi Arabia and Kuwait, a region that the U.S. government estimates to have a total capacity of 600,000 barrels a day.
Khafji crude has an API gravity of 28.5 and a 2.9 percent sulfur content, making it a medium, sour oil, the Energy Information Administration, the U.S. Energy Department’s statistical arm, said in a January 2013 report.
North Sea Brent crude, the global oil benchmark, settled at $86.16 a barrel yesterday on the London-based ICE Futures Europe exchange after slipping a day earlier to $82.60, the lowest level since November 2010.
Japan sold 300,000 kiloliters (1.9 million barrels) of Khafji crude from reserves that was scheduled to load July 20 to Sept. 30 from the Shibushi terminal in the Kagoshima prefecture, an official from the Ministry of Economy, Trade and Industry said June 23, while asking not to be identified citing internal policy.
More Supply
Production in the U.S. expanded to a 29-year high at 8.95 million barrels a day. Libya’s output grew to 780,000 barrels a day in September from 215,000 in April, increasing the supply of light crude competing for a buyer. The International Energy Agency said Oct. 14 that global demand would grow this year at the slowest pace since 2009.
Saudi Arabia increased output by 50,000 barrels a day to 9.65 million in September, 31 percent of the total from the Organization of Petroleum Exporting Countries, according to a Bloomberg survey. Kuwait pumped 2.94 million barrels, the third-biggest producer in the group.
“At the end of the day, it’s up to the Saudis,” David Hackett, president of energy consulting firm Stillwater Associates in Irvine, California, said by phone yesterday. “They’re the ones who have their hands on the valves, and it sounds like they might be closing the valve a bit.”
A 22 percent slump in oil prices this year and the end of state polls are emboldening India’s Prime Minister Narendra Modi to press ahead with politically risky decisions to lure investors and revive the economy.
His government freed diesel prices of state control for the first time in over a decade and raised tariffs on natural gas over the weekend in the biggest steps to curb subsidies and spur output. The changes build on Modi’s pledge to revitalize Asia’s third-largest economy as his party made gains in two provincial elections that may help bolster his power.
Modi, who has made energy security his priority, is lifting restrictions that contributed to a decline in natural gas output every month since the mid-2010, while deterring Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) from bidding for oil and gas blocks. The restraints on diesel prices have also idled retail fuel pumps operated by Essar Oil Ltd. (ESOIL) and Reliance Industries Ltd. (RIL)
“These two big decisions are going to help bring in a lot of investments and increase energy supply,” said T.K. Ananth Kumar, former finance director at state-run explorer Oil India Ltd. (OINL) “Higher supply will improve government finances and take us closer toward energy security.”
State-owned refiners have been selling diesel, kerosene and liquefied petroleum gas below the cost of production to help the government rein in inflation. They were partially compensated with cash from the federal budget, while explorers including Oil & Natural Gas Corp. gave them discounts on crude.
Subsidy Bill
Keeping diesel affordable to the nation’s poor has cost the government and oil producers about 4 trillion rupees ($65 billion) in the past 10 years, according to oil ministry data.
Brent crude in London, a benchmark for half the world’s oil including India’s, is trading near the lowest since November 2010. The decline helped Indian state refiners including Indian Oil Corp. (IOCL) wipe out their losses on retail diesel sales for the first time since 2009.
The drop also provided the government a window to free the fuel of controls, resulting in an immediate 5.7 percent cut in rate in New Delhi. Reserve Bank of India Governor Raghuram Rajan last month urged Modi to scrap the restrictions after inflation slowed to a three-year low.
Prices of fuels including diesel, used in vehicles, back-up generators, water pumps in farms, are politically sensitive in a nation where the World Bank estimates about 80 percent of the people live on less than $2 a day. Voters tend to resist any increase in prices.
Idle Pumps
“Low crude oil has been a big contributor to the major reforms that have been announced,” D.K. Sarraf, chairman of Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer, said by phone yesterday. “Diesel price decontrol and the increase in gas prices will benefit us and the economy.”
The decision will encourage private retailers to restart idle fuel pumps, and consumers will be the main beneficiaries of rising competition, Lalit Kumar Gupta, chief executive officer of Mumbai-based Essar Oil said, without elaborating.
Reliance and Essar started cutting back on their retail sales and shuttering fuel stations along highways in the middle of the last decade. The two non-state companies, which also run oil refineries, couldn’t compete with their state-run counterparts which were compensated for below-cost sales.
Gas Prices
Explorers can sell natural gas at $5.61 per million British thermal units starting Nov. 1, up from $4.2, and will be reviewed half-yearly, Finance Minister Arun Jaitley told reporters on Oct. 18.
Each dollar increase in rates will raise ONGC’s annual profit by 23.5 billion rupees, Sarraf said.
The price is still below market expectation of about $6.5 per mBtu, according to Dhaval Joshi, a Mumbai-based analyst with Emkay Global Financial Services Ltd. (EMKAY)
“However, the actual implementation of gas pricing is sentimentally positive for upstream companies,” Joshi said, adding the higher price would increase ONGC’s and Oil India Ltd.’s profit estimates by as much as 6 percent.
State control on fuel pricing has been a reason the government has failed to attract Exxon, Chevron and Royal Dutch Shell Plc (RDSA) to its exploration block auctions which started in 1999.
BP Plc (BP/), Europe’s second biggest oil company, and Cairn India Ltd. (CAIR), till recently a unit of Edinburgh-based Cairn Energy Plc (CNE), are the two overseas companies with the biggest presence in India’s exploration sector.
BP Stake
BP owns a 30 percent stake in Reliance’s KG-D6 block, which it bought along with a stake in other blocks for $7.2 billion in 2010, saying the country’s energy demand justified the acquisition. Cairn India operates the nation’s biggest oilfield on land in the northwestern state of Rajasthan.
The previous administration also approved a formula for roughly doubling gas prices, a decision Modi put under review. The revised natural gas price is “reasonable,” even for offshore blocks, said Abhishek Kumar, a London-based energy analyst at Interfax Europe Ltd.’s Global Gas Analytics.
ONGC’s shares have increased 37 percent this year compared with a 23 percent gain in the benchmark S&P BSE Sensex index. Indian Oil has surged 71 percent, Bharat Petroleum Corp. (BPCL) 92 percent and Hindustan Petroleum Corp. (HPCL) 107 percent. Reliance, which produces gas from the country’s biggest reservoir of the fuel, has gained 4.8 percent.
Output Dispute
The benefit of the higher gas prices will not be immediately available to billionaire Mukesh Ambani’s Reliance and its partners BP and Canada’s Niko Resources Ltd. (NKO), which together produce gas from the KG-D6 block off India’s east coast. The companies are locked in a dispute with the administration over output levels from the block and won’t get the higher proceeds until the spat is resolved, the government said.
India’s gas output has declined to about 91 million cubic meters a day in the five months through August 2014 from more than 140 million cubic meters daily in the year ended March 2011, according to oil ministry data.
Modi’s predecessor Manmohan Singh eased controls on petrol prices in 2010 and last year began boosting diesel prices by 0.5 rupees a liter each month as he battled a budget deficit that threatened to cut the sovereign rating to junk. Fuel subsidies risk spurring imports as India gets about 80 percent of its crude from abroad.
Food Subsidies
Falling oil prices may help Modi narrow the budget gap in the fiscal year through March 2015 to about 4 percent of gross domestic product instead of the targeted 4.1 percent, according to Mizuho Bank Ltd.
India budgeted 634 billion rupees this fiscal year for petroleum subsidies -- including diesel, cooking gas and kerosene -- down 25 percent from the previous 12 months.
India’s economy expanded 4.7 percent in the year ended March, close to a decade low. JPMorgan Chase & Co. (JPM) predicts a revival to 5.1 percent. Consumer prices rose 6.46 percent in September, the slowest pace since at least January 2012.
While petroleum subsidies are coming down, they only account for a quarter of India’s 2.6-trillion-rupee subsidy bill. Outlays on food are budgeted to rise 25 percent to 1.15 trillion rupees in the year through March.
The subsidy bill rose fivefold under Singh as he implemented policies to buy farm produce at guaranteed prices, boost rural wages and distribute cheap food. In his first budget in July, Modi left overall subsidy targets largely unchanged, while planning to create a commission that would recommend ways to better target food and fuel assistance.
“Deregulating diesel prices is an economically wise move as not only did the government pay a subsidy on it, but also there was wasteful usage due to artificially low prices,” said Rupa Rege
Nitsure, chief economist at state-owned Bank of Baroda in Mumbai. “It’s also a politically neutral move as all future governments stand to benefit.”
By James Paton Oct 20, 2014 7:03 AM GMT+0700 0 Comments Email Print
An extended slump in oil prices threatens an expansion of the liquefied natural gas industry and risks cutting returns for project developers in Australia, poised to become the world’s biggest supplier of LNG.
The nation’s exports of natural gas converted to liquid are linked to the oil price, which has declined from a June peak. Brent crude, the global benchmark, reached an almost four-year low of $82.60 a barrel last week.
Australia’s natural gas industry is already facing high costs as companies from BG Group Plc (BG/) to Chevron Corp. (CVX) build seven export ventures to meet Asian demand. Developers across the nation are studying further investment of as much as A$180 billion ($160 billion).
Weaker oil prices may put proposed LNG projects “to sleep for a number of years,” Fereidun Fesharaki, chairman of Facts Global Energy, an industry consultant, said in a phone interview. “For the projects that are already under construction, it hits their pocketbooks seriously.”
Prices below $80 a barrel may be a “disaster” for some projects, said Fesharaki, who forecasts Brent may decline to $60 a barrel before the end of the year, then rebound to about $80 by the end of 2015.
In a 2012 presentation, he cited lower oil prices as a bigger concern for Australia’s LNG industry than supply competition from the U.S.
Origin Energy Ltd. (ORG)’s long-term view of the economics of its project with ConocoPhillips (COP) is unchanged, the Sydney-based company said last week in an e-mail. In a November presentation, Origin said it needed a $55 a barrel price over the life of the project to recover its costs.
Protect Suppliers
BG’s Australian project, due to start by the end of the year, is profitable “at a wide range of oil prices,” the company’s local unit said today in an e-mail.
Australia’s export developments typically have 20-year contracts. Some have a floor price of $40 to $60 a barrel and a ceiling of $80 to $110 a barrel, according to a report last month by the Oxford Institute for Energy Studies.
That’s designed to protect suppliers and buyers from severe moves in the oil price, Geoffrey Cann, Australian oil and gas director at Deloitte LLP in Brisbane, said by phone.
If developers lower their oil forecasts, “expansion of the natural gas industry in Australia will be very difficult because Australia is a high-cost environment,” he said.
About $190 billion in LNG projects are under construction in Australia. Woodside Petroleum Ltd. (WPL)’s Browse and Sunrise LNG ventures and Exxon Mobil Corp.’s Scarborough development are among additional LNG projects under consideration.
Total, InterOil
In nearby Papua New Guinea, Exxon is looking at a potential expansion of its venture, while Total SA and InterOil Corp. are planning a second gas export development.
Brent may drop to as low as $78 in the next three months, UBS AG said last week in report, while Bank of America Corp. and BNP Paribas SA predict prices will hold above $80 a barrel. Societe Generale SA has cut its forecast for 2015 by $12 a barrel to $91 a barrel.
Oil has slipped 22 percent this year and collapsed into a bear market as shale supplies boost U.S. output to the most in almost 30 years and global demand growth weakens. Brent traded at $86.46 at 9:35 a.m. Sydney time. A decade ago, the price was around $50 a barrel.
“There’s no doubt if we were to see the type of crude oil prices we’re seeing now continue they would be looking at lower LNG prices,” Daniel Hynes, senior commodity strategist at Australia and New Zealand Banking Group Ltd., said by phone. “On face value, it would put pressure on margins.”
Russian President Vladimir Putin said Europe should help Ukraine pay upfront for natural gas to guarantee steady winter supply.
“The European Commission can and should lend a hand and help Ukraine,” Putin said yesterday at a press conference in Milan after meeting with Ukrainian President Petro Poroshenko. Ukraine won’t get Russian gas unless it prepays and Europe should extend loans or aid to help it do so, he said.
Russia, Ukraine’s main gas supplier, halted deliveries in June over a pricing and debt dispute as a separatist conflict raged in the east of the smaller country. The EU, which depends on Russian fuel piped across Ukraine for about 15 percent of its needs, has been seeking to broker a deal between the two former Soviet allies to avoid a repeat of supply cuts in early 2006 and 2009.
European aid could be discussed at EU-brokered talks in Brussels planned for next week. Ukraine and the European Commission should “find” about $1.6 billion by the end of the year for upfront payments through a bridge loan or a guarantee of “first class” European lenders, Russia’s Energy Ministry said on its website after the talks.
Ukraine also agreed to pay $3.1 billion of debt for past supplies by year end, which was another condition for the resumption of deliveries, OAO Gazprom (OGZD) Chief Executive Officer Alexey Miller said yesterday in Milan.
Merkel, Hollande
Poroshenko told reporters at a separate briefing after yesterday’s talks that they didn’t deliver “any practical result” on the dispute. “We made a certain amount of progress, but left some details which need to be discussed,” he said. Poroshenko said he hopes for a solution before talks on Oct. 21.
Putin flew to Milan accompanied by energy and government officials after threatening to cut flows through Ukraine if the country siphons off EU-bound gas. Ukraine has pledged to ensure stable transit to Europe.
Putin and Poroshenko met three times yesterday. The result of their meeting with German Chancellor Angela Merkel and French President Francois Hollande, which focused on the deadly conflict in eastern Ukraine, was “good,” Putin said.
Gazprom’s Miller and Russian Energy Minister Alexander Novak also held talks in Milan yesterday with NAK Naftogaz Ukrainy CEO Andriy Kobolyev and Ukrainian Energy Minister Yuri Prodan, Sergei Kupriyanov, Gazprom’s spokesman, said by phone.
In return for Ukraine’s agreement to an EU proposal from September regarding past debt, Russia plans to resume deliveries after the first payment and an advance for coming supplies, decreasing its price through March by $100 to $385 per thousand cubic meters before international arbitration decides on competing claims over debts and pricing.
The government in Moscow offered Ukraine a more flexible payment schedule, cutting its demand for the first debt payment to $1.45 billion from $2 billion, Novak said Oct. 13. Ukraine also agreed to that proposal, Miller said.
Gazprom has said it’s owed $5.3 billion for past supplies, an amount Ukraine disputes. Putin said yesterday Russia has cut its estimate of the debt to $4.5 billion, which includes a discount if the countries resolve their dispute.
(An earlier version of this story corrected time references in the second, fifth, sixth, eighth and ninth paragraphs.)
By David Wethe Oct 18, 2014 3:44 AM GMT+0700 3 Comments Email Print
The recent tumble in crude oil prices hasn’t shaken the faith of two of the world’s biggest providers of drilling and production services.
Baker Hughes Inc. (BHI) said yesterday that oil would have to continue falling to $75 a barrel and stay there for a few months before energy companies will cut back spending. Schlumberger Ltd. (SLB) described the drop as “fear of short-term oversupply” and said it wasn’t changing a long-term view that it will almost double earnings from last year’s level by 2017.
Booming North American output and reduced demand forecasts from the International Energy Agency sank oil prices in recent days. West Texas Intermediate, a U.S. benchmark, rebounded today after falling below $80 a barrel, a two-year low, yesterday. Brent crude, the global benchmark, rose to settle at $86.16 after sliding to an almost four-year low yesterday.
Schlumberger believes that “steady recovery in the world economy is still intact and that the overall oil demand situation is largely unchanged,” Paal Kibsgaard, chief executive officer of the Houston- and Paris-based company, told analysts today on a conference call. “We therefore expect Brent to recover and stabilize when and at the level that is deemed appropriate by the main oil producers.”
Schlumberger climbed 3.7 percent to $93.97 at the close in New York, while Baker Hughes rose 2.2 percent. The companies provide energy producers with services including drilling wells, hydraulic fracturing and mapping underground oil pockets.
‘Over Their Skis’
Schlumberger is respected for its views of the market because of its size and pretty accurate calls so far, Stephen Gengaro, an analyst at Sterne Agee Group Inc. in New York, said in an interview.
“It is nice to hear somebody who’s got a more level view,” said Gengaro, who rates the shares a buy and owns none. “People tend to get out over their skis and panic sometimes.”
The world’s largest oilfield servicer reported third-quarter earnings that beat the average of 31 analysts’ estimates compiled by Bloomberg. The results continue its streak of exceeding estimates every quarter since the end of 2011.
Customers are expected to reduce spending on exploring for oil and gas 4 to 5 percent this year compared with 2013, partly due to poor well results, Kibsgaard said. The explorers are mainly cutting back orders for seismic shoots that help identify where pockets of oil are located, he said.
Attractive Returns
Kibsgaard said in June that Schlumberger’s projected earnings growth was based on oil prices of about $100 a barrel. Futures prices for WTI averaged $103.46 a barrel during the third quarter.
Customers of Baker Hughes, the world’s third-largest oil servicer, don’t believe crude prices will stay low, Martin Craighead, chairman and CEO of the Houston-based company, told analysts yesterday on an earnings conference call.
“The returns are still quite attractive,” Craighead said. “Right now, it’s full steam ahead.”
Baker Hughes reported quarterly adjusted profit that missed estimates.
If U.S. oil prices stay below $80 for a quarter, energy producers “are going to sober up” and reduce spending, T. Boone Pickens, chairman and CEO of BP Capital LLC, said in an Oct. 9 interview. “It’s getting their attention.”
By Dan Murtaugh and Lynn Doan Oct 18, 2014 2:52 AM GMT+0700 119 Comments Email Print
Oil traders might see the 27 percent slide in global prices as a bear market. For U.S. consumers, it’s more like an early holiday gift.
The drop in crude has pulled retail gasoline down more than 50 cents a gallon from the year’s high in April. That means annual savings of $500 for the average U.S. household, which consumes about 1,000 gallons of fuel a year, according to data from the Federal Highway Administration and Energy Information Administration.
“That’s like somebody putting dollars right in your pocket,” David Hackett, the president of Stillwater Associates, an energy consultant in Irvine, California, said by phone on Oct. 14. “That sounds like Christmas presents, going out to dinner, being able to do something.”
Gasoline’s slide represents the biggest benefit that U.S. consumers have seen to date from a record boom in domestic oil production, a surge that’s contributing to a global crude glut and helping reduce international prices. U.S. gasoline is being exported at record levels for this time of year.
Oil Prices
The average retail price fell 1.9 cents to $3.144 a gallon, Heathrow, Florida-based motoring group AAA said on its website. That’s down from this year’s peak of $3.696 in April and the lowest since February 2011. Futures have decreased 84 cents on the New York Mercantile Exchange over the same period, signaling there may be further declines at the pump.
Following Crude
Gasoline is following the larger drop in the oil market. Brent crude, the global benchmark, closed at $86.16 a barrel today on the London-based ICE Futures Europe exchange after slipping yesterday to $82.60, the lowest level since November 2010. U.S. benchmark West Texas Intermediate settled at $82.75 today on the New York Mercantile Exchange, after trading below $80 yesterday for the first time since 2012.
Prices are falling with U.S. oil output at the highest level since 1985 and the Organization of Petroleum Exporting Countries producing the most in more than a year. At the same time, theParis-based International Energy Agency lowered its estimate for global demand growth for this year and next in an Oct. 14 report.
Americans are spending about $230 million a day less on gasoline than they were on July 4, based on prices and consumption, said Michael Green, a Washington-based spokesman for AAA, the country’s biggest motoring group.
‘Free Money’
Most consumers are paying $5 to $15 less to fill their tanks than they were around the Fourth of July, according to Green. “This is free money that people can use for savings or other spending in time for holiday shopping,” he said by e-mail on Oct. 15.
On top of sliding energy prices, food costs fell 0.7 percent in September, driven lower by eggs, baked goods and meat, IHS Inc., an Englewood, Colorado-based consultant, said in research note on Oct. 15. Combined, the drops stand to improve the holiday season both under the Christmas tree and on the dinner table, said Michael Montgomery, a U.S. economist at IHS.
“The two most observed prices by consumers are food and energy and they play the largest role in forming consumer opinions about inflation, providing a little more room for luxuries rather than facing a squeeze from necessities,” he said in the report.
Retail sales over this holiday season, from November through December, are expected to be up 4.2 percent from last year, according to IHS. That excludes motor vehicles, gasoline and food purchases.
Holiday Season
“This holiday season -- with just about six weeks until Black Friday -- is expected to glitter in comparison to the last two years,” Chris G. Christopher Jr., director of IHS’s U.S. consumer economics group, said in a report on Oct. 15. “The recent news on the consumer front has been relatively favorable, especially as pump prices are falling.”
Black Friday, the day after the U.S. Thanksgiving holiday, marks the start of the holiday shopping season. It falls on Nov. 28 this year.
Americans’ expectations for the economy in October climbed to the highest level in almost two years. A measure tracking the economic outlook increased to 51 this month, the strongest since November 2012, from 41.5 in September, data from the Bloomberg Consumer Comfort Index showed yesterday.
Retail Sales
Retail sales slid 0.3 percent in September, following a 0.6 percent gain in August that was the biggest in four months, Commerce Department figures show.
“Reconciling consumer confidence with consumer spending continues to be a challenge,” said Jack Kleinhenz, the chief economist at the National Retail Federation in Washington, who described last month’s retail sales as “surprisingly weak.”
While spending on gasoline accounts for less than 5 percent of the average person’s disposable income, it has an “undue influence on consumer confidence” because of the way the fuel is sold and paid for, Christopher said Oct. 15 by phone from Lexington, Massachusetts.
“When you go over to that pump, and you squeeze that liquid into your car, you’re seeing the amount going higher and higher, and that’s an unusual way of consuming something,”
Christopher said. “It’s the way we purchase it. It’s immediate. Gasoline is different from almost any other consumer item.”
AL KHOBAR, 12 hours, 13 minutes ago
Crude production from the Khafji oilfield, jointly run by Saudi Arabia and Kuwait, has been halted temporarily to comply with environmental rules, according to an industry source familiar with Saudi policy and an internal letter seen by Reuters.
The move is unlikely to affect oil supplies from Saudi Arabia, the world's top oil exporter, because of the kingdom's significant crude output capacity, currently at 12.5 million barrels per day (bpd). In September, Saudi pumped 9.704 million bpd.
But it adds to a long list of disruptions in projects between the two neighbouring Opec members, hampering oil and gas exploration and production from shared fields.
The Khafji field, whose production is around 280,000 bpd to 300,000 bpd in the Neutral Zone between Saudi and Kuwait, was to be brought offline "immediately", according to a letter signed by Abdullah Al-Helal, chairman of Aramco Gulf Operations (AGOC), which operates the Saudi part of the field.
The industry source told Reuters on Sunday the shut down had already taken effect and it was not immediately clear how long it would take to bring it back online after complying with the environmental regulations.
Al-Helal could not be reached for comment and senior Kuwaiti oil officials did not respond to a request for comment.
Al-Khafji Joint Operations Company (KJO) is a joint venture between AGOC, a subsidiary of state oil firm Saudi Aramco, and Kuwait Gulf Oil Company (KGOC).
In the letter, dated October 16 and addressed to Mohammed Al-Khatib, executive director of operations of KJO, Al-Helal referred to non-compliance with new environmental air emission standards issued recently by Saudi Arabia's Presidency of Meteorology and Environment Authority.
"The Khafji issue is purely environmental," said the industry source familiar with Saudi oil policy. He said Aramco and all other companies operating in the kingdom have to comply with orders issued by Saudi's PME Authority.
Other sources told Reuters an onshore gas gathering plant in Khafji needed to be repaired after a gas leak and that the repairs could take around six weeks.
"The Kuwaitis have refused to allow a shutdown for repairs because of their gas shortfall during the summer. This has been an escalating confrontation between Kuwait and Saudi Arabia," one of the sources said.
"The plant gathers the gas from all onshore facilities in the Neutral Zone and therefore the whole area requires a shutdown during the repairs unless the gas is flared during the entire turnaround," the source added. - Reuters
AFP
Kuwait City: A Kuwaiti oil trade union on Sunday deplored the unilateral closure by Saudi Arabia of an offshore oilfield jointly operated by the Arab neighbours, calling on the government to intervene.
Fadghoush Al Ajmi, head of the workers union at Kuwait Gulf Oil Co (KGOC), urged ministers to take action to ensure that production at the Khafji oilfield resumed.
The head of operations at Khafji, Abdullah Helal, who represents Saudi national oil company Aramco, cited environmental reasons for ordering the halt to the field’s 311,000 barrels per day output, Kuwaiti media reported.
Media cited an internal memo issued by Helal saying that the level of harmful emissions from the operations far exceeded the allowed pollution percentage.
Khafji is part of the neutral zone between Kuwait and Saudi Arabia which is jointly operated by the two nations and pumps around 700,000 bpd. The production is shared equally between them.
Production capacity
Al Rai newspaper quoted unidentified Kuwaiti oil sources as saying they were surprised by the decision as the two countries had an understanding to address environmental issues by 2017.
Local media said the closure could be the result of differences between the two countries over a small export facility in the nearby Al Zour area where Kuwait has decided to locate a large new refinery.
Both countries have excess production capacity and are likely to make up any loss in output if the problem is not quickly resolved.
The two governments signed the neutral zone agreement almost 50 years ago.
By Gulf News
Oil prices continue to nosedive and analysts predict further losses unless producers do something to stabilise the market. The price of Brent, the international benchmark, on October 18 was $84.54 (Dh310.26) a barrel, or over $30 less than its level in June. This is perhaps the lowest since November 2010.
The oil sands of Canada — which have raised production in the last few years driven by the high level of prices and would have continued to do the same into the future — are now considered at risk of losing the drive due to the high cost of development and operations. Production has increased by more than 1 million barrels a day (mbd) since 2000 and was expected to increase by an additional 2 mbd by 2035. With current prices and the direction they are likely to go, this is doubtful.
On September 25, CBS News reported the announcement by Statoil postponing its oil sands project in Alberta because of rising cost and the limited opportunities to get the oil to the market. The CBS report added: “The costs of oil sands projects are rising because of construction and labour costs, while the price of oil is 20 per cent lower than it was six months ago, making large investments less viable.”
On August 15, the Canadian Press admitted that the costliest energy projects are in Alberta and some could be cancelled “without higher oil prices”. Its report is based on a study by the Carbon Tracker Initiative, which “highlighted 20 of the biggest projects around the world that need a minimum oil price of $95 a barrel to be economically viable” and that “Most on the list require prices well north of $110 a barrel and a few in the oil sands even need prices higher than $150 [a barrel]”.
It is true that the Carbon Tracker Initiative is environmentally driven, but its comprehensive report cannot be ignored even though the operator of Foster Creek project said that his company’s supply cost is between $35-$65 a barrel, a range that raises questions since it is for the same field.
It seems that oil sands developers were alarmed even before the price fall, and in May, Total and Suncor Energy “decided to indefinitely defer their $11 billion Joslyn North mine in Alberta because the economics just weren’t good enough”.
If it were developed, Joslyn would have produced between 150,000-160,000 barrels a day, very low when compared with the result of a similar investment in our region.
Let us go back further to March 2013, when Suncor Energy cancelled its Voyageur oil sands upgrader, a joint venture with Total, saying that “market conditions have changed significantly, challenging the economics of the project”. Considering how oil prices have evolved, they must be very happy to have made that timely decision.
Cost
It is clear that most of the above decisions were taken well before the current precipitous fall in oil prices, suggesting that these projects need prices higher that $110 a barrel. However, oil producers, especially Opec’s, should not be carried away as these indicators may be good for the long run evolution of supplies, while current oil sands production is unlikely to be affected unless if oil prices fall further.
The reason is that operating projects would continue to work even if they generate their cash cost only. The cost of investment is “sunk” and would be paid even if the operations stop. Therefore, oil sands producing companies are worried about the availability of transportation capacity to markets as well as the fall of global oil prices.
The expansion of some pipelines to the US and the wide use of rail car tankers have made it easier for additional volumes to be marketed even in winter.
Lorraine Mitchelmore, President of Royal Dutch Shell in Canada, an active producer and upgrader of oil sands, said in August that Brent below $70 a barrel would be “a challenge”. But she told Reuters that she sees no risks to production at current prices, which were higher than what they are now.
Surprisingly, some oil sands producers are more optimistic about oil demand and price recovery as reported by Reuters. Producers are also encouraged by the fact that while West Texas crude prices faltered, Canadian prices were saved by falling differentials, thus keeping Canadian prices steady.
The differential used to be $21 a barrel in mid-June, and much more before, and now is only around $14. Falling Canadian dollar exchange rate is also helping because the cost is computed in Canadian dollars while the revenue from exports is in US dollars.
The market then should not in the short run expect much help from Canadian producers.
A self-styled rival government controlling Libya's capital announced its own oil policies this week, drawing a rebuttal from Prime Minister Abdullah Al Thinni who said oil revenues continued to go to the elected government.
Underscoring the turmoil gripping the major oil producer, at least 17 people were killed in the main eastern city Benghazi where pro-government forces backed by locals are fighting Islamists. A suicide bomber killed three, witnesses and medics said.
Libya is struggling with two competing governments vying for control after Operation Dawn, an umbrella of armed groups from the western city of Misrata, seized Tripoli in August, forcing Thinni's government to withdraw to the east.
The Misrata-led forces have since formed their own rival parliament and government, which has taken over some ministries and effectively controls parts of western and central Libya.
Oil traders are concerned about the uncertainty over who is in charge of Libya's vast oil reserves after the Misrata group appointed its own oil minister and took over the official website of state firm National Oil Corp (NOC).
The power struggle adds to uncertainty about the oil industry, which had just started to show signs of recovery after Thinni managed to end a blockage of major eastern ports by groups of rebels demanding autonomy.
In an interview with local news agency Press Solidarity, the newly appointed oil minister, Mashallah Al Zawi, said the ministry was working to resolve oilfield protests and discussing early retirement schemes for staff to make room for fresh recruits.
"The ministry is working to resolve the issue of sit-ins by youth through dialogue and by meeting some demands," he said, outlining his policies the first time, according to the agency's website.
WHO IS IN CHARGE?
Thinni, whose government is recognised by the international community, responded from Bayda, a town east of Benghazi, where his government has relocated and is trying to stay in contact with ministries almost 1,000 km (620 miles) away in Tripoli.
He said oil revenues for the Opec member state continued to enter a Libyan bank, which transferred them to the central bank.
"They are under the control of the state of Libya and the government approved by the Libyan parliament," he said, referring to the elected House of Representatives, which has moved to Tobruk, east of Bayda near the Egyptian border.
Libya's de facto oil minister is the chairman of National Oil Corp, Mustafa Sanallah, who has given no statement since his appointment by the Thinni government last month.
Thinni spoke to a channel his government set up in Bayda, after the previous state TV channel was taken over by the new rulers in Tripoli.
Thinni and Zawi both cited the same figure of 800,000 barrels per day for Libya's oil production, three years after the fall of Libyan leader Muammar Gaddafi, down from about 1.4 million in mid-2013, before a wave of protests broke out at oil facilities.
Zawi said oil revenue, Libya's sole source of income, would be around only a fifth of last year's level due to the wave of protests at oilfields and ports.
National output had recovered to 900,000 bpd in recent weeks but has recently fallen again due to a new protest at eastern oilfields.
Armed factions in the country often seize oilfields or export terminals to pressure officials into accepting their political or financial demands. A blockade of its biggest oil ports lasted a year.
Western powers worry that the conflict between the Bayda- and Tripoli-based governments will lead to civil war and that the elected government's nascent army is no match for former rebels of various factions who defy state authority. --Reuters
Libya is producing more than 800,000 bpd of oil
BENGHAZI, 15 hours, 0 minutes agoLibya is producing more than 800,000 barrels a day of oil, Prime Minister Abdullah Al Thinni said.
He also told a pro-government television channel in an interview broadcast that Libya oil revenues were under control of his government.
Thinni's government has been challenged by an armed opposition group which has seized the capital Tripoli and set up a rival cabinet there. -- Reuters
Indian refiners will pay $500 million to Iran next week, the second installment in an interim deal that allows Tehran to recover part of overseas frozen oil revenues that are payments for oil it has sold, two industry sources said.
Iran and the US, China, France, Germany, Britain and Russia agreed in July to extend a six-month interim accord until November 24 after they failed to meet a July 20 deadline for reaching a long-term deal to end their nuclear dispute.
"The process for the first installment of $400 million has been initiated and the second installment of $500 million will also be cleared next week," said one of the sources.
Payment of $900 million by India was to be made in September, the sources said. It was not immediately clear why the process has been delayed.
Indian refiners together owe about $6 billion to Iran. They are depositing payments in rupees in an Indian bank. Iran uses these funds to pay for imports from India.
The sources declined to be named due to the sensitivity of the matter. The payments will be made using an existing mechanism based on a series of back-to-back transactions in different currencies that are initially channeled through the Reserve Bank of India (RBI).
On receipt of the funds from refiners, the RBI would buy dollars from authorised dealers. It would instruct the Federal Reserve to transfer dollars to the UAE’s central bank account there, after confirmation that Iran had received a final payment in dirhams from Abu Dhabi.
Iran's top oil client after China, India has imported 38 per cent more oil from Tehran in the first nine months of this year than in the same period last year, tanker data obtained by Reuters show.
Tehran has already received $1 billion from Japan under the interim deal, state news agency IRNA reported last month.
Iran and the US said they made some progress in high-level nuclear talks but much work remained to clinch a breakthrough deal by a late-November deadline.
The six powers want Iran to scale back its uranium enrichment programme to ensure it cannot produce nuclear bombs. Iran says the programme is for peaceful purposes.
In return for continuing action to curb its nuclear programme, Iran during the four-month extension has been granted access to $2.8 billion of its funds held in foreign banks, in addition to $4.2 billion paid between January and July. -- Reuters
DUBAI, 15 hours, 10 minutes ago
A "limited fire" broke out on a subsidiary oil pipeline in eastern Saudi Arabia after assailants fired shots at a security patrol, the state news agency SPA said.
An industry source told Reuters there was no impact on oil operations in the world's top crude exporter.
SPA, citing the spokesman for police in Eastern Province, said authorities were at the scene quickly and had put out the fire.
It said the incident happened when the patrol came under fire at the entrance of Awamiya in Qatif district.
The incident followed a similar one last month when a small fire broke out on a gas pipeline in the oil-rich Eastern Province. -- Reuters
SANAA, 15 hours, 14 minutes ago
Yemen has resumed the pumping of oil through its main export pipeline after repair works were completed, an industry source said, following an attack by tribesmen on the pipeline two days ago.
Yemen's oil and gas pipelines have been repeatedly sabotaged by tribesmen feuding with the state, especially since mass protests against the government created a power vacuum in 2011, causing fuel shortages and slashing export earnings for the impoverished country.
Yemeni news agency Saba said engineering teams had managed to repair the pipeline in the area of Sarwah in Marib province. An industry source told Reuters that pumping had resumed.
Yemen has said oil typically flows through the Marib pipeline, one of its main petroleum export routes, at a rate of around 70,000 barrels per day (bpd).
The pipeline carries crude from the Marib fields in central Yemen to the Ras Isa oil terminal on the Red Sea. Before the spate of attacks began three years ago, the 270-mile (435-km) pipeline carried around 110,000 barrels per day to Ras Isa.
Heavily armed tribes carry out such assaults to extract concessions from the government on providing jobs, settling land disputes or freeing relatives from prison.
Most of Yemen's output is from the Marib-Jawf area in the north, with the rest coming from Masila in the southeast. -- Reuters
RIYADH, 1 days ago
Saudi Aramco, the world's biggest oil producer, said work on Sadara petrochemical company, its joint venture with Dow Chemical Company in Jubail industrial area, is progressing well and the complex would be operational next year.
Considerable progress has been made at the complex with 70 per cent of the work already completed, reported the Arab News, citing a top official of Saudi Aramco.
"The Sadara project in Jubail is one of the largest and most complicated engineering projects in the world so far and is one of its kind," remarked Khalid Al Falih, the CEO of Saudi Aramco.
"Although there is now a little way to go, it is important to work slowly and at a steady pace to ensure the success of the project. This requires greater determination and a higher level of co-operation from all the partners in the project," he stated.
Al Falih pointed out that upon completion, the project would have used more than 160,000 tonnes of steel and a million cubic volumes of concrete, enough to build three causeways the size of the King Fahd Causeway, which connects Bahrain.
Also, a length of 2,500 km of pipes have been used, which is twice the distance from Jeddah to Jubail, he added.
Kuwait Foreign Petroleum Exploration Company (Kufpec), a wholly-owned subsidiary of Kuwait Petroleum Corp, has launched a $1-billion loan into syndication, said bankers.
The deal is being led by a consortium of international and local banks comprising Bank of Tokyo-Mitsubishi-UFJ, HSBC, JP Morgan, National Bank of Kuwait and Royal Bank of Scotland, the bankers said.
The five-year amortising term loan pays an interest margin of 130 basis points (bps) over Libor, one of the bankers said.
Kufpec was last in the market in June 2013 when it sealed a five-year $750 million deal paying a margin of 140 bps over Libor. That deal was led by Bank of Tokyo-Mitsubishi, HSBC, JP Morgan, National Bank of Abu Dhabi, National Bank of Kuwait and RBS.
It was increased, using an accordion feature, to $1 billion in January this year.
Kufpec could not be immediately contacted for comment.-Reuters
Spot differentials for Middle Eastern crude loading in December have hit multi-month highs on robust demand from Chinaoil.
Upper Zakum crude reached its highest for 11 months after Chinaoil bought a record volume of the Abu Dhabi crude and its strong demand for Oman pushed the grade to the highest premium in more than 2-1/2 months. The upward momentum has also lifted Qatari Al-Shaheen to a 4-month high.
Chinaoil, trading arm of PetroChina has snapped up 16.5 million barrels of crude so far this month on a trading platform operated by pricing agency Platts, traders said on Friday.
A record 18 Upper Zakum cargoes were delivered in the window, in addition to 14 Oman cargoes and one cargo of Dubai crude, they said.
"This record will never be beaten, not in my lifetime," a trader with a Western firm said.
The strong demand came on the back of a four-month slide in global oil prices which saw Brent touching a four-year low on Thursday.
Cash Dubai strengthened with the first three months in backwardation. In a backwardated market, the front-month price is higher than those in future months indicating strong demand for prom
"It's a distorted market," a trader with a North Asian firm said, as lower refining margins could reduce crude demand.
Prices of oil products, such as diesel and naphtha, which are oversupplied in Asia, have lagged gains in Dubai. Complex refining margins at a Singapore refinery averaged at $4.41 a barrel in the last five days, down from $6.35 in September, Reuters data showed.
Outside the window, Upper Zakum has been traded at a premium of $1 a barrel to its official selling price (OSP), traders said. This is the highest premium since November 2013, according to Reuters data.
Qatar has sold six cargoes of al-Shaheen crude via a tender at 56 cents a barrel below Dubai quotes on average, the narrowest discount in four months, according to traders and Reuters data. At least one cargo was sold at a premium, they said.
Buyers included TonenGeneral, ExxonMobil, Chevron and Vitol, traders said. - Reuters
Japan's top oil explorer Inpex Corporation said production has started from Umm Lulu field, an offshore oil field in Abu Dhabi, UAE, which the company jointly developed with Abu Dhabi National Oil Company, BP and Total.
In the first phase of development, Inpex said it has commenced oil production from the Umm Lulu oil field by utilizing existing facilities of the Umm Al-Dalkh development, located adjacent to the development located 30 km northwest of Abu Dhabi city.
Impex has been engaged in the oil development business through its wholly-owned subsidiary, Japan Oil Development Company (Jodco) in Abu Dhabi for over 40 years.
According to Jodco, the full field development is currently in progress, and after completion, Umm Lulu is expected to produce oil at a peak rate of 105,000 barrels per day (bpd).
The oil produced from the Umm Lulu in the first development phase will be transported via an existing subsea pipeline to Zirku Island, and eventually supplied to customers in Japan and other Asian countries as Upper Zakum crude.
A major player in the UAE, Impex owns participating interests in the producing oil fields of Umm Shaif, Lower Zakum, Umm Lulu, Upper Zakum2, Umm Al-Dalkh and Satah.-TradeArabia News Service
Williams Companies is said to be one of the bidders for QEP Resources' natural gas pipeline unit, Bloomberg reported, citing people familiar with the matter.
QEP Resources, a leading independent natural gas and oil exploration and production company, is likely to select a buyer within weeks for Entrada Midstream, which may fetch about $2.5 billion, Bloomberg quoted the sources as saying.
Under pressure from Jana Partners, QEP said in June it would spin off QEP Field Services and rename it as Entrada Midstream after the activist hedge fund said the company did not have enough expertise to run the unit.
Jana, which held a 7.2 per cent stake in QEP as of September 5, said in a regulatory filing on Wednesday that it had dissolved its entire position in QEP.
The company is working with Deutsche Bank AG to find buyers, Bloomberg reported.
QEP's former parent, Questar Corp, is also in line to buy Entrada, Bloomberg quoted a spokesman for the natural gas utility as saying.-Reuters
TEHRAN (FNA)- Former Iranian Oil Minister Rostam Qassemi announced on Sunday that the upcoming visit of Iraqi Prime Minister Haidar al-Abadi to Tehran will take place to broaden the trade ties between the two countries, specially through the endorsement of trade and customs agreements.
"Several agreements on free trade, customs and standards, which is a very important issue, will be signed in Tehran," Qassemi, who is now the head of the Staff for the Development of Iran-Iraq Economic Relations, said, addressing a meeting of representatives of the Iranian Chamber of Commerce in Tehran today.
He asked for rapid growth in Iran's exports to Iraq, and reiterated that Iran can export medicine, medical equipment and foodstuff worth $25 billion to its Western neighbor.
On Friday, informed sources announced that Al-Abadi will visit Iran on Monday on his first official visit to a foreign country since he took office on August 11.
A source close to Iraq's political bodies said that al-Abadi is scheduled to visit Iran at the head of a high-ranking delegation.
He noted that al-Abadi will be accompanied by Iraqi ministers of oil, electricity, economy and commerce.
Al-Abadi's visit to Iran is considered as significant regarding the major role played by Tehran in the past months to help Baghdad fight against the Islamic State of Iraq and the Levant (ISIL) terrorist group, the source added.
Last month, the Iraqi prime minister appreciated Iran's constructive role in Iraq's present sensitive situation.
He made the remarks while speaking to reporters in New York on the sidelines of the 69th Annual Meeting of the UN General Assembly.
By Benoit Faucon
A dispute between rival Libyan governments over control of the North African nation's oil industry is escalating, potentially complicating the production and sale of its most vital resource.
Islamist rebels took control of the Libyan capital Tripoli in August and set up their own government, while the internationally recognized government led by Prime Minister Abdullah al-Thani and parliament fled to the east of the country.
A United Nations-sponsored dialogue between the two sides in the western city of Ghadames failed to resolve their differences last month.
U.N. Secretary-General Ban Ki-moon this month called on a renegade general fighting Islamist militias in the east to stop his operations. But fighting has continued there and at least 18 people lost their lives in fierce street battles in the eastern city of Benghazi on Friday.
In a joint statement late Saturday, France, Italy, Germany, the U.K. and the U.S. said they supported the U.N.-sponsored peace talks and a cessation of hostilities. The five governments condemned the violence by Islamist group Ansar al-Shariah, voiced concern about the attacks of the renegade general and said they were ready to sanction those threatening Libya's security.
Libya is normally one of Europe's largest oil suppliers, but disruptions since the fall of strongman Moammar Gadhafi in 2011 have reduced its contribution to the continent's oil supply.
After taking control of the state-owned National Oil Co. building last month, Mashallah al-Zawie, the oil minister of the rebel government, this week set out his first oil policies, including saying he planned to increase fuel prices, according to the NOC's website and news agency Press Solidarity.
He also made his first international appearance at an Istanbul oil-industry conference, where he called on foreign companies to resume stalled investments in Libya, according to official Libyan news agency Lana. Turkey hasn't had any official reaction to the conference appearance.
Both Libyan leadership sides are now disputing the control of oil-export proceeds, the country's main source of revenue. Last month, the House of Representatives, the internationally recognized parliament based in the eastern city of Tobruk, dismissed the head of the central bank, Sadiq al-Kabir, which oversees oil revenue.
A spokesman for Mr. al-Thani said his government controls the central bank and said future oil payments will go to accounts the cabinet oversees in the eastern city of Beida.
There was no response to an email to Mr. al-Zawie's office or to a call to an NOC spokesman.
But officials at NOC and at the central bank subsidiary which receives payments from oil buyers said revenues had continued to flow to its Tripoli-based accounts. Mr. al-Kabir also remains in office, they said.
The confusion over who controls Libyan oil could impede the country's future production and exports prospects. The Libyan NOC official said oil production stood at 850,000 barrels a day, an increase of 40,000 barrels a day compared with last week, as some fields had increased their output. However, operations at oil fields in eastern Libya have been interrupted by protesters seeking jobs at the facilities.
Summer Said contributed to this article.
Write to Benoît Faucon at benoit.faucon@wsj.com
By Benoit Faucon
A dispute between rival Libyan governments over control of the North African nation's oil industry is escalating, potentially complicating the production and sale of its most vital resource.
Islamist rebels took control of the Libyan capital Tripoli in August and set up their own government, while the internationally recognized government led by Prime Minister Abdullah al-Thani and parliament fled to the east of the country.
A United Nations-sponsored dialogue between the two sides in the Western city of Ghadames failed to resolve their differences last month.
Libya is normally one of Europe's largest oil suppliers. Disruptions since the fall of strongman Moammar Gadhafi in 2011 have reduced its contribution to the continent's oil supply, however.
After taking control of the state-owned National Oil Co. building last month, Mashallah Zawie, the oil minister of the rebel government, this week set out his first oil policies, including saying he planned to increase fuel prices, according to the NOC's website and news agency Press Solidarity.
He also made his first international appearance at an Istanbul oil-industry conference, where he called on foreign companies to resume stalled investments into Libya, according to official Libyan news agency Lana. Turkey hasn't made any official reaction to the conference appearance.
Both Libyan leadership sides are now disputing the control of oil-export proceeds, the country's main source of revenue. Last month, the House of Representatives, the internationally recognized parliament based in the Eastern city of Tobruk, dismissed the head of the central bank, Sadiq al-Kabir, which oversees oil revenue.
"The central bank is under our control," Musab Elabed, a lawmaker at the House, said Saturday.
Mr. Elabed said future oil payments should go to accounts controlled by Mr. al-Thani's government.
There was no response to emails to spokesmen for Mr. al-Thani and Mr. al-Zawie, along with a call to an NOC spokesman. The U.S. State Department and the U.S. Embassy in Libya--temporarily relocated in Tunisia--didn't respond to requests for comment.
But officials at NOC and at the central bank subsidiary which receives payments from oil buyers said revenues had continued to flow to its Tripoli-based accounts. Mr. al-Kabir also remains in office, they said.
The confusion over who controls Libyan oil could impede the country's future production and exports prospects. The Libyan official said oil production stood at 850,000 barrels a day. However operations at oil fields in eastern Libya have been interrupted by protesters seeking jobs at the facilities.
Summer Said contributed to this article.
Write to Benoit Faucon benoit.faucon@wsj.com
By Editorial Board October 19 at 6:36 PM
THE SILVER lining in the recent financial market turbulence has been the continued decline in the price of oil, which is down about 25 percent since June. In addition to creating a windfall for U.S. consumers — one analysis reckoned the savings could amount to $600 per household — the drop, if sustained, will place considerable pressure on three problematic petrostates: Russia, Iran and Venezuela. The aggressively anti-American foreign policies pursued by all three countries in recent years have been financed in large part by soaring oil revenue.
Though separated by culture and continent, the regimes of Vladimir Putin, Ali Khamenei and Nicolás Maduro have in common autocratic government and ambitions to dominate their regions. More than half of their state budgets come from petroleum exports, and their spending plans depend on high prices: $100 a barrel in the case of Russia, $120 for Venezuela and $140 for Iran, according to the Economist. Last week, benchmark Brent crude was selling for just $85 a barrel, while Venezuela’s heavy oil dropped below $80, according to the VenEconomía Web site.
The falling prices could compound the effect on Iran and Russia of international sanctions. Iran, which lost some 45 percent of its oil revenue in the past two years, has been able to increase its exports and return to economic growth under an interim agreement on its nuclear program. That advance could be nullified by the drop in prices, which in turn could increase the pressure on the regime to strike a long-term nuclear agreement with a U.S.-led coalition by a late-November deadline.
Mr. Putin has embarked on an expensive military adventure in Ukraine, but his finance minister warned this month that the country can no longer afford an ambitious 10-year defense spending plan — not to mention promised social spending. As the Kremlin well knows, a drop in oil prices during the early 1980s helped bring about the collapse of the Soviet Union. While he has yet to give up his ambitions in Ukraine, the Russian ruler may soon have to cope with a domestic economic recession and the unrest it could provoke.
Venezuela’s government is celebrating its election on Thursday to the U.N. Security Council — a position it secured thanks in part to its long-standing policy of buying the support of Caribbean and Central American countries with heavily subsidized oil. Venezuela also props up the Cuban economy with energy deliveries estimated to be worth $10 billion annually. The oil price drop may be most painful in Caracas, where the government is already failing to deliver hard currency to drug importers and international airlines. The cost for insuring Venezuelan debt has recently soared amid speculation about a default. If one is to be avoided, Mr. Maduro may have to adopt painful domestic measures, including a major currency devaluation and cuts in gasoline and electricity subsidies. That will make it hard to maintain the unpopular largesse for Cuba, Nicaragua and other clients.
The willingness and ability of Russia, Iran and Venezuela to challenge the United States and the post-Cold War order has steadily risen along with oil prices since the turn of the century. If, as seems possible, the recent decline is sustained over several years, the geopolitical dividends for the United States may be even greater than those reaped by consumers.
Global oil prices likely to touch to $60/barrel: Osama Kamal
By ET Bureau | 20 Oct, 2014, 04.53AM IST
MUMBAI: Egypt's former petroleum minister Osama Kamal said global crude oil prices are set to fall drastically, predicting afurther erosion of as much as a third in the coming days.
"I expect crude oil prices to touch $60 per barrel. This will impact several economies," said Kamal, who was in Mumbai to address the top Aditya Birla Group executives.
India is among the major investors in Egypt, with about a dozen firms employing over 35,000 locals there. "The Aditya Birla Group has has one of the world's largest carbon black manufacturing units in Egypt. There is also a newly constructed polyester plant with a production capacity of 420,000 tonne per annum," he said.
Kamal said Egypt's economy is back on the path to recovery. "Our economy will be back on track in three years. The signs are already visible. Inflation is hovering around 8.2% and we have also controlled fuel consumption," he said, adding that the new social security programme has helped control food prices.
Egypt is implementing an ambitious plan of developing the Suez Canal Axis through a project involving ship building and maintenance yards, which will bring in $100 billion in investments into the country, he said.
He also said that Egypt's transition to civilian rule is progressing in accordance with the plan.
By Eurasianet | Sun, 19 October 2014 00:00 | 0
Each winter in Kyrgyzstan the energy situation seems to worsen; blackouts last longer, and officials seem less able to do anything to improve conditions. This year is expected to be particularly difficult.
The winter heating season has not even begun and already lots of people are bracing for months of hardship. A video, posted October 12 on YouTube, depicting Kyrgyz doctors having to perform open-heart surgery amid a sudden blackout, is helping to heighten anxiety about the coming winter. In another alarming signal, Bishkek’s local energy-distribution company, Severelectro, sent out advisories with recent utility bills, describing the situation as “critical” and begging customers to conserve electricity and use alternatives to heat their homes.
Southern Kyrgyzstan has been without gas since April, when Russia’s Gazprom took over the country’s gas network, and neighboring Uzbekistan said it would not work with the Russians. That has forced residents in the south to use precious and expensive electricity to cook, or resort to burning dung and sometimes even furniture. On top of that, a drought has hampered operations at Kyrgyzstan’s main hydroelectric plant at the aging Toktogul Dam.
After President Almazbek Atambayev criticized the energy minister on October 9, the minister promptly quit. But a personnel reshuffle will not do much to reassure citizens, such as pensioner Valentina Chebotok, who lives in Maevka, a Bishkek suburb. When she began to contemplate the hassles associated with winter, Chebotok started to cry. Last year, when temperatures dropped to -20C (-4F), the 89-year-old pensioner spent three months living in a vegetable storage shed with a small stove she kept going with a mix of coal dust and dung. This year, Chebotok managed to secure a gas heater, but on her pension of $87 per month she will have to use it sparingly.
There has been some good news: Kazakhstan agreed on October 14 to supply over 1 billion kWh of electricity this fall and winter. In September, the Russian energy giant Gazprom announced gas prices for exports to northern Kyrgyzstan – that is, the only areas connected to its network, since Uzbekistan refuses to supply its gas to the southern network – would fall 20 percent.
But in many parts of the country the electrical system is overloaded. Prior to the Gazprom deal, many consumers grew tired of constant gas shortages, and converted their heating systems to run on electricity. That is what Maksim Tsai, a mechanical engineer in Bishkek, did seven years ago.
“I was forced to switch to electric heating. And Kyrgyzstan was [at the time] considered a country with abundant electricity,” he told EurasiaNet.org.
Citing a need to conserve electricity, government officials have made often contradictory statements about the type of three-phase electrical adaptors that Tsai and many others now use. Some officials have said they want to ban three-phase adaptors, which can support higher electricity loads; others express an interest in increasing tariffs for three-phase households. Tsai said he now plans to switch back to gas. “The government took the right decision to transfer Kyrgyzgaz to Gazprom. Now I have got assurance that we won’t have problems with gas, though it is still expensive,” he said.
The current confusion offers crooked officials an opportunity to line their pockets. A hotel owner in Bishkek complained in September that Severelectro officials came to his business and attempted to seize his three-phase adaptor. “They came over and made us sign a document saying that we understood why the three-phase adaptor was being confiscated. We asked for a copy of the document, but they said we couldn’t get one because ‘we don’t want the press to get hold of this.’ We were allowed to keep our adaptor after we paid a bribe,” the hotel owner said.
The officials warned the hotel owner to expect blackouts this winter at his central Bishkek location, “‘Maybe five hours a day, maybe more, they said.’”
Another heating alternative is coal. In August, Prime Minister Djoomart Otorbaev called on Kyrgyzstanis to use coal this winter for heating, since it is “a relatively inexpensive fuel.”
Though Kyrgyzstan is endowed with plenty of coal, the industry is plagued by scandals and, reportedly, organized criminal activity – factors that drive up prices and force consumers, including government agencies, to buy imports.
Sultanbek Dzholdoshbaev, a wholesaler at the main coal market outside of Bishkek, said that supplies from the famed and fought-over Kara-Keche deposit have decreased in recent years, pushing up prices. He explained that local gangs took control of Kara-Keche during the chaos following President Kurmanbek Bakiyev’s 2010 overthrow. Moreover, the state-run company that manages Kara-Keche is unable to run such a large-scale operation efficiently, Dzholdoshbaev asserted.
Meanwhile, prices keep rising. According to sellers and buyers at the coal market, the price for a ton of coal has increased 25 to 35 percent this season. That might be in part due to demand. Delivery-truck drivers say demand has been high since August, when the government started warning about the tough winter ahead.
If those living in freestanding homes have options, such as gas and coal, the tens of thousands of Bishkek residents living in multi-story buildings with central heating provided by Severelectro have only electricity as backup.
Larisa Musuralieva, who lives in an apartment block in a southern district of the capital, said that the old radiators in her flat do not provide sufficient warmth: “These radiators heat so badly […] so we use an electric heater. If blackouts happen this winter, it will be very cold at home.”
By Anna Lelik
(Source: www.eurasianet.org )
The collapse in oil prices is already a major cause of concern for countries heavily reliant on exports of the commodity. For some, it could be a matter of avoiding a severe recession.
Here's why: For governments in oil-exporting countries to meet their spending commitments they need oil to remain above a certain price. With oil prices under $87 a barrel, countries that rely on high oil prices, including Venezuela, Russia, and Saudi Arabia, may have a reason to be concerned.
This chart shows the price per barrel that the six most exposed countries need to meet their national budgets. Remember, the price Friday is a piffling $87.
Venezuela literally needs the price of oil to double to keep its house in fiscal order.
If the price remains depressed, these countries will either be forced to borrow more to cover the shortfall in oil tax revenues or backtrack on spending promises. Cutting back on spending pledges would be highly embarrassing for these countries' governments. In the cases of Russia and Venezuela, tapping bond markets for financing could be very expensive as both countries are currently regarded as highly risky by international investors.
The problem for the Organization of the Petroleum Exporting Countries is that it may no longer be able to control prices (as it has in the past) to avoid these problems.
Previously, OPEC members would agree to cut oil production if falling prices posed a threat. That may now have changed because of the shale oil boom in the US, which has dramatically increased supply.
As Goldman Sachs wrote in a recent note (emphasis added):
[There is a] realization that the OPEC reaction function has changed and that the US shale barrel is now likely the first swing barrel ... When Saudi Arabia cut prices to Asia for November delivery it was interpreted as a shift in the Saudi reaction function to a focus on market share. This should have not been a surprise in the new world of shale that has flattened the supply curve, as economic game theory suggests that they should not be the first mover and that the US shale barrel should be the new swing barrel given how easily it can be scaled up and down.
This may explain Saudi Arabia's unusual hints to market participants recently that it was comfortable with sub-$90-a-barrel oil prices — it doesn't want to admit that its power to shift the price has been eroded.
NEW DELHI (AP) — India freed diesel prices from government control Sunday while raising natural gas tariffs in the biggest-yet reform by Prime Minister Narendra Modi's government, as it aims to boost the country's economy and overhaul its energy sector.
The decision on diesel targets one of India's costliest subsidies for one of the world's dirtiest fuels.
Those subsidies — meant to help poor farmers using diesel-powered water pumps — inadvertently led the country to consume more than four times as much diesel as petrol, at large cost to the national budget. Almost half the country's $23 billion spent on fuel subsidies last year went for diesel, according to the Delhi-based National Institute of Public Finance and Policy.
Meanwhile, India's trade deficit has ballooned, reaching $14.3 billion in September, thanks to years of high international oil prices and a dependency on petroleum-based fuels like diesel, kerosene and gasoline for 22 percent of its entire energy consumption.
While India began tweaking diesel prices last year and rolling back some subsidies, the decision to fully deregulate diesel now appeared timed to a sudden drop in global oil prices last week, easing the burden on Indian consumers. Diesel prices on Sunday, the first day of the new fuel regime, were slightly lower than a day before in major Indian cities like New Delhi, Mumbai and Kolkata.
"It was a very good time to push this through. It was obviously a tactical step," said economist Abheek Barua with the Indian Council for Research on International Economic Relations, a think tank in New Delhi.
Delhi-based writer and economics commentator Gurcharan Das suggested Modi also needed to better explain the benefits of deregulation to the people.
"Here's a country that gives enormous political and religious freedom, and yet we have so much difficulty giving economic freedom that reforms have to be done by stealth," Das said. "Modi needs to get out and sell the idea of the market, the fact that price control is harmful in the end for the people."
Modi has pledged to both boost India's economy and provide power to the entire nation within five years — an enormous challenge with at least 300 million Indians still with no power at all, and hundreds of million more lucky to get a few hours a day. Noting that no country in the world has expanded its economic without building electricity capacity, Modi has urged entrepreneurs to move into power generation from solar panels, hydroelectric dams, nuclear reactors or wind mills.
As part of the fuel reforms announced Saturday night, the government also raised natural gas tariffs by 33 percent to $5.61 per mmBtu in an effort to increase incentives for exploring and drilling.
Finance Minister Arun Jaitley asked state governments on Saturday to reconsider taxes "so that consumers are not affected by the price rise."
"People have understood that India's lack of energy was the biggest impediment to growth, and Modi is translating this into action," Barua said. "But they can't just stop here," he said, calling for more reforms including "a serious look" at food subsidies and entitlement programs.
Industry executives welcomed the reforms. The president of the Federation of Indian Chambers of Commerce and Industry called the diesel deregulation an "extremely progressive move."
"In any case, the price of fuel products such as diesel should reflect the true market value, and this would also encourage all users to economize on their diesel consumption and hence aligns with the objective of promoting environmentally sustainable growth," Sidharth Birla said in a statement.
The decision on diesel marks a return to deregulation, after the Congress-led government introduced government control in 2004.
Diesel now powers about 50 percent of India's vehicles as well as generators throughout the retail and industrial sectors, both where grid connectivity is scarce or where power cuts are common. By comparison, the popularity of diesel-powered cars is nearly naught in the United States, where markets also set fuel prices.
"This was long overdue," said Chandrajit Banerjee, head of the Confederation of Indian Industry, according to Press Trust of India. "Also, subsidies should be better targeted and not be for those who don't require it."
American utility companies are facing lower-than-average fuel supplies as they begin to stockpile for the winter.
Part of the reason is the country’s oil boom. Moving oil by rail has become so widespread that train backups are making it hard for utilities to receive shipments of coal, which in some cases is leaving power plants critically low on fuel supplies.
Coal stocks were inordinately depleted during the unusually long, cold snowy winter in the U.S., which saw an elevated level of electricity demand. Months later, coal-fired power plants are still struggling to replace their coal supplies.
“Coal piles around the country have gotten to levels that don’t make us 100 percent comfortable,” David Crane, CEO of NRG Energy, told Bloomberg in an interview. The amount of coal on hand hit just 39 days’ worth of supply in July 2014, the month for which the latest data is available. That is down from a 57-day supply at the same time in 2013.
hat is largely due to clogged rail lines. A record grain harvest is coinciding with a historic oil boom. All these commodities are competing for limited rail capacity, making it difficult for coal to get through to their final destinations. Some utilities have even had to resort to using trucks to deliver coal. Several power plants have partially or completely shut down operations due to a lack of fuel supply.
NRG Energy is stockpiling alternatives at many of its power plants, and may burn oil if coal shortages become acute.
The main alternative to coal for electricity is natural gas. But natural gas inventories are also significantly lower compared to one year ago. That, too, is because of record-breaking consumption during the winter of 2014, which caused prices to briefly spike over $6 per million Btu (MMBtu).
On the other hand, just as supplies were burned through so quickly during the cold months, the U.S. has seen inventories replenished at a record pace. That has helped bring natural gas prices down from their highs in January and February (see chart).
But, heading into winter, America’s natural gas stocks are at their lowest levels in six years. Total natural gas supplies reached 3.1 trillion cubic feet (tcf) at the end of September, which is 11 percent lower than last year at this time.
Complicating matters further is the retirement of some nuclear and coal-fired power plants since last year, which could put extra strain on natural gas supplies. An additional 1 billion cubic feet of natural gas demand is likely as a result.
And the biggest problem for the northeast may not be fuel supplies, but infrastructure. A lack of pipeline capacity was one of the main culprits for last winter’s price increases, a problem that has not been addressed in the meantime.
Still, as of mid-October, futures prices are not much higher than they were at the same time last year, despite the recent anxieties voiced by utility executives about having enough fuel for winter. What’s going on?
It is likely that the latest winter weather forecasts eased market fears a bit. The National Oceanic and Atmospheric Administration predicts that the winter of 2015 will see higher than average temperatures for Alaska, Hawaii, the western U.S., and crucially, the New England area. “Last year’s winter was exceptionally cold and snowy across most of the United States, east of the Rockies. A repeat of this extreme pattern is unlikely this year,” NOAA said in its report.
If that is the case, utilities could have no problems meeting winter demand and price spikes would be averted. Here’s hoping for a warmer winter.
By Nick Cunningham of Oil price.com
By Nick Shchetko
KIEV, Ukraine--Russia and Ukraine have agreed a price for winter gas supplies, officials from both countries said, moving closer to a deal that would ease concerns that the countries' dispute could disrupt supplies to Europe via Ukraine.
Ukrainian President Petro Poroshenko said in a televised interview Saturday that Ukraine had agreed on a price of $385 per 1,000 cubic meters of gas until the end of March.
"Ukraine will have gas, Ukraine will have heating," he said.
Russian and Ukrainian officials said they hadn't reached a final agreement. A deal appeared close after a meeting in Berlin three weeks ago, but the agreement on price appears to indicate they are inching toward finalizing a deal.
Russia cut off supplies in June, demanding Ukraine pay a debt that it pegged at some $5 billion, leaving Kiev running low on supplies with winter approaching.
Stumbling blocks remain, Mr. Poroshenko said, and officials from Ukraine, Russia and the European Union will meet Tuesday try to thrash out final terms. Ukraine, which is in deep recession, lacks the funds to purchase the Russian gas, and is looking to the International Monetary Fund for help, Mr. Poroshenko said.
He said officials from the IMF would visit Ukraine for talks after a new cabinet is formed in mid-November following parliamentary elections next weekend. Ukrainian officials have said the IMF may have to adjust its $17 billion bailout program, as Ukraine's finances have significantly worsened since the deal was agreed in April.
Deliveries of Russian gas to Europe via Ukraine were severely disrupted twice in the past decade amid disagreements between Kiev and Moscow. On Thursday, Russian President Vladimir Putin said Russia would reduce gas flows to Europe via Ukraine if Kiev siphoned off gas destined for Europe for its own needs.
On Friday, Russian Energy Minister Alexander Novak confirmed that progress had been made on reaching a gas deal during talks in Milan.
"We have agreed on the key parameters--on the price for gas supplies in the winter period, on prepayment terms and on the debt repayment schedule," Mr. Novak said, according to Russian state news agency TASS. "The question now is whether Ukraine has sources to repay the debt and pay for current deliveries."
Ukraine accused Moscow of setting a high price to punish its moves westward.
Mr. Poroshenko blamed Kiev's lack of funds to pay for the gas in part on consumers in eastern parts of the country held by pro-Russia rebels who "didn't pay a penny" for supplies.
Talks on Friday between Mr. Poroshenko and Mr. Putin, as well as European leaders, yielded little progress toward resolving the monthslong conflict. Scattered fighting has continued despite a cease-fire signed last month. At least six soldiers and civilians were killed and 24 were wounded in the past two days, Ukrainian security officials said.
REUTERS
ALKHOBAR: Crude production from the Khafji oilfield, jointly run by Saudi Arabia and Kuwait, has been halted temporarily to comply with environmental rules, according to an industry source and an internal letter seen by Reuters.
The move is unlikely to affect oil supplies from Saudi Arabia because of the Kingdom’s significant crude output capacity, currently at 12.5 million barrels per day (bpd). In September, Saudi Arabia pumped 9.704 million bpd.
The Khafji field, whose production is around 280,000 bpd to 300,000 bpd in the Neutral Zone between Saudi Arabia and Kuwait, was to be brought offline “immediately,” according to a letter signed by Abdullah Al-Helal, chairman of Aramco Gulf Operations (AGOC), which operates the Saudi part of the field.
The industry source said that the shut down had already taken effect and it was not immediately clear how long it would take to bring it back online after complying with the environmental regulations.
Al-Khafji Joint Operations Co. (KJO) is a joint venture between AGOC, a subsidiary of state oil firm Saudi Aramco and Kuwait Gulf Oil Co. (KGOC). Helal could not be reached for comment and senior Kuwaiti oil officials did not respond to a request for comment.
In the letter, dated Oct. 16 and addressed to Mohammed Al-Khatib, executive director of operations of KJO, Helal referred to non-compliance with new environmental air emission standards issued recently by Saudi Arabia’s Presidency of Meteorology and Environment authority.
By Bloomberg News
PetroChina Co. (857), the country’s biggest oil and gas producer, is on course to surpass a 2.6 billion cubic meter target for shale gas production in 2015 from fields in the southwest province of Sichuan.
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PetroChina’s success in drilling for shale gas is good news for China, which is seeking to replicate the boom in the U.S. China’s hopes have rested on China Petroleum & Chemical Corp. (386), known as Sinopec, which operates the nation’s largest shale-producing project in Fuling. The country halved its target of producing 60 billion cubic meters by 2020 because of geological challenges.
PetroChina aims to produce 5 billion cubic meters by 2017 and 12 billion cubic meters by the end of the decade, Xie said. Output this year may reach 200 million cubic meters and large-scale commercial production will begin in the first quarter of next year, he said.
The company has nine shale gas exploration rights in Sichuan and Chongqing. Four have started or are close to commercial production.
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Geographical structures in PetroChina’s fields in southern Sichuan are more difficult to drill through than the Fuling project and gas reservoirs have been smaller, Xie said.
PetroChina will invest 13 billion yuan ($2.1 billion) on Sichuan shale gas exploration and production this year and the first six months of next year. Drilling cost per well in the region is about 65 million yuan at present, which should come down following large-scale drilling and better understanding of the geology, said Zhou Zhibin, deputy general manager at Southwest Oil & Gasfield.
The company has about 3.9 trillion cubic meters of shale gas reserves in Sichuan and Chongqing, of which 1.5 billion cubic meters are buried in areas less than 4,000 meters (13,124 feet) deep. It will concentrate on exploring for the fuel in those relatively easy depths in the short term, Xie said.
Gas Pipelines
PetroChina owns about 27,000 kilometers (16,781 miles) of oil and gas pipelines in Sichuan and Chongqing, allowing it to transport the fuel to nearby markets, Zhou said. Shale gas output will be complimented by natural gas. The Longwangmiao site in southeast Sichuan will have the annual capacity to produce as much as 11 billion cubic meters of natural gas once construction is completed in August, he said.
PetroChina has signed a production-sharing contract with Royal Dutch Shell Plc (RDSA) in Sichuan and is in talks with ConocoPhillips (COP) for a similar partnership. Daren Beaudo, a spokesman for ConocoPhillips, declined to comment. PetroChina and ConocoPhillips signed an agreement to study the development of unconventional energy resources in the Sichuan basin last year.
Shell Chief Financial Officer Simon Henry said in September that the company may trim its China shale venture because of geological and population challenges in Sichuan.
PetroChina hasn’t received any official communication from Shell and believes the company has made good progress in its assigned area, Xie said.
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China plans to produce 6.5 billion cubic meters of shale gas by 2015.
