By Maher Chmaytelli Sep 23, 2014 1:32 PM GMT+0700
OPEC nations have yet to decide to cut their collective oil-production target, the United Arab Emirates’ energy minister said, days after the group’s chief suggested its 12 members may lower the ceiling in 2015.
“It’s not a one-man decision,” Suhail Al Mazrouei told reporters today in Abu Dhabi. “It’s a decision by all the ministers when we meet.”
The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world’s oil, will review its target of 30 million barrels a day when it meets next on Nov. 27 at its Vienna headquarters. The group may reduce its official daily limit by 500,000 barrels to 29.5 million next year, OPEC Secretary-General Abdalla El-Badri said Sept. 16.
OPEC’s monthly report on Sept. 10 showed demand for its oil will decline to 29.2 million barrels a day in 2015 from 29.5 million this year. Brent crude, a global benchmark, has dropped 10 percent this year and was at $97.23 a barrel at 7:02 a.m. today in London.
“We still have almost two months before the next meeting,” Al Mazrouei said. “We will make sure that our supply meets demand.” The group’s decision “will be made based on what’s required from OPEC,” he said, emphasizing that suppliers outside the group also “have a responsibility” to help balance the market.
OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
US report cites China's energy consumption
By JACK FREIFELDER in New York (China Daily USA)
For the next two decades China will continue to be one of the world's largest consumers of oil and other liquid fuels, according to the latest report by the United States Energy Information Administration (EIA).
The report - International Energy Outlook 2014: World Petroleum and Other Liquid Fuels - was presented and discussed on Monday by Adam Sieminski, an EIA administrator, as part of an event hosted by Columbia University's School of International and Public Affairs (SIPA) Center on Global Energy Policy.
Sieminski and Jason Bordoff, founding director of the center, discussed the significance of the report's findings and how it has affected the EIA's long-term assessment of the international energy market.
"The potential for growth in demand for liquid fuels is focused on the emerging economies of China, India and the Middle East," the report said.
The EIA forecasts that world petroleum and other liquid-fuel use will increase 38 percent by 2040, and countries in Asia and the Middle East, including China and India, will account for about 85 percent of the increase.
The report also shows that China's use of liquid fuels is expected to surpass US totals by 2035.
Based on data from the report, liquid-fuel sources, which include natural gas plant liquids (NGPL), gas-to-liquid (GTL) and coal-to-liquid (CTL) supplies, could represent nearly 17 percent of global liquid-fuel production by 2040.
One question posed to Sieminski centered on the possibility that China could establish its own crude oil benchmark.
"When you're involved in trading activities you'd like to have it in a currency that you have faith in," Sieminski said. "The US dollar has often, but not always, been viewed as a fairly stable trading currency, so it's not a surprise that Brent and WTI (West Texas Intermediate) - which trade in dollars - have become a benchmark."
Sieminski said he sees four key aspects as integral parts of setting up a global benchmark: a need for large volumes of oil, a fairly stable trading currency, a sufficient legal system to handle any disputes, and access to appropriate trading capital.
"A number of countries have tried to create benchmarks and they've failed for one reason to another, but … currency in China has actually shown itself to be pretty stable and the access to capital is pretty good," Sieminski said, following his presentation on Monday. "I don't really know how the legal representation would work, but it's certainly plausible to me that something could be worked out there."
"If you're going to have another benchmark somewhere, it really helps to have all four of these things working," he said.
Sieminski, also said China is one of the countries that his organization wants to "work with more closely" on a number of issues going forward, including the process by which officials in the world's second largest economy gather and collect energy statistics.
Columbia's SIPA Center on Global Energy Policy, launched in April 2013, is one of many research arms of the university that provides independent, data-driven analysis to help policymakers and other interested parties delve into global energy markets.
jackfreifelder@chinadailyusa.com
China Exports Record Jet Fuel Supplies as Refiners Produce More
By Bloomberg News Sep 22, 2014 3:51 PM GMT+0700
China exported a record volume of jet fuel last month as refiners in the world’s largest energy consumer boosted production.
Overseas sales of jet-kerosene rose to 1.01 million metric tons in August, according to data e-mailed by the General Administration of Customs in Beijing today. That’s about 260,000 barrels a day. Gasoline exports increased to 487,380 tons, the highest level in a year, while diesel shipments gained 21 percent from July to 407,800 tons.
“Chinese refineries have been raising jet fuel output since last year as profit margins are better than for diesel,” Liang Dan, an analyst at ICIS-C1 Energy, a Shanghai-based consultant, said by phone from Guangzhou. “Shipment of the fuel will probably remain at high levels after CNOOC’s Huizhou refinery recently obtained a new license to export.”
China’s kerosene output climbed 19 percent from a year earlier to 2.7 million tons in August, data from the National Bureau of Statistics showed on Sept. 16. China National Offshore Oil Corp. said it shipped its first oil-product cargo from the Huizhou plant in the nation’s south on Sept. 5, delivering 12,000 tons of jet fuel to Hong Kong’s airport.
Imports of fuel oil, used as a refinery feedstock and to power ships, expanded 24 percent from a year earlier to 1.45 million tons in August, the highest in four months, according to today’s data. Purchases in July were 1.04 million, the least since at least 2003.
China bought 135,580 tons of fuel oil from Iran in August, its first shipments since January. Venezuela was the largest supplier last month with 405,986 tons of shipments, followed by South Korea with 197,429 tons.
To contact Bloomberg News staff for this story: Jing Yang in Shanghai at jyang251@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Yee Kai Pin
BY MIKAEL HOLTER
STAVANGER, Norway (Bloomberg) -- Statoil found natural gas offshore Norway with Rosneft, the state-controlled oil company targeted by international sanctions.
“The well has proved gas in a sandstone reservoir,” North Energy, a partner in the Pingvin prospect, said in a statement Sept. 19. The company provided no resource estimates, saying more information would be given as soon as results are analyzed.
The Pingvin well follows disappointing exploration results for Statoil in the Barents Sea over the last 1 1/2 years as it struggles to match the success of the Skrugard and Havis oil finds in 2011 and 2012. Statoil failed to make a commercial discovery in its northernmost campaign offshore Norway in the Hoop area this year.
A one-year, $3 billion exploration campaign through May also failed to find sufficient quantities of oil to avoid a new delay of the Johan Castberg development, which consists of Skrugard and Havis.
While the two discoveries, which may hold as much as 600 MMbbl of oil between them revived interest in the Barents Sea, a concept choice has been deferred to 2015 as Statoil seeks to make the project more profitable amid higher costs and taxes.
The Pingvin well is the first where Rosneft has participated on the Norwegian shelf after it got a stake in the 713 license in 2013. The company, which has been targeted by U.S. and European Union sanctions over Russia’s involvement in the Ukraine conflict, signed a cooperation deal with Statoil in 2012 that also involves projects in Russia.
The Pingvin well was held up for a few days earlier this month as environmental group Greenpeace filed a complaint arguing that the operations were too close to the Bear Island nature reserve and the polar ice cap.
TARA PATEL
LONDON (Bloomberg) -- Total SA, Europe’s second-biggest oil company, plans to cut costs and sell more assets after lowering forecasts for production growth.
Total’s production may reach 2.3 MMboed in 2015, short of the 2.6 MMboed previous target, according to a statement. Output over the longer term was also revised downward to 2.8 MMbpd in 2017 from 3 MMbpd.
“We are more confident” in reaching new production goals because most new projects are operated by the company, CFO Patrick de La Chevardiere said at a news conference in London for the company’s annual investor day.
The Paris-based oil producer kept a 2017 target for cash flow generation, pledging to continue selling assets and lower operating costs to save $2 billion a year. The company will also overhaul its exploration strategy.
CEO Christophe de Margerie has struggled to raise output as quickly as planned after leaks shut down the giant Kashagan project in the Caspian Sea and a concession ended in Abu Dhabi. After spending billions to develop new projects and drill “high risk” exploration wells, he has now pledged to lower investment and get a grip on costs.
The shares dropped as much as 1.1% to 49.50 euros in Paris trading and traded at 49.93 euros at 10:17 a.m. local time.
Total’s investment will be lowered to $25 billion in 2017 from $26 billion this year and a peak of $28 billion in 2013, the company said Sept. 22.
The schedule for completion of some of Total’s projects has also slipped with output at Laggan-Tormore off the Shetland Islands expected in the first quarter of next year rather than later this year.
Pipelines Replaced
Total isn’t counting on output from Kashagan, Angola LNG and Adco in Abu Dhabi in 2015, de La Chevardiere said Sept. 22. Kashagan will begin producing again in 2016 after pipelines are replaced.
Second-quarter output fell due to the loss of concessions in Abu Dhabi, disruptions in Libya and halts at Kashagan and Angola LNG.
The French company kept a target to generate $15 billion of free cash flow in 2017, although it would reach only reach $7 billion instead of a target of about $10 billion next year, the CFO said.
Total plans to sell another $10 billion of assets by 2017, adding to the $15 billion to $20 billion targeted from 2012 to 2014. The company has achieved $16 billion so far with $4 billion “underway” including sales of a stake in Nigeria’s Usan field and Bostik chemicals business, the CFO said.
BNP Paribas
BNP Paribas has been hired to complete the sale of Usan, likely by the start of next year, de La Chevardiere said.
Total executives are scheduled to meet with French worker representatives this week to discuss the outlook at its refining and petrochemicals plants. The company confirmed a target to reduce the European business by 20% from 2012 to 2017.
“There isn’t a plan to lower the workforce in France,” de La Chevardiere said. “It is obvious that in Europe there is overcapacity in refining and that we will adapt our production to the market,” he said.
No decision has been made on whether capacity will be adapted or assets would be sold, he said.
Associated Press
World News
Kurdish security forces took over two major oil fields outside the disputed northern city of Kirkuk before dawn Friday, Iraq’s Oil Ministry said, the latest move in a deepening a dispute with the government of Prime Minister Nouri al-Maliki.
Oil Ministry spokesman Assem Jihad denounced the takeover of the Bai Hassan and Kirkuk oil fields as “a violation to the constitution” and warned that it poses “a threat to national unity.” He said Kurdish troops moved in and expelled local workers from the two sites.
The seizure of the fields could accelerate the unraveling of already worsening relations between the Kurdish autonomy zone in the north and Iraq’s central government. The spat is one of the ripple effects of the Sunni militant offensive that overran much of northern and western Iraq last month, plunging the country into its worst crisis since the last U.S. troops left in 2011
September 21, 2014 (KHARTOUM) – Sudan’s oil ministry signed oil exploration contracts with three companies on Sunday, including the State Oil Company Canada Ltd and Nigeria’s Express Petroleum & Gas Ltd, to work in Al-Rawat.
A representative from the State Oil Company Canada Ltd signs the exploration and production sharing agreement in Khartoum on Sunday, while vice-president Hasabo Abdel Rahma and investment minister Mustafa Osman Ismail look on (Photo courtesy of the ministry of petroleum)
The big Blok 26 or Al-Rawat field is mainly located in White Nile state but other parties are in Sennar and North Kordofan states. The oilfield is located near the pipeline which links Adarail oilfield in South Sudan to Port Sudan.
The exploration activities in this block include oil and gas. It is part of government’s efforts to increase the country’s daily production to 200.000 barrels.
The signing ceremony of exploration and production sharing agreement which took place at the oil ministry, was attended by Sudanese vice president Hasabo Abdel Rahman and investment minister Mustafa Osman Ismail.
The oil minister Makkawi Mohamed Awad signed the agreement on behalf of the Sudanese government while the State and the Express were was represented by their directors according to a statement by the oil ministry release after the signing on Sunday.
The State which is owned by Lutfur Rahman Khan holds 50% of the shares while the Nigerian gas company has 20%, the remaining 30% of the consortium are held by the government owned Sudapet.
Khan was the chairman of Arakis Energy Corporation which was working in Heglig oil fields before to sell its shares in March 2003 to India’s National Oil Company under the pressure of the Canadian government which had been lobbied by rights groups.
Sudan lost 75% of its oil reserves after the southern part of the country became an independent nation in July 2011, denying the north billions of dollars in revenues. Oil revenue constituted more than half of the Sudan’s revenue and 90% of its exports.
The East African country currently produces 133,000 barrels of oil per day (bpd). The country’s production is stationed mainly in the Heglig area and its surroundings, as well as western Kordofan.
Following South Sudan’s secession, several foreign companies started exploration in new oil fields.
A Saudi company is currently working in Block 12, located in Sudan’s north-western corner near the borders with Libya, while a Canadian company shares exploration with the Sudanese company Sudapet in Block 14.
Sudan Energia is working in Block 18 which is located to the west of the river Nile. Block 11 is located in Kordofan, while Block 9 is located in the Gezira, Khartoum, and River Nile states.
Blocks 13 and 14 are on the Red Sea coast, while Blocks 19, 22, 21 are inside the Red Sea. Block 10 is located between Kassala and Al-Gedaref states in eastern Sudan, and Block 8 is located in Sennar state.
Chinese energy major Sinopec will start trial operations at its first LNG terminal by the end of October when its receives its first cargo, news agency Reuters reported last week quoting a company representative.
The Shandong LNG project, located in East China's Shandong province, will have receiving capacity of 3 million metric tons per year after completion of the first phase.
According to Reuters, the repetitive did not specify where the cargo will come from.
The terminal is designed to receive LNG imported from Papua New Guinea under a binding sales and purchase agreement between Sinopec and ExxonMobil concluded 2009
According to Sinopec, after being put into operation, the project will play an important role in ensuring the natural gas supply for Qingdao and even for Shandong.
China currently has 10 LNG terminals in operation.
BEIJING, 12 hours, 44 minutes ago
Chinese imports of crude from Iran fell nearly 30 per cent from a year earlier to the lowest since October 2013, with Tehran's largest oil client reducing shipments from high levels in recent months as at least one regular buyer went through a planned overhaul.
China began stepping up purchases from the Opec member after a preliminary nuclear deal in November last year eased some sanctions on Iran. China has since accounted for the main portion of Asia's higher Iranian oil imports.
Iran and world powers remain far apart in a dispute over Tehran's nuclear programme, and they face a "difficult road" to reach a deal by a late November deadline, a senior Iranian negotiator said earlier this month.
Six world powers, including China and Russia, last week began their first full negotiating round with Iran since July in New York.
China's August imports from Iran came in at 1.32 million tonnes, or 311,653 bpd, down 28.6 per cent from a year earlier, customs data showed.
On a daily basis, August imports fell 44.2 per cent from July's 558,865 bpd.
"Nothing political behind that, it's due to technical reasons like maintenances at some Chinese plants," said a trading executive with direct knowledge of the trade flow.
"If you look at the year-to-date figures they are still in line with contractual volumes."
Imports from Iran in the January-August period this year stood at 19.3 million tonnes, or 578,630 bpd, up 37 per cent from a year earlier, the data showed.
A senior source at Dragon Aromatics, an independent petrochemical producer and regular buyer of Iranian South Pars condensate, said the firm had shut down refining for three weeks for maintenance from mid-August.
China's imports from Iran spiked to a record in April and remained high in May. Oil major Sinopec has been lifting more Iranian crude since last year, partly because it is cheaper versus similar grades from Saudi Arabia, industry officials have told Reuters.
Iran ranks No 5 among China's top suppliers, according to Chinese customs. Growth in the January-August period was the fastest among China's top suppliers, outpacing Iraq, Oman, Angola, Russia and Saudi Arabia.
Overall, China imported 5.93 mbpd of crude in August, up 17.5 per cent from the year before, customs data has shown. -- Reuters
BENGHAZI, 12 hours, 46 minutes ago
Soldiers and police have clashed in the last few days near Libya's biggest El Sharara oilfield in the south, while separate fighting erupted in the west not far from the Zawiya refinery, residents and medics said.
The violence came as video emerged on social media purportedly showing a rival oil minister appointed by an armed opposition group controlling the capital Tripoli giving a speech at the oil ministry.
If confirmed this could mean the central government has lost control of the oil ministry, potentially paralysing vital oil exports over questions of ownership.
Apparently speaking from the office of the deputy oil minister, Mashallah al-Zawie called on all Libyans for unity and to reject "conspiracies", according to the video which could not be independently verified. A spokesman for state-owned National Oil Corp (NOC), located in the same building as the ministry, declined to comment.
Libya has plunged into anarchy three years after the removal of Muammar Gaddafi. An armed group from the western city of Misrata seized Tripoli in August, forcing the elected parliament and senior officials to move to the far east.
Some commentators on Libyan social media websites linked the fighting to attempts by the Misrata alliance controlling Tripoli to get access to El Sharara.
Libyan media have reported that envoys from Misrata-based groups have visited several areas in western and southern Libya in the past few weeks to sound out the possibility of ooperation with local groups and tribes.
Misrata, Libya's third city, is home to some of the most experienced rebel militias, as well as Libya's biggest non-oil port.
But the city lacks access to oil, the only source of revenue for Libya's $47 billion annual budget. Rival militias from Zintan, who have been expelled from Tripoli by Misrata's forces, control pipelines coming from the two southern oilfields of El Sharara and El Feel.
Members of the Tibu minority, which has complained of neglect, have blocked the El Sharara field in the past to demand financial assistance or guarantees of citizenship for Tibu who come from neighbouring Algeria or Niger.
El Sharara is jointly operated by Libya's state-run National Oil Corp (NOC) and Spain's Repsol. The El Feel field, which has also been blocked on occasion by other protesters, is operated by NOC and Italy's Eni.
The El Sharara field was pumping around 200,000 barrels of oil per day until the shutdown last week. Ibrahim al-Awami, head of the inspection and measurement department at the Oil Ministry, said Zawiya and El Sharara remained shut, and Libya's output was down to 700,000 bpd.
Fighting was also reported in the Warshefana tribal area west of Tripoli which the Misrata forces have been trying to take for weeks. "The whole area including residential buildings has been heavily shelled," said a Warshefana official. "There are casualties," he said without giving a number. -- Reuters
(Reuters) - Russia will meet a plan to boost oil flows to China despite Western sanctions over Russia's role in the Ukraine crisis aimed at barring its oil firms from foreign technologies and funds, Russian deputy energy minister said.
"We have recourses that we need, we are able to increase production (in Eastern Siberia), we have finances for that," Kirill Molodsov told an energy conference at Russia's Far East island of Sakhalin.
"Russia does not see any risks or dangers that these projects (to increase oil flows to China) would not be put on stream as decided," he said.
Russia and China last year signed deals to triple oil supplies to China to up to 1.0 million barrels per day (bpd) after 2018.
State-run Rosneft is the sole supplier from Russia's Eastern Siberia fields, and has been included on sanctions lists.
Molodsov said Russia would back up the main supplier to China both technologically and financially, including the provision of financing assistance for oil production projects from state funds.
"We are focusing on technologies," he added. "We are able to substitute shortly all (oil production) equipment, included on the sanctions lists." (Reporting by Denis Pinchuk; Editing by Richard Pullin)
By Nick Cunningham | Mon, 22 September 2014 22:59 | 0
There is so much surplus oil sloshing around right now, some of it is being stored on tankers at sea.
It's well known that there is a glut of oil in the United States because of a lack of infrastructure and the ban on exports. A surge in production, coupled with tepid demand, has caused prices to decline by about 13 percent since June: West Texas Intermediate (WTI) is trading at a price discount.
And those declining prices have led some commodity traders to decide that excess oil is better left at sea. There are now 25 to 50 million barrels of oil in floating storage, equivalent to more than two days’ worth of demand for the entire United States.
The trend is not necessarily due to the lack of physical capacity to store oil, but largely because of the dynamics of modern day oil trading.
Spot prices for Brent crude, the international oil benchmark, have fallen below futures prices for the first significant period of time since 2011. By purchasing oil on the spot market, commodity traders can sell a futures contract on that shipment, and hold onto the oil at sea until the deal matures. Having paid a lower price – for example, around $98 per barrel as of mid-September – and selling a futures contract for delivery in October 2015 at $100 per barrel, the trader can pocket the difference when the deal is completed. The whole trend was nicely laid out in a recent Wall Street Journal story.
The margin may not seem like much, but according to the WSJ, it only takes a difference between the spot market and future market of about 70 cents in order to make a profit. The opportunity has not only attracted traders of physical barrels of oil, but also financial investors, who have jumped into the fray.
There are risks to this investment strategy. Storage costs and interest rates could rise, as the WSJ noted. Also, if spot prices decrease further in the months ahead, opening up a wider gulf with the futures price, traders will have missed out.
Another factor is the strength of the U.S. dollar, the currency in which oil is conventionally priced. A stronger-than-expected dollar will send oil prices lower. Moreover, as oil prices are notoriously volatile, it is unclear how long the price spread will last.
Why is there such a difference in price to begin with? For Brent, higher futures prices indicate that traders think that oil prices have slid far enough. Having potentially bottomed out, the markets apparently think that Brent will rise once again. For example, if OPEC cuts back on production, or the global economy picks up its pace of growth, prices would increase. This leads to futures prices settling at higher prices than what oil is sold for today.
But such a scenario is far from a certainty, given today’s global economic environment.
WTI is a different story. WTI was selling for $92.50 during intraday trading on Sept. 19. But WTI futures for delivery on Dec.19 – three months from now – is going for $86.75 per barrel. This is the reverse of the situation for Brent, and it suggests that the markets think that oil production in the United States will continue on its upward trajectory. Meanwhile, with flat demand and a dearth of infrastructure, oil will continue to pile up and bring down prices.
This phenomenon may seem odd, but it has happened before. In April 2009, more than 70 million barrels of oil were in storage awaiting future delivery. Of course, that was during the depths of the global economic recession, and spot prices at the time were trading for around $50 per barrel. The gap between the spot and futures prices was a wide one because the markets were relatively confident that the world would eventually dig out from the economic malaise.
But the return of significant storage for futures delivery suggests that the world is once again experiencing a period of oversupply.
By Nick Cunningham of Oilprice.com
By Global Risk Insights | Mon, 22 September 2014 22:44 | 0
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As international attention shifts to the Islamic State, many observers have all but forgotten the link between the toppling of Libyan leader Muammar al-Qaddafi, and his one-party state, and the emergence of increasingly dangerous competition between tribal and Islamist factions in Libya.
In July, Tripoli’s airport was briefly shut down after a bomb blast, and Libya’s neighbours, Egypt and Tunisia, cancelled flights to airports in the country in August. The international response has been swift. Almost all the international organizations, NGOs and embassies evacuated their staff earlier this summer, while 150,000 of Libya’s foreign workers, largely from Bangladesh, Malaysia and the Philippines, continue to flee out of fear of further violence.
“Libya is unable to protect its institutions, its airports and natural resources, especially the oil fields,” its ambassador to Egypt, Mohamed Jibril, said at a meeting with states in the region held in Cairo in August. Still, unlike in Iraq, Libya’s Islamists have been unable to secure control over Libya’s oil fields, far away from Tripoli in the Gulf of Sirte, at Libya’s largest and third-largest terminals for the export of oil, As-Sidr and Ras Lanuf (see map).
Figure 1: Libya’s largest and third-largest oil terminals are located at As-Sidr and Ras Lanuf in the Gulf of Sirte. Source: International Energy Agency.
However, Libya still lacks central control over its oil resources, which have become a bargaining chip in the competition for power over the country. Without steady income from its oil resources, observers predict that the government will be unable to maintain the high standard of living enjoyed by Libya’s citizens under Qaddafi.
Current GDP growth rate predictions for the fourth quarter of 2014 and into 2015 range from 15.3 to 22.4 percent.
Regional effects of the crisis
In Tunisia, mixed gains from the 2011 Arab uprisings have manifested in cautious democratic transition, but extremist groups could threaten the fragile gains made so far. Moreover, Tunisia’s government has faced problems generating private investment, effectively increasing the public deficit. In Egypt, President Abdel Fatah al-Sissi has almost entirely turned around the project of democratization promised by the uprisings in Tahrir Square in 2011.
In the medium-term, Libya’s fragile situation has both benefits and challenges for the region. The comparative risk of doing business in Libya means investors are likely to shift their attention to (the comparatively more stable) Tunisia and Egypt.
Still, strong regional trade ties mean these countries are very affected by the outcome of the Libyan conflict. A good example of this is a deal signed in June 2013 to provide Tunisia with a delivery of 650,000 barrels of crude oil and gas per month beginning in 2014, which is now threatened by the country’s internal instability.
The regional effects of the crisis have also been defined by the rise in oil production in Libya when compared with the civil war period. Confronted with a current global decline in oil prices, major oil producers like Saudi Arabia (Libya is the most significant oil producer in Africa, producing about 725,000 bb/day, an increase from just 300,000 bb/d in June 2014) have decided to reduce their oil production. In August, Saudi Arabia decreased its oil production by 408,000 bb/d to 9.86 million bb/d to offset the increase in production in Libya and the United States.
Prospects for the future
On September 6, Libya’s Islamist-dominated parliament swore in a government running in parallel to a newly-elected parliament sworn in June and based in Tobruk. The Islamist-dominated General National Congress (GNC) is not recognized by the international community.
However, several regional actors – including more-removed interested parties that have backed the militia of Gen. Khalifa Haftar, and the “Operation Dignity” movement targeting moderate and radical Islamist groups alike – have fomented a kind of Libyan proxy war.
The prospects for a regional recovery depend very much on the resolution of Libya’s significant problems having international implications.
By Amelie Meyer-Robinson
By Gail Tverberg | Mon, 22 September 2014 21:38 | 0
Oil and other commodity prices have recently been dropping. Is this good news, or bad?
Figure 1. Trend in Commodity Prices since January 2011. Brent spot oil price from EIA; Australian Coal from World Bank Prink Sheet; Food from UN’s FAO.
I would argue that falling commodity prices are bad news. It likely means that the debt bubble which has been holding up the world economy for a very long–since World War II, at least–is failing to expand sufficiently. If the debt bubble collapses, we will be in huge difficulty.
Many people have the impression that falling oil prices mean that the cost of production is falling, and thus that the feared “peak oil” is far in the distance. This is not the correct interpretation, especially when many types of commodities are decreasing in price at the same time. When prices are set in a world market, the big issue is affordability. Even if food, oil and coal are close to necessities, consumers can’t pay more than they can afford.
A person can tell from Figure 1 that since the first part of 2011, the prices of Brent oil, Australian coal, and food have been trending downward. This drop in prices continues into September. For example, as I write this, Brent oil price is $97.70, while the average price for the latest month shown (August) is $105.27. It is this steeper, recent drop, which many are concerned about.
We are dealing with several confusing issues. Let me try to explain some of them.
Issue #1: Over the short term, commodity prices don’t reflect the cost of extraction; they reflect what buyers can afford.
Oil prices are set on a worldwide basis. The cost of extraction varies around the world. So it is clear that oil prices will not match the cost of extraction, or the cost of extraction plus a reasonable profit, for any particular producer.
If oil prices drop, there is a temptation to believe that this is because the cost of production has dropped. Over a long enough period, a drop in the cost of production might be expected to lead to lower oil prices. But we know that many oil producers are finding current oil prices too low. For example, the Wall Street Journal recently reported, “Royal Dutch Shell CEO: Can’t deny returns are too low. Ben van Beurden prepared to shrink company in order to boost returns, profitability.” I wrote about this issue in my post, Beginning of the End? Oil Companies Cut Back on Spending.
In the short term, low prices are likely to signal that less of the commodity can be sold on the world market. Commodities such as oil and food are very desirable products. Why would less be needed? The issue, unfortunately, is affordability. Affordability depends largely on (1) wages and (2) debt. Wages tend to be fairly stable. The likely culprit, if affordability is leading to lower demand for desirable products like oil and food, is less growth in debt.
Issue #2: Economic growth tends to produce a debt bubble.
Many economists believe that technological innovation is the key to economic growth. In my view, economies need a combination of the following to have economic growth of the type experienced in the last 100 years:1
(Increase in debt) + (cheap-to-extract fossil fuels) + (cheap-to-use non-fossil fuel resources) + (technological innovation)
In such a case, debt keeps increasing as an economy grows. Unfortunately, this economic growth is only temporary, because resources tend to become more expensive to use over time, making the “cheap” resources required for economic growth disappear.
The problem underlying the rising cost of resources (both for fossil fuels and others) is that we tend to use the cheapest-to-extract resources first. Technological innovation continues to occur, but as diminishing returns hit both fossil fuels and other resources, there are larger and larger demands on technology to keep costs in line with what workers can afford. Eventually, the cost of resources (net of technological improvements) rises too much, and economic growth is cut off. By this time, a huge mountain of debt has been built up.
Let me explain further how this happens. Without fossil fuels, the world is pretty much stuck with the goods that can be made with wood, or from other basic resources such as animal skins, cotton, flax, or clay. A small quantity of metal and glass goods can be made, but deforestation quickly becomes a problem if an attempt is made to “scale up” the quantity of goods that require heat in their production.2
Once inexpensive coal became available, its availability opened the door to technological innovation, because it provided heat in quantity that had not been available previously. While ideas such as the steam engine had been around for a long time, the availability of inexpensive coal made the production of metals needed for the steam engine, plus train tracks and railroad cars, available at reasonable cost.
With the ability to make steel and concrete in quantity (both requiring heat) came the ability to make hydroelectric dams and electrical transmission lines, thus enabling electricity for public consumption. Oil, as a liquid fuel, paved the way for widespread use of additional innovations, such as private passenger automobiles, mechanized farm equipment, and airplanes. Between coal and oil, many workers could leave farming and begin jobs in other sectors of the economy.
The transformation that took place was huge: from wooden tools and human or animal labor to a modern industrial society. How could such a big change take place? Before the change, the ability to generate a profit that might be used for future capital investment was very limited.
Also, the would-be purchasers of products made in an industrial economy were very poor. I would argue that the only way of bridging this gap was debt. See my earlier posts, Why Malthus Got His Forecast Wrong and The United States’ 65-Year Debt Bubble.
The use of debt has several advantages:
1. It allows the consumer to buy the end product made with the new resources, assuming the end product isn’t too expensive relative to the consumer’s earnings.
2. It gives resource-extracting businesses the money they need to buy equipment and to hire workers, prior to the time they have earned profits from resource extraction.
3. It gives the companies the ability to build factories, before they have accumulated profits to pay for the factories.
4. It allows governments to fund needed infrastructure, such as roads and bridges, before having the tax revenue available to pay for such infrastructure.
5. Most importantly, the “demand” generated by (1), (2), (3) and (4) raises the price of resources sufficiently that it makes it profitable for companies in the business to extract those resources.
Because of these issues, debt and cheap fossil fuels have a symbiotic relationship.
(1) The combination of debt, inexpensive fossil fuels, and inexpensive resources of other kinds allows the production of affordable goods that raise the standard of living of those using them. The result is what we think of as “economic growth.”
(2) The economic growth provides the additional income needed to pay back the debt with interest. The way this happens is indirectly, through what is sometimes described as “greater productivity of workers.” This greater productivity is really human productivity enhanced with devices made possible by fossil fuels, such as sewing machines, electric milking machines, and computers that allow workers to become more productive. Indirectly, the higher productivity of workers benefits both businesses and governments, through higher sales of goods to consumers and through higher taxes. In this way, businesses and governments can also repay debt with interest.
Higher-priced resources are a problem. Higher-priced resources of any kind tend to “gum up the works” of this payback cycle. Higher-priced oil in particular is a problem. In the United States, when oil prices rise above about $40 or $50 barrel, growth in wages stops.
Figure 2. Average wages in 2012$ compared to Brent oil price, also in 2012$. Average wages are total wages based on BEA data adjusted by the CPI-Urban, divided total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.
With higher oil prices, the rise in the standard of living stops for most workers, and good-paying jobs become difficult to find. There are a couple of reasons we would expect wages to stagnate with higher oil prices:
(1) Competition with cheaper energy sources. When oil prices rose, countries using a very high percentage of oil in their energy mix (such as the PIIGS in Europe, Japan, and United States) became less competitive in the world economy. They tended to fall behind China and India, countries that use much more coal (which is cheaper) in their energy mix.
Figure 3. Average percent growth in real GDP between 2005 and 2011, based on USDA GDP data in 2005 US$.
(2) Need to keep the price of goods flat. Businesses need to keep the total price of their products close to “flat” despite rising oil prices, if they are to continue to sell as much of their product after the oil price increase as previously. Oil is one major cost of production; wages are another. An obvious way to offset rising oil prices is to reduce wages. This can be done in several ways: outsourcing work to a lower cost country, greater automation, or caps on wages. Any of these approaches will tend to produce the flattening in wages observed in Figure 2.
Based on Figure 2, an oil price above $40 or $50 per barrel seems to put a cap on wages, and indirectly leads to much less economic growth. Even if we didn’t hit this oil price limit–for example, if we had discovered a liquid fuel that could be produced in quantity for less than $40 barrel–we would eventually hit some kind of growth limit. For example, the limit might be climate change or too much population for food production capability. Even too much debt can be a limit, if citizens’ incomes don’t rise in a corresponding manner. At some point, it becomes impossible even to make interest payments if the debt level is too high. Indirectly, citizens wages even support business and government debt, because business revenues and tax revenues depend indirectly on wages.
Issue #3: Repaying debt is very difficult in a flat or declining economy.
Once growth stops (or slows down too much), the debt bubble tends to crash, because it is much more difficult to repay debt with interest in a shrinking economy than in a growing one.
Figure 4. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.
The government can hide this issue for a very long time by rolling over old debt with new debt and by reducing interest rates to practically zero. At some point, however, the system seems certain to fail.
Not all debt is equivalent. Debt that simply blows bubbles in stock market prices has little impact on commodity prices. In order to keep commodity prices high enough for producers to want to continue to produce them, the debt really has to get back into the hands of the potential buyers of the commodities.
Also, any changes that tend to reduce world trade push the world economy toward contraction, and make it harder to repay debt with interest. Thus, sanctions against Russia, and Russia’s sanctions against the US and Europe, tend to push the world toward debt collapse more quickly.
Issue #4: Rising oil and other commodity prices are a problem, especially for countries that are importers of those commodities.
Most of us are already aware of this issue. If oil prices rise, or if food prices rise, our salaries do not rise by a corresponding amount. We end up cutting back on discretionary purchases. This cutback in discretionary purchases leads to layoffs in these sectors. We end up with the scenario we had in the 2007-2009 recession: falling home prices (since higher-priced homes are discretionary purchases), failing banks, and many without jobs. See my article Oil Supply Limits and the Continuing Financial Crisis.
The reason that low oil and other commodity prices are welcomed by many people now is because the opposite–high oil and other commodity prices–are so terrible.
Issue #5: Falling oil and other commodity prices are a problem, if the cost of production is not dropping correspondingly.
If commodity prices drop for any reason–even if it is because a debt bubble is popping–it is going to affect how much companies are willing to produce. There is going to be a tendency to cut back in new production. If prices drop too far, it is even possible that some companies will leave the market altogether.
Even if it doesn’t look like a country “needs” the current high oil price, there may still be a problem. Oil exporters depend on the high taxes that they are able to obtain when oil prices are high. If they cannot collect these taxes, they may need to cut back on programs such as food subsidies and new desalination plants. Without these programs, civil disorder may lead to cutbacks in oil production.
Issue #6: The growth in oil sales to China and to other emerging markets has been fueled by debt growth. This debt growth now seems to be stalling.
Growth in oil consumption has mostly been outside of the United States, the European Union, and Japan, in the recent past. China and other emerging market countries kept demand for oil high.
Figure 5. Oil consumption by part of the world updated through 2013, based on BP Statistical Review of World Energy 2014 data.
Ambrose Evans-Pritchard reports, China’s terrifying debt ratios poised to breeze past US levels. He shows the following chart of China’s growth in debt from all sources, including shadow banking:
Figure 6. China’s total debt, based on chart displayed in Ambrose Evans-Pritchard article.
This rise in debt now seems to be slowing, based on a Wall Street Journal report. A person wonders whether this stalling debt growth is affecting world oil and other commodity prices.
Figure 7. Figure from WSJ article PBOC Struggles as Chinese Borrowers Hold Back.
Other emerging markets also seem to be experiencing cutbacks. Since 2008, the United States, Europe, and Japan have had very easy money policies. Some of the money available at low interest rates was invested in emerging markets. Now the WSJ reports, Fed Dims Emerging Markets’ Allure. According to the article investors, investors are taking a more cautious stance on new investment because of fear of rising US interest rates.
Of course, other issues affect debt and world commodity demand as well. If interest rates rise, they many have a tendency to shrink new lending, in general, because loans become less affordable. Sanctions of one country against another, such as the US against Russia, and vice versa, also tend to reduce demand.
Issue #7: Debt bubbles have been a problem in past collapses.
According to Jesse Colombo, the Depression was to a significant result the result of debt bubbles that built up during the roaring twenties. Another, longer-term cause would seem to be the loss of farm jobs that occurred when coal allowed tasks that were previously done by farm workers to be done by either electricity or by horses pulling metal plows. The combination of a debt bubble and loss of jobs seems to have parallels to our current situation.
Many believe the subprime housing bubble crash contributed to the Great Recession. The oil price spike of 2007 and 2008 played a major role as well.
Issue #8: If we are facing the collapse of a debt bubble, it is quite possible that prices of many commodities will fall. This could possibly lead to a collapse in the supply of many types of energy products, more or less simultaneously.
Figure 8, shown below, is a very rough estimate of the kind of decline in energy use we could be facing if a debt collapse leads to very low prices of many types of fuels simultaneously. Prices of many commodities crashed in 2008, and it was only with massive intervention that prices were propped up to 2011 levels. After the beginning of 2011, prices began sinking again, as shown in Figure 1.
Figure 8. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.
Clearly governments will try to prevent another sharp crash in commodity prices. The question is whether they will be successful in propping up commodity prices, and for how long they will be successful. In a finite world, fossil fuel energy production eventually must decline, but we don’t know over precisely what timeframe.
Issue #9: My steep decline contrasts with the “best case” forecast of future oil consumption given by M. King Hubbert.
M. King Hubbert wrote about a scenario where another type of fuel completely takes over, before oil and other fossil fuels are phased out. He even discusses the possibility of making liquid fuels using very cheap nuclear energy. The way he represents the situation is the following:
Figure 9. Figure from Hubbert’s 1956 paper, Nuclear Energy and the Fossil Fuels.
In such a scenario, it is possible that oil supply will begin to decline when approximately 50% of resources are exhausted, and the down slope of the curve will follow a symmetric “Hubbert curve.” This situation seems to represent a best possible case; it doesn’t seem to represent the case we are facing today. If a debt collapse occurs, much of the remaining fuel is likely to stay in the ground.
Issue #10: Our economy is a networked system. Increasing debt is what keeps the economy inflated. If wages fail to keep pace with debt growth, the system seems likely to eventually crash.
In previous posts, I have represented the economy as a self-organized networked system, consisting of businesses, consumers, governments (with laws, regulations, and taxes), financial system, and international trade.
Figure 10. Dome constructed using Leonardo Sticks
One reason the economy is represented as hollow is because the economy loses its capability to make goods that are no longer needed–such as buggy whips and rotary dial phones. Another reason why it might be represented as hollow is because debt is used to “puff it up” to its current size. Once the amount of debt starts shrinking, it makes it very difficult for the economy to maintain its stability.
Many “peak oilers” believe that if we have a problem with the financial system, all we have to do is start over with a new one–perhaps without debt. Everything I can see says that debt is an essential part of the current system. We could not extract fossil fuels in any significant quantity, without an ever-rising quantity of debt. The problem we are encountering now is that once resource costs get too high, the debt-based system no longer works. A new debt-based financial system likely won’t work any better than the old one.
If we try to build a new system without fossil fuels, we will be really starting over, because even today’s “renewables” are part of the fossil fuel system.3 We will have to go back to things that can be made directly from wood and other natural products without large amounts of heat, to have truly renewable resources.
Notes:
[1] This is really a simplification of the real issues. As world population grows, it is necessary to obtain an increasing amount of food from the same arable land. Thus, it is necessary to find new processes to increase food production, at the same time that soil is quite possibly degrading. Soil is in a sense a “resource other than fossil fuels,” but I have not mentioned this issue specifically.
Growing pollution problems are in some sense an indirect cost of extracting fossil fuels and other resources. These represent another growing cost that I have not specifically identified. Furthermore, there are indirect expenses that do not fit neatly into any category, such as required desalination plants to handle growing populations in areas where water is scarce. We may need to consider mitigation expenses of all types as part of the “cost of resource extraction.”
My point is that it becomes increasingly difficult to offset these many cost increases with technological innovations. Furthermore, if no changes are made, a larger and larger share of both the workforce and resources are required for maintaining the status quo, leaving fewer workers and a smaller quantity of resources to “grow” the economy.
[2] Wind and water are additional sources of energy, but they are sources of mechanical energy, not heat energy, so are not helpful unless they can be converted first to electricity, and then to heat. In quantity, they never were very large in pre-fossil fuel days.
Figure 11. Annual energy consumption per head (megajoules) in England and Wales 1561-70 to 1850-9 and in Italy 1861-70. Figure by Tony Wrigley from Opening Pandora’s Box. Figure originally from Energy and the English Industrial Revolution, also by Tony Wrigley.
[3] Of course, any existing “renewable” will continue to work until it needs repairs that are unavailable. Other parts of the system (such as electric transmission lines, batteries, inverters, and attached devices such as pumps) may fail more quickly than the renewables themselves.
By Gail Tverberg
(Source: www.Ourfiniteworld.com)
Nairobi (Platts)--22Sep2014/944 am EDT/1344 GMT
Kenya expects its crude oil resources to rise to over to 1 billion barrels due to ongoing appraisal drilling, an official from the Ministry of Energy said Monday.
Six million barrels of oil have been discovered jointly by Tullow Oil and Africa Oil Corporation in the South Lokichar basin in northwestern Kenya from March 2012 when the country's first crude oil encounter was announced.
Energy Cabinet Secretary Davis Chirchir said Ekales, the Ageta Amosing and Ewoi wells drilled in block 10BB and 13T in the remote Turkana county had raised Kenya's recoverable resources to 600 million from 300 barrels.
"However, with further appraisal drilling which is currently ongoing, the recoverable reserves are likely to be in excess of 1 billion barrels. Tullow has already commenced work on a commercialization plan which will culminate in a field development plan by last quarter of 2015," he said.
"In readiness, the ministry has also advertised an expression of interest for the crude oil pipeline from Hoima, Uganda to Lamu port through Lokichar," said Chirchir. The governments of Kenya and Uganda are accelerating plans to build a crude oil export pipeline to Lamu on the Indian Ocean.
Building of 1,300-km (806-mile) pipeline from Hoima in western Uganda through Lokichar in northwestern Kenya to Lamu is expected start in late 2015 and be completed in 2018.
Chirchir said the Sala-1 well drilled by Africa Oil in block 9 in north eastern Kenya is capable of producing approximately 1 Tcf of gas, enough to produce 550 MW of electricity for 20 years.
"Ministry of Energy is planning to construct a gas power plant in the block to increase electricity generation and help monetize the resource," he said.
Africa Oil and Marathon each own 50% of block 9.
The ministry expects more resources to be found after Africa Oil and Marathon complete the current drilling of the Sala-2 appraisal well and move to the Sala-3 appraisal well to assess the amount of gas in place.
Washington (Platts)--22Sep2014/353 pm EDT/1953 GMT
US residential and commercial natural gas customers can anticipate more normal temperatures this winter, but the price they pay for gas will be "slightly higher" than last winter because of the growing competition from industrial and electric generation users, the American Gas Association said Monday.
This year, local distribution companies have been competing with those segments for gas to refill their storage facilities, which were depleted by last winter's record low temperatures, said Chris McGill, AGA vice president of policy analysis.
Last winter was characterized by a string of polar vortexes that resulted in prolonged periods of deep cold in key consuming regions. The US set a single-day record for gas use on January 7, 2014, or 139 Bcf -- almost double the overall daily average, AGA noted.
Looking forward, McGill said the commodity price of gas has been about 9% higher than the price paid last year. The fixed charge delivery cost of the gas is about 1.5% higher.
As a result of these factors, he said that residential home heating bills will probably increase about "7% on average this winter."
The price hikes could have been much higher were it not for the fact that gas "is much more abundant than it had been in recent years," he said. He said gas production today is about 4 Bcf/d higher than it was a year ago.
The unprecedented demand for gas last winter justified the investment by many LDCs in storage operations or buying capacity from third parties, he said.
That investment in infrastructure, McGill said, is "how we have gotten to where we are today. A well-planned, critical infrastructure development is a key to the future."
Despite the record demand for gas last winter, he said a recent survey of 84 AGA member companies showed that "only a few" were contemplating the possibility of buying access to more storage capacity. McGill said that the companies believe they have all the storage capacity they need.
US storage inventories now stand at about 2.9 Tcf, AGA noted. With mild weather expected in much of the country this fall, strong supply injections could continue past November 1, with AGA saying inventories may reach a peak 3.5 Tcf this fall.
LDCs have been able to refill their storage facilities this summer largely because of the growing supply of natural gas, McGill said, noting that dry gas production in August "ran slightly above 69 Bcf/d. In 2006, it was 52 Bcf/d."
"We are actually in a stronger supply position today than we were last year," McGill said.
The new gas supplies are coming from recently developed shale gas reserves and "we still have new areas that are adding additional amounts to gas supply into the market place."
Further out, McGill said the AGA believes that by 2022, investments in industrial capacity will result in an increase in demand of 6 Bcf/d. Exports of liquefied natural gas will climb to 6 Bcf/d, and the retirement of 40 to 60 GW of coal-fired power generation will lead to a 4 Bcf/d increase in gas demand by 2022, he said.
He noted the US is now exporting 2 Bcf/d of gas to Mexico and that is expected to double in the next five years.
Washington (Platts)--22Sep2014/355 pm EDT/1955 GMT
While recent rulings have given two Eagle Ford players legal standing to ship processed condensate overseas, it remains unclear how much of this condensate is being exported and even how much is currently being produced domestically, the head of the US Energy Information Administration said Monday.
The processed condensate currently being exported is being tracked as a middle distillate, along with kerosene and diesel, making it impossible for agency officials to determine just how much condensate is being shipped, EIA Administrator Adam Sieminski said during a Columbia University Center on Global Energy Policy event.
Sieminski said the US is capable of producing from 100,000-400,000 b/d of processed condensate, adding that nearly all exports would likely originate from Eagle Ford shale. He said processed condensate growth was possible in the Permian and Bakken shales, but said this was less viable than the Eagle Ford, due to proximity to the Gulf Coast and rules which prohibit segregation of other streams.
Sieminski said EIA and other federal government officials are working together to track processed condensate exports in a separate category, but said the issue was further complicated by the lack of standard definitions between agencies.
"What condensate is, is up in the air," he said, pointing out that there was no government standard definition of refinery, distillation tower or even distillation.
In June, US Commerce Department rulings gave Enterprise Products Partners and Pioneer Natural Resources legal backing to export condensate that is processed through a distillation tower.
Last week, Jim Teague, Enterprise's chief operating officer, said that Enterprise has exported four cargoes of US processed condensate over the past three months and plans to ship about five more from its Texas City facility before the end of the year. The cargoes range from 300,000 to 600,000 barrels.
Pioneer Chief Operating Officer Tim Ford also said last week that his company has exported three cargoes of processed condensate to Japan, Rotterdam and Singapore.
About one third of all US condensate, or about 308,000 b/d, is produced in the Eagle Ford, analysts with Bernstein Research said in a report Monday. Condensate accounts for about 8% or 900,000 b/d of current US liquids production, analysts said.
The EIA is in the process of developing a study on the impact of US and international gasoline prices as well as another on processing costs. Both studies, part of the agency's ongoing look at US export policy, are expected to be released next month.
EIA is also awaiting approval to do an analysis of wellhead oil production that will itemize crude production by API gravity. Work on that analysis is expected to begin next year with the first
London (Platts)--22Sep2014/721 am EDT/1121 GMT
Libyan oil production has slipped to around 670,000 b/d as the impact of the closure of the major Sharara oil field continues to hit the country's output, although traders said Monday they understood the field could resume operations imminently.
State-owned NOC was forced to shut the Zawiya oil export terminal and refinery at the start of last week due to intense fighting in the vicinity.
This had a knock-on effect on the 340,000 b/d capacity Sharara field, which supplies the crude for both the port and the refinery.
"Sharara remains closed, bringing down production to 670,000 b/d," a spokesman for NOC said over the weekend.
Traders said there had been no news on the status of Sharara over the weekend.
"There are some rumours this morning that Sharara may be resuming, but we're still waiting to hear from NOC," one said.
The Zawiya export terminal, whose capacity is 230,000 b/d, has not loaded a cargo since the NS Colombus a week ago, according to Platts vessel tracking software cFlow.
Libyan oil production and exports have staged a quick recovery since mid-August when the Es Sider and Ras Lanuf export terminals were returned to state control.
But intense fighting close to Tripoli forced state-owned NOC to shut the key oil infrastructure.
Libya has continued to descend into political chaos in recent weeks.
Prime Minister Abdullah al-Thani and the internationally recognized parliament, elected in June, are in virtual domestic exile in the far eastern city of Tobruk because of widespread insecurity, including in the capital, where a rival administration has been set up.
Moscow (Platts)--19Sep2014/924 am EDT/1324 GMT
Russia's Gazprom expects gas market trends of recent years -- that saw its share on the European gas market increasing -- to continue over the next 10 years, despite ongoing changes and stagnation in the markets, CEO Alexei Miller said Friday.
"In 10 years, those trends, which have been seen in the past several years, will persist," he said, speaking at an investment forum in Russia's Black Sea resort of Sochi.
"Those trends are very very positive for us in respect of the market [share]. Starting from 2010, the share of Russian gas in the EU's consumption rose to 30% from 23%," Miller said.
"What is even more remarkable is the fact that Gazprom's share in Europe's overall gas imports will exceed 64% in 2014, gaining 17% over the last four years."
Gazprom's supplies to Europe have been rising as gas production in Europe and supplies from other sources continue to decline.
Another factor that likely sparked the increase in gas purchases is the looming risk of possible disruptions in gas transits via Ukraine.
In June, Russia halted gas deliveries to its western neighbor as Kiev refused to pay a $5 billion debt for gas already supplied amid a gas price dispute.
The talks have brought no resolution so far.
Miller added that he is confident that Russian gas deliveries to Europe will grow further, getting an even bigger share in the market in the next 10 years.
"The most important thing ... we can say for sure is that we can meet European demand in full," he said.
This will happen even though Gazprom expects to start sending significant volumes of natural gas to the Asian markets, he said.
Earlier this month, Gazprom held an official ceremony to mark the start of construction of the so-called eastern route to China, dubbed Power of Siberia, to send 38 billion cubic meters/year of gas to China, with first deliveries expected in 2019.
Gazprom is also negotiating a 30 Bcm/year contract for supplies via a so-called western route, dubbed Altai.
Earlier this week, Miller said there is a possibility of supplying between 30 Bcm/year and 100 Bcm/year via this route to China.
In 2013, Gazprom raised its gas exports to Europe by 16% to 161.5 Bcm -- despite lower overall demand in the region -- because of disruption to Libyan supplies to Italy and lower Norwegian exports to northern Europe, as well as declining production within the EU itself.
No agenda given for Friday round of diplomacy.
BRUSSELS, Sept. 22 (UPI) -- The European Commission confirmed a trilateral meeting with Russian and Ukrainian energy ministers was scheduled for Friday in Berlin.
The commission said European Energy Commissioner Gunther Oettinger would sit down with Russian Energy Minister Alexander Novak and Ukrainian Energy Minister Yuri Prodan.
No agenda was given in Monday's announcement. Russian media reported European leaders were ready to discuss reliable gas transits and would consider the status of the planned South Stream gas pipeline if the issue was raised.
Members of the European Parliament passed a resolution Thursday calling on "EU countries to cancel planned energy sector agreements with Russia, including the South Stream gas pipeline."
South Stream is a Russian option to avoid geopolitically sensitive territory in Ukraine, plagued by conflict since a November pivot toward the European Union.
Russia meets about a quarter of Europe's gas needs, though the bulk of those supplies run through the Soviet-era transit network in Ukraine.
Novak said Moscow was committed to meeting its contractual obligations to Europe.
During August peace talks in Belarus, Russian President Vladimir Putin said there were few options for Ukraine itself because of pending debt issues tied up in an international court of arbitration.
Third tanker set for loading.
MOSCOW, Sept. 22 (UPI) -- Russian oil company Gazprom Neft said Monday the second tanker of oil taken from an arctic field was delivered to European customers.
Gazprom Neft confirmed a tanker filled with 200,000 barrels of oil was shipped to markets in northwest Europe last week. It was the second tanker of oil delivered from the Novoportovskoye field at the Yamal Peninsula.
Gazprom Neft, the oil arm of Russian energy company Gazprom, said the oil is designated as Novy Port, which it said was "superior" in quality to the global benchmark, Brent.
"A third tanker is currently being prepared for shipment," the company said in a statement.
Changes in global weather patterns are leaving parts of the arctic region ice-free for longer periods of time. Gazprom Neft said it confirmed in 2011 that using a nuclear-powered icebreaker would facilitate transportation of oil from the port on the northern peninsula, where pipeline infrastructure is lacking.
Any technology used to build a pipeline would "have minimal impact on the environment," the company said.
Oil work in the pristine arctic environment has raised concerns from environmental advocacy groups.
Oil exports from southern port down from July.
By Daniel J. Graeber | Sept. 22, 2014 at 9:59 AM | 0 Comments (Leave a comment)
BASRA, Iraq, Sept. 22 (UPI) -- Iraq is relying on Basra, the economic capital, to put the country on the road to recovery on the back of oil wealth, the oil minister said.
Iraqi Oil Minister Adil Abd al-Mahdi visited oil and natural gas installations in southern Iraq, saying there'd be a rise in production levels that would benefit the people of Iraq. Describing Basra as the economic capital of the country, the minister said oil, the ports and all parts of the energy sector would lift Iraq as a nation.
"These are not just promises," he said during Sunday's visit. "Our aim is to build Iraq."
Iraq last week said southern oil exports were 73.6 million barrels for August, down more than 2 percent from the previous month.
Oil ministry spokesman Assim Jihad said oil from the southern port city of Basra was sent to nearly three dozen international companies.
Kuwait Energy and Dragon Oil, two companies holding assets in Basra, announced the production of 2,000 barrels of oil per day during testing, describing the discovery as the "first significant success" in their Iraqi portfolio.
Ukraine in test phase for reverse gas flows from Slovakia.
By Daniel J. Graeber | Sept. 22, 2014 at 7:17 AM | 0 Comments (Leave a comment)
BRATISLAVA, Slovakia, Sept. 22 (UPI) -- An energy company in Slovakia said it recorded a drop in the amount of Russian natural gas headed its way through the Soviet-era transit network in Ukraine.
A spokesperson from the gas importer known by its Slovakian initials SPP said there's been a steady drop in gas coming through Ukrainian territory.
"On Sunday, SPP recorded a 10 percent decrease in Russian gas supply," the spokesperson told Russian news agency RIA Novosti.
Gazprom meets about a quarter of European gas needs, though most of that runs through Ukraine's pipeline network.
Ukraine was cut off from Russian gas because of lingering debt issues. In August, testing began to send 70 million cubic feet per day from Slovakia to Ukraine through the joint work of transit companies Uktransgaz and Eustream.
Gazprom last week said that, while it's putting a greater emphasis on the growing Asian market, Europe is the prime destination for Russian gas.
The company said Russian gas would account for 64 percent of European imports this year, up 17 percent from four years ago.
New role considered for long-delayed project.
TEHRAN, Sept. 22 (UPI) -- Outgoing Iranian Deputy Oil Minister Ali Majedi said his country might be able to find another use for a gas pipeline extending toward the Pakistani border.
Iran started building a natural gas pipeline to Pakistan in 2008. Envisioned as a trilateral pipeline with India as a terminal point, the project has been complicated by sanctions pressure on Iran.
Majedi, who is leaving his post to become the Iranian envoy to Germany, told the Oil Ministry's news website Shana the pipeline could still be used.
"The Pakistanis say incessantly that they really want to receive Iran's gas, but if they decide to forgo the project, the pipeline could be used for other purposes," he said Sunday.
Pakistan is facing energy reliability issues because of aging infrastructure, but has foreign lender support for renewable energy and liquefied natural gas port development projects.
Iran said it has most of the 775-mile section of the pipeline in its territory completed. Pakistan was slated to get 21 million cubic feet of natural gas per day from the project.
Iran last year pulled out of a finance deal for Pakistan because of sanctions pressure.
"These are very profitable barrels, which make a considerable contribution to wealth creation on the Norwegian continental shelf," Kjetil Hove, a development director at Statoil, said in a statement.
By Daniel J. Graeber | Sept. 22, 2014 at 6:55 AM | 0 Comments (Leave a comment)
STAVANGER, Norway, Sept. 22 (UPI) -- Norwegian energy company Statoil said Monday it upgraded the platform at the Kvitebjorn field in the North Sea to extend its life by eight years.
The company said a new compressor will increase the recovery rate at the North Sea field from 55 percent to 70 percent, which translates to an extra 220 million barrels of oil equivalent.
"These are very profitable barrels, which make a considerable contribution to wealth creation on the Norwegian continental shelf," Kjetil Hove, a development director at Statoil, said in a statement. "Increased production and extended lifetime for the field also provides increased ripple effects across the entire value chain."
The company said Kvitebjorn is the first of six fields in production slated for the overhaul in the next few years. Once all services are completed, it will result in more than 1.2 billion barrels of equivalent for Statoil.
Statoil last week started production from the Fram H-North and Svalin C in the Norwegian waters of the North Sea, which combine for more than 40 million barrels of recoverable oil equivalent.
Norway is the largest oil and natural gas producer in Europe. Gas from Kvitebjorn is sent to continental Europe, while other petroleum products are piped to Norway.
The US government has approved ExxonMobil’s plan to wrap up operations at its Universitetskaya-1 exploration well in Russia’s Kara Sea, the oil major said Friday.
The license approved by the US Department of Justice “recognizes the need to protect the safety of the individuals involved in these operations as well as the risk to the environment. All activities related to the wind down will proceed as safely and expeditiously as possible,” ExxonMobil said in a statement.
Media reports early Friday said drilling had been suspended due to sanctions the US imposed on Russia for its support of Ukrainian separatists. The sanctions, among other things, are designed to prevent US companies from working on Arctic, deepsea and shale oil projects in Russia. Rosneft, ExxonMobil’s partner in the exploration project had no immediate comment the US company’s statement, but spokesmen for the Russian Natural Resources Ministry and rig operator North Atlantic Drilling said earlier in the day that drilling was continuing.
Despite initial uncertainty over whether the latest measures would force Exxon to halt work on its Arctic joint venture with Rosneft, US Treasury sources earlier this week said the company must wind down work there by September 26. ExxonMobil and Rosneft began drilling the first exploration well in the Kara Sea on August 9 at the Universitetskaya structure in the East Prinovozemelsky-1 block. The Kara Sea project is included in a strategic cooperation agreement signed in August 2011 that envisioned joint development of offshore blocks in the Southern Black Sea, shale oil resources in West Siberia and a number of joint projects in North America, as well as in the Russian Arctic.
The upstream oil and gas industry called Friday for a focus on reforms needed to revive the UK’s flagging North Sea production, following Scotland’s decisive rejection of independence in a referendum.
Shell was among those greeting the vote for staying in the UK at Thursday’s referendum, following warnings the uncertainty was clouding investment decisions in the UK’s main oil producing region.
Shell said it “welcomes the decision by the people of Scotland to remain within the UK, which reduces the operating uncertainty for businesses based in Scotland,” it said. Shell had warned against independence and also voiced concern at a potential further referendum on whether the UK should leave the EU — a vote that remains a possibility following a general election next May.
On Friday, Shell said it would “continue to work closely with both the UK and Scottish governments to help the industry deliver vital energy supplies through investment in the UK’s oil and gas resources.”
Others highlighted the need for the UK to stick with plans for an overhaul of an upstream tax regime widely seen within the industry as a drag on investment, as well as the importance of a planned new regulator that would focus on upstream production issues.
UK oil and gas production has fallen rapidly in recent years, with oil output last year down 62% from a decade earlier at 820,000 b/d. Amid a tight political timetable ahead of next year’s election, industry lobby group Oil and Gas UK said that “to safeguard the industry’s future, it is particularly important that the government now presses swiftly ahead with fiscal reform,” as well as implementing recommendations made earlier in the year on setting up a new, dedicated regulator.
The comments were echoed by Chevron, which said: “We hope the [fiscal review] work will result in ensuring the regulatory and fiscal environment provides a strong foundation to maximize the economic recovery of the offshore oil and gas resource.”
ExxonMobil said it hoped the UK government and devolved authorities in Scotland would “work together to promote continued investment” and development of oil and gas.
An important message emerged from Saudi Arabia this week. After OPEC secretary general Abdalla el-Badri on Tuesday said he expected crude output from the group to fall next year in the face of lower demand, journalists and analysts explored how OPEC might or might not move to reduce supply, with the focus on leading producer and exporter, Saudi Arabia. Riyadh has given conflicting signals as to its short-term intentions, cutting output by 408,000 b/d in August and reducing crude prices for October.
But, in a speech on Wednesday, deputy oil minister Prince Abdulaziz bin Salman sent out a clear message about the kingdom’s longer-term perspective. Temporary factors such as concerns about the global economic recovery, geopolitical events and futures markets positioning can affect prices in the short term, he said.
“But for a major oil producer and exporter such as Saudi Arabia with long-term interest in the stability of the market, such daily, weekly or even monthly gyrations have little meaning, and constitute a source of noise around a solid trend. Instead, the main focus of the Kingdom has always been on the medium and long-term fundamentals, especially as Saudi Arabia has been successful in the last few years at increasing its economic resilience against temporary weaknesses in oil markets, as a result of its prudent fiscal and monetary policies,” Prince Abdulaziz said, quoted by the official Saudi Press Agency.
Indeed, he said, long-term energy fundamentals remain robust. “Despite a very poor decade of exploration drilling and a disappointing rate of oil discoveries in non-OPEC countries, some continue to talk about abundant oil supplies and weak long-term oil prices, not realizing that even at these record oil prices, which averaged over $100/barrel for the last three years, firms are cutting their exploration budgets to save on costs.
To make things worse, capital expenditure for exploration and production has exploded over the last 10 years. Newer finds are smaller, decline rates have stepped-up as the asset base has matured, and companies have increased their expenditure on field maintenance.
Colombia’s state-run oil producer Ecopetrol is planning to bid for upstream assets being offered under Mexico’s historic oil market opening next year as it struggles to maintain output from its existing domestic resources, one of the company’s top officials said Friday.
Ecopetrol is studying exploration and production opportunities being offered in Mexico but has yet to identify specific blocks which the company would bid on, Chief Financial Officer Magda Manosalva said.
“We are interested in participating in bids there but we still have to study where we could be successful,” Manosalva said on the sidelines of a Colombian investment forum in London. “Probably we are going to be more interested in onshore blocks but maybe we can participate with partners in the offshore blocks,” she said.
Mexico’s state-run oil industry is opening up about four-fifths of its prospective resources to private companies for the first time in 70 years. The country expects to attract more than $50 billion in new private and foreign investment by 2018 as part of the historic oil sector opening.
The first “Round One” tender will offer up 169 onshore and offshore exploration and production blocks covering 14.61 billion boe of prospective resources in mid-2015.
Asked if Ecopetrol has a budget for its upstream investment in Mexico, Manosalva said it too early to estimate specific figures. Ecopetrol has been keen to expand its upstream investment outside Mexico in recent years but is under pressure to keep investing in Colombia which has seen its oil production dip below 1 million b/d this year.
The company also sees most of its earnings paid to the state in dividend payouts. The company, which holds upstream assets in Brazil and Peru, this year extended its exploration acreage in the deepwater Gulf of Mexico after picking up blocks with partners Murphy Exploration. “The focus is still in Colombia, that’s where we have our expertise, where we produce with lower cost. We see the internationalization of the company as an opportunity to diversify but it’s not our main focus,” she said.
