Mexico’s Energy Ministry (SENER) and its National Hydrocarbons Commission (CNH) are knee-deep in preparations to help state oil company Pemex team up with foreign oil companies in upstream joint ventures, but the partnerships will show a few important differences from typical JVs, a top SENER official said Tuesday.
Instead of a simple agreement to pair up on projects, oil companies will bid to form joint ventures with Pemex on acreage the Mexican government has allowed the state company to retain, a unique feature of the process known as Round Zero as the country implements energy reform passed last year, Daniel Guerrero Rodriguez, general director, oil industrial transformation, for SENER, said on the sidelines of Mexico Energy Forum 2014 in Houston sponsored by global legal consultants Baker & McKenzie.
“Pemex isn’t free to form a joint venture as it’s done elsewhere,” he said. “Bidders have to prove they have the technical capacity for a project.” To form a Round Zero partnership, Pemex is required to convey to SENER its technical requirements for JV projects, Guerrero said, which are expected to encompass deepwater oil and natural gas fields, extra-heavy oil, mature onshore fields and mature shallow waters.
Economic information on the projects will be sent to the Finance Ministry, popularly known as Hacienda. Once it and SENER approve a project, CNH will conduct the bidding. Round Zero should be launched after finalization of the secondary legislation whose preliminary terms were released last month, Guerrero said.
That finalization is expected in late October, with the first partnerships likely launched in late 2014 and more during first-half 2015. The official said he did not know how many partnerships can be expected, adding Pemex is currently selecting its top JV projects and will continue doing so, even as details of Round One are being readied for the more typical type of bidding which is expected next year.
“We’ll take advantage of all the elements [energy] reform will give us,” Luis Ramos Martinez, sub-director of planning for Pemex Exploration and Production, said earlier at the conference. “It will help us move faster to develop all the resources the government has granted us.”
Emilio Lozoya, director general of Pemex, last month said he had identified 10 opportunities for associations with other companies under Round Zero that will require a total of $32 billion of investment within five to 10 years.
But Guerrero said that more JVs are possible in the near-term although he said he could not put a number on it. Also last month, Pemex E&P Director Gustavo Hernandez told government news agency Notimex that the state company has been in contact with at least 80 international companies about negotiating joint ventures or farm-outs.
The UAE plans to expand its crude storage at the Arabian Sea port of Fujairah and new berthing facilities are being built to allow VLCCs, officials said Tuesday.
Fujairah, the UAE’s only major port on the Arabian Sea, has grown rapidly to become the world’s second-largest bunkering fuel hub after Singapore. The UAE plans to expand Fujairah’s crude storage to 12 million barrels, from 8 million barrels, a government official said on the sidelines of a conference.
The emirate has eight storage tanks, each with 1 million barrels capacity, and foundations have been laid for four new tanks, said Salem Abdo Khalil, a technical adviser to the Fujairah government. No date has been set for completion of the new storage, he said.
The tank farm is supplied by the Abu Dhabi Crude Oil Pipeline. The 400 kilometer 42-inch pipeline can move up to 1.5 million b/d, or around 70% of Abu Dhabi’s production from its onshore oil fields at Habshan in the western region, allowing it to bypass the Strait of Hormuz bottleneck.
Meanwhile, construction staff have been mobilized to build new berthing facilities capable of handling VLCCs at Fujairah, a source close to the project said. The project, VLCC-1, is being built by a consortium of Belgium’s Six Construct and Singapore’s Rotary Engineering, which signed a contract with Port of Fujairah authorities in late August, the source said. VLCC-1 will have about 450,000 cubic meters of storage.
According to the source, energy trading company Vopak has committed to around 60% of the throughput for the berth.
The remainder is open to other trading companies. Construction should be complete in mid-2016. Port authorities are expected to make a decision before the end of 2015 on whether to further expand berthing facilities for a so-called VLCC-2 project with the same contractors, or to release a fresh tender.
Fujairah’s oil terminal 1 was commissioned in 2006, with three 15 meter berths and a throughput capacity of 15 million mt/year, handling tankers of up to 110,000 dwt. Oil terminal 2 was commissioned in 2010 with four berths of 18 meters and a throughput capacity of 25 million mt/year. It can handle tankers up to 180,000 dwt.
Norway’s foreign ministry said Tuesday the country will replicate the latest sanctions imposed by the EU on Russia in response to Russian actions in Ukraine.
The sanctions imposed by the EU from September 12 will be transposed into Norwegian regulation as part of a collective international response, the foreign ministry said.
The latest EU measures target Rosneft, Russia’s largest oil producer, Gazprom’s oil subsidiary Gazprom Neft, and national pipeline operator Transneft.
The EU restricted the companies’ access to EU capital markets as well as to services for deepwater, Arctic and shale oil exploration and production.
Norway’s Statoil is a partner with Rosneft in projects to explore frontier offshore areas including in the Sea of Okhotsk and the Russian portion of the Barents Sea.
Some media reports have suggested that a landmark Russian Arctic facility, the Prirazlomnaya platform in the Pechora Sea, is heavily dependent on Norwegian technology.
West Africa-focused Lekoil has unveiled a significant upgrade of resources at its Otakikpo marginal field in Nigeria, the AIM-listed company said Tuesday.
The offshore oil field in the eastern Niger Delta is now estimated to hold 56.57 million barrels, from a previous estimate of 36 million barrels. The upgrade is based on the results of a new competent person’s report carried out by AGR TRACS International, which was commissioned following the acquisition of the acreage in May.
AGR TRACS also assessed four onshore exploration prospects estimated to contain 162.8 million barrels. Lekoil also sees additional prospectivity in the southern shallow water portion of the acreage, which will be defined by further studies and appraisal in due course.
“This is a robust project that will provide us with near term production, cash flow and exploration upside as we continue to pursue our wider goal of becoming a much larger, Africa-focused E&P company,” Lekoil’s CEO Lekan Akinyanmi said.
Lekoil’s 90%-owned Lekoil Nigeria subsidiary agreed May 20 to buy 40% of Otakikpo from Green Energy International for $11 million in cash.
The company on May 21 raised $37.7 million in a share placing to fund around 20% of the $67 million initial work program for the field. Analysts at Westhouse Securities expect Otakikpo to be operational by June/July next year and should be producing 10,000 b/d by the end of 2015.
Lekoil expects the field to produce 25,000 b/d at peak by end-2016. “The upgrade to recoverable resources on the Otakikpo field demonstrates the significant opportunity offered by marginal fields in Nigeria, many of which will be available to companies like Lekoil, Sirius Petroleum, Eland Oil and Gas and the other international companies focused on Nigeria,”
Westhouse’s analyst Mark Henderson said in a research note. Elsewhere in Nigeria, Lekoil will shortly announce the results of a 3D seismic campaign over the OPL 310 licence, where the 770 million barrel Ogo discovery was made last year. The license is jointly owned by Lekoil, Afren and Optimum Petroleum Development.
Pledge comes ahead of trilateral summit in Berlin.
By Daniel J. Graeber | Sept. 23, 2014 at 9:30 AM | 1 Comment
KIEV, Ukraine, Sept. 23 (UPI) -- The Ukrainian government will ensure natural gas will flow uninterrupted though its territory to the European market, the prime minister said Tuesday.
Members of a European energy council met Tuesday in Kiev to discuss energy security challenges in the European market.
Europe gets about a quarter of its gas needs met by Russia, though more than half of that runs through the Soviet-era transit system in Ukraine. Russian energy company Gazprom in 2006 and 2009 cut gas through Ukraine in response to contractual rows, and ongoing tensions in eastern Ukraine add another layer of risk to European energy security.
Ukrainian Prime Minister Arseniy Yatsenyuk said energy solidarity in the European community would lead to advances in energy independence and energy security.
"Ukraine will abide by the Energy Community rules and ensure uninterrupted transit of gas through its territory," he said in a statement.
Ukrainian, Russian and European leaders are scheduled to meet Friday in Berlin to discuss lingering challenges to their trilateral energy ties. European Energy Commissioner Gunther Oettinger said from Kiev cross-border cooperation among member states was a necessary component of a functioning energy market.
"Our most urgent task is to ensure our common security of energy supply ahead of this winter," he said.
Russia has expressed frustration over Ukraine's mounting gas debt, but said European gas supplies are ensured.
GAO report highlights some of the risks of rail.
WASHINGTON, Sept. 23 (UPI) -- An environmental advocacy group said it wants President Barack Obama to use his authority to ban the type of rail cars tied to recent oil train derailments.
Older rail cars designated DOT-111 carrying crude oil have been involved in a series of disastrous derailments, including the deadly incident in Lac-Megantic, Quebec in 2013.
In mid-September, Earthjustice, ForestEthics and the Sierra Club filed a lawsuit against the Department of Transportation for not responding to a petition filed in July calling for a ban on shipping Bakken crude from North Dakota using DOT-111 cars.
ForestEthics campaigner Matt Krogh said a recent report from the U.S. Governmental Accountability Office emphasized some of the risks associated with shipping oil by rail.
"ForestEthics is asking the president to take the GAO report to heart, ban dangerous DOT-111 tanker cars, slow these trains, and protect the American public from the spills, fires, and carbon pollution that these trains bring," he said in a Monday statement.
The government in July issued a proposal calling for the phasing out of older DOT-111 rail cars used to ship flammable liquids, "including most Bakken crude oil." A January report described Bakken crude oil as potentially more flammable than other grades, though industry officials countered the claim.
"The industry has failed to act, claiming vague rules and exemptions from emergency planning for trains," Krogh said.
"They discussed mutual relations between the two countries, especially in the oil sector," the Iraqi Oil Ministry said in a statement Tuesday. "[The Iraqi minister] praised the Kuwaiti role in supporting Iraq economically and politically, as well as the Kuwaiti companies contributing to developing the oil industry."
BAGHDAD, Sept. 23 (UPI) -- The Iraqi Oil Ministry welcomed a delegation from Kuwait to discuss ways in which the two countries could expand bilateral ties in the energy sector.
Iraqi Oil Minister Adil Abdel Mahdi met in Baghdad with Kuwaiti Ambassador to Baghdad Ghassan al-Zawawi.
"They discussed mutual relations between the two countries, especially in the oil sector," the Iraqi Oil Ministry said in a statement Tuesday. "[The Iraqi minister] praised the Kuwaiti role in supporting Iraq economically and politically, as well as the Kuwaiti companies contributing to developing the oil industry."
Kuwait Energy, an independent company, holds a 70 percent stake in the Block 9 area in Basra in southern Iraq. The company said it produced 2,000 barrels of oil per day during a production test and will continue to appraise its latest discovery through the end of the year.
Iraq's super-giant Rumaila sits near the shared border with Kuwait. Disputes over the field led to war between the two countries during the regime of Saddam Hussein.
BP and the China National Petroleum Corporation are working to increase production from the Rumaila oil field to a plateau level of 2.85 million barrels per day.
Last week, the European Parliament passed a resolution calling on members of the European Union to cancel their South Stream contracts as part of a punitive measure designed in response to Russia's stance on crises in Ukraine.
BUDAPEST, Hungary, Sept. 23 (UPI) -- A team tasked with designing the Hungarian section of the South Stream gas pipeline will be selected within a month, Russian gas company Gazprom said.
Gazprom aims to build the South Stream gas pipeline through southern European to avoid geopolitically sensitive territory in Ukraine, which hosts most of the Russian gas bound for the European market currently.
Gazprom Chairman Alexei Miller met in Budapest with Hungarian Prime Minister Viktor Orban to discuss Hungary's gas needs for the upcoming winter and implementation of South Stream.
"A bidding procedure is underway in Hungary for selecting a contractor to carry out design and survey activities, spatial planning and environmental impact assessment for South Stream's Hungarian section towards Baumgarten in Austria," the Russian company said in a statement Monday. "The designer will be selected before the end of October 2014."
Last week, the European Parliament passed a resolution calling on members of the European Union to cancel their South Stream contracts as part of a punitive measure designed in response to Russia's stance on crises in Ukraine.
Hungary joined the EU in 2004.
Nevertheless, Gazprom said of the first of the 2.2 trillion cubic feet of gas per year designed for South Stream would be delivered in late 2015. Hungary would receive its first gas in 2017 and the entire project would reach full design capacity by 2018.
Harper's government trying to woo energy-hungry Asian markets.
Canadian Prime Minister Stephen Harper woos South Korea as future energy partner. UPI/Debbie Hill
OTTAWA, Sept. 23 (UPI) -- A joint declaration from the Canadian and South Korean governments said the depth of their bilateral relationship extends well into the energy sector.
Canadian Prime Minister Stephen Harper met in Ottawa with South Korean President Park Geun-hye to sign documents establishing a strategic partnership and celebrating the March signing of a free-trade agreement.
"This partnership will lay out a strategic direction for stronger relations in key areas of common interest including energy and natural resources, science, technology and innovation, and Arctic research and development," their Monday declaration read.
Harper has tried to diversify an export economy that relies almost exclusively on the United States as its destination for oil and natural gas. The March free-trade deal with South Korea was Canada's first with an Asian power.
Both leaders during their Monday visit in Ottawa signed an agreement to develop deeper relations in energy technology and industry collaboration "in strategic areas of mutual interest."
South Korea is the second-largest importer of liquefied natural gas in the world. For Harper, LNG shipments from the western Canadian coast are an opportunity for diversification.
By Benoît Faucon
Oil prices will likely fall to $90 a barrel by the end of the winter, Iran's head of oil sales was quoted as saying Tuesday, countering views by other producers that expect prices to rebound.
The remarks come after members of the Organization of the Petroleum Exporting Countries said in recent days they expect oil prices to rebound after it fell below $100 a barrel earlier this month. But in remarks carried by Iran's oil ministry website Shana, Mohsen Ghamsari, the director at the National Iranian Oil Company in charge of international oil sales, said that "if the oil market only looks at supply and demand, the oil price will further decline in the global market."
Though it has fallen in recent weeks, the Brent oil contract--the most widely traded in the world--has remained above $95 a barrel. But Mr. Ghamsari said "the oil price will likely fall to $90 a barrel by the end of this year," referring to the Iranian year that ends in late March.
Saudi Oil Minister Ali al-Naimi, along with OPEC's Secretary-General Abdalla Salem el-Badri, both said they expect the oil price to rebound.
Write to Benoît Faucon at Benoit.Faucon @wsj.com
HOUSTON --- Tight oil production in the U.S. will surpass expectations and additional volumes from enhanced oil recovery (EOR) tactics could add as much as 1.5 to 3.0 MMbpd by 2030, according to analysis from Wood Mackanzie.
"Growth in US tight oil continues to impress as development technology and techniques have yet to mature beyond adolescence," said Phani Gadde, senior North American upstream analyst for Wood Mackenzie.
Technologies used for EOR are in early test phase and not yet available on a commercial scale, but indicators suggest up to a 100% increase in recovery rates with some operators in the Eagle Ford, Gadde said.
"This is going to happen, like horizontal drilling and fracking, leading to another step-change in production technology," added Wood Mackenzie downstream analyst Skip York.
The analysis did not account for the crude oil export ban, which if still in place through the next two decades, production could drive down domestic crude oil prices by more than $30/bbl versus their international benchmarks. This discount has the effect of stranding barrels in the reservoirs leading to no net change in US tight oil volumes and EOR in core areas might simply push out more expensive volumes from emerging plays.
"Policy makers need to get out in front of the next technological progression to not delay the full benefits,” York said.
09/23/2014
Mexico is set to hold tenders for the exploration and development of oilfields by private companies early next year, according to RIA Novosti news agency.
Speaking at the Bloomberg Latin America Forum in New York, Mexican President Enrique Pena Nieto said the market would know which oilfields were available for tender within the next six months.
"I believe that in the first quarter of the next year we will have a list of all of these fields," Pena Nieto said on Monday, as quoted by Russian news agency RIA Novosti.
Pena Nieto has pursued comprehensive energy reform since he took office in December 2012, in a bid to attract foreign and domestic investment to Mexico's ailing oil, gas and electricity sectors. The reforms are a flagship policy for the President, who had promised to revitalise the economy during his election campaign.
Mexico is thought to have the world's sixth-largest reserves of shale gas, a natural gas that is trapped inside rock formations. Exploiting these formations has reinvigorated the US energy market in the past few years.
While many of Pena Nieto's predecessors had attempted to break the state monopoly in the energy sector, none had been able to push through meaningful reform.
However the Mexican parliament effectively put an end to nearly 80 years of state control in early August, voting to allow state-run companies to sign deals with private firms.
Under the new framework, private oil and gas companies will compete with state-run Pemex and will operate under contract with the Mexican state. Previously, private firms were limited to working for Pemex under service contracts.
New York (Platts)--23Sep2014/349 pm EDT/1949 GMT
NYMEX October RBOB closed 4.40 cents higher at $2.6287/gal on Tuesday, while oil futures were mixed on news of US-led airstrikes in Syria and increased Libyan production.
NYMEX November crude closed 69 cents higher at $91.56/barrel. ICE November Brent settled 12 cents lower at $96.85/b. NYMEX October ULSD closed up 39 points at $2.6832/gal.
"Some ongoing refinery issues are allowing RBOB to break free a little bit from the balance of the complex, and concern related to the airstrikes in Syria are helping to keep a floor on crude prices," Tony Headrick, an analyst at CHS Hedging, said.
Two Canadian refineries started planned maintenance last week that are typically major sources of gasoline to the US East Coast.
Irving Oil started an eight-week turnaround at its 300,000 b/d Saint John, New Brunswick, refinery, while Suncor began work on its 137,000 b/d refinery in Montreal, which is expected to last 11 weeks.
In the Middle East, geopolitical risk resurfaced as a US-led coalition widened the fight against jihadists, bombing parts of Syria overnight.
Libyan crude production continued to increase Tuesday after the state-owned National Oil Corp. reopened the Sharara oil field and associated export terminal and refinery a day earlier.
London (Platts)--23Sep2014/947 am EDT/1347 GMT
UAE oil minister Souhail al-Mazrouei said Tuesday it was too early for OPEC to decide whether it should reduce its 30 million b/d crude output ceiling at its next ministerial meeting in November.
Oil prices have been falling since mid-August, driven by expectations that growth in world oil demand will be outpaced by growth in supply.
OPEC secretary general Abdalla el-Badri said last week that lower output would be required from the oil producer group next year.
Mazrouei, quoted by UAE official news agency WAM, said: "It is premature to take a decision on whether the Organisation of Petroleum Exporting Countries, OPEC, should reduce its production ceiling at its meeting in November to consult and agree on the procedures."
Earlier this month, Saudi oil minister Ali Naimi played down the sharp drop in oil prices, saying it was not the first time crude prices had fallen.
Oil prices went "up and down" all the time, Naimi said, adding he did not see what what "the big fuss" was this time.
Any measures OPEC might need to take regarding the price drop should be discussed at OPEC's November 27 meeting in Vienna, he said.
The Saudi minister was speaking in the same week Brent dipped below $100/barrel for the first time since June 2013.
Brent has traded on Tuesday between $96.90/barrel and $97.59/b.
OPEC's latest forecasts see demand for its crude averaging 29.45 million b/d this year and falling to 29.2 million b/d in 2015.
But while OPEC expects the call on its crude to remain above 30 million b/d in the second half of this year, it is forecasting a plunge of nearly 1.8 million b/d between the fourth and first quarter of next year, to 28.39 million b/d.
London (Platts)--23Sep2014/903 am EDT/1303 GMT
ICE front-month 0.1% gasoil futures hit a 26-month low at the start of the week, Platts data showed, amid ongoing weakness in the crude oil complex.
"As the new week begins, Brent is trading at below the $98/b mark and thus only just short of the two-year low it hit last week," Commerzbank analysts said in a note.
"Plentiful non-OPEC supply, especially in the US, in combination with concerns about demand in Europe and China are continuing to weigh on its price," they said.
ICE October 0.1% gasoil futures were assessed at $814.50/mt Monday, the lowest level for the front month since $808.75/mt on June 25, 2012.
The FOB delivered Rotterdam 0.1% sulfur gasoil outright price and Northwest European cargoes and Mediterranean cargoes were all assessed at their lowest level since June 26, 2012, at $811/mt, $817.25/mt and $819/mt respectively.
The 10 ppm diesel outright price for cargoes hit the same long-term lows with CIF NWE cargoes assessed at $836.25/mt and CIF Med cargoes at $840/mt.
The 10 ppm FOB barge outright price fell to an even deeper low at $829/mt, its lowest level since January 10, 2011.
Front month ICE Brent futures were assessed at $96.85/barrel Monday, a $1.05/b drop on the day and continuing the sharp decline of recent weeks.
Most analysts expected the oil complex to remain weak, with demand not looking very strong in a physical crude market awash with material.
Lagos (Platts)--23Sep2014/901 am EDT/1301 GMT
A 6% increase in the price at which Nigeria LNG Ltd's liquefied petroleum gas offtakers sell on to LPG marketers in the country will scupper the government's plans to significantly increase domestic consumption of LPG, the Nigerian Association of LPG Marketers said Tuesday.
NLNG, which produces around 5 million mt/year of LPG from its six-train Bonny LNG plant, provides 250,000 mt/year of the output for the domestic market through 18 companies known as offtakers
NLNG officials said the company had not increased the price at which it sells LPG to the offtakers.
"The offtakers are creating unnecessary scarcity and have increased the price to Naira 3.5 million [$22,000] per 20 mt, which is not in line with the aspiration of the Federal Government to encourage LPG usage," the Nigerian Association of LPG Marketers said in a statement.
"We know that the [international market] price of crude oil, which is one of the parameters used by NLNG to determine the domestic price of gas, has not increased. So our members nationwide are demanding an explanation as to what led to it," it added.
NLNG has struggled to dispose of the entire 250,000 mt/year volume reserved for the domestic market, with the offtakers only lifting a total 132,213 mt of LPG in 2013.
LPG is a major source of cooking energy for Nigeria's middle class.
However, high tariffs on gas equipment and materials and the continued government subsidy on kerosene have impaired the growth of LPG consumption in Nigeria, which is among the lowest LPG consuming states in sub-Saharan Africa.
Nigerian National Petroleum Corp. said in February the government was pushing to increase domestic supply and consumption of LPG in country to 500,000 mt/year by the end of 2014, in a bid to cut down on the use of kerosene as a cooking fuel. Kerosene is mostly imported and is heavily subsidized by the government.
Singapore (Platts)--23Sep2014/114 am EDT/514 GMT
The prompt inter-quarter spreads for gasoil and jet swaps hit multi-year lows Monday, September 22, reflecting a struggling middle distillates complex as it grapples with low buying interest and a supply glut.
The prompt Q4 2014/Q1 2015 FOB Singapore 500 ppm gasoil swap timespread fell 5 cents/barrel from Friday to hit a 2-year-low of minus 96 cents/b Monday.
The last time the prompt inter-quarter differential was any lower was on August 22, 2012, when it was assessed at minus $1/b.
Meanwhile, the Q4/Q1 FOB Singapore jet/kerosene swap timespread was assessed 2 cents/b lower at a three-year-low of minus 96 cents/b Monday.
It was last weaker on June 30, 2011, when it was minus $1.16/b.
Industry sources said this weakness was likely a reflection of an anticipated increase in refining capacity in the Middle East and India by the year's end.
"The market is flush with supply, and there will be even more capacity in Q4 [2014]," a Singapore-based middle distillates trader said.
Yanbu Aramco Sinopec Refining Co. is set to startup its 400,000 b/d Yanbu refinery with an expected 263,000 b/d ultra low sulfur diesel yield at the end of the year, the same time that Indian Oil Corporation's 300,000 b/d Paradip refinery will begin operations.
The region has seen a steady decline in imports, following the startup of Saudi Aramco Total Refinery and Petrochemical Co.'s 400,000 b/d Jubail refinery in Q4 2013. UAE's Abu Dhabi Oil Refining Company, or Takreer, will also soon commission an expansion that will hike the capacity of its Ruwais refinery to 835,000 b/d, and it is expected to produce 123,000 b/d of diesel.
The expanded refinery is expected to begin production from its new units by the end of the year.
Increased exports from both India and China have added further pressure on the market. The monsoon season in India dampened domestic demand, leading refiners to offer more cargoes in the spot market.
Though details on total export volumes were not available, traders said that Essar Oil and MRPL had raised their exports for October, while Bharat Petroleum Corp. Ltd. was heard offering around 105,000 mt of gasoil for export recently, a first for the state-owned refiner.
Chinese refiners have also hiked their exports due to a fall in domestic gasoil consumption.
Data from the Chinese General Administration of Customs Monday revealed a year-on-year jump of more than five times in gasoil exports to 410,000 mt in August.
Meanwhile, jet exports over January-August rose 10.8%% year on year to 6.45 million mt.
Chinese domestic production of jet fuel/kerosene soared 21.7% year on year over January-July as refineries adjusted their yields in favor of jet fuel to cater to a growing aviation sector, and reduce the output of gasoil, which is facing a decline in demand due to the economic slowdown. In Southeast Asia, Vietnamese demand has been lackluster due to the country's sole refinery operating at full capacity for most of the year. Indonesian demand was largely stable though.
In the Middle East, the UAE's decision to change its motor fuel specifications from 500 ppm sulfur gasoil to 10 ppm sulfur has also removed a significant slice of demand from the spot market.
Industry sources, however, said they were optimistic that the market would rebound in the months ahead.
"Demand for [kerosene] heating oil in north Asia typically peaks in Q4, and that should strengthen the market [at the prompt and] throughout the rest of the curve," a Singapore-based broker said.
By James Stafford | Tue, 23 September 2014 23:11 | 0
Not even the specter of a spillover of Islamic extremism from Somalia can dampen the atmosphere in Kenya, where commercial oil production is expected to begin in 2016 and discovery after discovery has made this the hottest and fastest-paced hydrocarbon scene on the continent.
When it comes to new oil and gas frontiers, today it’s all about Africa. And more specifically, it’s all about the eastern coast, with Kenya the clear darling--not just because it’s outpacing neighboring Uganda by leaps and bounds, but also because despite some political instability hiccups and the threat of militant al-Shabaab, it’s still one of the safest venues in the region.
Six of the last 10 biggest finds have been in Africa, where—all told--there are some 130 billion barrels of crude oil waiting to be tapped by more than 500 companies, according to a recent report by PriceWaterhouseCoopers.
Topping this list are Kenya’s Anza and South Lokichar basins where the discovery and development news has been fast-paced.
In the last days of August, Tullow Oil—the British explorer behind Kenya’s oil discovery debut in 2012—announced another oil find that will extend the already proven South Lokichar basin “significantly northwards”.
Earlier this year, in May, Tullow and partner Africa Oil Corporation left a hefty impression on the market with the announcement of the country’s first commercial oil discovery, worth $10 billion, in this basin.
And the next testing ground will be the neighboring Kerio Basin, which should get off the ground later this month, while there has been a flurry of attention lately surrounding the Ogaden basin where initial estimates are enough to send stocks soaring.
In the meantime, while bigger players such as Tullow and Africa Oil have benefited from the fame of their initial discoveries, they have also become burdened by the pressure of rising expectations for more discoveries. Not so the smaller players on this scene, who stand to benefit from the original discoveries and continued drilling—without the pressure. Investors will now be looking at who is poised to make the next discovery.
Africa Oil and Marathon are currently drilling an appraisal well on the Sala gas discovery in the Anza Graben Basin onshore Kenya, which will benefit other explorers with acreage just south of this, including UK-listed Afren Plc, UK-listed Tower Resources and Taipan Resources Inc, which has two onshore blocks in key basins. If these explorers come up with their own first find, it will be a superior risk-reward scenario.
In the Ogaden Basin, the market will certainly take notice of Afren’s new estimates late last month that a large under-explored sub-basin, El Wak, contains up to 6.65 billion barrels of oil. If this estimate is accurate—and it comes in well above partner Taipan Resources’ earlier estimates of about a quarter of that—they would be looking at the largest onshore target ever drilled anywhere in Africa. Later this year, Afren will be conducting seismic surveys to further define El Wak’s potential, and investors will be watching closely.
The bigger picture, though, is of an East African country that has the advantage over its neighbors due to a convergence of add-on factors, including infrastructure aims, relative stability and what appears to be a smarter use of natural resources to generate more investment and economic growth, according to Jennifer Cooke of the Center for Strategic and International Studies.
Among other planned infrastructure projects of a massive scale, discussions are under way for a pipeline from neighboring Uganda, which would pass through the South Lokichar basin and come close enough to some of the prime drilling areas that could be the site of Kenya’s next discoveries.
The World Bank’s approval in July of $50 million for the Kenyan government to boost its management and distribution of natural resource revenues, with an eye on long-term sustainable growth, has provided further confidence for developments in the region.
In the meantime, political stability has also been given a slight reprieve with the International Criminal Court’s (ICC) indefinite adjournment of the trial against Kenyan President Uhuru Kenyatta due to lack of evidence that he organized post-election ethnic violence in 2007.
But the security situation with the regrouping of the Somalia-based al-Shabaab militant group and an uptick of the group’s apparent attacks on Kenya continue to be problematic, even more so because no one seems to be sure whether the threat is emanating entirely from al-Shabaab.
While this remains a clear threat, it has not affected exploration and development—and it certainly has done little to scare foreign investors from this hydrocarbon frenzy that is expected to continue over the next five years, further boosted by relatively cheap exploration licenses.
In this race, Kenya is the top contender, moving forward at double the speed of neighboring Uganda which discovered oil in 2006, six years before Kenya, but will lag a year behind the newcomer in terms of commercial production.
By James Stafford of Oilprice.com
By Claude Salhani | Tue, 23 September 2014 22:56 | 0
The Middle East is being consumed by some of the worst violence in its history, caused by Arabs themselves amidst unprecedented cruelty and destruction. At the rate the fighting is progressing, it is only a matter of time – and not much time – before we start to see tactics involving the bombing of oil and gas fields.
It would not require very much for the infrastructures of the states involved in the conflict to collapse and crumble. Without crucial revenues from oil and gas, what would be left behind would be fractured countries with little more than the memories of what could have been. Think Gaza on a larger scale.
The oil industries in Syria and Iraq, in particular, are in great danger as fierce fighting continues for control of areas held by the Islamic State. Western companies are finding it excessively dangerous to conduct business in Iraq. Syria, with far less oil, was already hurt by years of sanctions imposed by the United States and Western Europe for its support of terrorism.
With that in mind, the oil-rich, South Caucasus country of Azerbaijan could soon find itself playing a very important geopolitical role.
Stable Azerbaijan represents more than just a potential secure source of oil and natural gas to keep Europe warm during the cold winter. This former Soviet republic, which is majority Shia Muslim yet highly secular, is taking on more and more importance. It is friendly with the West, but understands the problems of the East.
With the exception of some oil- and gas-producing countries of the Arabian Gulf that seem to be weathering the storm so far, the rest of the Middle East is in dire straits. The sort of civil wars being fought today in Syria and Iraq -- as well as in Yemen and Libya -- are the kind of conflicts that take decades for countries to recover from.
This is where Azerbaijan, sitting on the fringes of the Arab world, can play a major role. It can help stabilize the region even while selling its oil and gas via some of the most sophisticated network of pipelines ever built. Indeed, Azerbaijan may well end up playing the role that was meant initially for Turkey a decade or two ago. But Turkey got distracted: first, by the near- obsession of former prime minister and now president, Recep Tayyip Erdogan, in joining the European Union. When that failed, he turned his attention to becoming a regional power player in the Middle East. And when that failed, he shifted his focus to Central Asia, where Turkey has cultural and linguistic roots.
Azerbaijan could help bridge East and West by bringing moderate Muslims into the fold of emerging democracies. It is the role that Turkey should have carried out but never did; instead, out of frustration, it moved eastwards, closer to the countries of the former Ottoman Empire and away from Europe.
Azerbaijan is one of the few Muslim countries to have not just relations with Israel, but cordial relations, and cooperation agreements in several fields, including the military. Azerbaijan has decent relations with its southern neighbor, Iran, though periodically the security services uncover a terrorist plot aimed at Israel and proceed to make numerous arrests. Inevitably, most, if not all the suspects are Iranians.
Baku maintains excellent relations with the United States and Americans are genuinely well received here. At the same time, Baku is able to walk the delicate tightrope required to remain on good terms with both Washington and Moscow. Not an easy feat by any stretch of the imagination.
Yet so far, President Ilham Aliyev has demonstrated incredible ability to find the middle ground and remain friendly with the Arab world, Turkey, Iran, Israel, the United States and Russia. He might soon find himself in high demand.
By Claude Salhani of Oilprice.com
By James Burgess | Tue, 23 September 2014 19:41 | 0
The Permian basin, now the nation’s most productive, is churning out ever-increasing volumes of crude. As of September 2014, the Permian is producing 1.7 million barrels per day (bpd). That is more than double the 850,000 bpd the area saw in 2007.
Even the more well-known oil producing basins around the country pale in comparison. The Bakken in North Dakota and Montana, which has received so much media attention, produces only around 1 million bpd. And the Eagle Ford, the Permian’s neighbor in South Texas, is responsible for 1.5 million bpd in production.
The Permian is king, even if the rest of the world doesn’t know it. Despite the lack of media attention, the oil and gas industry is fully aware of the Permian’s potential and they are heading there in droves.
Occidental Petroleum (NYSE: OXY) just broke ground on a major satellite office it is building in Midland, TX. The location is not random. Midland sits in the heart of the Permian basin and Oxy’s new office will house 600 employees. Texas Governor Rick Perry was on hand to inaugurate the occasion. “The men and women of the Midland area who will work at this facility will help Oxy continue to achieve their own great things, and in the process add their own stories to the ongoing tale of our state’s economic success,” Gov. Perry said at the event.
Oxy is the largest operator in the Permian and recently decided to move its headquarters from California to Houston in order to focus on Texas’ abundant oil and gas reserves. The success of the company’s acreage in the Permian was enough to convince the company that the Permian was the place to be.
It is not just big players like Oxy making strides in the Permian. Scrappy companies like Crude Energy LLC are also making progress. Crude Energy, a small independent oil and gas exploration company, is sitting on prime acreage in the Permian.
And Crude Energy just announced that it has participated in the spudding of a well in the Permian. Crude Energy’s White Wolf #1 prospect, based in the Permian is about 640 acres.
The well began spudding on September 11, targeting the highly prized Wolfcamp formation. The Wolfcamp is the principle reason that the Permian basin has become so productive. Crude Energy’s White Wolf #1 project will see drilling to a total depth of 9,200 feet, with the Lower Wolfcamp formation beginning at 7,200 feet. Along the way there are multiple payzones, and Crude Energy will also target the Cisco, Canyon, Cline, Strawn, Mississippian, Fusselman, Montoya and Ellenburger formations.
Drilling will take about 12 days to reach its lowest depth, and well completion and testing will take place in 30 days.
“As promised, Crude Energy is moving forward on the White Wolf #1 well, a potentially liquids rich prospect that we feel will fuel growth in our portfolio,” Crude Energy’s CEO Parker Hallam said in a statement. “We should have preliminary test data in a matter of weeks, and we are confident that White Wolf will pay off many times over.”
Crude Energy and its competitors in the basin have good reason to feel confident. As oil output in West Texas has quickly become one of the great American business success stories, the Permian basin is showing no signs of slowing down.
“You're definitely going to hit the 2 million barrel mark,” Bob Reeves, CEO of Athlon Energy (NYSE: ATHL), another Permian explorer, said at a conference, according to the Wall Street Journal. “I think it's not a matter of if, it's just a matter of when.”
By James Burgess of Oilprice.com
YUZHNO-SAKHALINSK, September 23. /ITAR-TASS/. It will take three to four years for the Russian oil and gas industry to replace equipment imports with domestic output amid Western sanctions, Deputy Energy Minister Kirill Molodtsov said on Tuesday.
The Russian authorities are taking active efforts to reduce the domestic oil and gas industry’s dependence on foreign equipment and services through the implementation of the import substitution program, Molodtsov said. “Most technologies have Russian analogues one way or another,” Molodtsov said at a conference on Sakhalin Island’s oil and gas.
The deputy energy minister said that 80% of the equipment used for extracting hard-to-access resources was produced in Russia.
The sectoral sanctions imposed by the European Union against Moscow prohibit the supply of equipment to Russia for exploration and production on the continental shelf, in the Arctic and at shale deposits, and bar foreign companies’ participation in such projects.
The US Department of Commerce announced in August that US firms were banned from selling equipment to Russia for deep-water projects, on the Arctic shelf and at shale deposits. The ban applies, in particular, to drilling platforms, horizontal drilling equipment, software for oil and gas extraction, high-pressure pumps and hardware for seismic exploration work.
ExxonMobil, Rosneft continue talks on Far East LNG plant despite sanctions
Threat to cooperation in oil & gas industry
The Western sanctions have thrown into question the projects of Russian oil and gas giants with foreign companies and the activity of oil services companies performing up to 65% of all works on the Russian market.
Not a single foreign company has announced plans to quit joint projects with Russia so far. On the contrary, the US authorities allowed ExxonMobil on Monday to continue exploratory drilling of the Universitetskaya-1 well in the Arctic Kara Sea jointly with Russian oil company Rosneft.
A week earlier, Norway’s DolphinGroup engaged in the seismic analysis of geophysical data on the same shelf received similar permission from the Norwegian government.
Risks remain, however. Bloomberg news agency estimates that the anti-Russian sanctions may affect such large oil services companies as Schlumberger, Halliburton, Baker Hughes and Weatherford International.
French oil giant Total suspends LUKoil joint venture amid sanctions — media
Last week, the Russian government returned after a two-year break to the talks on establishing the oil services state corporation designed to make domestic firms more competitive with foreign companies.
Russian Natural Resources Minister Sergey Donskoy said at the time that the company integrating oil services assets would be established by the end of 2014.
Russia has been a leader in oil and gas works in permafrost conditions, but is lagging behind western countries in the development of technology for natural resources extraction on the deep-water shelf and at shale oil deposits, industry experts say.
SOFIA, September 23. /ITAR-TASS/. Threats to Bulgaria's gas supply are possible, Interim Economy and Energy Minister Vasil Shtonov said on Monday. “The most important thing for us is to be ready for a possible crisis,” Shtonov told an international gas forum in the Bulgarian capital.
“That is why we are actively monitoring developments in Ukraine, and relations between Russia, Ukraine and the European community,” the minister said. “We are taking active preventive measures to avoid a crisis.”
“If gas supplies are halted or even reduced, Bulgaria will find itself in a tight situation as the country receives all its gas from a pipeline which runs from Russia through Ukraine and Romania,” Shtonov said.
Bulgaria can access four million cubic metres per day from its sole underground gas storage facility in northwest Bulgaria for daily consumption of 10-11 million cubic metres, he said, adding that some Bulgarian heating utilities, warned to test their capabilities, were preparing to use heavy fuel oil instead of gas in the event of supply cuts.
EU guided by political considerations in dealing with South Stream project — opinion
Bulgaria and the South Stream gas pipeline
As for the South Stream underwater gas pipeline project from Russia to Bulgaria, the country had a purely commercial interest in it, the minister said. “South Stream is a transit pipeline,” he said, adding that Bulgaria expected to benefit from fuel transit taxes.
“Bulgaria has a good geographical position which we should use,” Shtonov said, noting that the interim government of technocrats prioritised “construction of gas interconnection pipelines with Romania, Greece, Turkey and Serbia”.
South Stream is Russian Gazprom's global infrastructure project designed to build a gas pipeline with a capacity of 63 billion cubic metres across the Black Sea to southern and central Europe, diversifying export routes and eliminating transit risks.
South Stream construction started in late 2012. First deliveries are due in 2016. The pipeline is expected to become fully operational in 2018.
* Profits from lube business plug gaping hole from refining
* Capacity increase may bite lube margins in late 2014
By Meeyoung Cho and Chris Lee
SEOUL, Sept 23 (Reuters) - Profits from robust lubricant oil sales helped offset steep refining losses at South Korea's top three oil refiners in the first half, but planned production hikes later this year threaten to erode margins and sever their earnings lifeline.
Korean refiners have focused on specialty lubricants, using heavy oil upgrading systems to feed residual oil from the refinery process into lube base oil, and have enjoyed robust sales this year to Europe and the United States.
Profits in lube base oil, the feedstock for engine oils and greases, covered nearly two-thirds of refining losses at South Korea's top three refiners despite making up only six percent of sales, helping them weather a refining industry downturn.
"Refineries are experiencing many losses when it comes to refining ... they're passably making a profit in lubricants and chemicals. The lubricant market isn't doing well like it was back in 2011 but it's still basically an oligopoly market," said Yeon-ju Park, an analyst at KDB Daewoo Securities.
SK Lubricants Co Ltd, owned by SK Innovation Co Ltd , GS Caltex Corp and S-Oil Corp reported combined profits from their lube oil and lubricant businesses of 389 billion Korean won ($374 million) over the first six months of this year, doubling year on year, according to an analysis of company filings.
Over the same period, SK Energy, also owned by SK Innovation, GS Caltex and S-Oil accrued a combined 623 billion won operating loss in their refining businesses, which were hit by weak oil prices and soft regional energy demand, swinging from 509 billion won profit a year earlier.
But a planned 30 percent increase in four South Korean refiners' lube oil production capacity - to 144,300 barrels per day (bpd) - before the end of the year poses a major risk to lubricant revenues, and could expose the country's energy giants to harsher operating conditions, analysts said.
South Korea has the fourth-largest refining capacity in Asia Pacific at 2.9 million bpd, but run rates and refinery sales have eased this year, although lube oil and lubricant sales jumped 17 percent in the first half to 3.4 trillion won.
ADDING CAPACITY
Lube oil has five major markets depending on quality and usages, the largest of which are 'Grade II' for industries and automobiles, and 'Group III' for premium market vehicles.
European and U.S. demand for high-end automobiles is projected to remain brisk, but premium lube production capacity is rising.
"They're all flocking at the same time because they have no other choice. This is part of the reason why lubricating oil product prices are unable to rise," said Kyu-won Hwang, an analyst at Tong Yang Securities.
South Korea's combined lube production capacity will jump 30 percent to 144,300 bpd later this year as SK Lubricants jointly with Spain's Repsol will open a 13,300 bpd plant and Hyundai Oilbank with Shell Petroleum Co, a refining unit of Royal Dutch Shell, will start 20,000 bpd plant.
Shell is also betting on lubricants along with its chemicals and retail fuel sales to help it boost the performance of its downstream division, where oil refining will remain a drag on earnings in many regions.
"The supply is out there, and lubricating oil margins are also easing, so profits will be diminished," said Young-joo Son, a senior analyst at Kyobo Investment Trust.
(1 US dollar = 1,042.5 Korean won) (Reporting by Meeyoung Cho and Chris Lee; Editing by Richard Pullin)
By Dave Forest | Tue, 23 September 2014 14:02 | 0
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Interesting item this week on the global natural gas sector. And a warning from one major player in the space that prices could be headed much lower than many observers are expecting.
The company is China National Offshore Oil Company (CNOOC). A firm that said last week it sees the liquefied natural gas (LNG) sector seeing significantly weaker pricing coming up.
As reported by Platts, the comments came from the company's chief energy researcher, Chen Wei Dong. Who was speaking to the Canada LNG Export Conference and Exhibition in Calgary, about future shipments of LNG from proposed developments in Canada.
In short, Dong said, Chinese buyers aren't going to pay much for Canadian gas.
"We are in a strong position... and that puts us in the driver's seat while conducting price negotiations in Canada," Dong told the crowd. Going on to note that Chinese buyers would look to drive a "hard bargain" when drawing up LNG purchase contracts.
He cited China's recent natural gas supply deals with Russia as a major reason that China can afford to be stingy. "We are negotiating another deal with Russia," he said, "which we are hoping to sign late this year or early 2015."
Interestingly, these comments from one of the world's biggest petro-players come as LNG prices in Asia have been hitting multi-year lows. With signs emerging that demand is waning in a major way.
In major LNG buying nation South Korea, for example. Where last week data was released showing that August LNG imports were 22% lower than the previous year--at 2.54 million tonnes.
That marks the sixth-straight month this year where LNG demand has been lower than 2013.
A lot of the shift in demand here has been seasonal. With the country enjoying a warm winter and a cooler summer--reducing the need for natural gas in heating and cooling.
But at the very least it's a reminder that things have been pretty good in the global LNG sector the last few years. With a "perfect storm" of rising demand in Japan and higher-than-normal seasonal demand in Korea perhaps driving prices to levels that aren't sustainable.
Developers of LNG projects--as in Canada--should be thinking carefully about their price assumptions.
Tue Sep 23, 2014 8:22am EDT
(Reuters) - The European Commission (EC) will propose that Russia and Ukraine sign an interim gas agreement in Berlin as a step towards resolving their long-standing row over gas prices, Energy Commissioner Guenther Oettinger said on Tuesday.
Russian, Ukrainian and EC officials are meeting on Sept. 26.
Ukraine's military, reporting progress on a ceasefire called by President Petro Poroshenko, said on Tuesday all firing stopped overnight in a conflict with pro-Russian separatists that has killed more than 3,000 people and sent relations between the two countries to an all-time low.
Oettinger said the gas agreement should fix an interim price for a specified amount of gas to be shipped to Ukraine.
"The most pragmatic way would be to have an interim contract for some billion cubic metres of gas, delivered by Gazprom to (Ukrainian state gas company) Naftogaz, to have an interim price," he told a news conference.
"Our proposal is to realise an interim solution to avoid problems with supply for winter season up to April next year."
Ukraine was paying about $500 per 1,000 cubic metres, the highest in Europe, until June when Russia's Gazprom cut gas supplies to former Soviet republic.
Naftogaz has filed a lawsuit at the international arbitration court in Stockholm to establish a "fair and market price" for natural gas supplies from Gazprom.
Ukrainian Energy Minister Yuri Prodan, who appeared with Oettinger at the news conference on Tuesday, said Kiev would support the EC's proposal.
"We have to determine an interim price which must be market price and we are ready to work with this price until the Stockholm arbitration court adopts the final decision," he said.
Ukraine said last month it was prepared to pay an interim compromise price for Russian gas but criticised the Russian gas giant for being unwilling to negotiate.
Ukrainian energy officials say Kiev is ready to pay a compromise price of $326 per 1,000 cubic metres of Russian gas for an 18-month period to allow time to end the pricing dispute. (Reporting by Pavel Polityuk; Writing by Katya Golubkova; Editing by Richard Balmforth and Louise Ireland)
* Southern exports average almost 2.60 million bpd - sources
* Exports close to record rate seen in May
* Lack of Kirkuk northern exports limits overall supply
By Alex Lawler
LONDON, Sept 23 (Reuters) - Iraq's oil exports from its southern terminals on the Gulf, far from the fighting in its north, have increased so far this month as bad weather and logistical delays subsided, approaching a record high reached in May.
Three months after an advance by Islamic State into northern Iraq sent oil prices soaring to $115 a barrel, the fighting has not reduced Iraq's exports from the south, the main outlet for its crude to world markets.
Exports from Iraq's southern terminals have averaged 2.58 million barrels per day (bpd), according to shipping data for the first 23 days of September tracked by Reuters. Two industry sources who monitor the exports had similar estimates.
Oil industry sources said there has been less impact on exports in September from bad weather and logistical delays, which had held up some shipments in August.
"There are still delays, but they are reduced," said a source with a company that trades Iraqi crude. "The fields are far from the fighting, so that helps."
Southern exports so far in September are up from the average of 2.38 million bpd during all of August and if sustained, would equal May's average of 2.58 million bpd, which was the highest since at least 2003.
Iraq's oil supplies were held back by decades of wars and sanctions. It has been expanding oil production in the south since Western companies signed a series of service contracts with Baghdad in 2010, and boosted export capacity.
Still, a shortage of water - used for injection into oil wells to flush crude to the surface, is hindering production at two mature southern fields - West Qurna-1 and Zubair, official and industry sources said earlier this month.
Total exports from Iraq's northern and southern ports hit a record 2.80 million bpd in February. But northern exports of Kirkuk crude have been shut since March 2 due to attacks on a pipeline to Turkey, keeping total exports below their potential.
While Kirkuk exports remain halted and unlikely to return any time soon in the view of Kirkuk's governor, Iraq's Kurdistan region is exporting smaller quantities of oil independently of Baghdad via Turkey's Ceyhan port.
The Kurdish exports started in May and since then more than 11 million barrels have sailed from Ceyhan, according to a Reuters tally, although diplomatic and legal pressure from Baghdad has delayed some shipments. (Editing by William Hardy)
By Denis Pinchuk
(Reuters) - Russia's Gazprom (GAZP.MM) expects its export volumes and average gas price in Europe next year to be "no worse" than in 2014, its deputy CEO said, shrugging off EU efforts to diversify supplies over the Ukraine crisis.
Alexander Medvedev said in an interview at the Reuters Russia Investment Summit he did not expect liquefied natural gas from the United States to make any real inroads in the European Union.
"(Next year) will be no worse than this year," Medvedev told Reuters when asked about expectations for export volumes and prices next year.
Earlier this month, Gazprom cut its export forecast to Europe for this year to 157 billion cubic meters (bcm), slightly less than the 158.4 bcm previously planned. The average price was seen at $350 per 1,000 cubic meters.
Europe has increased its efforts to develop a broader mix of energy supplies to reduce its dependence on Russia, from which it gets a third of its gas imports. Almost half of that gas passes through Ukraine.
After Russia annexed the southern region of Crimea in March, supported pro-Russian rebels fighting Ukrainian troops in eastern Ukraine and cut off gas supplies to its neighbor in June, Europe has become more determined than ever.
But many measures, like building several small-scale LNG import terminals to receive U.S. liquefied natural gas, will take years and many American producers have set their sights on higher prices in Asia.
Medvedev also said the United States did not pose a threat to Gazprom's plans to turn eastwards.
"So if 30 billion cubic meters, which is the equivalent of 23 million tonnes of LNG, appears as exports then I think all is well. Thirty billion (cubic meters) will not decide the fate of the gas market in Southeast Asia," Medvedev said.
UKRAINE POSITION
Setting out his position before a new round of gas talks on Ukraine in the German capital Berlin on Sept. 26, Medvedev said he thought Ukraine may be forced to take gas destined for Europe to get through winter after Kiev failed to store enough for the cold months.
Gazprom wants Ukraine to pay off its gas debts of $5.3 billion, but has signaled it could restart supplies if Kiev paid off at least last year's debt. Both sides also need to agree a future price for deliveries.
Medvedev said Moscow had not reduced supplies to Europe, where several countries have said they had witnessed reductions, with Poland saying that prevented it from being able to send reverse flows to Ukraine - a procedure Gazprom is against.
He said Gazprom had started to fill gas storage in Russia and Europe with additional gas to limit any negative effects in case Ukraine starts taking gas for Europe.
"We have not reduced supplies. Ukraine did not pump (enough) gas into its storage and despite the fact that their consumption has fallen it may lead to Ukraine taking gas out of the export pipeline," Medvedev said.
"We would have to pipe additional volumes of gas from Russian storage as well as from European."
European customers have already largely filled their gas storage, fearing that Russian supplies which flow via Ukraine might be disrupted by the crisis.
According to Sberbank CIS data, Europe storage capacity is 91 percent full, up from 73 percent a year ago. Some European countries have reported shortfalls in shipments of Russian gas compared to requested amounts.
Follow Reuters Summits on Twitter @Reuters_Summits
(Writing by Katya Golubkova and Elizabeth Piper; Editing by Michael Urquhart)
(Reuters) - Russia's Rosneft and U.S. ExxonMobil are continuing to drill in the Kara Sea and plan to stop work by Oct. 10, Russian Deputy Energy Minister Kirill Molodtsov said on Tuesday.
"They are drilling and will be drilling until Oct. 10. They did have to stop on Sept. 26 but they extended," he told reporters on the Pacific island of Sakhalin where he was attending an energy conference.
Exxon said on Friday that the U.S. Treasury Department had given it a short extension to wind down a rig at the well, beyond the 14 days outlined in the sanctions targeting Western cooperation in Russia's oil sector over Moscow's role in the Ukraine crisis. (Reporting by Denis Pinchuk; writing by Katya Golubkova, editing by Elizabeth Piper)
(Reuters) - South Korea's two smallest refiners have, in a relatively rare move, bought spot bunker fuel oil cargoes to top up lower production due to refinery run rate cuts and higher production of asphalt, trade sources said on Tuesday.
Weak refining margins due to slack product demand have forced regional refiners to reduce run rates this year, in hopes of easing the global diesel supply glut, even if less fuel oil is produced.
Fuel oil, which trades below its cost price, is considered a by-product that refiners try to minimize production of.
S-Oil and Hyundai Oilbank each bought 50,000 tonnes of bunker fuel oil for October arrival at premiums of $15-$20 a tonne and $10-$15 a tonne, respectively, above Singapore spot quotes, on a cost-and-freight basis, traders said.
This is the first time ever that S-Oil, which lowered its refinery run rate by five percentage points to 90 percent in September, bought a spot fuel oil cargo, traders said.
"S-Oil used to export their cargoes, but this time they are importing for bunker use. That's interesting," said a South Korea-based marine fuel oil trader.
S-Oil declined to comment.
Stronger demand for asphalt recently has also encouraged the country's third-largest refiner to ramp up production of the road-making oil product.
"For three to four months, (S-Oil) had problems with poor margins, so it adjusted its crude distillation unit (CDU) run rate while increasing asphalt production," said another South Korea-based trader.
"So actual fuel oil production decreased."
At Hyundai Oilbank, a source familiar with the matter said fuel oil production by the country's smallest refiner declined by up to 30,000 tonnes per month after it reduced run rates at its CDU, necessitating its first fuel oil import this year.
However, others said fuel oil production was almost absent in recent months.
"Oilbank doesn't produce fuel oil nowadays. Theoretically, all the fuel oil from the CDU is used as feedstock for their secondary units," said the South Korea-based marine fuel trader.
Hyundai Oilbank could not be immediately reached for comment.
S-Oil and Hyundai Oilbank are two of four bunker suppliers in South Korea, with monthly sales at around 200,000 tonnes and 150,000 tonnes, respectively. (Reporting By Jane Xie; Editing by Muralikumar Anantharaman)
(Reuters) - A fuel price rise in Indonesia may help economic growth next year if the savings from subsidies are redirected into infrastructure, a senior central bank official said on Tuesday.
The Indonesian government is under pressure to cut fuel subsidies, a politically sensitive issue in Southeast Asia's largest economy, because of a huge current account deficit that is expected to exceed 3 percent of GDP this year.
The new administration, which will take office in October, plans to raise fuel prices by as much as 3,000 rupiah ($0.25) per litre by November, a senior adviser to President-elect Joko Widodo's team, said last week.
"If the government reallocates the subsidies into infrastructure, there will be a positive gain in GDP growth," Juda Agung, executive director of the department of economic and monetary policy at Bank Indonesia, said at a news conference on Tuesday.
If the fuel price is increased by 3,000 rupiah per litre, gross domestic product could gain by 0.15 percentage points next year, Agung said, although it would also bump up inflation by an additional 3.16 percentage points - a level far above the central bank's forecast range. When fuel prices were raised in June 2013, inflation climbed to nearly 10 percent.
The central bank governor said last month it expected economic growth to quicken to 5.4-5.8 percent next year, while maintaining its inflation outlook of 3-5 percent for 2015. Economists expect slower growth in the short term after a hike in fuel prices due to weaker consumption.
Indonesia's government said on Monday it plans to allocate 344.7 trillion rupiah ($28.8 billion) for energy subsidies in 2015, down 1.6 percent from 350.3 trillion rupiah this year. The budget, which was proposed by the current administration, has not included any planned hike in fuel prices.
Parliament is set to vote on the proposed budget later this week.
Indonesia's economy grew 5.12 percent in its April-June quarter, the slowest pace since late 2009, partly due to weak exports. Annual inflation eased to 3.93 percent in August from 4.53 percent in July.
($1 = 11,978.00 rupiah) (Reporting by Eveline Danubrata; Additional reporting by Gayatri Suroyo; Editing by Jacqueline Wong)
Saudi Oil Minister Ali Al Naimi appeared to downplay worries about the impact of sinking crude oil prices on production from the world's top oil exporter.
Oil prices in Europe have declined since June as geopolitical concerns wane and key producing regions including the US continue to pump large amounts into the market, raising the spectre of Opec production cuts later this year.
But Naimi seemed unmoved by the recent slide in Brent oil.
Asked by Reuters while in New York if he was concerned about the recent price declines, he said: "Why are you worried about the oil market?" He declined to comment further.
His comment was similar to those he made to Reuters a few weeks ago after prices pierced $100 per barrel for the first time since June. The market has continued to decline, triggering speculation about potential output cuts by Opec at its next meeting toward the end of November. Saudi Arabia told Opec that it produced 9.597 million barrels a day in August.
Last week, Reuters reported that Opec may not cut output as strengthening demand in the Northern Hemisphere winter months is expected to boost prices even as the global market remains awash with supplies and concerns in the Middle East and Russia wane.
France’s Total cut its 2017 output target on Monday to 2.8 million b/d of oil equivalent, citing project delays and asset disposals as well as uncertainties over the UAE Adco concession and Kazakhstan’s Kashagan field.
Total dropped its earlier target of 3 million boe/d, saying it would sell $10 billion of assets in 2015-17, including a renewed push to sell its 20% stake in the Usan field offshore Nigeria after an attempted sale to China’s Sinopec fell through.
The company plans 600,000 boe/d of production startups in 2014-17. It will increase output to 2.3 million boe/d next year from 2.1 million boe/d in the first half of this year. The company promised a renewed effort to complete projects on time along with a focus on cost reduction as it announced that the giant Laggan Tormore gas and condensate project offshore the UK, expected to produce 90,000 boe/d, will come on stream in the first quarter of next year rather than at the end of this year.
All offshore construction on Laggan Tormore has been completed, including a 143-kilometer pipeline to the Shetland Islands, but work on onshore processing facilities has been delayed by severe weather last winter and problems with unions.
As a company, “we have been suffering delays and definitely it is part of what has to be stopped because that cannot be forever,” Total CEO Christophe de Margerie said. “When there are delays on startup there is also a delay on ramp-up and it’s part of the same problem.”
Total voiced caution over a number of projects where it is not the operator. “We have no planned contribution from Kashagan, Angola LNG or Adco for 2015 production,” chief financial officer Patrick de la Chevardiere said.
The UAE has requested more time to evaluate Total’s proposal on renewing its involvement in Adco — one of several proposals submitted by foreign companies — after the 75-year concession expired earlier this year, De Margerie said Monday.
While Total’s proposal was due to remain in force until October 22, “they are asking us to give more time for them to take a decision, which is by the year-end,” De Margerie said. He said there are two possible options for Total’s participation, one being a 10% stake and the other being 5%.
The company’s 2017 production target assumes a 5% stake, which would mean 80,000 b/d, he said. On the seemingly unending delays at Kazakhstan’s Kashagan, de la Chevardiere described the current effort by the partners as a “last chance.”
“Everyone among the shareholders put a lot of pressure on the operator. I would say it is about the last chance for us. We have clearly identified what the issue is with the pipeline — we meaning the operator — and we know what to do to solve the issue. And a pipeline is not rocket science,” he said.
ExxonMobil and Rosneft expect to be able to complete their controversial exploration well in Russia’s Arctic waters after the US gave ExxonMobil extra time to wrap up operations without falling afoul of sanctions, an Exxon spokesman said Monday.
ExxonMobil on Friday said it would “wind down” its operations at the Universitetskaya-1 well in the Kara Sea to comply with the latest US sanctions against Moscow. Many took the statement to mean that the partners would be forced to curtail the costly well due to Moscow’s fallout with the West over its role in the Ukraine crisis.
But according to the US Treasury Department decision last week, ExxonMobil was allowed to continue the well for a “short time” beyond the September 26 sanctions deadline to ensure that all safety requirements were met.
“Following the short time extension to ensure a safe and environmentally responsible completion of the University-1 well, the (extension) license is nonrenewable and no-further work is permissible,” the spokesman said when asked to clarify the impact of the sanctions on the well.
ExxonMobil and Rosneft began drilling the closely-watched exploratory well in the Kara Sea on August 9 after estimating that the Universitetskaya prospect would to take about 45 days to drill.
The spokesman declined to say if the Universitetskaya well has already hit its target depth nor would he estimate how long the partners would need to safely plug and abandon the well before demobilizing the drilling rig.
Rosneft, Russia’s largest oil producer, over the weekend said it plans to continue exploratory drilling in the Kara Sea if the US major is forced to leave the project because of sanctions. Rosneft has prepared a plan that would allow it to carry out the project on its own if it cannot continue the work with ExxonMobil, Rosneft Vice President Larisa Kalanda told reporters on the sidelines of an annual international investment forum in Sochi.
“Our work at the Universitetskaya well continues according to the earlier approved plan,” Kalanda said, adding that drilling would need to stop at some point shortly due to the end of the Arctic drilling season.
She declined to say when Rosneft expects the season to end, only saying it depends on ice conditions. Kalanda also declined to say whether the company expects to resume joint works at the Kara Sea project in next year’s drilling season. She said Rosneft welcomed the US Treasury decision allowing ExxonMobil to work past September 26. “We are satisfied with the US regulators decision,” she said.
Libya’s biggest oil field Sharara resumed crude production at midday local time on Monday, a spokesman at Austria’s OMV, a partner in the project, said.
Sharara had been shut in for almost a week after intense fighting near the Libyan capital Tripoli caused state-owned NOC on September 15 to close the Zawiya export terminal and refinery, which are both fed by the Sharara field.
There had been speculation among traders Monday that the field had either resumed or was about to. Asked Monday if Sharara had resumed operations, the OMV spokesman said: “Yes, since midday.” Sharara is operated by a joint venture of NOC and Spain’s Repsol, with OMV holding a minority stake.
Traders said exports from Zawiya were expected to resume too. “The lifting program should be respected, as all of the [Sharara] production is going to export,” one said. He added that the restart of exports from Zawiya “would depend on the production rate, but it shouldn’t be a big delay.”
However, the 120,000 b/d Zawiya refinery was still closed as of Monday, sources said. Total Libyan oil production slipped to around 670,000 b/d at the weekend as a result of the Sharara closure.
And 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 tool cFlow.
Libyan oil production and exports had staged a quick recovery since mid-August when the Es Sider and Ras Lanuf export terminals were returned to state control. But intense militant 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.
Gazprom Neft, the oil arm of Russian gas group Gazprom, said Monday it has delivered a second sea tanker with crude oil from its Arctic Novy Port, or Novoportovskoye, field to European markets. “Another cargo of 27,200 was delivered on September 17 to northwestern Europe,” Gazprom Neft said, adding a third tanker was being prepared for loading.
During the 2014 ice-free season, more than 80,000 mt of the Novy Port crude is set to be delivered to Europe, the company had said previously. Novy Port crude, thanks to its low sulfur content of 0.1%, is of a better quality than Brent, which has a sulfur content of around 0.45%, and of Urals blend, which is now 1.3%.
Gazprom Neft officials earlier indicated that due to its high quality the crude will likely trade at a premium to Brent. Gazprom Neft received first crude at Novy Port, on the West Siberian Yamal peninsula, in 2012 and since 2013 has been shipping it to the adjacent Payuta railway station by winter roads and from there to Russian consumers, it said.
Until late 2015, when a sea terminal is to be built on the Cape Kamennyi, some 107 km from the field, Gazprom Net plans to use roads during the winter and tankers during the ice-free season, it said. Until then, during the ice-free season, crude will be delivered to Cape Kamennyi via a 600,000 mt/year pipeline, loaded to river tankers and then to ice-class sea tankers, it said.
Once the loading terminal with a capacity of 8.5 million mt/year is completed, there will be no need in river tankers, and sea shipments will be possible throughout the year, it said. Full-scale industrial development of Novy Port is set to begin in 2016.
Gazprom Neft said previously it expects to reach Novy Port crude production of 3 million mt/year by 2015, with the output peaking at 8.5 million mt/year (170,000 barrels/day) in 2018. Gazprom Neft estimates C1 and C2 reserves at Novoportovskoye at over 230 million mt of oil and gas condensate, and 270 billion cubic meters of gas.
C1 reserves under the Russian classification are roughly equivalent to proved undeveloped, while C2 reserves roughly correspond to probable and possible.
Bahrain’s onshore Awali oil field, also called the Bahrain field, is producing about 46,000 b/d with output expected to remain at that level in the near term, Moody’s credit rating agency said Monday.
Limited Near-term output from Bahrain’s Awali field seen flat at 46,000 b/d Bahrain’s onshore Awali oil field, also called the Bahrain field, is producing about 46,000 b/d with output expected to remain at that level in the near term, Moody’s credit rating agency said Monday.
Limited 300,000 b/d, Moody’s noted. In 2009, the business and investment arm of Bahrain’s state-owned National Oil and Gas Authority formed a consortium with the UAE’s Mubadala Development and the US’ Occidental Petroleum to reverse a decline in output from the aging Awali field by applying enhanced oil recovery technology.
At the time, production of heavy crude from the field had fallen to about 26,000 b/d. The joint operating company, Tatweer Petroleum, said it would aim to increase output to 75,000 b/d within five years of project implementation.
Since field operations at Awali started December 1, 2009, that translates to a target date of this December. A further output increase to as much as 100,000 b/d of was considered possible by 2016.
However, in an April report, Bahrain’s Economic Development Board said 2013 crude production from Awali had averaged 48,000 b/d, up from 45,000 b/d in 2012. In June, the board said it expected output from the field this year to remain “broadly flat” as new production techniques were being reviewed and evaluated.
Moody’s held out little hope for a substantial long-term improvement in the current production level. “Long-term prospects at the Awali field are bleak,” the ratings agency said.
