Total SA (FP) appointed Patrick Pouyanne as chief executive officer, succeeding Christophe de Margerie who was killed in a plane crash this week.
Pouyanne, 51, the company’s refining chief and long-touted as a potential successor, was named CEO at a board meeting in Paris today, the company said. Thierry Desmarest returns for a second stint as chairman until the end of 2015.
The new CE0 will have to see through a round of cost cuts as lower oil prices and weak returns from refining eat into profit at France’s largest company by sales. De Margerie, killed Oct. 20 when his private jet struck a snowplow on a Moscow runway, had sold older fields and sought to pare investments in new projects as part of a pledge to investors last month to cut $2 billion in costs a year.
Pouyanne “is incredibly bright with a proven track record,” Asit Sen, an analyst at Cowen & Co. LLC in New York, said in an e-mail. “While the charisma and stature of Christophe de Margerie will be hard to replace, we believe Total has a deep management bench.”
The company will split the role of chairman and CEO, which de Margerie had combined, until the end of 2015, when Desmarest, 68, reaches the mandatory retirement age. Desmarest, who served as CEO from 1995 until de Margerie took charge in 2007, remained chairman until 2010. He engineered Total’s purchase of Belgium’s Petrofina SA in 1999 and five months later began a hostile takeover of Elf Aquitaine SA, which was completed in 2000 after a counter-bid from Elf failed.
Economic Slump
“Desmarest will be a familiar face to a number of investors and his considered approach, international relationships and experience of running Total in the past should be reassuring,” Lydia Rainforth, an analyst at Barclays Plc’s investment banking unit, wrote in a note.
De Margerie pulled Pouyanne, often described as brilliant and demanding, from the exploration and production division in 2011 to oversee the petrochemicals business. He was then made head of refining and chemicals a year later to reorganize operations and boost profitability hit hard by Europe’s economic slump.
Teased at company events by de Margerie for his big, rugby player-like stature, Pouyanne also oversaw relations with French unions in the aftermath of a bruising country-wide strike in 2010 at refineries and depots.
Yamal Project
“We are worried about our future,” Eric Sellini, a representative of the CGT union, said about the new management. Cuts to refining capacity and possible plant closures in Europe including in France could come, he said.
Pouyanne, a former government official and a graduate of the prestigious French engineering schools Ecole Polytechnique and Ecole des Mines, has long been viewed as among de Margerie’s potential successors.
Marketing chief Philippe Boisseau had been seen as another possible contender.
Pouyanne will inherit de Margerie’s ambitious program in Russia, which includes a stake in a vast natural-gas development in the Yamal Peninsula. The Total boss vowed to push ahead with the OAO Novatek-led project even as souring relations with the European Union and the U.S. over the conflict in Ukraine threaten to scuttle it.
“Total needs to focus on executing projects including in Russia to deliver growth over the next three years while at the same time keeping costs and operating expenditure under control,” Ahmed ben Salem, an analyst at Oddo & Cie. in Paris, said by e-mail.
Kashagan Delay
De Margerie battled to meet targets for raising output after leaks shut the Caspian Sea Kashagan project and an Abu Dhabi concession ended. He pledged to cut investment and curb costs after spending billions on new projects and drilling high-risk exploration wells.
Last month he hired a new exploration boss amid plans to overhaul the company’s drilling strategy after an almost four-year push for big new finds proved disappointing. He announced a cut in output targets and a drive to sell more assets.
Total plans to sell another $10 billion of assets by 2017, adding to the $15 billion to $20 billion targeted from 2012 to this year. It has achieved $16 billion so far under that plan, with $4 billion under way, including sales of a stake in a Nigerian field and the Bostik chemicals business.
De Margerie’s death in an accident at Moscow’s Vnukovo airport ended a 40-year career that began in the Paris-based company’s finance unit.
Total changed its governance rules this year so that de Margerie, 63, would have been allowed to stay on at the end of his term in 2015. He declined to state publicly what his intentions were, though he said in the event of a change a successor should come from within.
OPEC needs to reduce crude output by at least 500,000 barrels a day, Libya’s governor to the group said, the first time since prices plunged into a bear market that a representative from a member nation has suggested how much production should be cut.
Oil markets are oversupplied by about 1 million barrels a day, Samir Kamal, Libya’s OPEC governor, said by e-mail today. His comments reflected personal views, not the official Libyan position, he said. Libya shouldn’t be expected to reduce its own oil output because the country is still struggling to restore production that has been disrupted for more than a year by political conflict, he said.
“I would like OPEC to cut production by at least half a million, as all studies indicate the need for that” because of the increasing production from outside the Organization of Petroleum Exporting Countries, he said.
Brent crude, a benchmark for more than half of the world’s oil, has tumbled about 25 percent since June, trading for $86.11 a barrel on the London-based ICE Futures Europe exchange at 6:04 p.m. local time. Banks including BNP Paribas SA and Bank of America Corp. predict the price rout may be over, in part because they expect OPEC to reduce supply. The U.S. is pumping the most oil in almost three decades and Russia’s output is near a post-Soviet record.
OPEC’s biggest producers responded to the slump in oil by cutting their export prices, prompting speculation that they will compete for market share rather than reduce supply. Saudi Arabia, the world’s biggest crude exporter, and other large producers in the group haven’t signaled that they will push for a cut at a planned OPEC meeting on Nov. 27 in Vienna.
Political Schisms
Libya, holder of Africa’s largest crude reserves, is producing 800,000 barrels a day, compared with 215,000 barrels a day in April when oil ports were shut by rebels seeking self-rule in the eastern region, according to state-run National Oil Corp.
The country’s current output is still half what it was before the 2011 rebellion that ended Muammar Qaddafi’s 42-year rule. Political schisms and violence have intensified amid a lack of central authority since his ouster and the chaos has undercut efforts to restore production to pre-2011 levels.
“We should not be expected to cut our production, which we are struggling to bring to the level of one million” barrels a day, Kamal said. Libya was out of oil markets for almost a year and faces budget deficits, he said. Other OPEC members have said they “will make room for Libyan production.”
Wilbur Ross, the investor who’s made billions betting on on-out-favor industries, is bullish on Texas oil after its recent tumble.
“We don’t think oil goes a lot lower than where it is on a sustained basis,” Ross, a turnaround financier and chairman of WL Ross & Co., said yesterday at an event in New York.
Oil prices have declined in recent months with the U.S. benchmark price dropping to $79.78 a barrel on Oct. 16, the lowest since June 2012. The fall reflected worries that global growth was slowing as the U.S. supply surged from hydraulic fracturing of shale. If oil fell below $80 a barrel, low-cost producers would be the least hurt, said Ross.
“The Permian Basin in Texas is not only the largest of the shale fields but also probably the lowest cost,” said Ross, referring to the source of more crude output than California and North Dakota combined. “We think they can make a 10 percent return on their investment even at prices below $60,” he said.
Producers in North Dakota’s Bakken formation have a break-even price closer to $80, said Ross, whose firm is invested in Diamond S Shipping Group Inc. and exploration company Exco Resources Inc. (XCO) A steep fall would cause drillers there to shut production quickly, he said. Oil prices rose 0.3 percent today to $82.75.
Private-equity firms including Blackstone Group LP, Carlyle Group LP and Warburg Pincus have raised billions of dollars to take advantage of growth spurred by the shale boom. The latest to seek capital is EnCap Investments LP, which will look to gather $5 billion to invest in oil-and-gas exploration and production, according to two people with knowledge of the matter.
Potential Default
Ross said that outside of the U.S., in Russia, certain Arab countries and Venezuela, lower oil prices have more negative consequences.
“Venezuela can’t afford to have much lower prices than now,” Ross said, adding that a further drop may cause Venezuelan bonds to default, a view echoed by Harvard University economists
Carmen Reinhart and Kenneth Rogoff who warned last week that the country is almost certain to default on its foreign-currency bonds.
Ross spoke yesterday evening at the New York Palace Hotel at an event co-sponsored by Canaccord Genuity Inc. and Youth I.N.C., a nonprofit organization that helps charities raise money for disadvantaged youth.
China reduced oil imports from Saudi Arabia even as the world’s largest crude exporter cuts prices to lure Asian customers amid intensifying competition from Colombia to Oman.
Oil deliveries from Saudi Arabia fell 2.7 percent to 4.74 million metric tons last month from a year earlier, according to data released today by the General Administration of Customs in Beijing. Shipments from Colombia surged 389.6 percent, while Russian deliveries increased by 56.8 percent.
Asian consumers are benefiting from a wider choice of suppliers offering cheaper crude, from Venezuela to Alaska and Nigeria, as the highest U.S. production in almost 30 years cuts American demand. Saudi Arabia reduced prices for oil for Asia to the lowest in almost six years as it aims to maintain market share even as global benchmark prices have dropped about 25 percent from June.
“Chinese refiners are favoring supplies from Oman and South America over Saudi Arabia as their prices relative to output are more competitive,” Amy Sun, an analyst with Shanghai-based ICIS-C1 Energy, a consultant, said by phone from Guangzhou. “China is also increasing imports from Russia with a new contract signed last year.”
Crude supplies from Colombia cost on average $94.56 a barrel last month and Brazilian imports were $95.27, while Saudi shipments were at $102.30 a barrel, Bloomberg calculations based on customs data show. PetroChina Co.’s Liaohe plant in northern China refined about 30,000 tons of Colombian crude as of Oct. 30 for the first time, its parent China National Petroleum Corp. said in a newsletter on its website yesterday.
Price Cut
State-owned Saudi Arabian Oil Co. on Oct. 1 cut prices for all grades and to all regions for November. The Asian price of Arab Light was cut by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crudes, the benchmark published by Platts, the energy-information division of McGraw-Hill Cos.
China Petroleum, Asia’s biggest refiner known as Sinopec, said it completed the expansion of its northern Shijiazhuang plant on Sept. 4, almost doubling the capacity to 8 million tons a year.
“Chinese refiners are also upgrading their facilities so that they can process heavier crude and cut the oil costs,” Sun said.
China trails only the U.S. in oil demand globally, according to the International Energy Agency in Paris. The Asian nation will import as much as 26 million tons a month of crude in the fourth quarter, forecasts ICIS-C1.
Oil Search Ltd. (OSH) plans to return as much as half it profit to shareholders in dividends after the start earlier this year of the $19 billion liquefied natural gas project in Papua New Guinea.
Oil Search, partner will pay 35 percent to 50 percent of net income to investors, starting with the final 2014 dividend, the Port Moresby-based company said today in a statement.
“The payment of a materially higher dividend will be our highest priority,” Papua New Guinea’s largest oil and gas producer said as its third-quarter sales more than tripled to $538.2 million. In August, it said it would pay an unchanged first-half dividend of 2 cents a share.
The Exxon Mobil Corp.-led project in Papua New Guinea will also allow Oil Search to fund expansion, the company said following a review of its strategy. Oil Search has said that it that expects two or three more LNG production units to be built in the country with the development of InterOil Corp.’s Elk and Antelope discoveries.
Oil Search sees “significant upside potential” within existing assets in Papua New Guinea and estimates there is more than 20 trillion cubic feet of discovered gas in the country, with only 9 trillion cubic feet under development and committed to the PNG LNG project, it said today. Oil Search will actively seek oil assets internationally, according to the statement.
Russia and Ukraine will seek a temporary deal next week to resolve a natural gas pricing dispute after failing to sign an accord in talks brokered by the European Union.
While negotiators agreed on debt repayment terms, the financial resources for advance payments for future deliveries still need to be discussed, Russian Energy Minister Alexander Novak said yesterday. Yuri Prodan, his Ukrainian counterpart, said the amount of gas supplied in the coming months has yet to be determined. The next round of talks is scheduled for Oct. 29.
The 28-nation EU, which depends on Russian gas piped across Ukraine for about 15 percent of its demand, is trying to broker a deal between the former Soviet allies as winter nears. State-run OAO Gazprom (OGZD), Ukraine’s main gas supplier, halted deliveries in June as a separatist conflict raged in the east of the country. While shipments to Europe haven’t been disrupted, the EU is seeking to avoid a repeat of supply cuts experienced during 2006 and 2009 disagreements.
“Everyone’s got some homework to do and we decided we’ll meet next Wednesday having prepared everything for a decision on that day,” EU Energy Commissioner Guenther Oettinger said yesterday in Brussels. “Now we have some prospects of a secure supply situation this winter for all European citizens.”
Ukraine will receive 760 million euros ($962 million) in aid from the European Union by the end of the year, Ukrainian President Petro Poroshenko said on his website. The disbursement will depend on Ukraine’s transparency and budget process. Poroshenko spoke with European Commission President Jose Barroso by telephone today, according to the website.
‘Clear Signal’
A proposed deal to restore flows from Moscow-based Gazprom to NAK Naftogaz Ukrainy needs to be discussed by the governments and companies involved, Oettinger told reporters after the trilateral meeting. Under the draft agreement, Ukraine would pay $3.1 billion by year-end for previously delivered supplies. In return, Russia would cut its price by $100 per thousand cubic meters to $385 through March.
Germany is “very interested in a quick solution” to the gas row between Ukraine and Russia and a solution would be a “clear signal of de-escalation” of the crisis, German government spokesman Steffen Seibert told reporters today in Berlin.
Ukraine is ready to sign a temporary gas deal with Russia before the international arbitration court in Stockholm decides on Gazprom and Naftogaz claims over contract price and terms of supplies, Prodan said. Such an agreement must be signed by both companies so that it couldn’t be changed, he said.
Compromise Target
“The Ukrainian side understands that Ukrainian and EU energy security seriously depends on restoring gas supply,” he told a news conference after the talks. “That is why we say today and we have said before that we are ready to look for a compromise decision.”
Negotiators estimated Ukraine will need 4 billion cubic meters of gas by the end of this year and the payment for those supplies can’t yet be guaranteed, according to Oettinger.
“We offered -- if Naftogaz was not able to pay -- to have a European company to act as intermediary,” Oettinger said. Novbak said today that Russia opposed using an intermediary.
The EU has said it will make funds available to Ukraine within its financial assistance framework which can be used for gas payments. The European Commission, the bloc’s executive arm, said yesterday it had received a Ukrainian request for an additional loan of 2 billion euros ($2.5 billion).
Ukrainian Doubt
“Almost all issues that were discussed -- on the price, on supply terms and debt restructuring -- are agreed on,” Russia’s Novak said. The unresolved issues, which will be considered before the next round of talks on Oct. 29, are the amount of gas needed in November and December as well as resources to pay for that fuel upfront, he said. He estimated Ukraine will need $1.6 billion to pay for deliveries in the next two months.
“We have fulfilled our part,” Novak told reporters. “We hope that the European Commission, the EU, the European Union member states will also pay attention and take over a part of the appropriate aid.”
Serhiy Pereloma, Naftogaz’s first deputy chief executive, told a government meeting today in Kiev that Ukraine may cut gas consumption by 6.7 billion cubic meters this heating season. Prime Minister Arseniy Yatsenyuk told the same meeting that he’s unsure of the prospects for a Russian energy deal.
“I’m quite skeptical we can build relations with Russia but we’ll see how events develop on Oct. 29,” he said.
MOSCOW, Oct. 22 (UPI) -- Economic pressure on Russia's energy sector is taking its toll as the annual inflation rate topped the 8 percent mark, the Russian Central Bank said Wednesday.
The European Bank for Reconstruction and Development said sanctions imposed on Russian energy companies Rosneft, Gazprom Neft and others in response to the crisis in Ukraine were taking their toll on the Russian economy.
The Russian Central Bank earlier this year said it expected inflation to stay around 7 percent.
Central Bank First Deputy Director Kseniya Yudaeva said a weekly gauge on the inflation rate showed an increase.
"It's already at 8.3 percent," the director said.
Russian state-backed media RIA Novosti reported slumping oil prices were putting additional strains on the Russian economy.
Russia's credit rating was downgraded last week by international ratings agency Moody's. The agency downgraded the credit rating for St. Petersburg and Moscow this week because of market risks.
NEW YORK, Oct. 22 (UPI) -- Brent crude oil prices for December delivery continued their rally, inching closer to the $87 per barrel mark in trading Wednesday.
Brent hit a high-water mark of $86.96 in early Wednesday trading on word demand from a slowing Chinese economy was on the rise. Brent prices had been on a trend toward discounts as producers responded to supply and demand dynamics in an effort to shore up their market positions in energy-hungry Asia.
Chinese economist Xiang Songzuo said gross domestic product expanded 7.3 percent during the third quarter. While slowing, he said the GDP movement was a sign the Chinese economy was shifting away from acceleration to long-term quality.
China is one of the largest oil consumers in the world.
West Texas Intermediate crude oil prices for December were up near the $83 dollar mark. Wednesday trading may hinge on weekly statistics from the Energy Information Administration.
More oil output from North American shale is driving global benchmark prices lower. 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.
MADRID, Oct. 22 (UPI) -- Advocacy group Greenpeace said Wednesday it parked its protest vessel Arctic Sunrise off the Spanish coast to pressure European leaders on climate reforms.
Members of the European Union kick off a two-day summit Thursday in Brussels to review their environmental policies. Leaders are set to discuss reducing emissions by 40 percent from the 1990 level, using renewable energy for 27 percent of their power needs and improving energy efficiency by 30 percent by 2030.
Greenpeace said it's positioned its Arctic Sunrise vessel off the coast of Spain to protest against the fossil fuels industry blamed for some of the negative impacts of climate change.
"We want to reduce the billions of dollars a day Europeans pay to import fossil fuel and steer fraction of it towards establishing a credible, smart renewable sector which will excite investors and create jobs," Virag Kaufer, a campaign director, said in a statement.
European governments are divided over how best to formulate climate policies. Current benchmarks call for 20 percent emission reductions, 20 percent renewable energy use and energy efficiency improvements of 20 percent by 2020.
Greenpeace used its Arctic Sunrise vessel to gain access to the Prirazlomnaya rig, deployed by Russian energy company Gazprom for work in the country's arctic waters. Two freelance journalists and 28 Greenpeace activists, dubbed the Arctic 30, were held by Russian authorities on piracy charges last year.
By Daniel J. Graeber | Oct. 22, 2014 at 8:00 AM | 0 Comments
PARIS, Oct. 22 (UPI) -- French energy company Total said Wednesday it named former refining director Patrick Pouyanne as chief executive following the death of Christophe de Margerie.
De Margerie died in a Monday evening plane crash on a runway in Moscow. He served as chief executive officer since 2007.
The French company said it named Pouyanne, former president of refining and chemical operations for Total, to serve as the next chief executive officer and president of the executive committee.
Pouyanne served in the French government as an environmental adviser for the prime minister's office before joining Total as a Middle East and African program officer in 1997.
Thierry Desmarest will serve as the chairman of the board of directors, splitting de Margerie's role between two executives. He served as chairman and CEO from May 1995 until de Margerie came on board.
Share prices for the French supermajor increased more than 2 percent following the announcement of board changes.
De Margerie and three French crewmembers died after his business jet hit a snowplow during takeoff. Russian investigators are examining the incident on word the driver of the snowplow was under the influence of alcohol at the time of the crash.
WASHINGTON, Oct. 22 (UPI) -- The amount of carbon dioxide emitted from energy use in the United States increased last year because of the brutal winter, the Energy Department said.
The department's Energy Information Administration said energy-related CO2 emissions increased 2.5 percent from 2012 levels.
"The 2013 increase was largely the result of colder weather leading to an increase in energy intensity," EIA said in a Tuesday report.
PJM Interconnection, a company operating the electric grid for more than a dozen Midwest and mid-Atlantic states, twice broke records for seasonal use early this year during the brutal cold snap brought on by a weather phenomenon known as a polar vortex.
The company had called for conservation measures as most states east of the Mississippi River endured temperatures well below the freezing mark for several days.
"Weather played an important role in the year-to-year increase in CO2 emissions," EIA said. "Residential emissions were up the most of any sector."
Despite the increase, EIA said emissions are still 10 percent below their 2005 levels.
MOSCOW, Oct. 22 (UPI) -- Geopolitical tensions over Ukraine are a result of Western efforts to preserve long-standing regional divisions, the Russian foreign minister said Wednesday.
Western powers enacted tough economic sanctions on Russian energy companies in response to the Kremlin's policies regarding the former Soviet republic of Ukraine. Russian Foreign Minister Sergei Lavrov said it was the West that was out of step with the region.
"The Ukrainian crisis is a direct consequence of the attempts of our Western colleagues again to preserve and move to the east the dividing lines in the Euro-Atlantic area," he said.
Russia annexed the Crimean Peninsula of Ukraine in the aftermath of political upheaval that follows Ukraine's pivot toward the European Union. Pro-Russian separatists have jockeyed for more autonomy in eastern Ukraine since then.
The crisis has spilled over into the regional energy sector, as most of the Russian gas headed to European markets runs through the Soviet-era pipeline network in Ukraine.
Trilateral gas talks in Brussels this week ended without a formal conclusion. A proposed deal would have Ukraine settle its billions of dollars of debt owed to Russian natural gas company Gazprom in exchange for a discounted price for deliveries.
Another round of talks is scheduled Oct. 29 in Brussels.
LOS ANGELES, Oct. 22 (UPI) -- More than 30 percent of Californians living near oil and gas wells reside in areas already heavily polluted, the Natural Resources Defense Council said.
A Wednesday report from the NRDC looked at state records to determine what portion of the state's population are, or could be, impacted by hydraulic fracturing operations. It found about 14 percent of the state's population live within a mile of an oil or natural gas well and more than 30 percent of those live near industrial facilities or other environmental dangers.
The advocacy group found that percentage of the population may be at risk should the state's oil and natural gas sector expand. It said it found a link between hydraulic fracturing operations and respiratory and neurological problems.
"Fracking is moving next door to more and more California homes, schools and neighborhoods," Miriam Rotkin-Ellman, a researcher at NRDC said in a statement. "From Los Angeles to the state's farms and ranches, this industry must not be allowed to poison our people's health."
Environmental advocacy groups have backed ballot initiatives in California that would limit or ban hydraulic fracturing, known also as fracking. Gov. Jerry Brown last year signed legislation regulating the controversial drilling process.
California last year ranked third in the nation in terms of oil production.
LOS ANGELES, Oct. 22 (UPI) -- More than 30 percent of Californians living near oil and gas wells reside in areas already heavily polluted, the Natural Resources Defense Council said.
A Wednesday report from the NRDC looked at state records to determine what portion of the state's population are, or could be, impacted by hydraulic fracturing operations. It found about 14 percent of the state's population live within a mile of an oil or natural gas well and more than 30 percent of those live near industrial facilities or other environmental dangers.
The advocacy group found that percentage of the population may be at risk should the state's oil and natural gas sector expand. It said it found a link between hydraulic fracturing operations and respiratory and neurological problems.
"Fracking is moving next door to more and more California homes, schools and neighborhoods," Miriam Rotkin-Ellman, a researcher at NRDC said in a statement. "From Los Angeles to the state's farms and ranches, this industry must not be allowed to poison our people's health."
Environmental advocacy groups have backed ballot initiatives in California that would limit or ban hydraulic fracturing, known also as fracking. Gov. Jerry Brown last year signed legislation regulating the controversial drilling process.
California last year ranked third in the nation in terms of oil production.
THE HAGUE, Netherlands, Oct. 22 (UPI) -- Shell announced Wednesday it made a substantial discovery of natural gas in the deep waters off the coast of the West African nation of Gabon.The company said it ran into a 656-net foot column of natural gas in its Leapord-1 frontier exploration well off the Gabonese coast. The well was drilled in water more than a mile deep into a basin trapped beneath a deep layer of submarine salt.
"Shell and partners [at China National Offshore Oil Corp.] are planning to undertake an appraisal program to further determine the resource volumes," the company said in a statement.
Gabon's geological similarities to Brazil raised hopes for oil production among energy explorers, but so far the region has turned up mostly natural gas.
Italian energy company Eni and Australian major Woodside Petroleum are among the more active players in a re-emerging Gabonese energy sector.
Shell said it's been exploring off the Gabonese coast for more than 50 years.
WASHINGTON, Oct. 22 (UPI) -- The U.S. federal government said it plans to prepare an impact statement in support of a possible oil and gas lease sale in Cook Inlet, off the Alaskan coast.
"We need to hear from residents of the communities along Cook Inlet on how the proposed leasing area is currently being used and what specific areas need extra attention," Walter Cruickshank, acting director of the Bureau of Ocean Energy Management, said in a statement.
The BOEM said its planned environmental impact statement will focus on what impact, if any, leasing, exploration, development and production of oil or natural gas in the region would have on the regional ecosystem.
The agency said Tuesday the potential lease sale avoids areas designated as critical habitat of sea mammals and excludes areas used by aboriginal communities for subsistence.
There were 13 exploration wells in the federal waters of the Cook Inlet area from 1978-85. There are no current or active oil or natural gas exploration facilities in the area.
The Interior Department's BOEM didn't provide an estimate of the potential reserves available in the Cook Inlet planning area.
The last federal lease sale in Cook Inlet in 2004 received no bids.
Texas facility turning CO2 into commercial products like water softener and baking soda. (UPI Photo/Brian Kersey)
AUSTIN, Texas, Oct. 22 (UPI) -- The U.S. Department of Energy said a cement plant in Texas is now converting carbon dioxide into useful commercial products using first-of-its-kind technology.
The department and Skyonic Corp. opened the demonstration project at the San Antonio plant. Dubbed the SkyMine project, it's able to capture as much as 75,000 tons of CO2 emitted from the cement plant and turn it into products like sodium carbonate, used as water softener, and sodium bicarbonate, or baking soda.
"Through this partnership, the Department has shown its commitment to finding innovative uses for carbon that can have a positive impact on the economy while also reducing carbon emissions," Energy Secretary Ernest Moniz said in a statement Tuesday.
More than half of the funds needed to build the SkyMine project came from grants awarded under the American Reinvestment and Recovery Act.
Skyonic Corp. said the facility could be used to capture as much as 90 percent of the emissions from flue gas and transform it into products for the commercial market. The company said it expects to generate as much as $48 million in revenue through the technology.
Houston (Platts)--22Oct2014/507 pm EDT/2107 GMT
The assessed spot price of Gulf Coast CBOB dipped below $2/gal Wednesday for the first time in four years with the transition to winter-grade gasoline in the market and under pressure from worldwide crude values.
Platts assessed CBOB at 13.5 RVP at NYMEX November RBOB futures minus 17 cents/gal and at an outright of $1.9863/gal.
The blendstock last was below $2/gal on October 29, 2010, at $1.9922/gal and last was lower than Wednesday's assessment at $1.9848/gal on October 21, 2010.
CBOB fell on ATMI's sale of 25,000 barrels each to Murphy Oil and Northville in the Platts Market on Close assessment process.
Wednesday marked the first day of assessments of CBOB at 13.5 RVP. Winter-grade gasolines use more butane, ignite at higher temperatures and are cheaper to produce.
The spot assessment dipped 9.48 cents Wednesday and was 43.15 cents below the spot assessment on October 22, 2013.
"I have to think that $80 crude is a good chunk of the reason," a US products trader said about the drop. "Also refiners are slowly coming back from maintenance. What I don't get is that there are bearish markets, with flat prices, yet [the market keeps] the structure in backwardation."
Gulf Coast cash markets reflected backwardation of 17 to 20 points/day on Wednesday.
"I thought a week ago when the world said $80 was the bottom, it ain't the bottom. Tops and bottoms are not that simple. They tend to inflict measured pain first," the trader said.
Houston (Platts)--22Oct2014/507 pm EDT/2107 GMT
The assessed spot price of Gulf Coast CBOB dipped below $2/gal Wednesday for the first time in four years with the transition to winter-grade gasoline in the market and under pressure from worldwide crude values.
Platts assessed CBOB at 13.5 RVP at NYMEX November RBOB futures minus 17 cents/gal and at an outright of $1.9863/gal.
The blendstock last was below $2/gal on October 29, 2010, at $1.9922/gal and last was lower than Wednesday's assessment at $1.9848/gal on October 21, 2010.
CBOB fell on ATMI's sale of 25,000 barrels each to Murphy Oil and Northville in the Platts Market on Close assessment process.
Wednesday marked the first day of assessments of CBOB at 13.5 RVP. Winter-grade gasolines use more butane, ignite at higher temperatures and are cheaper to produce.
The spot assessment dipped 9.48 cents Wednesday and was 43.15 cents below the spot assessment on October 22, 2013.
"I have to think that $80 crude is a good chunk of the reason," a US products trader said about the drop. "Also refiners are slowly coming back from maintenance. What I don't get is that there are bearish markets, with flat prices, yet [the market keeps] the structure in backwardation."
Gulf Coast cash markets reflected backwardation of 17 to 20 points/day on Wednesday.
"I thought a week ago when the world said $80 was the bottom, it ain't the bottom. Tops and bottoms are not that simple. They tend to inflict measured pain first," the trader said.
London (Platts)--22Oct2014/755 am EDT/1155 GMT
A second cargo of Algeria's Saharan crude bound for Venezuela has been fixed to load on a VLCC, under a new deal between the two countries' state-owned companies, PDVSA and Sonatrach, shipping sources said Wednesday.
The Venezuelan refiner has fully fixed the Boston vessel to carry a 270,000 mt crude cargo from Algeria to Venezuela, with loading expected to commence on October 25, according to sources.
This is the second VLCC carrying Saharan crude to head to Venezuela this month, after the Carabobo loaded a cargo from Bejaia on October 11.
"This is an exotic new trade flow," said a shipbroker.
PDVSA has opted for a different approach this time, however, chartering the Boston VLCC from another owner, Dynacom Tankers Management, having opted to use the PDVSA-controlled Carabobo VLCC for the first shipment.
Early last month, industry sources said that PDVSA was looking to bring Saharan from Algeria to use both as a diluent for its heavy crude production in the Orinoco Belt and as a feedstock to restart the shuttered lubricants plant at the Curacao refinery.
Saharan Blend is a light sweet, naphtha- and kerosene- rich crude grade produced from a variety of oil fields in southern Algeria. It is used by end-users in Europe and Asia both alone and to blend with heavier, more sulfuric sour crude grades.
Crude extracted from the Orinoco Belt has a gravity of around 8.5 API and is highly acidic with a high metals content, making it difficult to export without first diluting it with naphtha.
No details have been made public on the agreement between PDVSA and Sonatrach, and the volume of Saharan crude likely to go Venezuela each month is unclear but the flow is expected to be regular or semi-regular, market sources said.
Additionally, PDVSA is also taking at least one cargo of Russia's medium sour Urals crude in October, a flow that is also expected to become more regular in the future.
The shipments of Saharan crude are expected to become the first regular crude imports by PDVSA since the company was founded in the mid-1970s.
Platts ship-tracking software cFlow shows the Boston tanker to be currently moored at Agioi Theodoroi in Greece.
Singapore (Platts)--22Oct2014/535 am EDT/935 GMT
China's continued filling of its strategic crude reserves could give support to current depressed oil prices and help rebalance the global market, Bernstein Research suggested in a new report issued Wednesday.
While China's oil demand growth has been weak this year, its crude imports have surprised to the upside, with inflows rising 8.3% over the first nine months of the year to an average 6.14 million b/d. This has outpaced the 5.3% growth seen over the same period of 2013.
This year has been the strongest year of crude oil import growth in China since 2010, according to Bernstein.
"The key factor that explains such discrepancy could be China's filling of SPR [strategic petroleum reserves], which could further accelerate given the low oil prices and elevated geopolitical risk," Bernstein said.
CLOSE TO 90% OF CURRENT SPR CAPACITY FILLED
The bank estimates that China's SPR level had reached 204 million barrels by August, equivalent to 30 days of imports. This was about 40 million barrels higher compared with the end of 2013.
Phase 1 of China's SPR, totaling 103 million barrels, is widely believed to have been filled by 2009 when oil prices were well under $100/barrel.
The Lanzhou and Dushanzi sites with 38 million barrels of total capacity under the second phase were likely filled in late 2011, while another 59 million barrels is believed to have been filled this year at two sites in Tianjin and Shanshan in western Xinjiang, Bernstein said.
Another three sites with capacity of 69 million barrels are expected to be completed this year, while 44 million barrels in Zhanjiang, Guangdong province, is slated for completion in 2015, with the last 16 million barrels under phase 2 SPR, in Jintan, Jiangsu, likely to be completed the following year.
This means China will have additional 129 million barrels of phase 2 capacity coming online by the end of 2016, according to the report.
NEW CAPACITY
Beyond that, there have also been reports that the third phase could add another 171 million barrels of capacity.
Unlike the first and second phases, the third phase is expected to involve SPR sites that are further inland, such as Sichuan, Henan and Yunnan provinces. They will also likely be underground caverns, which will take much longer to build than above-ground storage.
Bernstein said that given current mounting geopolitical risks, it is fair to assume China wants to secure 90 days of import cover through to 2020, although this will require a fourth phase of SPR to be built before then.
"China will need 571 million barrels of storage by 2015 and 714 million barrels of oil in storage by 2020 to cover 90 days of import, which requires aggressive infrastructure build-out post 2016," Bernstein said.
WILL CHINA ACCELERATE SPR FILLING?
Bernstein said China has in the past appeared to fill any spare SPR capacity immediately if oil prices remained stable. It therefore believes China will likely take advantage of recent weak oil prices to do the same.
Spare SPR capacity was estimated to be around 30 million barrels in August, although this could rise to 68 million barrels if new phase 2 sites at Jinzhou in Liaoning province and Zhoushan in Zhejiang are ready in the coming months.
This could mean incremental crude oil demand from China of 224,000 b/d next year and 125,000 b/d in 2016 in order to fill the SPR, the bank said.
"In fact, we expect SPR filling to contribute to more than 30% of China's crude oil demand growth from 2015 onward," Bernstein said.
This likely means that the oil market will tighten next year as demand growth outpaces expansion in non-OPEC supply.
"We expect a re-balancing of global oil supply and demand in 2015 will trigger the next up-cycle in oil prices. While it is difficult to time the bottom of the current down-cycle, current crude prices are not sustainable for either marginal producers or for OPEC," Bernstein concluded.
A consensus of analysts surveyed by Platts expects the US Energy Information Administration on Thursday will estimate a natural gas storage injection of between 94 Bcf and 98 Bcf for the reporting week that ended October 17.
An injection within those expectations would be above the 86 Bcf build at this time last year as well as the 70 Bcf five-year average, according to EIA data.
The wider range of analyst expectations for this Thursday's report spanned from an injection of 79 Bcf to 103 Bcf.
Last week, the EIA reported a 94 Bcf injection that pushed inventories up to 3.299 Tcf. Inventories are still 344 Bcf, or 9.4%, below the year-ago level of 3.643 Tcf, and 362 Bcf, or 9.9%, below the five-year average of 3.661 Tcf.
Demand last week "looked fairly similar to the previous week," with a slight decline in power burn of 700,000 Mcf/d that was partially offset by a an uptick in industrial demand of 300,000 Mcf/d week-over-week, said Jeff Moore, storage analyst at Platts unit Bentek Energy.
Temperatures across the US remained mild last week and kept demand fairly suppressed, which along with record production levels helped to keep injection activity well above historic levels, Moore added. Bentek data shows US dry gas production hit a new record above 70 Bcf/d last weekend.
"Allowing for the modest demand-softening presence of the Columbus Day holiday last week (affecting mostly government offices), we think the overall amount of gas injected will have risen slightly compared to last week's reported injection," said Martin King, analyst at FirstEnergy Capital.
Analyst Richard Hastings at Global Hunter Securities noted that heating degree days were "a whopping 21 degree days below normal" last week.
"If it were not for the higher outage rates in coal power generation, combined with seasonal maintenance in nuclear and diminished hydroelectric power generation in the Pacific [Northwest], then we might have assumed a higher contribution to storage," Hastings said.
The gas industry has refilled 2.477 Tcf since the end of March when inventories hit an 11-year low of 822 Bcf. In order to reach the 3.5 Tcf level most analysts are expecting by the end of this month, another 201 Bcf has to be injected, or an average of 67 Bcf/week over the next three reporting weeks.
Refills will likely continue into November as weather allows, analysts agree, with the fall peak potentially reaching past 3.6 Tcf. However, that would still leave inventories below the 3.848 Tcf five-year average as of November 7, according to EIA data.
Brussels (Platts)--22Oct2014/744 am EDT/1144 GMT
Russia's and Ukraine's energy ministers have settled on $385 per 1,000 cubic meters as the price for Russian gas supplies to Ukraine this winter, and agreed a gas debt repayment scheme for Ukraine, EU energy commissioner Guenther Oettinger said late Tuesday.
But the deal is not complete as the EU and Ukraine still have to explore the financing needed to make it happen, Oettinger told reporters after moderating talks between Russian energy minister Alexander Novak and Ukrainian energy minister Yuriy Prodan in Brussels.
The ministers and national gas company CEOs involved also have to discuss the arrangements with their respective governments and directors, Oettinger said.
Another round of talks is foreseen for October 29 in Brussels, where the EC is aiming for final binding agreements between the two governments and between the two gas companies, he said.
The exact volume of Russian gas to be delivered to Ukraine between now and the end of March has also not been agreed yet, Oettinger said.
Ukraine earlier this month estimated it was facing a 5 billion cubic meter shortfall this winter.
Oettinger said Ukraine and Russia were considering deliveries of 4 Bcm, depending on the financial resources of Ukraine's state-owned gas company Naftogaz, which was linked to support from international donors, including the EU. Naftogaz will have to pay for the gas in advance.
"Payment for these 4 billion cubic meters can not yet be guaranteed. The volume of gas that can be ordered and paid for this winter will be resolved within the next five working days," Oettinger said.
Ukraine on Tuesday asked the EU for an extra loan of Eur2 billion to help it manage its budgets.
Oettinger said that the EU would be making more funds available to support Ukraine's budget generally, and that Ukraine could use money provided by the EU to pay its gas bills.
The EU would not directly guarantee Ukraine's gas payments to Russia, however, he said.
Oettinger said all parties have agreed that any gas this winter would be delivered free of take-or-pay obligations, in a departure from Ukraine's current gas supply contract with Russia.
Ukraine has also committed to have Naftogaz start repaying its gas debt to Russia, estimated by state-owned Russian gas company Gazprom at $5 billion, and disputed by Ukraine in a complaint lodged with Stockholm's arbitration court.
Naftogaz would pay $1.45 billion by the end of October and another $1.65 billion by the end of the year, making $3.1 billion in total, based on a price of $268.5/1,000 cu m, Oettinger said.
This is the price Ukraine was paying in the first quarter of this year, before Gazprom canceled price discounts with the Russian government's agreement and the price rose to $485/1,000 cu m from April 1.
The agreed interim $385 price, equivalent to around Eur26.81/MWh, is similar to the average spot gas price in Western Europe over the past couple of years.
Oettinger said Russia had guaranteed that this interim price could not be changed by governmental decisions or by changing customs duties between now and the end of March.
Russia has also committed to paying transit fees to Ukraine, Oettinger said.
Russia supplies about 15% of the EU's gas through Ukraine, around half of its total gas exports to the EU.
The Indonesian government plans to offer six oil and gas blocks before the end of the year as part of its efforts to revive the country's dwindling output, a senior official said Wednesday.
"We will ask permission from the new energy and mines minister first. After securing his approval, we will offer the blocks soon," said Naryanto Wagimin, program director at the energy ministry's oil and gas directorate general.
Four of the blocks will be offered through direct tender, with the remaining two offered through regular tender, he said. The blocks include offshore and onshore areas.
"We have to increase our exploration activities to increase the production," Wagimin said. "Without any exploration it is impossible we can increase our production in the future."
Indonesia has two mechanism of block tender. Under the regular bidding system, the government would offer the blocks and interested companies would submit their proposals.
Under the direct offer mechanism, any company that was not offered under regular bidding may express interest to the government. The government would then offer the block to other investors. The first company would automatically get the block if it draws no other bidders or if other bids are lower.
Indonesia is making a concerted effort to ramp up exploration and development activity in the country as it has seen its crude output fall because of natural decline at aging fields. The country pulled out of OPEC in 2008.
Indonesia's proven reserves stand at 3.7 billion barrels of oil and 101.54 Tcf of gas. The country is estimated to contain 574 Tcf of potential shale gas, compared with 453.3 Tcf of coalbed methane potential and 334.5 Tcf of gas potential, respectively, according to energy ministry data.
Aramco awards pipeline contract to China's Sepco
AL KHOBAR, 10 hours, 5 minutes ago
Saudi Aramco has contracted a Chinese group for a project to help expand the capacity of the main gas pipeline across Saudi Arabia, which dates back to the 1970s, aiming to improve energy supply to industries in the west of the country.
Under the contract, the first phase of an expansion of the master gas system (MGS), China's Shandong Electric Power Construction Corp (Sepco) will install two booster gas compressor stations, Aramco's weekly magazine Arabian Sun reported on Wednesday.
MGS was built in the mid-1970s to gather and process associated gas from oil wells and use it for domestic industries. The project will help deliver gas to the western region, including the King Abdullah Economic City, PetroRabigh and an independent power plant.
Aramco did not give the contract's value. Two industry sources estimated it at less than $1 billion to around $1.3 billion.
Once Sepco's work is complete by the end of 2016, the capacity of MGS will rise to 9.6 billion cu ft of gas a day (cfd) from 8.4 billion. Aramco said capacity will further increase to 12.5 billion cfd by 2018 under a second phase, for which engineering design work is due to be complete next year. - Reuters
MANAMA, 10 hours, 16 minutes ago
The Middle East, specifically the GCC region, has many unique attributes that combine to make it the perfect hub of the global petrochemical industry, said Ziad Al Labban, CEO of Sadara Chemical Company.
The Gulf region’s first forum focused on ethylene: the Ethylene Middle East Technology 2014 (EMET) Forum, was held in Manama, Bahrain between October 19 to 21, under the patronage of Shaikh Ahmed bin Mohammed Al Khalifa, Finance Minister and Minister in Charge of Oil and Gas Affairs in Bahrain.
Al Labban, also the chairman of the EMET 2014 Advisory Committee, said that the Middle East today accounts for almost 20 per cent of global ethylene capacity compared to 12 per cent five years ago and is the world’s third largest region for ethylene production.
Al Labban said: “By capitalising on the abundance of natural resources, cost effective feedstock pricing, strong regulatory and industrial infrastructure and close proximity to markets with growing demand for our products, we see plenty of opportunity to not only further develop the chemicals industry, but to specifically diversify Saudi Arabia’s role in it.”
Al Labban added: “This conference has provided the petrochemical industry players including producers, service providers and customers with the perfect opportunity to meet, learn and collaborate to create future value in the ethylene industry.”
Moderating the closing session of the conference, Al Labban engaged four panellists in discussing the future of the industry in topics ranging from specific technical aspects of equipment being used, to operational reliability and future market trends.
The event brought together more than 450 ethylene players from around the region and the world, providing an ideal platform for sharing knowledge, best practices and experience in one of the most growth-oriented industries in the region.
A number of Sadara experts participated as speakers at the Forum, sharing their views on the industry and efforts to maintain its continued growth, as well as highlighting the progress Sadara has made in the construction of its facilities in Jubail. These speakers included: Ziad Al-Labban in his capacity both as CEO of Sadara and chairman of the EMET 2014 Advisory Committee; David Bronikowski, process engineering supervisor - Hydrocarbons and Energy; and Vishal Karate, process engineer, Mix Feed Cracker - Hydrocarbons and Energy; in addition to a number of other delegates and attendees. - TradeArabia News Service
DUBAI, 12 hours, 47 minutes ago
Iran has accused fellow Muslim countries in the Middle East of plotting with the West to bring down oil prices as a tactic to further undermine its sanctions-hit economy.
With oil losing a quarter of its value since June, President Hassan Rouhani's administration has been scrambling for alternative sources of income to meet its forecast for revenue in the current budget based on an oil price of $100 per barrel.
Speaking to conservative Shi'ite Muslim clerics in their stronghold of Qom, government spokesman Mohammad Baqer Nobakht said "some so-called Islamic countries in the region are serving the interests of America and (other) arrogant powers in trying to squeeze the Islamic Republic."
"They (the West) have forced our oil production from 4 million barrels per day (mbpd) to 1 mbpd, and this recent fall of oil prices is their latest gimmick," he was quoted as saying by the semi-official Mehr News.
The oil price slide has been attributed to oversupply, signs of weak demand growth and the apparent reluctance of Saudi Arabia and other key producers of the Organization of the Petroleum Exporting Countries (Opec) to cut output to lift prices. Brent crude oil held near $86 a barrel, having tumbled from over $110 in June.
While Islamic hardliners in Iran have been quick to blame Riyadh for the price falls, Rouhani and his moderate government have been careful not to antagonise their fellow Opec member and regional rival in the interest of better future ties.
Under growing criticism for his "passive response" to the bearish oil market, the president ordered Oil Minister Bijan Zangeneh late last week to come up with "more effective use of diplomacy" to stop a further slide in crude prices.
Rouhani was elected by a landslide 14 months ago on a moderate platform but progress has been slow on both the economy and nuclear negotiations with the West, the outcome of which is closely linked to the economic outlook and reform as a political alternative in the Islamic republic.
The president himself has hedged his bets on resolving the 12-year nuclear dispute in tough talks with six world powers -- the US, Britain, France, Germany, China and Russia, a prospect promising the lifting of sanctions and Iran's strong comeback as a major oil exporter.
"We should not pin our hopes on high oil prices, but seek to compensate for falling revenues with bigger volumes of exports," Abbas Ali Noura, an ex-parliamentarian, was quoted as saying by Qods Online.
Iran, Opec's second-largest producer, is normally among the first members of the Opec to call for supply cuts to support prices. Iran needs relatively high oil prices to balance its budget, analysts say.
But in a change of tack, Iran has said this month that it can live with lower oil prices and that there was no plan for an emergency Opec meeting to stop the slide in prices.
Some Opec members, including Saudi Arabia and Kuwait, have indicated that the group is unlikely to cut output to support prices when it meet on November 27.
Some analysts suggested Saudi Arabia was willing to absorb the impact of lower oil prices to help the West and weaken Moscow and Tehran position when negotiating over Ukrainian sovereignty or the Iranian nuclear deal.
Gulf oil sources dismissed the idea as pure fiction.
Riyadh had always said that it adjusts oil supply to accommodate its customers and not to drive the price.--Reuters
DUBAI/AL KHOBAR, 12 hours, 42 minutes ago
Saudi Arabia's closure of an offshore oilfield it shares with Kuwait has revived speculation of renewed tensions between the two, and put Chevron's role in the shared Neutral Zone in focus.
Crude output from their jointly-run offshore Khafji oilfield has been halted temporarily to comply with environmental rules.
"Little things lead to big things, it's an accumulation of the past. Each party says a different story," said Kamel Al Harami, an independent Kuwaiti analyst.
The loss of Khafji's 280,000 barrels per day (bpd) of Arabian Heavy crude will be felt more in Kuwait, which has far less spare output than its neighbour, the world's top oil exporter. Oil prices rose briefly to over $86 a barrel on the news.
Any differences between the two Opec allies are watched closely by oil majors getting ready to return to Kuwait after years of fruitless talks and fierce political opposition to foreign firms taking a role in production in the past.
Diplomatic and industry sources have told Reuters that Kuwait has been placing restrictions on the Saudi unit of US oil major Chevron which operates another jointly run Neutral Zone field, Wafra, as a result of various disputes.
The curbs have affected oil output from the Neutral Zone, which dates back to 1920s treaties to establish regional borders. Output capacity from the Zone has been around 600,000 bpd until last year, according to the US Department of Energy.
But industry sources say it has been in decline in recent months even before the Khafji shutdown.
A Chevron spokesman said the company complies with the laws and regulations of the countries where it operates, and does not comment on discussions it has with governments about its business operations.
The Saudi's 60-year concession with Chevron was first granted to the US Getty Oil Company in 1949. Texaco acquired Getty Oil in 1984, and Chevron took over Texaco in 2001.
A senior Kuwaiti official dismissed any political implications and said the Kuwaiti side was informed of the Khafji shutdown.
Recently, Kuwait's oil marketers have been challenging their Saudi counterparts in an increasingly competitive battle for market share, selling oil to buyers in Asia at the widest discount to a comparable Saudi grade in 10 years.
KUWAIT'S OBJECTIONS
The sources say Kuwait was angry because it was not consulted when the Chevron concession to operate Wafra was renewed by Riyadh in 2009 until 2039.
But the row goes back even further, to 2007, when a land dispute between Kuwait and Saudi led to a delay in Kuwait's plans to build an oil refinery. Chevron has had a lease on some of the land on Kuwait's side which was earmarked for the new refinery.
In recent months, Kuwait has been making it more difficult for Chevron to acquire work permits to operate in the Zone, because of legal misinterpretation of the agreement, the sources said.
"Kuwait has been giving Chevron a hard time," one diplomatic source said.
Chevron is leading a full-field steam injection project in the onshore Wafra field to boost output of heavy oil there by more than 80,000 bpd.
Last year, Saudi Arabia and Kuwait shelved a project to develop another venture in the Neutral Zone, the Dorra offshore gas field, after disagreeing over how to share the gas back on land.
Kuwait blames Riyadh for ending that project despite its desperate need for gas for power generation.
"These issues between the two countries have started several years ago. Relations soured when Saudi stopped the Dorra project from proceeding," said another Kuwaiti official.
He added there have been also disagreements over the distribution of investments costs with the Saudi side.
Dorra has long been a bone of contention between Kuwait and Iran, which also lays claim to part of the field.
Kuwait agreed with Riyadh in 2000 to jointly develop the field they desperately need to satisfy their growing gas need.
More than a decade on, little progress has been made and it has now been shelved indefinitely.
The Neutral Zone is the only place in Saudi Arabia and Kuwait where foreign oil firms have equity in fields, which are otherwise owned and operated by state oil companies. Crude output is divided equally between the two countries.
It survived the nationalisation of the Saudi oil industry in the 1970s. Since then, Saudi reserves of 264 billion barrels - around a fifth of the world's proven oil reserves - have been off limits to international oil companies. --Reuters
By Timothy Puko
NEW YORK--Natural-gas prices set a new bottom for 2014 for the second time this week as traders expect news on a big addition to winter stockpiles.
The front-month November contract settled down 5.2 cents, or 1.4%, to $3.659 a million British thermal units on the New York Mercantile Exchange. That is the lowest closing price for the front-month contract since Nov. 19 when it closed at $3.556/mmBtu. Natural gas has lost ground in six of the last seven sessions, dropping 6.6% over that span.
Record production and tepid demand have been pressuring the market since June. The U.S. Energy Information Administration is likely to report Thursday that producers added around 97 billion cubic feet of gas to stockpiles last week, according to the average forecast of 16 analysts and traders surveyed by The Wall Street Journal. That surplus is nearly 40% larger than the five-year average for that week of the year and would be the fourth-largest addition for a week in October dating to at least 1994, EIA data shows.
The EIA releases its weekly update on storage levels at 10:30 a.m. on Thursday.
Weather forecasts are still showing above normal temperatures through the end of the month, likely warm enough that consumers won't use much natural gas for home heating. Long-term forecasts are largely predicting that cold winter weather won't arrive before January and if that proves true, prices are likely to stay below $4 for weeks, said Gene McGillian, an analyst at Tradition Energy.
Write to Timothy Puko at tim.puko@wsj.com
Caracas - Sliding oil prices are deepening the budget crisis facing the Venezuelan government, which is already struggling to fund its lavish subsidies and rigid exchange-rate controls, analysts say.
Venezuela, which sits atop the world's largest proven crude reserves, relies on oil sales for 96 percent of its budget.
The recent plunge in prices, which have hit a four-year low, is bad news for a government already running a deficit of 15 percent of gross domestic product (GDP).
That may force leftist President Nicolas Maduro to rethink cut-rate oil sales to the nations of Petrocaribe, the club of 18 Latin American and Caribbean allies that pay about half-price for Venezuelan oil.
Some analysts estimate the price tag for Petrocaribe is up to $10 billion (R11 billion) a year for Maduro - and that is rising as crude rates fall.
“This is a situation in which energy agreements may have to be changed, so the decline in revenue is smaller, and it may be time for a more aggressive currency rate adjustment,” said economist Asdrubal Oliveros, who heads the consultancy Ecoanalitica.
Last week, the price of oil slipped to $77.65 a barrel, the lowest since November 2010.
It was the sixth week in a row of falling prices.
The Venezuelan government blamed “a market with abundant supply” and falling global demand.
That has many analysts thinking Maduro is officially between a rock and a hard place, and will have to launch long-delayed economic reforms.
Venezuela's economy is distorted by a rigid exchange rate system that pumps up the bolivar's official value, and government subsidies that keep gasoline cheaper than water - but which are offset by runaway inflation and chronic shortages of basic goods.
According to Oliveros, oil would have to be at $135 a barrel for the government to continue on its current spending path - an unlikely scenario.
Maduro said Friday the government was drafting its 2015 budget with calculations based on an estimated oil price of $60 a barrel.
“We're tightening the screws to make sure not a single dollar gets spent on anything it shouldn't,” he said.
Foreign Minister Rafael Ramirez has meanwhile called for an emergency meeting of the Organization of Petroleum Exporting Countries (OPEC) to try to halt sliding prices.
He said the price drop was due to overproduction in non-OPEC countries - a reference to shale oil, which is booming in the United States and reshaping the global energy market.
Oliveros said if oil averaged $85 a barrel in 2015, Venezuela would lose about $5.1 billion.
“That kind of drop would push (Maduro) to get out of a comfort zone” and make some changes ahead of 2015 midterm elections, he said.
Fellow economist Carlos Carcione, a member of the Socialist Tide - a group that supported Maduro's late predecessor Hugo Chavez but has been critical of some of the incumbent's policies - said the government may not be in as tough a spot as some think.
“I think that for 2014, prices are not that great of a worry because the average per barrel will be around $90,” he said.
The problem would be if the barrel falls under $80 and stays there for some time, he said.
But falling oil prices are not the Maduro government's only headache.
“They also have to clamp down on all the hard currency that disappears due to corruption,” Carcione said.
The government has admitted that $20 billion was given to shell companies in 2012, for which no one has yet been convicted.
So far, Venezuela's 2014 crude price per barrel has averaged $94.58, down from $98.08 in 2013 and $103.42 in 2012. - Sapa-AFP
By Nick Cunningham | Wed, 22 October 2014 22:35 | 0
Negotiations over a natural gas deal between Ukraine and Russia have faltered since the spring, but the standoff has taken on a new urgency as winter approaches.
Following the overthrow of Ukrainian President Viktor Yanukovich in February, Russia altered the terms by which it sells natural gas to Ukraine. Along with Yanukovich, favorable pricing went away. In April, Russia nearly doubled the sale price of natural gas to Ukraine, from $268.50 per thousand cubic meters to $485.50.
This was a price that the Ukrainian government said it could not meet. Even worse, Russian gas company Gazprom demanded upfront payment for gas supplies, an issue that kept the two countries at odds for months. Gazprom cut off gas supplies to Ukraine in June, saying Ukraine had failed to pay its debt.
A long-term solution has eluded Moscow and Kiev since, and talks have dragged on for months. It’s not just Ukraine’s problem, though: around 40 percent of Europe’s gas imports from Russia travel across Ukrainian territory. So to a large extent, the standoff over pricing is a three-way dispute between Russia, Ukraine and the European Union. The supply cut-off in June underscored the threat to the rest of Europe.
It will be difficult to postpone a resolution any further. Russian Energy Minister Alexander Novak has demanded full payment in advance for gas deliveries in November and December. In addition, he says Gazprom must receive further debt payments from the Ukrainian government as a pre-condition to a deal.
Expectations were high that an agreement was imminent after some of the major stumbling blocks had been ironed out. Ukraine and Russia agreed on an interim price of $385 per thousand cubic meters through March 2015. Although the price is substantially lower than the price Russia originally demanded, it is still a victory for Moscow as it is above the average that other Gazprom customers pay -- around $350 per thousand cubic meters.
Nevertheless, no deal was cemented during talks in Brussels on Oct. 21 because Ukraine is still short on funds. “There is a cash gap for November and December and this cash gap requires financial resources,” Novak said, suggesting that the European Union should provide Ukraine with the money.
Ukrainian President Petro Poroshenko has asked Brussels for 2 billion euros, but the EU Commission has thus far balked at the price tag.
But European officials are desperate to bridge the gap to avoid a confrontation over natural gas supplies, with colder weather beginning to set in. Gazprom has gone to great lengths to reassure its EU customers that gas supplies will not be affected by its decision to cut off Ukraine. But Russian President Vladimir Putin has threatened to reduce gas flows if Ukraine diverts supplies for its own use.
Even still, a Citigroup report published in September found that the EU has stockpiled enough gas supplies to withstand a supply cut off from Russia, as long as the winter season was not abnormally cold.
Storage sites around Europe are nearly 100 percent full due to a proactive campaign to stash away supplies ahead of winter. And EU leaders have agreed to reverse gas flows from west to east to safeguard the more vulnerable countries in the former Soviet bloc from a supply disruption.
Despite the setback in the negotiations, all sides have agreed to meet again at the end of October. With funding the only outstanding issue remaining, the EU or the International Monetary Fund could seal the deal by issuing a loan to Ukraine. For that reason, hopes remain high that a deal will be completed soon.
By Nick Cunningham of Oilprice.com
By Kurt Cobb | Wed, 22 October 2014 21:49 | 0
When the world's business editors sent their reporters canvassing to find out what is behind the recent plunge in the world oil price, they were doing what they do almost every day for every type of market: stocks, bonds, currencies, commodities and real estate.
In financial journalism more often it's the price that makes the story rather than the story that makes the price. If a story is about something very surprising which almost no one can know in advance--a real scoop--say, an unexpected outcome in a major court case affecting a company's most profitable patent, then the story will move the price of the company's stock.
But much more often prices move, and then business editors send their reporters to find out why. Usually, a number of financial and industry professionals are asked: Why do you think prices went up/down? Then, the story is written and published.
However, on a daily basis, unless there is a big and obvious story like the one above, the only true answers are these:
There were more buyers than sellers. (UP)
There were more sellers than buyers. (DOWN)
These answers, of course, aren't really news. They are more like axioms.
The answers for the recent swoon in the oil price include:
1. Oil is purchased in dollars and the dollar has been rising which puts downward pressure on the oil price.
2. Demand is declining in Asia and Europe which is leaving excess oil on the market driving down the price.
3. Growing production from the United States is adding to world oil supplies and bringing the price down.
4. Libyan production has rebounded sharply following the country's recent period of unrest.
5. Saudi Arabia, the only OPEC producer with significant additional production capacity, is pumping more oil to punish other OPEC members with a low price, a move designed to restore discipline among members so that they will abide by future oil production quotas.
6. Saudi Arabia is pumping more oil to bring the price down to aid the United States in its diplomatic objectives, pressuring Russia, the world largest oil producer.
7. Saudi Arabia isn't trying to help the United States; the kingdom is actually trying to hurt the United States and restore the exporter's dominance in the oil market by crushing the U.S. tight oil boom which requires high prices to be profitable.
8. No, Saudi Arabia is really trying to help the United States in its fight against ISIS by showing its support for the United States and Europe through lowering oil prices and by making the price that ISIS gets for the oil products it now controls lower. The lower price is also harder on Iran which requires high prices to sustain its government revenues.
9. Saudi Arabia is simply trying to defend its market share in the face of waning demand by continuing to pump oil at current levels and offering discounts to customers.
Of course, the above answers aren't necessarily mutually exclusive. People and countries can have multiple objectives served by the same action. And, some or all of the above assessments could be wrong or at least of very little explanatory value.
Now, I'll weigh in. It seems entirely likely that the Saudis are being opportunistic. Like many oil exporters, they need high oil export revenues to pay for their government expenditures, much of which consists of food and fuel subsidies and social programs designed to keep the public docile. In the face of what looks like declining demand, rather than cut production to maintain prices as they have done in the past, they've decided to maintain their market share worldwide by cutting prices. This has the benefit of making much American tight oil production uneconomic, thus discouraging new drilling.
The Saudis know something very important about the U.S. tight oil drillers. Most of them are independents who are loaded with debt and don't have the financial wherewithal to weather a period of sustained prices below their cost of production. They will quickly reduce their drilling to only those prospects which seem as if they might be profitable at these new lower prices.
That will pave the way for sustained higher world prices later as growth in U.S. oil production comes to a halt. After the damage is done, the Saudis will try to bring the price back up.
It's always possible that the Saudi strategy will fail because what's really happening may be the first stages of a colossal economic and financial crash that will take the world economy into prolonged recession. That would bring the price of oil down to levels not seen in a decade where they might stay for a considerable period.
I'm not predicting that. And, in fact, none of what I've written may have any validity. Even though the Saudis have publicly stated that they are defending their market share, they may not be telling us exactly what their aims are. Saudi acquiescence to lower oil prices may simply be having consequences the Saudis don't intend, but can't avoid.
In truth, the whole issue of oil prices is too complex and too lacking in transparency to be discussed intelligently when it comes to short-term price movements. I am reminded of the tale of the blind men and the elephant of which the last stanza of a poetic version is quoted above.
But, as I say, price makes the story.
By Kurt Cobb
(Source: http://resourceinsights.blogspot.mx)
By Roger Andrews | Wed, 22 October 2014 22:11 | 0
Here I re-tread a well-trodden path, but with recent events in the oil market I thought a brief recap might be timely.
I begin with a photographic illustration of a typical US demand response to the tripling of oil prices that occurred during the first “oil shock” in 1974:
Demand response after a tripling of oil price, USA, 1974
Those long lines of gas-guzzlers were indeed a demand response, but not to the oil price increase. They were a reaction to the nationwide shortage of gasoline caused by the oil embargo that accompanied it. Americans, like George Patton’s tanks during the Normandy breakout, just gotta have gas. And still do.
Fluctuations in oil price, particularly “oil shocks” are nevertheless believed to have had a major impact not only on the US economy but on the global economy as a whole since 1974, and here we will revisit some basic macroeconomic data to see how well this contention holds up.
It’s claimed that oil shocks have caused a number of global recessions, but before we can verify this we have to define what a global recession is. A recession in the US is usually defined as two consecutive quarters of negative GDP growth, but there has never been a universally-accepted definition for a global recession, and according to the annual World Bank GDP data I have to work with 2008 which was the only year since 1965 in which the world economy experienced negative real GDP growth:
Figure 1: Annual global GDP
Fortunately per-capita GDP, which compensates for the population increases that are a major driver of absolute global GDP, is more diagnostic (Figure 2). We now see a series of ramps, with periods of growth separated by periods of no growth. These no-growth periods identify four distinct downturns since 1965 (the downward “blip” in 2001 was caused by unusually high growth in 2000 and goes away when the 2000 data are ignored), and since these downturns seem to define global recessions as well as anything I have used them to define recessionary periods, which are depicted by the gray vertical bars:
Figure 2: Annual global per-capita GDP
Now we will superimpose oil prices on the recessionary periods. Figure 3a compares annual per-capita global GPD with constant 2013 dollar annual crude prices from BP (Arabian light to 1983 and Brent after 1983). Figure 3b, which compares them with quarterly West Texas Intermediate Crude prices gives more detail on short-term price movements, although absolute prices are not exactly the same as those given by BP.
Figure 3: Annual global per-capita GDP vs. (a) BP annual oil prices and (b) quarterly West Texas intermediate crude prices
As Figure 3 shows, and as others before me have noted, each of the four global recessions since 1965 occurred immediately after an abrupt oil price increase, and since the chances that this is coincidence are vanishingly small we can accept that oil price increases played a role, quite likely a dominant one, in all four recessions, including the 2008 “Great Recession”, about which more later.
What other impacts have oil price fluctuations had on global GDP? I have numbered some of the more salient events on Figure 4 and offer brief comments on each below:
Figure 4: Salient economic events, 1965-2013
1. The first oil shock triggers the 1974/75 recession.
2. GDP growth regains pre-1974 levels despite a much higher oil price.
3. The second oil shock triggers the 1980-81 recession.
4. The 1981-82 “double-dip” recession is engineered by US Fed interest rate policy.
5. The oil price collapse of 1985-86 has no visible impact on GDP growth.
6. The third oil shock, coinciding with the Iraqi invasion of Kuwait, triggers the 1991-94 recession.
7. Real oil prices briefly fall back to pre-1974 levels.
8. A “semi-shock” causes growth to fall off in some countries – notably the US (see Figure 6).
9. A tripling of real oil prices between 1999 and 2006 has no visible impact on GDP growth.
10. The fourth oil shock precedes the “Great Recession”.
11. The increasing price trend since 1999.
What these results tell us is that the global economy reacts immediately and violently to abrupt “oil shocks” but doesn’t much care what the oil price does at other times. (As to why the global economy responds only to the “shocks”, my belief is that it’s largely psychological. Like when your faithful and loving dog, who has been lying quietly and peacefully asleep in the corner, suddenly jumps up, bares his teeth and growls at you.)
It also doesn’t take much teeth-baring to send the global economy into a tailspin. The oil shock of 1990-91 increased oil prices by only 50% and lasted for only a couple of quarters, yet it was followed by a global recession that lasted for three years.
Two other key questions are: How long will the upward trend in oil prices that began fifteen years ago in 1999 continue, and is the painfully slow recovery from the Great Recession in Europe a result of high real oil prices? (Note: I don’t have the answers.)
Figure 5 now plots oil price against oil consumption instead of per-capita GDP. It’s similar to the Figure 4 plot, but the impact of the second oil shock now really stands out. Before 1980 consumption was on an upward roll, interrupted only temporarily by the first oil shock. Then between 1979 and 1982 it fell by almost 10% in absolute terms and by about 25% relative to what it would have been had the pre-1980 trend continued. Since 1982 consumption growth has resumed, but at less than half the pre-1979 rate. The growth has also been effectively straight-line, and largely uninterrupted. Even the Great Recession had a muted impact, reducing oil consumption by only a few percent below what it would have been had the pre-2008 trend continued:
Figure 5: Annual global oil consumption vs. BP oil price
There’s also no evidence that oil price fluctuations had any more impact on consumption than they did on GDP outside recessionary periods. Neither the oil price collapse in 1985-86 nor the tripling of oil prices between 1999 and 2007 had any visible impact, although some of the recession-induced consumption decreases, particularly the one during the Great Recession, clearly had a depressing impact on price.
Figure 6 shows XY plots of the annual data from the above Figures. There is no significant relationship between annual percentage changes in oil price and real per-capita GDP nor between annual percentage changes in oil price and oil consumption. There is, however, a relationship between annual percentage changes in real per-capita GDP and annual percentage changes in oil consumption, particularly before 1986, and the relationship is positive, i.e. with consumption increasing as GDP increases. I interpret this to mean that GDP growth is driving consumption, which is the basis for my comments on earlier threads that wealth now generates oil and not the other way round:
Figure 6: XY plots comparing per-capita GDP, oil price and oil consumption
A final word on oil and the “Great Recession”. It’s generally accepted that this recession was triggered by what are now euphemistically called “structural defects” in the financial markets and had little or nothing to do with oil. Wikipedia, for example, gives a long list of potential contributors, starting with subprime lending and the housing bubble, and while it does eventually get around to mentioning oil it doesn’t get there until section 14.8.
Yet immediately preceding the Great Recession in the US, where it began, was another humongous oil price spike (Figure 7. Note that all data are quarterly and that recessions, defined as two consecutive months of negative GDP growth, are shown as blue bars). The leading edge of this spike was at least comparable in amplitude and intensity to the leading edge of the spike that preceded the 1980-81 recession and much larger than the one associated with the 1990-91 recession. The spike also occurred after the approximate threefold increase in real oil price between 1999 and 2007. Between the low of ~$16/bbl in the fourth quarter of 1998 and the peak of ~$125/bbl in the second quarter of 2008 the price of a barrel of West Texas intermediate crude in fact increased by a factor of almost eight in real terms:
Figure 7: US GDP vs. West Texas intermediate crude prices, quarterly data
Surely this is a slam dunk. If oil prices triggered the three earlier recessions then they triggered the Great Recession too. At least one economist agrees. In a 2009 paper presented at the Brookings Institute John Hamilton concluded that “had there been no increase in oil prices between 2007:Q3 and 2008:Q2, the US economy would not have been in a recession.”
And what of the future? At present oil is in oversupply and the oil price is heading south, so barring unforeseen events there doesn’t seem to be much chance of another oil shock in the next year or so. It is notable, however, that oil shocks since 1980 have occurred about once every nine years (in 1980, in 1990, in 1999 if we count the “semi-shock” and in 2008), so we may not be all that far away from the next one.
by Roger Andrews (Source: http://euanmearns.com/ )
Oct 22 (Reuters) - Colombia may revise down its projections for the price of oil in 2015 and 2016, Finance Minister Mauricio Cardenas said on Wednesday, feeding concerns that the economy will face further revenue shortfalls because of falling crude output.
The government has struggled this year to boost cash flow from the oil sector after a drop in global crude oil prices and debilitating attacks by Marxist guerrilla groups that have damaged pipelines and slowed transport in areas where rebels have a presence.
Meanwhile, the country's congress is discussing a tax reform aimed at extending two duties that were scheduled to expire this year as a way to make up for the decline in oil earnings, responsible for about one fifth of government revenue.
"Today we are at a price of $86 per barrel," Cardenas said during a congressional debate on oil royalties. "Knowing the current level, it would not be out of line to think that we will have to lower prices a bit, not just for 2015 but for 2016."
The Finance Ministry has budgeted for an average oil price of $98 per barrel for 2015 and $99 per barrel for 2016.
"The reduction in oil prices does not take us by surprise, we know the volatilities and the cycle," Cardenas told journalists. "We're prepared."
"Obviously we hope that the prices have a floor of $80 - which is what it costs to produce oil in the most remote areas," the minister added.
Production this year should be around 980,000 barrels per day (bpd) and the government projects 1.029 million bpd in 2015 and 1.094 million bpd in 2016.
The oil industry is the Andean country's biggest exporter and source of foreign exchange in its $380 billion economy.
Despite the decline in revenue, the sector will continue to be a key engine of economic growth, Energy Minister Tomas Gonzalez told Reuters in a recent interview.
State-run oil company Ecopetrol is a major producer but the sector also attracts hefty foreign investment from companies such as Canada's Pacific Rubiales and U.S.-based Occidental Petroleum Corp. (Reporting by Carlos Vargas; Writing by Julia Symmes Cobb; Editing by James Dalgleish and Diane Craft)
