EU officials have called a fresh meeting Monday on imposing new sanctions against Moscow after failing to get full agreement for the measures as expected, sources were quoted as saying by French news agency AFP.
“There will be an extraordinary meeting of the [member state] ambassadors on the sanctions at 1800 (1600 GMT),” an EU diplomat said, after discussions apparently did not produce the required unanimous support of all 28 nations.
The EU had been expected to adopt the new sanctions on Monday, which would hit Russian state-owned oil companies Rosneft, Gazprom Neft and Transneft as part of efforts to increase pressure on the Russian government to change course in the Ukraine crisis.
The adoption was expected to be a formality and details on the sanctions were expected to be released Monday once the process was completed. The proposed sanctions were based on proposals made by the European Commission last week and were designed to build on the economic sanctions the EU adopted against Russia in July.
According to a draft of the proposals obtained by Platts, the EU was to extend the capital market restrictions, imposed on large Russian banks in July, to Russian state-controlled companies with estimated assets of more than Rb1 trillion ($27 billion) and which get more than half their revenues from selling or transporting crude oil or petroleum products.
That would target Russia’s largest oil group, Rosneft, as well as state-owned gas company Gazprom’s oil subsidiary Gazprom Neft, and state-owned oil pipeline company Transneft.
Output from Iraqi Kurdistan’s two biggest producing oilfields hit record levels in September despite the security crisis in neighboring parts of Iraq, Anglo-Turkish Genel Energy said Monday.
The company, which is Kurdistan’s biggest oil producer with stakes in both fields, also said it was returning previously evacuated staff to the region as the security situation has improved.
“Since the start of September, combined production from Taq Taq and Tawke has averaged [about] 234,000 b/d with piped exports from both fields totalling an average of [about] 182,000 b/d,” the company said.
Exports had been boosted following recent upgrades to pumping facilities on the KRG export pipeline to Turkey, it added. On the staff situation, Genel said: “Following a significant improvement in the security situation in the border region of the Kurdistan Region of Iraq, the company has begun the process of returning staffing levels to normal.”
“This follows the temporary and precautionary step of withdrawing non-essential personnel from non-producing assets,” it added in a statement. Genel said its decision to resume full operations followed close monitoring of the security situation and consultation with the Kurdistan Regional Government, the British government’s Foreign and Commonwealth Office and “other well-placed authorities.” “Genel’s operations in the Kurdistan Region of Iraq remain safe and secure,” the company said.
Genel has 44% working interest in Taq Taq, which is operated by a joint venture between Genel and China’s Sinopec. It also has 25% interest in Tawke, operated by Norway’s DNO. Production from the two oilfields was unaffected by the security crisis that began in early June, when the Islamic State group and other anti-government fighters launched an armed offensive in northern and western Iraq.
Genel’s non-producing assets in Kurdistan include its 75% working interest in the southern Miran Block, where it plans to develop a large untapped gas and condensate field for both domestic supply and exports. The company has been in talks with the KRG over a gas sales offtake agreement for Miran that it hopes to finalize in 2014.
Genel is one of a number of companies that have recently said they were returning staff to Kurdistan and resuming previously suspended operations, including exploration and development drilling. Others include Canada’s Oryx Petroleum and the UAE’s Taqa.
The UK’s Buzzard oil field in the North Sea contributed 23% to Forties crude blend output in the week to September 7, Forties pipeline operator BP said Monday, up from 9% the previous week.
The increased content of this sour crude stream raised the sulfur content of Forties Blend to approximately 0.58%, according to a BP conversion table, and lowers its API to approximately 40.6.
The Buzzard field is ramping up production after being taken offline August 30, days after having restarted following the initially announced summer maintenance period of 25 days starting late July.
Buzzard is expected to average 45.7% of Forties Blend content in September, according to BP. This should raise overall Forties Blend unstabilized crude output to 432,200 b/d in September, from an estimated 156,600 b/d in August.
The Buzzard field has a nameplate capacity of 220,000 b/d. It is typically the largest contributor to Forties Blend, one of the four grades included in the Dated Brent benchmark.
Major Japanese oil companies and trading houses are closely watching Mexico’s energy sector as it opens to foreign investment, and they want to be poised to make upstream and midstream developments.
A number of Japanese companies are looking at opportunities across the board, while some are focusing on the upstream sector and others on potential LNG exports after 2020, industry sources said.
Mexico could become a new supply source for Japan, currently the third-largest oil consumer in the world and the world’s top LNG importer, and Tokyo is eager to support the companies’ entry into the North American country.
In early August, Mexico’s Congress put the finishing touches on landmark reforms of the country’s oil sector, which has been state-run since 1938. Mexico plans to open its upstream to foreign investment in two initial stages, first via direct negotiations with foreign investors for joint ventures and farm-ins and then next year through its first licensing round for over 75 years.
Japan’s Information Center for Petroleum Exploration and Production is dispatching a mission to Mexico as early as late October sponsored by the Ministry of Economy, Trade and Industry. The delegation will include senior officials from around 10 Japanese upstream companies, trading houses, engineering firms and Japan Oil, Gas and Metals National Corp., sources familiar with the matter said.
JX Nippon Oil & Gas Exploration, the upstream arm of JX Holdings, is now examining opportunities for making forays into deepwater areas in the Mexican side of the Gulf of Mexico, where it aims to be an operator, President and CEO Shunsaku Miyake said in an interview with Platts last month.
“We have an extremely high interest in the area [Mexico] as it could possibly have a quite large amount of resources untouched,” Miyake said at the time.
Inpex, Japan’s largest upstream company, is also paying close attention to the situation in Mexico to be prepared for possible bidding as soon as terms are open to public for upstream rounds, a company spokesman said.
Mon Sep 8, 2014 4:48pm EDT
* Unipec books 3.2 million barrel TI Europe ULCC
* Up to 50 million barrels of oil already in storage (Recasts throughout, adds quotes, background)
By David Sheppard and Ron Bousso
LONDON, Sept 8 (Reuters) - A Chinese trading firm has booked the world's largest super-tanker to store crude at sea, adding to a growing flotilla of vessels used for floating storage as benchmark oil prices slip below $100 a barrel.
Industry sources said Chinese firm Unipec, the marketing arm of Beijing-backed oil giant Sinopec, has booked the 3.2-million-barrel TI Europe, one of just a handful of Ultra Large Crude Carriers (ULCC) still in service. It is listed as the world's largest ocean-going vessel by tonnage, and is as long as the Empire State building is tall at 380 metres.
The booking is the latest sign that soaring oil supplies and tumbling prices are prompting traders to store crude in volumes not seen since the financial crisis more than five years ago. Analysts estimate more than 50 million barrels of oil may already be placed in storage.
The move also demonstrates the growing clout of state-backed Chinese firms in international oil trading, with Unipec and PetroChina establishing sophisticated dealing desks in key hubs like London and Singapore in recent years. Unipec plans to ship cheap oil from Europe and store it off Singapore aboard the ULCC, trading sources said.
"It doesn't surprise me," said one oil trader in London on Monday.
"They have been buying everything in northwest Europe," he added, referring to the large number of cargoes Unipec has bought since the start of this month of Russia's main export crude, Urals.
Soaring output from the U.S. shale oil boom has depressed prices and is forcing other producers to discount their oil in a bid to hold on to market share.
While only very limited crude exports are allowed from the United States, higher domestic production has replaced many imports from West Africa, Europe and other regions. North Sea Brent crude oil futures, the international benchmark, have fallen by 15 percent since June.
The TI Europe was one of four ULCC vessels built for tanker pool operator Tankers International LLC at the beginning of the last decade, according to the website maritime-connector.com. Known originally as the 'Fantastic Four', two of the vessels have since been turned into full-time storage vessels.
The TI Europe is still also used for deliveries. On Monday it was sailing unladen off Singapore, according to AIS Live tanker tracking on Reuters.
STORAGE PLAY
Storing crude has reemerged as a trading play due to a significant shift in the oil market in the last few months. As weak demand and strong supplies have weighed on prices for delivery in the near future, contracts for later delivery have risen to a premium.
This market structure, known in the industry as contango, allows traders to lock-in profit by buying oil now and selling it forward for later delivery, as long as the costs of storage are low enough.
Energy Aspects, a London-based oil consultancy, said in a note on Monday that up to 50 million barrels of oil may already have been put in storage as part of the trading tactic.
Since late July shipping fixtures show that oil traders, including international majors like BP, Chevron and independent Swiss-based commodity traders like Mercuria, have been moving oil into a storage site in South Africa or into tankers off Asia.
South Africa's 45-million-barrel Saldanha Bay storage terminal, a legacy of the Apartheid-era oil embargo on the country, is the preferred destination for many traders as it lets them flip barrels east or west as pockets of demand emerge.
"We estimate there is about 50 million barrels of oil in floating storage, split between Saldanha Bay and Asia, the highest level since the last peak during the 2008/09 contango," Energy Aspects said.
"While there has been some fleeting Chinese buying, most of that has headed into floating storage (including some West African barrels)."
In 2009 as many as 200 million barrels of oil were put into storage as demand collapsed during the recession.
The consultancy said that may mean international oil prices continue to fall, a stance backed by many traders, who see little evidence of stronger demand as many refineries are about to start post-summer maintenance.
"Without a significant supply cut, this market could be in a downward spiral," one New York-based trader said. (Additional reporting by Ron Bousso in London; Editing by David Clarke and Sonya Hepinstall)
An aerial view of Royal Dutch Shell's Auger tension leg platform in the deepwater Gulf of Mexico in the foreground and the Noble Corp. Jim Thompson drilling rig in the background. Shell said on Monday, Sept. 8, 2014 it has started piping oil and gas from its Cardamom field to the Auger platform, its second production startup in the Gulf in 2014. (Photo courtesy of Shell)
Shell has started pumping oil and gas from its Cardamom field in the deepwater Gulf of Mexico, its second major startup in the region this year. The development is expected to produce up to 50,000 barrels of oil equivalent per day.
The Cardamom, located 225 miles southwest of New Orleans, sat undiscovered until 2010.
Shell said in a statement Monday (Sept. 8) that new seismic technology allowed the company to get a better picture of the oil and gas deposit, which sits under thick layers of salt rock more than four miles beneath the ocean floor.
The project is Shell's second major production startup in the Gulf of Mexico in 2014. The company continues to ramp up production at its Mars B development, which started flowing oil and gas in February.
In an interview with NOLA.com | The Times-Picayune, John Hollowell, executive vice president of deepwater operations for Shell in the Americas, said the Cardamom production is also a big moment for Shell employees in New Orleans.
Shell is piping oil and gas from the Cardamom development to its existing Auger platform, which has been producing oil and gas from Shell developments in the Gulf since 1994.
Hollowell said New Orleans employees handled the majority of the engineering, design and construction management work for the Auger platform, the company's first tension leg platform in the deepwater Gulf.
The platform was slated to be removed and scrapped as recently as 2008, but Hollowell said the Cardamom discovery continues to make the 20-year-old platform viable.
"It's a great deal of pride for our New Orleans office to see the Auger platform getting back to its peak capacity," Hollowell said. "It continues to be a workhouse in our deepwater portfolio."
The Auger platform's production capacity peaked at around 156,000 barrels per day in 1998. Its production increases to 130,000 barrels of oil equivalent per day with the addition of the Cardamom development.
The Cardamom is the Auger's seventh subsea development.
As the cost of recovering oil and gas in the deep waters of the Gulf of Mexico and across the world continues to grow, investors have put increasing pressure on oil and gas companies to peel back costs.
Some companies have focused on using the latest technology to search for oil and gas around existing offshore platforms and other infrastructure that may have been missed the first time around.
Hollowell said Shell is continuously looking for opportunities to leverage both technology and existing resources to boost oilfield production in addition to new development projects such as the Stones project, which is now under construction in the Gulf of Mexico.
He said the Cardamom development is an example of how that strategy can pay off.
"This is a neat story of how we leveraged advances in technology to discover fields in and around an existing platform," Hollowell said.
Follow reporter Jennifer Larino on Twitter and Facebook for updates on this story and other oil and gas industry news.
September 09, 2014 - 12:53:26 am
LONDON/DUBAI: Oil’s slide below $100 a barrel yesterday brings prices closer to levels where more Opec countries face financial worries, prompting some in the producer group to voice concern about too much oil in the market.
Brent crude fell below $100 a barrel for the first time in 14 months, hit by concerns about slower economic growth and ample supply. Top Opec exporter Saudi Arabia favours oil at $100, which many others in the 12-member group also support.
For now, Organisation of the Petroleum Exporting Countries delegates said yesterday they were not alarmed, expecting winter demand to support prices. But still, signs of concern are emerging about the level of supplies.
“As with concern about the drop in oil prices it was a result of weak demand and oversupply mainly from the US, recovery in Libya, Nigeria and Iran,” said an Opec delegate. “But the geopolitics is there and cold weather is approaching, which will support prices,” the delegate added.
The United States shale oil boom is inflating global supplies. Within Opec, Libyan output has risen and Iraqi exports have mostly continued flowing despite conflicts in those countries, while output has edged up in Nigeria and Iran.
Another Opec delegate said prices were under pressure from too much oil, something some member countries were watching. However most Opec officials contacted by Reuters continued to see the price drop as short-lived.
“The fall in prices is a temporary thing. They are still within the acceptable range. There is no real worry,” said a delegate from one of Opec’s Gulf members.
Opec does not have an official price target and prices still need to fall further to be outside an acceptable zone cited by Saudi Oil Minister Ali al-Naimi in June, when he said oil at “$100, $110, $95 is a good price.”
Estimates from the International Monetary Fund indicate that while current prices are comfortable for OPEC’s core Gulf members, they are below levels members including Iran, Algeria and Iraq need in 2014 for their fiscal balance to be zero.
The group has a nominal target to produce 30 million barrels per day and in August, pumped more than that level, according to a Reuters survey, due in part to a rise in Libya. OPEC is not scheduled to meet to review its output policy until late November.
Still, Saudi Arabia, Kuwait and the United Arab Emirates could trim supply informally such as to make room for a further recovery in Libya, an Opec source said in August, although no evidence of this happening has come to light.
Reuters
By Saad Hasan
KARACHI:
Pakistani refineries are checking the prospect of increasing capacity as local crude oil supply has increased substantially, which will enable the country to resume export after a decade, a top industry official told The Express Tribune.
The refiners are in talks with crude oil producers to determine the size of reserves and expected level of production over the next few years, says Aftab Hussain, the chief executive officer at Pakistan Refinery Limited (PRL).
“Before making any investment, we should know projections for crude’s production for the next few years,” he said in a recent interview.
“For the refineries, increasing processing capacity is an expensive proposition and we want to be sure about expected production in the northern and southern areas of the country.”
Pakistan recently resumed export of condensate, known as ultra light crude oil.
Around 70,518 tons of condensate has been exported in the past two months, according to the Pakistan Bureau of Statistics (PBS). The value is stated at $60.7 million or Rs5.9 billion.
Average oil production in Pakistan jumped 13% to 86,000 barrels per day (bpd) in fiscal year 2013-14 compared to a year earlier. The oil output reached an all-time high of 98,000 bpd by the end of June 2014.
Hussain said historically, local oil production remained around 65,000bpd, which was consumed by local refineries. “Attock Refinery Limited, PRL, National Refinery Limited and Pak Arab Refinery were equipped to process that much of condensate.”
Major chunk of the increase in oil output came from Tal block, which saw average oil production rise 63% to 17,000 bpd. The block contributes 20% of total oil produced in Pakistan.
Industry officials believe that Pakistan’s crude oil output is expected to increase to 130,000 bpd in one or two years, a sharp rise from the stagnant 66,000 bpd seen in the last few years.
With around 42,000 bpd to 43,000 bpd consumption, Attock Refinery relies almost entirely on local crude. Other refineries have limited capacity to process it like PRL’s 7,000 bpd to 8,000 bpd.
The design of oil refineries is configured to process specific crudes like Brent or Light Arab Crude. Changes in the configuration require heavy investment, often out of the reach of small refineries.
“Attock is the only company, which is currently installing a plant to process 10,000 bpd of additional condensate,” said Aftab Hussain, who has been affiliated with the refining industry for over three decades.
“A 10,000 bpd facility costs $40-$50 million,” he said. “I am all for processing condensate within Pakistan.”
Condensate sells in the international market at a discount compared with other crudes because 60% of what comes out of it is naphtha, another raw material used mostly in petrochemical plants, he said.
“Internal cost of transportation and storage also adds to cost of local crude.”
Since December 2008, Pakistan has become a regular importer of petrol, buying 2.1 million tons of it during fiscal year 2014. But during the same period, refineries exported 854,653 tons of naphtha, which could be converted into petrol.
Like other refineries upgrading their plants to deal with the situation, PRL is also investing $400 million in Isomerization and Diesel Desulphurisation units. The Isomerization unit processes naphtha into petrol.
“It doesn’t make sense to export naphtha and then import petrol. So we have embarked on this import substitution initiative.”
Published in The Express Tribune, September 9th, 2014.
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By Will Kennedy Sep 8, 2014 5:59 PM GMT+0700
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BP Plc (BP/) got support from the U.K. government in its U.S. court fight over the level of compensation required under a settlement of lawsuits stemming from the 2010 Gulf of Mexico oil spill.
The U.K. told U.S. Supreme Court judges in a filing that decisions to authorize payments to people who were not injured by the spill raises “grave international comity concerns by undermining confidence in the vigorous and fair resolution of disputes.” The filing shows the government’s interest in the treatment of one of the country’s most prominent companies.
BP, the second-largest British oil producer, is seeking a ruling from the U.S.’s top court after failing to persuade a Louisiana district judge and an appeals court to limit payments under a 2012 settlement to compensate victims of the spill. BP says payments are unfairly being to made to claimants whose businesses couldn’t have been affected by the disaster.
“The lower courts’ rulings have dramatically expanded” BP’s “scope of liability far beyond anything that would seem to be appropriate under our shared common-law traditions or that anyone would reasonably expect,” the U.K. government said in an Amicus Curiae, or friend of the court, brief dated Sept. 4.
The U.K. government’s intervention isn’t related to a decision last week by U.S. District Court Judge Carl Barbier to find BP’s actions in the run-up to the explosion on the Deepwater Horizon grossly negligent. That exposed BP to a potential additional $18 billion in fines.
Corporate Responsibility
The U.K. said the previous rulings could weaken efforts to encourage corporate responsibility by limiting incentives for companies to enter into voluntarily settlements.
“Her Majesty’s government understands the importance of a fair and predictable legal climate,” the U.K. said in a brief filed in support of BP’s application to get a hearing in the highest U.S. court. “It notes that the combination of rulings now before this court has produced an untenable and exceptionally important result.”
The U.S. and U.K. conduct more than $200 billion in trade each year, it said, noting that U.K. businesses are responsible for 17 percent of all foreign direct investment in the U.S. -- more than any other nation.
The case is BP Exploration & Production Inc et. al. v Lake Eugenie Land Develop Development Inc. et. al., 14-123
By Masumi Suga and Chisaki Watanabe Sep 9, 2014 7:37 AM GMT+0700
One of the biggest hurdles to building new power plants in Japan is finding a place that’s safe from earthquakes and tsunamis. That place may turn out to be 30 miles at sea.
Sevan Marine ASA (SEVAN), a Norwegian builder of offshore oil-drilling vessels, is proposing a $1.5 billion natural gas-fired power plant that will float on a cylindrical platform bigger than a football field moored off the Japanese coast.
It’s one of several innovative efforts Japan is considering for generating electricity after the Fukushima nuclear disaster in 2011 prompted widespread public concern over how the country will produce electricity -- and where. Already, plans are being made to dot the coast off Fukushima with some of the largest floating wind turbines in the world.
“We are now focusing on mainly floating offshore wind, but we want to push various types of technical development and research” for floating power stations, said Toshimitsu Motegi, a member of Japan’s ruling Liberal Democratic Party and the former minister of economy, trade and industry.
The Sevan proposal has won supporters within the transport ministry, which has encouraged Japanese companies to expand into offshore equipment after losing ground to Chinese and South Korean rivals in shipbuilding.
The ministry “is very interested in the floating power project, and we’d like to support marketing of the facility both at home and abroad,” according to an e-mail from the transport ministry.
The gas-fired project will have 700 megawatts of capacity, about two-thirds the capacity of a modern nuclear reactor.
Fukushima Disaster
“The power situation in Japan after the Fukushima disaster has encouraged us to propose this solution,” Fredrik Major, Sevan’s chief business development officer, said in an e-mailed response to questions.
Sevan envisions building a cylindrical platform 106 meters (348 feet) across, and would install power equipment including turbine generators from Siemens AG, according to planning documents from the Arendal, Norway-based company.
IHI Corp. (7013), co-owner of Japan’s second-largest shipbuilder, may supply storage tanks for liquefied gas and may also build the hull.
“We will consider any types of facilities floating on the sea,” Akinori Abe, president of IHI’s offshore projects and steel structures operations, said in an interview. “We intend to lead Japan in the field.”
Site Selection
The floating platform could be anchored to the seabed anywhere from 5 kilometers (3 miles) to 50 kilometers from shore in water deep enough to mitigate the affect of a tsunami, Major said.
Shipping lanes, traditional fishing areas and whether the platform would be visible from shore would all play a role in selecting a site. Power would be delivered to land by an undersea transmission cable.
While Sevan says the concept can work anywhere, the company decided this year to focus on Japan, Major said. The company submitted its proposal to the country’s Ministry of Land, Infrastructure, Transport and Tourism in May, and executives expect to return to Japan this year for additional meetings.
While the Sevan group’s platform would produce electricity by burning liquefied natural gas, the move offshore could eventually see nuclear power generated on the oceans, where they’d be more immune to earthquakes and the kind of giant wave that overwhelmed Fukushima more than three years ago.
Floating Reactors
It’s an idea outlined by scientists at the Massachusetts Institute of Technology in April. And Russia’s state-run nuclear power company, Rosatom Corp., laid the keel in 2007 for a vessel that’s expected to house two nuclear reactors. The ship, Akademik Lomonosov, is scheduled for delivery in 2016.
Meanwhile, Israel’s IDE Technologies Ltd. is designing a floating water desalination vessel and Turkey’s Karadeniz Holding AS runs a fleet of ‘Powerships’ that carry thermal power plants. The Karadeniz vessels are designed to meet urgent electricity needs and are more akin to traditional ships than floating platforms. The seven ships in Karadeniz’s existing fleet have combined capacity of about 1,000 megawatts.
Solar is also heading beyond Japan’s shores. Kyocera Corp. (6971) and Century Tokyo Leasing Corp. said in August that they plan to build two solar power stations designed to float on the surface of reservoirs. The plants will be installed in Hyogo prefecture in western Japan.
Nuclear Opposition
Floating power stations promise to overcome some of the drawbacks to land-based plants in Japan, where a majority of the population largely opposes nuclear stations in their communities. Fifty-seven percent of respondents to a poll conducted Aug. 2 and Aug. 3 by the Kyodo news service oppose nuclear restarts, while 35 percent are in favor.
Sevan believes the floating platforms can be cost competitive with land-based plants, Major said by e-mail. Still, others are skeptical.
“The technological hurdles to make such a facility will be high, and even if they clear those hurdles, cost issues would remain,” said Hiroshi Takahashi, an energy research fellow at the Fujitsu Research Institute.
Critics say floating power plants would also face obstacles winning approval in local communities with economies based on fishing. And safety concerns remain.
“At issue is when something unpredictable happens on the sea and then the question arises of how the situation can be controlled,” said Shinji Sato, a professor at the University of Tokyo who specializes in coastal engineering. “In terms of tsunamis, it’s safer to be away from the coast but it’s also more dangerous when you consider the action of waves in general the further you get from land.”
Black Ships
IHI, which traces its history to 1853 when predecessor Ishikawajima Shipyard was founded with the arrival of Admiral Perry’s black ships at the end of the samurai era, is already retooling for an offshore future. The heavy-equipment maker remodeled its Aichi yard in central Japan in 2010 as a manufacturing base for offshore structures.
Japan’s new Basic Energy Plan, released in April by the Ministry of Economy, Trade and Industry, calls on the nation’s energy industry to more aggressively promote the development of new resources through technologies such as floating production, storage and shipment facilities for liquefied natural gas.
Though the University of Tokyo’s Sato doubts offshore nuclear generation will ever come to Japan, Sevan’s proposal may hold some appeal off the coast of Fukushima as a symbol representing efforts to revitalize the region, he said.
“It’s easier to accept such a facility in a site with specific circumstances like Fukushima,” Sato said.
To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Chisaki Watanabe in Tokyo at cwatanabe5@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Iain Wilson, Will Wade
By Lynn Doan Sep 9, 2014 12:43 AM GMT+0700
California, the nation’s largest gasoline market, has cut its oil-by-rail volumes from Canada by 86 percent this year while buying more crude made in America.
The most populous U.S. state received 3,142 barrels a day by rail from Canada in July, down from 6,669 in June and a peak of 22,871 in December, California Energy Commission data show. Meanwhile, it more than doubled the oil delivered by rail from Colorado, took a record amount from Utah and brought in more barrels from New Mexico and North Dakota.
The oil-by-rail shipments have surged to a seasonal record as the state’s refiners, lacking direct pipeline access, turn to trains to bring in production from U.S. shale formations. The boom has boosted domestic output to the highest level in 28 years, bringing the nation closer to energy independence.
“In the California scheme of things, the change in Canadian rail volumes isn’t that big, a drop in the bucket for an average refinery running at 200,000 barrels a day,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone Sept. 5. “But in the ‘I’m a Canadian getting way too little for my oil’ scheme of things, any opportunity to export a barrel to the States has got to be welcomed.”
Oil from Alaska’s North Slope, which makes up 12 percent of California’s oil supply, was unchanged at a $4.15-a-barrel premium to the U.S. benchmark West Texas Intermediate crude, data compiled by Bloomberg at 12:05 p.m. show. Western Canada Select, a heavy, sour blend, weakened 60 cents to a $14.50 discount.
Small Fraction
“It is interesting that Canadian exports are down, but we don’t know why at this point,” David Hackett, president of energy consulting company Stillwater Associates, said by telephone from Irvine, California.
California received 1,273 barrels of oil a day in July from Colorado, where crude output has hit a record amid drilling in the Niobrara shale formation, up from 528 barrels a month earlier, state Energy Commission data show. Shipments from Utah, where waxy oil output from the Uinta Basin has surged, climbed 47 percent to a record 4,025 barrels a day.
North Dakota, where the Bakken shale formation has propelled production past 1 million barrels a day, sent 3,981 barrels a day to California by rail in July.
Rail shipments account for a small fraction of oil supplies delivered to the western U.S. In June, the region took 1.08 million barrels of crude a day from outside the U.S., according to data compiled by the Energy Information Administration, the Energy Department’s statistical unit. Canadian imports to the region that month totaled 30,000 barrels a day, or less than 3 percent.
Refiners in the western U.S. processed 2.5 million barrels a day of crude in the week ended Aug. 28, the highest rate in four weeks, EIA data show.
By Eduard Gismatullin Sep 8, 2014 11:08 PM GMT+0700
Genel Energy Plc (GENL), the largest oil producer in Iraqi Kurdistan, is returning workers to the region’s fields after security improved.
“The decision to resume full operations has been made following a close monitoring of the situation,” the London-based company said today in a statement. Genel, which removed inessential personnel from non-producing assets in August, said output wasn’t affected and it had been pumping about 234,000 barrels of oil a day from its fields.
The U.S. expanded its air strikes against Islamic State militants, while President Barack Obama plans to rally Sunni Arab states to help him defeat the insurgents. Kurdistan explorers including Oryx Petroleum Corp. and ShaMaran Petroleum Corp. have also resumed operations in the region
Genel rose 1.6 percent to 866 pence by the London close.
By Sally Bakewell and Andy Hoffman Sep 8, 2014 4:10 PM GMT+0700
BNP Paribas SA (BNP), the French bank that paid a record fine two months ago for breaking U.S. sanctions, is cutting commodity-trade finance to Trafigura Beheer BV, according to two people with knowledge of the matter.
Executives at Trafigura, the world’s second-largest metals trader, contacted other banks to discuss BNP Paribas’s withdrawal, said the people, who asked not to be identified because they’re not authorized to speak about it. The Trafigura executives said the move is part of a broader exit from the business by France’s biggest lender, according to one of the people.
BNP Paribas agreed to pay an $8.97 billion fine in June and pleaded guilty to processing banned transactions involving Sudan, Iran and Cuba. Many of the sanctions violations centered on its commodity-trade finance operations in Geneva and Paris. Lending by the bank helps Trafigura, the third-largest independent oil trader after Vitol Group and Glencore Plc (GLEN), and other companies to move commodities from coal to chemicals.
No commodity-trading firms were named in BNP Paribas’s settlement with U.S. authorities.
Paul Griffin, a London-based spokesman at BNP Paribas, declined to comment by phone. Victoria Dix, a Geneva-based spokeswoman at Trafigura, also declined to comment.
Scaling Back
BNP Paribas, a pioneer in commodity-trade finance, has been scaling back its loans to traders since 2012. Since that time, about 30 executives at its energy and commodities finance units have resigned, gone on leave, been fired or relocated, three people with knowledge of the staffing said in May.
Switzerland is the world’s biggest center for commodity-trade finance, according to industry lobby group, the Geneva Trade and Shipping Association. French banks are leaders in the business, which generated 1.5 trillion Swiss francs ($1.6 trillion) of financing in Switzerland in 2011, the Swiss Bankers Association said in a March 2013 report.
In addition to providing trade finance, BNP Paribas’s Swiss unit was a bookrunner on $3.32 billion of three-year and $1.41 billion of 12-month loans signed in March to refinance Amsterdam-based Trafigura’s debt, according to data compiled by Bloomberg.
Trafigura, which has offices in 58 countries from China to Angola, according to its website, has total debt of 9.84 billion euros ($12.7 billion), the data shows. The company sought $1.3 billion of loans in July.
Hiring Bankers
As BNP Paribas has scaled back commodity-trade finance, some bankers have left to join trading houses including Trafigura and Mercuria Energy Group Ltd. Christophe Salmon joined Trafigura as chief financial officer for Europe, the Middle East and Africa in 2012 after more than a decade at the bank’s commodity trade finance division.
In the settlement with the U.S., BNP Paribas admitted it processed almost $9 billion in banned transactions from 2004 to 2012 with the majority made on behalf of sanctioned entities in Sudan. Illicit transactions also included dealings with a Dubai-based oil company that was a front for an Iranian petroleum firm.
As part of BNP Paribas’s settlement agreement, 13 executives were required to leave the bank including Georges Chodron de Courcel, former co-chief operating officer and chairman of the Swiss unit, as well as Dominique Remy, former head of structured finance. The bank was also barred from U.S. dollar-clearing operations for one year for its oil and gas commodity finance business.
“The group has learned lessons from these events and is implementing a major reinforcement of its internal control,” BNP Paribas Chief Executive Officer Jean-Laurent Bonnafe said on July 31.
To contact the reporters on this story: Sally Bakewell in London at sbakewell1@bloomberg.net; Andy Hoffman in Geneva at ahoffman31@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Dylan Griffiths, Tony Barrett
By Asjylyn Loder Sep 8, 2014 11:00 AM GMT+0700
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Floyd Wilson raps his fingertips against the polished conference table. He’s just been asked, for a second time, how he reacted when his Halcon Resources Corp. (HK) wrote off $1.2 billion last year after disappointing results in two key prospects.
Wilson once told investors that the acreage might contain the equivalent of 1.2 billion barrels of oil. He fixes his interlocutor with a blue-eyed stare and leans forward. At 67, he bench-presses 250 pounds (110 kilograms) and looks it. Outside the expansive windows of his 67th-floor executive suite, downtown Houston steams in its July smog.
He responds, unsmiling, with a one-syllable obscenity: “F---.”
Wilson has reason to curse, Bloomberg Markets magazine will report in its October issue. On the wall behind him hang framed stock certificates of the four public energy companies he’s built in his 44-year career. The third, Petrohawk Energy Corp., discovered the Eagle Ford shale, now the second-most-prolific oil formation in the country. He sold Petrohawk three years ago for $15.1 billion.
Then came Halcon. Since Wilson took over as chairman and chief executive officer in February 2012, the company’s shares have dropped by about half, trading at $5.67 on Sept. 5.
Halcon spent $3.40 for every dollar it earned from operations in the 12 months through June 30. That’s more than all but six of the 60 U.S.-listed companies in the Bloomberg Intelligence North America Independent E&P Valuation Peers index. The company lost $1.4 billion in those 12 months. Halcon’s debt was almost $3.2 billion as of Sept. 5, or $23 for every barrel of proved reserves, more than any of its competitors.
‘Uh-Uh’
Wilson is undeterred. “What do you do if you’re wrong? You go home and cry?” he asks. He shakes his head. “Uh-uh.”
A decade into a shale boom that has made fracking a household word and Wilson a rich man, drillers are propping up the dream of U.S. energy independence with a mountain of debt. As oil production hits a 28-year high, investors and politicians are buying into the vision of a domestic energy renaissance.
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Companies are paying a steep price for the gains. Like Halcon, most are spending money faster than they make it, an average of $1.17 for every dollar earned in the 12 months ended on June 30. Only seven of the U.S.-listed firms in Bloomberg Intelligence’s E&P index made more money in that time than it cost them to keep drilling. (Results for two companies included only the first six months of 2014.)
Cash Shortfalls
These companies are plugging cash shortfalls with junk-rated debt. They owed $190.2 billion at the end of June, up from $140.2 billion at the end of 2011. (Six of the 60 companies that didn’t have records available for the full period weren’t included.)
Standard & Poor’s rates the debt of 41 of the companies, including Halcon’s, below investment grade, meaning some pension funds and insurance companies aren’t allowed to invest in them. S&P grades Halcon’s bonds CCC+, which the rating company describes as vulnerable to nonpayment.
Money manager Tim Gramatovich sees disaster looming in the industry.
“I have lent money to nobody in this space, and I don’t plan to. This thing is absolutely going to blow sky-high,” says Gramatovich, chief investment officer of Peritus Asset Management LLC in Santa Barbara, California. The firm manages investments of about $1 billion, including the debt and equity of oil and gas companies that aren’t drilling shale.
Proved Reserves
Halcon’s recent lousy run shows how quickly a bright future can dim. Like many of its peers, Halcon uses two sets of numbers to describe its outlook. To the U.S. Securities and Exchange Commission, the company reports what’s known as proved reserves.
The SEC requires an annual tally and limits these calculations to what the firm is reasonably certain it can extract from existing wells and other properties scheduled to be drilled within five years, based on factors such as geology, engineering and historical production.
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To investors and lenders, Halcon also highlights a much higher figure that it calls resource potential. These estimates, while loosely defined by industry guidelines, don’t follow the SEC rule or timeline, as Halcon discloses at the beginning of its presentations. In fact, as Halcon notes, the SEC forbids companies from making resource-potential claims in official reserve reports. The agency doesn’t regulate what companies say at investor conferences, in press releases or on their websites. No one does.
‘Honored Tradition’
Discrepancies between proved reserves and resource potential are common in the industry, and investors can get duped, says Ed Hirs, a managing director at Houston-based Hillhouse Resources LLC, an independent energy company, who also teaches energy economics at the University of Houston.
“There’s a lot of ways to make money in the oil and gas business, and not all of them involve drilling for oil,” he says. “You just drill investors’ pocketbooks. When investors are willing to throw money at you, you can just make money on that. It’s a time-honored tradition.”
Halcon’s August investor presentation for EnerCom Inc.’s Oil & Gas Conference in Denver illustrates how far apart the figures can be. The company told investors it had resource potential equal to 1.3 billion barrels of oil. That’s almost 10 times the proved reserves it reported to the SEC at the end of 2013.
Asked in the July interview how much faith investors should put in resource estimates, Wilson says: “They shouldn’t put hardly any in them. They should just put in the idea that there’s some upside there. And if the practitioners are good at what they do or lucky, that upside might get turned into value.”
Spectacular Success
It would be easier to dismiss Halcon’s optimistic estimates if Wilson hadn’t succeeded so spectacularly in the past. Born on a U.S. military base in Georgia, he earned a bachelor’s degree in engineering from the University of Houston and started in the oil business in 1970.
Wilson says he made a poor employee, so he struck out on his own. He sold the first company he took public, Hugoton Energy Corp., to Chesapeake Energy Corp. (CHK) for $326 million in 1998, SEC records show. His second, 3TEC Energy Corp., was bought by Plains Exploration & Production Co. for $417.6 million in 2003, SEC records show.
Wilson moved on to Petrohawk in 2004, confident he’d sell the company in three years. When he didn’t, he led Petrohawk into new and untested shale plays. The gamble paid off.
Rewarding Shareholders
In 2008, while under shareholder pressure to cut spending and reduce debt, Wilson and his team made the discovery of a lifetime -- the Eagle Ford formation, now pumping 1.5 million barrels of crude and 6.5 billion cubic feet (184 million cubic meters) of natural gas every day.
His sale of Petrohawk in 2011 to BHP Billiton Ltd. was the second-largest transaction in North America’s oil and gas industry in more than five years, trailing only Exxon Mobil Corp.’s $35 billion purchase of XTO Energy Inc. in 2010, according to data compiled by Bloomberg.
“I’ve done really well for all the shareholders every single time,” Wilson says. “Those numbers are out there in the public. I don’t have to prove it.”
Buoyed by the Petrohawk triumph, Wilson and his partners put up $55 million and took over Tulsa, Oklahoma–based RAM Energy Resources Inc. in February 2012. A further $550 million came from EnCap Investments LP, a private-equity firm that had previously backed Wilson. In honor of their recent success, Wilson and his partners renamed the company Halcon, Spanish for hawk.
Biggest Prospects
Six weeks later, in April 2012, Wilson told investors attending the Independent Petroleum Association of America conference at the Sheraton Hotel near New York’s Times Square that Halcon’s companywide resource potential was 1.4 billion barrels. The number was striking because it was 66 times higher than the proved reserves Halcon reported to the SEC in March 2012.
The Halcon slide show outlined the two biggest prospects: 875 million barrels in the Utica shale, which stretches across Pennsylvania, Ohio and West Virginia, and a further 306 million in the Woodbine in East Texas. Footnotes say Halcon had yet to drill a single well in either location.
Investors were eager to back Halcon. It raised $2.1 billion in bonds in the 12 months following the April presentation. The Canada Pension Plan Investment Board, a $227 billion fund that manages retirement assets for 18 million Canadians, paid $300 million for an 11.4 percent equity stake in October 2012. Mei Mavin, a spokeswoman for the pension board, declined to comment.
‘Really Excited’
As the months passed, Halcon had trouble turning the potential into proved reserves. Wilson sounded optimistic. During an August 2013 conference call, he says, “We’re really excited about our Utica/Point Pleasant asset.”
Wilson says a Halcon well was one of the most important in the play and, though some of its acreage was “goat pasture,” the company was preparing for full-scale development of the Utica.
Three months later, the company reported a write-off of $1.2 billion, largely related to the Utica and Woodbine plays. Halcon sold its Woodbine acreage for $450 million in February 2014. After almost two years of drilling, Halcon reported to the SEC in March 2014 that it had 16.4 million barrels of proved reserves in the Utica and Woodbine -- the same acreage that Wilson had said in April 2012 contained the potential for 1.2 billion. The estimated bonanza had simply evaporated -- eliciting Wilson’s four-letter obscenity.
“Resource potential, which means ‘Who knows?’” he says in the July interview. “But it’s possible. Resource potential down in the Eagle Ford of south Texas increased 10-fold over time. So our business can be rough. It can go either way.”
Blackland Prairies
Halcon’s latest prospects lie beneath the oak woods and blackland prairies north of Houston, in its El Halcon prospect, and under the arid plateaus of western North Dakota, where the company is drilling the Bakken shale. The two plays account for most of Halcon’s production.
Wilson’s biggest gamble is on 315,000 acres (127,000 hectares) of unproven Tuscaloosa Marine Shale, known as the TMS, a layer of rock stretching from Louisiana’s western border to southwestern Mississippi.
“It has to work for them,” says Leo Mariani, a senior analyst at RBC Capital Markets LLC in Austin, Texas. “If the acreage doesn’t work out and they can’t get the costs down, they’re going to be in big trouble.”
Engineering Challenge
Squeezing oil from the TMS is an engineering challenge. The formation is 2 miles underground through rock interlaced with rubble and sand. On a humid July morning, a sign in the red clay of Wilkinson County, Mississippi, announces Halcon’s Fassmann 9H-1 well. A Helmerich & Payne Inc. Flex3 rig rises above the clearing. A monitor in the air-conditioned supervisor’s trailer shows the drill bit has reached a depth of 12,000 feet (3,660 meters).
Progress is slow. In the rig operator’s cabin 30 feet up, one man steers a circulating bit screwed to the end of 2 miles of pipe, monitoring progress on a bank of flashing screens. The bit must pierce the TMS horizontally in the right spot. His margin of error: 5 feet.Gibbous Moon
He misses. Frustration is thick as the temperature climbs to 91 degrees Fahrenheit (33 degrees Celsius). The hours slip by, measured in feet of pipe. As a near-full moon rises, a relief crew dressed in fire-retardant jumpsuits emerges, already sweating, from bunkhouses at the edge of the clearing. Heat lightning flashes in purple clouds to the south. It’s after 9 p.m. when a supervisor gets a message. The drill has veered off course. It’s time to try again.
At more than $13 million apiece, Halcon’s wells in the TMS are the company’s most expensive. Halcon abandoned its first well, the Broadway H1, after an underground casing failed. It has two producing wells in the play. Three others are in progress.
Wilson says Halcon has enough cash to keep trying and no imminent debt payments. Funds associated with Apollo Global Management LLC (APO), a New York–based private-equity firm, committed as much as $400 million in June to help Halcon pay for drilling in the TMS in exchange for a 12 percent return and a 4 percent royalty on what’s produced. That’s reduced to 2 percent after a threshold return has been met, Apollo says.
’Might Work’
“I don’t know how many times you can be wrong,” Wilson says. “I’ve never been wrong that many times. If your concept is that the Tuscaloosa Marine Shale might work or might not work, there’s a lot that feel that way in the industry. But there’s also quite a few that think it will work.”
Wilson doesn’t need to look far to see what happens when things go wrong. His office used to belong to executives of once-bankrupt electricity wholesaler Dynegy Inc. (DYN), which emerged from Chapter 11 in 2012. The custom wood paneling, fancy for his tastes, has been papered over with colored maps of drilling prospects.
Taken together, Halcon’s 1 million acres could cover Rhode Island. Wilson asks a visitor not to look closely; he doesn’t want to give away his next move.
Resource Potential
Wilson says proved-reserve numbers aren’t as important as the company’s resource potential.
“It’s what’s in the future that really matters to us,” he says. “So the resource potential is what we’re all about.”
If the TMS works, Halcon predicts an enormous payoff. In September 2012, a presentation for the Barclays Capital CEO Energy-Power Conference showed the resource potential of Halcon’s TMS properties equaled 373 million barrels of oil. Wilson says the estimate is much higher now. The company says it no longer gives resource estimates by play.
With the U.S. bent on energy independence and investors chasing riches from the fracking boom, there’s one other number to consider. Halcon’s proved reserves from the TMS reported to the SEC: zero.
By Paul Burkhardt and Kamlesh Bhuckory Sep 8, 2014 10:38 PM GMT+0700
Sasol Ltd. (SOL), the world’s biggest coal-to-liquid fuel producer, said profit climbed 13 percent after synthetic-fuels output advanced and the rand weakened.
Net income rose to 29.6 billion rand ($2.75 billion) in the 12 months through June, from 26.3 billion rand a year earlier, the Johannesburg-based company said in a statement today. Earnings per share excluding one-time items increased 14 percent to 60.16 rand, missing the average 60.99 rand estimate of nine analysts surveyed by Bloomberg.
“Underpinned by a solid operational performance, ongoing business improvements, and strengthened stakeholders relations, Sasol has outperformed our previous best efforts,” Chief Executive Officer David Constable said in the statement.
Sasol revenue is linked to the dollar price of oil, which was up an average of 9.8 percent on the year-earlier period. About three-quarters of the company’s operating profit came from South Africa, where the rand was 15 percent weaker against the dollar over the 12 months.
Sasol shares fell 0.1 percent to 636.59 rand by the close in Johannesburg. The company proposed boosting its final dividend to 13.50 rand a share from 13.30 rand.
Production Gains
Synfuels production rose 2 percent to 7.6 million metric tons, compared with a forecast of 7.3 million to 7.5 million tons, the company said on Aug. 11. A 97 percent annual utilization rate achieved at the Oryx gas-to-liquids plant in Qatar also boosted profit, Sasol said last month.
The company may be affected as the government projects growth in the South African economy to slow to 1.8 percent this year, the lowest since a 2009 recession.
“South Africa’s economic outlook remains challenging as the country is still recovering from a five-month long strike in the platinum sector, with business consumer confidence levels remaining low,” the company said. “While our oil and exchange rate views are largely unchanged, there is an increased risk that global geopolitical tensions and the start of the rate normalization in key global economies could see higher financial market volatility.”
Sasol is finishing the front-end engineering and design work on a U.S. ethane cracker, which would be added to operations in Westlake, Louisiana, the company said.
“We have an existing infrastructure, which will keep costs down,” Constable said. “People should see this as a massive expansion that’s going to drive huge earnings growth.”
The investment decision on a gas-to-liquids plant, costing as much as $14 billion, is expected 24 months after the cracker is finalized. The GTL facility, which may produce 96,000 barrels of fuel a day, would be the first of its kind in the U.S.
Uzbekistan GTL
Last year, Sasol’s board approved selling almost half its 44.5 percent stake in a GTL plant with Uzbekneftgas in Uzbekistan, a project that’s nearing the end of its engineering study. The company is still seeking an investor for a 19 percent share of the project.
“There is interest by a couple of companies,” said Constable. “If it drags on, we’ll have to step back and probably move on,” in which case Sasol would be willing to provide its technology and training, he said.
Sasol is phasing in voluntary retrenchments and retirements under its Project Phoenix initiative over the next seven to nine months as it seeks to curb fixed costs, the CEO said.
“I don’t think it’s fair to the shareholders just to sit back and let a weak rand and a strong oil price dictate how you manage the business,” said Constable.
The CEO has also focused on oil and gas exploration, mainly in Africa. Over the longer term, Sasol would like to have a balance of 30 percent oil, which it would sell, and 70 percent gas that it would use for power plant and chemical projects and convert into liquefied natural gas, Constable said.
“I’ve got to keep looking for low-cost reserves,” he said.
Calgary (Platts)--8Sep2014/704 pm EDT/2304 GMT
The statistics of 2013 speak for themselves -- record grain output in the Canadian Prairies of 76 million mt and record crude-by-rail (CBR) loadings from neighboring Alberta and Saskatchewan of 250,000 b/d.
And with Canadian oil sands production continuing to rise, there's a growing concern over the possibility of a standoff between the grain and oil industries for rail space and locomotives.
Adding to that concern is the fact that last year neither the number of grain hoppers nor the tank cars being hauled by Canadian Pacific and Canadian National Railway increased significantly to keep pace with the unprecedented demand to move both commodities from interior regions to consuming markets.
But while there are no new hoppers to be delivered over the short term, the order books of tank car manufacturers are bulging with 40,000 additional cars due to be delivered by late 2015 to carry more crude from Western Canada.
"There is really no reason for an emerging conflict between oil producers and grain growers in Canada," said Blair Rutter, executive director of Western Canadian Wheat Growers Association. "There is room for co-existence. But logistics, which has a [make-or-break] bearing on fetching a competitive price, has to keep up."
While there may be room for peaceful co-existence, that did not stop the Canadian government from issuing a rule that specifically favors wheat growers.
Following hectic lobbying by the farmer's lobby to clear out a growing backlog, Transport Canada this fall issued a directive ordering CN and CP to move more than 1 million mt of grain per week.
Failure to do so could cost the railroads C$100,000 ($94,500) per violation, the directive said.
"This [the directive] would not have risen if new major pipelines got built from Alberta. Why is it that commodities that can't move through pipelines, like potash, lumber and grain, have to suffer? A growing CBR business means lesser locomotives are available to haul grain and the resources get thinner. We suffered a lot last year," Rutter said.
The last time major pipelines were built in Western Canada was in 1953 when Kinder Morgan constructed the Trans Mountain facility to the Pacific Coast, while at the same time Enbridge started work on its Mainline system for delivering crude to US refineries.
The issue will not be about capacity constraints, said CN spokesman Mark Hallman.
In 2014, Canada's rail network is ready to accommodate the new harvest with a solid throughput rate, he said, adding that CN has a fleet ready to run 5,500 hoppers each week.
The grain harvesting season in the Prairies runs from early August to early November.
"We have been operating similar number of cars since April 2014 and the wait list of [grain growers] has now decreased significantly. We are well positioned to handle the coming harvest," Hallman said.
CN also plans a major hike in oil shipments this year and is ready to capitalize on further opportunities.
Last year, the railroad hauled about 73,000 car loads of crude oil and in second quarter 2014 it shipped 31,000 tank cars.
The company believes by 2015 it will transport 150,000 tank cars, Hallman said.
There will not be any respite in CBR shipments from Western Canada, but some relief will be provided to farmers by operator OmniTrax, which has backed out of plans to ship Bakken crude from its Arctic port of Churchill in Manitoba.
OmniTrax President Merv Tweed said his decision was driven purely by an opportunity presented in the market place to grab a "larger share" to export grain.
"We have not received any subsidies from the government," he said. "The rate of returns on handling crude oil may be higher, but we need less investment to grow our grain-handling ability and that makes our port more [commercially] viable."
With CAPP forecasting 185,000 b/d of new oil sands output in Alberta over the coming few years, pressure will only increase on both CN and CP to move either of the commodities faster to markets.
OmniTrax may have shown a path for others to follow, but with Blair forecasting a wheat output of 60 million mt in 2014, it may probably still be a tight scenario.
Early signs of that were seen last week, when US Senator Heidi Heitkamp urged CP Rail to urgently resolve delays of agriculture shipments in North Dakota.
Specifically, the company's new rail car order and shuttle train system ignores the current number of unfulfilled requests from grain elevators and forces North Dakota's farmers and grain operators to start from scratch in the middle of the state's harvest season, she said.
"Canadian Pacific is trying to pretend like the massive agricultural shipment delays across North Dakota don't exist, despite the fact that grain has been piling up around the state for months," said Heitkamp.
London (Platts)--8Sep2014/835 am EDT/1235 GMT
Outright prices for all middle distillates fell further Friday as ICE 0.1% gasoil futures fell to a 15-month low.
The ICE 0.1% gasoil futures September contract was assessed at $851.25/mt London 4.30 pm time Friday, its lowest level since May 31, 2013, when the contract fell to $843.75/mt.
Crude oil futures retreated in midday European trade Friday after poorer-than-expected signs of US growth and as a sharply stronger dollar was seen depressing demand for oil.
Brent futures fell further in London morning trade Monday, falling below $100/barrel for the first time since late June 2013 after news of an unexpected fall in Chinese imports. As a result of the fall in Brent, the ICE gasoil future contract fell below $850/mt before midday.
Analysts said the weak US economic data of late last week was also still weighing on the market.
"This morning, Brent futures extended declines in early trading as the recent disappointing US employment data weighed on market sentiment and raised serious concerns about a possible slowdown in the US oil demand for the upcoming months," Myrto Sokou at Sucden Financial said in a note Monday.
The outright price of CIF Northwest European jet cargoes fell to $909.50/mt Friday, its lowest level since May 31, 2013, when it reached $909/mt.
Outright prices for CIF NWE diesel cargoes and FOB Rotterdam diesel barges also sank further Friday, hitting $874.75/mt and $865.25/mt respectively, also their lowest levels since May 31, 2013.
Outright prices for CIF NWE gasoil cargoes and 0.1% Rotterdam barges fell to the same 15-month lows to $858.75/mt and $849.25/mt, respectively.
Middle distillates have been under pressure as supply in Northwest Europe continues to outweigh demand, with distillate stock levels in the Amsterdam-Rotterdam-Antwerp region 35.2% higher year on year, and 10.5% above the five-year average, according to the latest data released by BNP Paribas.
New York (Platts)--8Sep2014/452 pm EDT/2052 GMT
ICE October Brent Monday settled 62 cents lower to close at $100.20/barrel, after dropping below the $100 level for the first time since June 2013 on macroeconomic concerns.
ICE Brent fell as low as $99.36/b at 0955 EST (1355 GMT), a level not seen since May 2013, before rebounding.
NYMEX crude settled down 63 cents to $92.66/b. The October contract hit an intraday low of $91.80/b.
In refined products, NYMEX October RBOB was down 2.15 cents to $2.5619/gal, while October ULSD was down 0.98 cent to $2.8094.
"Last week was bearish, and today was a continuation of that," said Kyle Cooper, an analyst at IAF Advisors. "People are concerned about global growth, and even though they might be dismissing last week's jobs report as a one-off, it still wasn't good," he said.
A Labor Department jobs report released last Friday showed fewer jobs were added in August than analysts had expected.
Chinese imports, meanwhile, fell 2.4% in August on a year-to-year basis, the General Administration of Customs said Monday. Analysts had anticipated a 1.7% rise.
"For the most part, crude is rangebound, though right now it is testing the lower range, especially WTI," Carl Larry, president at Oil Outlooks.
"There is a lot of fear about maintenance season, and how much it'll weigh on oversupply in the US, though some of that concern might be overhyped," he said. "People are still scrambling for a news story, and just skating along until the EIA numbers come out Wednesday."
The US Energy Information Administration will release its weekly commercial inventory report Wednesday.
By Daniel J. Graeber | Sept. 8, 2014 at 10:15 AM | 0 Comments (Leave a comment)
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Iraqi government files claims against Greek shipper tied to Kurdish oil exports. (UPI Photo/William S. Stevens/U.S. Navy)
BAGHDAD, Sept. 8 (UPI) -- The Iraqi government revealed Monday it started legal proceedings against a Greek company responsible for exports of oil from the Kurdish north of the country.
The Iraqi Oil Ministry said it started legal proceedings in a Greek court against Marine Management Services, which operates five vessels, including United Kalavrvta, en route to a port in Galveston, Texas.
"Marine Management Services is liable for damages of at least $318 million, and possibly significantly more, as a result of its willing and active participation in the Kurdistan Regional Government's illegal crude oil export scheme," the ministry said.
The Iraqi and semiautonomous Kurdish governments have been involved in tit-for-tat legal proceedings in U.S. courts over the 1 million barrels of oil loaded onto United Kalavrvta. The U.S. government said the destination of crude oil is a commercial matter, but sided with Baghdad's claims that it's the sole entity in charge of oil exports.
Both Iraqi governments make competing claims over the legality of exports. Baghdad accused Marine Management Services of turning off ship transponders to avoid detection and conducting ship-to-ship oil transfers at sea.
There was no statement issued in response to Baghdad's latest case by either the KRG or Marine Management Services.
Economy expected to grow to lead global GDP by 2025.
By Daniel J. Graeber | Sept. 8, 2014 at 9:56 AM | 0 Comments (Leave a comment)
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BEIJING, Sept. 8 (UPI) -- The Chinese government said Monday it could save as much as $5 billion per month on import bills in part because of falling crude oil prices.
Global crude oil prices are shrugging off geopolitical concerns in the Middle East and Eastern Europe as few supply problems have been associated with the turmoil. The price for Brent crude oil, the global benchmark, was down 1 percent to around $100.8 per barrel as of Monday morning.
Lu Ting, a Chinese analyst of Bank of America Merril Lynch, told the official Xinhua News Agency there was a general sense of malaise across most sectors of a Chinese economy showing signs of a slowdown.
"One of the rare positive effects of slowing investment growth is declining commodity prices," he said.
With the Chinese economy still outpacing most others, Lu said China could save as much as $5 billion per month on its import bill because of falling crude oil and other commodity prices.
Analytical company IHS last week said the Chinese economy is expected to start a trend toward correction during the next 10 years. The report said China's share of world gross domestic product is expected to increase from the 12 percent reported last year to around 20 percent in 2025.
Oil company needs to maintain production, Medvedev says.
By Daniel J. Graeber | Sept. 8, 2014 at 8:50 AM | Comments
MOSCOW, Sept. 8 (UPI) -- The Kremlin has a vested interest in ensuring sanctions-strapped oil company Rosneft can maintain operations, the Russian prime minister said Monday.
Western governments have enacted sanctions on Russia's energy and defense sectors in response to crises simmering on the Ukrainian border with Russia. When Russian oil company Rosneft was targeted, Chief Executive Officer Igor Sechin, himself sanctioned, he said the company's strategy was affected.
Russian Prime Minister Dmitry Medvedev told Russian business daily Vedemosti it was incumbent upon the government to prop up Rosneft with more than $40 billion from a national welfare fund.
"The company needs to keep up production, since Rosneft is a major contributor to the budget," he said. "In this regard, we have to help them by maintaining the investment level."
Sechin in July said the government-controlled oil company was operating under difficult conditions because of the sanctions, but added he was prepared for some "volatility."
Rosneft accounts for nearly half of all Russian oil production, a key driver of the nation's economy.
Medvedev said the $40 billion federal loan was reasonable, noting it's not designed to be repaid within the year.
Former environment minister to take the helm.
By Daniel J. Graeber | Sept. 8, 2014 at 9:04 AM | 0 Comments (Leave a comment)
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OTTAWA, Sept. 8 (UPI) -- Canadian Prime Minister Stephen Harper welcomed the selection of former Environment Minister Jim Prentice as the next premier of Alberta.
Prentice won a landslide victory to take the seat at the head of the Progressive Conservative Association of Alberta and become premier-designate of Alberta.
"I look forward to working with Mr. Prentice on issues of importance for Albertans and all Canadians, including the economy, responsible resource development and job creation," Harper said in a Saturday statement.
Prentice served previously as the nation's environment minister. In 2012, he said delays from Washington on the cross-border Keystone XL oil pipeline were regrettable, but should encourage the federal government to expand its export options to other markets like Asia.
Canada sends nearly all of its oil to the United States and Prentice said the country would never get a fair value for its resources unless it expands its export options beyond North America.
Prentice said in his victory speech he had "big dreams" for "an Alberta at the forefront of both energy development and environmental awareness."
Harper's administration has reached out to Asian economies. A U.S. decision on Keystone XL is delayed still over legal issues in host state Nebraska.
By Daniel J. Graeber | Sept. 8, 2014 at 8:39 AM | 0 Comments (Leave a comment)
http://cdnph.upi.com/sv/em/upi/UPI-8901410178773/2014/1/f020ede7512692650e6d188e7b43b312/Iran-Iraq-gas-pipeline-completed.jpg
Iran gas moving through pipeline to Iraqi power plant in Diyala province. UPI/Hamid Forotan
TEHRAN, Sept. 8 (UPI) -- Iranian natural gas is reaching an Iraqi power plant though a now-completed cross-border pipeline, an Iraqi official said.
Alireza Gharibi, managing director of the Iranian Gas Engineering and Development Co., said last month water was sent through a 60-mile pipeline crossing the Iranian border into Iraq as part of an initial testing process.
An Iraqi official told Iran's semi-official Fars News Agency on condition of anonymity the pipeline was now feeding gas across the border to a gas-fed power plant in Diyala province.
"Iran's gas will be fed into al-Mansurya power plant once the pre-startup tests on the pipeline (built to transport natural gas to Iraq) are complete," the source said Sunday.
The pipeline is designed to export 176 million cubic feet of natural gas per day from Iran's offshore South Pars field. Iraq, for its part, has struggled to ensure around-the-clock electricity despite its vast natural resource wealth.
The source added the pipeline project was impeded by Iraq's natural security woes.
"We will be able to receive Iran's gas more safely due to the efforts of the (Iraqi) armed forces to get rid of the Islamic State," he added.
Russia’s Prime Minister Dmitry Medvedev committed to help Rosneft. As a result, the company led by Igor Sechin could receive 1.5 trillion roubles ($40.6 billion) to finance its debt.
“This figure only looks imposing, but everything doesn’t have to be done in one year. I recently held a meeting on Rosneft’s investment programme: the company needs to maintain its production levels, because Rosneft is a major source of tax revenue. As such, we should help it maintain its level of investment,” Medvedev said in an interview to the Vedemosti newspaper, as reported on the PM’s website.
Medvedev said that the economy is suffering as a result of external shocks and structural imbalances.
“We had planned for much higher growth, but we believe that this year the economy will grow by half a percent, or perhaps slightly more. Next year, it will grow by about 1 percent. That’s too low, but economic conditions are difficult around the world,” Medvedev said adding that the sanctions are likely to contribute to this mediocre performance.
According to Russia’s PM, sanctions are “always a stupid idea” and could have significant consequences on Western economies.
AL KHOBAR, 16 hours, 44 minutes ago
Yanbu Aramco Sinopec Refining Co (Yasref) has started trial runs this month at its 400,000-barrel-per-day (bpd) refinery, five industry sources familiar with the matter said.
Arab Light crude has been fed into the refinery complex in Yanbu, a joint venture between the world's top crude exporter, Saudi Aramco, and Asia's largest refiner, Sinopec, to start test runs, one source said.
Yasref's chief executive could not be reached for comment while another senior officer declined to comment.
The refinery will eventually process Arab Heavy crude from the giant Saudi Manifa oilfield and will produce 90,000 bpd of gasoline and 263,000 bpd of ultra-low sulphur diesel among other products, according to Yasref.
Downstream units at Yasref include a hydrocracker, two hydrotreaters, a continuous catalytic reformer and a delayed coker.
The test runs were in line with Yasref's schedule on its website for the first commercial shipment of refined products to be exported by November 2014, although this could be brought forward slightly to the second half of October, some trade sources said, depending on how smoothly test runs went off.
The refinery will export some naphtha initially as the operator tries to stabilise gasoline-making units, the sources said. Africa and Europe will be its target markets, they said.
The start of a second mega refinery in Saudi Arabia in as many years could swell an oil supply glut globally and further depress margins at refiners in Europe and Asia.
A 400,000-bpd refinery operated by Saudi Aramco Total Refining and Petrochemical Company's (Satorp) in Jubail, identical to Yasref, started commercial exports in September last year. The joint venture between Saudi Aramco and Total reached full capacity in the middle of 2014. -- Reuters
Tribesmen attacked Yemen's main oil export pipeline, halting the flow of crude, officials told Reuters.
Yemen's oil and gas pipelines have been repeatedly sabotaged by tribesmen feuding with the state, especially since mass protests against the government created a power vacuum in 2011, causing fuel shortages and slashing export earnings for the impoverished country.
The stability of Yemen is a priority for the United States and its Gulf Arab allies because of its strategic position next to top oil exporter Saudi Arabia and shipping lanes, and because it is home to one of al Qaeda's most active wings.
Saboteurs blew up the pipeline near the Wadi Abida production field in central Marib province. The state-run Safer oil company owns the pipeline, which leads to the Red Sea.
Heavily-armed tribes carry out such assaults to extract concessions from the government - to provide jobs, settle land disputes or free relatives from prison.
A Yemeni oil official speaking off the record said the line could be repaired in one or two days if tribesmen allowed it.
In December, Yemen said oil was being pumped through the pipeline at a rate of around 70,000 barrels per day (bpd). The pipeline used to carry around 110,000 bpd of Marib light crude to Ras Isa on the Red Sea. -- Reuters
GAMMARTH, Tunisia, 9 hours, 57 minutes ago
Tunisia is seeking foreign investors for $6.82 billion worth of infrastructure and development projects, as the government tries to prop up its faltering economy.
"We have a 22 projects in many sectors, including energy, tourism, transport and infrastructure which we will propose to foreign investors present in Tunisia", said Nidhal Ouerfelli, Tunisia's secretary for economy affair. They include projects for the construction of dams and port in the city of Ennfidha.
Tunisia will hold its second free election next month, three years after expelling an autocratic regime. Its exercise in democracy is being praised as a model of political compromise in an unstable region.
But a successful transition to democracy depends on stability and economic recovery, Prime Minister Mehdi Jomaa told an investment conference on Monday.
The government cut its forecast for economic growth for the third time this year on Thursday, from 3 percent to between 2.3 and 2.5 percent.
Its budget deficit is set to reach 8 percent of gross domestic product this year, mostly because of wage costs for public workers and subsidies left over from the rule of ousted leader Zine El-Abidine Ben Ali. - Reuters
MUSCAT, 13 hours, 13 minutes ago
Oman Oil Refineries and Petroleum Industries Company (Orpic) has invited contractors to apply for pre-qualification for the engineering, procurement and construction (EPC) contracts on the Liwa Plastics Project (LPP) at Sohar Port.
The prequalification invitation, which includes four packages, covers all of the key components of the LLP, which is estimated to cost about $3.6 billion.
The four packages are:
• Package LPP-EPC-1: Steam cracker with off-site works and utilities
• Package LPP-EPC-2: Polyethylene and polypropylene units with off-site works and utilities
• Package LPP-EPC-3: Natural Gas Liquids (NGL) extraction unit with off-site works and utilities
• Package LPP-EPC-4: NGL pipeline.
The giant scheme is proposed to be established adjacent to the ongoing Sohar Refinery Improvement Project (SRIP) under way at the industrial port of Sohar. It features, among other things, a 900,000 tonne per year (tpy) ethylene cracking plant, an high-density polyethylene (HDPE) plant, a linear low-density polyethylene (LLDPE) plant, new polypropylene plant, methyl tertiary-butyl ether (MTBE) plant, a butene-1 plant and associated utility and offsite facilities.
Also envisioned as part of this project is a natural gas liquids (NGL) extraction facility, which will be set up at Fahud and linked to the Sohar plant via a roughly 300-km pipeline.
"Should the applicant wish to apply to be prequalified for more than one of the above EPC packages, then it should submit separate and entirely stand-alone applications for each of the packages," the tender document said.
Only single entities (not joint ventures or consortia) are eligible to seek prequalification in stage one. However, applicants that may intend to form joint ventures or consortia when the EPC tender is eventually floated can register their interest as well, it said.
DUBAI, 13 hours, 28 minutes ago
A revised contract signed last week by British oil major BP and China's CNPC for Iraq's Rumaila oilfield has raised both companies' stakes in a joint venture formed to develop the field, a senior Iraqi oil official said.
Under the revised contract, BP has cut the planned output target for the supergiant field to 2.1 million barrels per day from 2.85 mbpd and extended the life of the deal, BP and Iraqi officials said.
The original contract had BP holding a 38 per cent stake in the Rumaila venture, while CNPC had a 37 per cent share and Iraq's State Oil Marketing Organisation controlled the rest.
According to the revised deal signed, BP's share rose to 47.6 per cent and CNPC's to 46.4 per cent, while Iraq's stake was reduced to 6 per cent, Thamer Ghadhban, top energy adviser to outgoing Prime Minister Nuri al-Maliki, told Reuters. He did not elaborate.
BP and CNPC could not immediately be reached for comment.
After signing a series of service agreements with foreign companies in 2009-2010 to develop its giant southern oilfields, Iraq set an overall production capacity target of 12 mbpd by 2020, which would rival the output capacity of top oil exporter Saudi Arabia at 12.5 mbpd.
Foreign oil companies working in Iraq include BP, leader at Rumaila; ExxonMobil, in charge of West Qurna 1; Royal Dutch Shell, operator of Majnoon; and Lukoil, which is leading West Qurna 2 operations.
But crumbling infrastructure, red tape and a lack of clear legislation have stunted investor interest. Baghdad has reduced its overall capacity target to 8.5-9 mbpd and returned to the negotiating table to discuss revised planned output targets, known as plateau production levels, with oil companies.
"With major contracted fields' production plateaux reduced to more feasible and sustainable targets I'm now confident we can reach 9 mbpd or so by 2020," Ghadhban tweeted.
Rumaila has estimated reserves of 17 billion barrels. It currently produces around 1.3 million to 1.4 mbpd, almost half of Iraq's output of around 3.2 mbpd. -- Reuters
Article
MOSCOW--Russian oil production is expected to edge higher in 2014 to a post-Soviet high, the energy ministry said Monday.
According to the ministry's outlook, Russia will extract 525.3 million metric tons (3.85 billion barrels) of crude oil in 2014, up from a previous all-time high of 523.3 million tons in 2013.
Oil revenue accounts for about a half of Russia's exports and 40% of state budget revenue. That share is rising, despite Moscow's efforts to reduce its dependence on oil revenue, as Russia's overall economic growth stalls.
Russia's oil production has increased steadily for the past five years as new fields in eastern Siberia have come on stream.
However, the ministry expects oil production to decline slightly to 525 million tons in 2015 and 2016, before rising again to 526 million tons in 2017.
Write to Alexander Kolyandr at alexander.kolyandr@wsj.com
Reuters
Russian oil production, a major source of government revenue, may decline slightly next year, having risen steadily since 2009, the Energy Ministry said Monday.
The ministry said oil production in 2015 was seen at 525 million tons (10.54 million barrels per day) compared to an expected 525.3 million tons this year.
Last year's oil output, which generates 40 percent of state revenues, stood at 523.3 million tons, a post-Soviet high.
Output declined by 0.6 percent in 2008 because of a global financial crisis, but has risen steadily since 2009 thanks to the introduction of a more favorable tax regime and other fiscal measures.
With Russia's $2 trillion economy heavily dependent on crude exports and on the brink of recession, oil production and prices are closely monitored by the Kremlin. The government is particularly wary now as tensions with the West mount over the Ukraine crisis.
Sanctions imposed by the United States and European Union have not yet hit oil production as the measures are aimed at new projects which are years away from coming on stream. But as Western funding closes off or becomes too expensive, companies are looking to cut investments.
The Energy Ministry said that oil output was seen level in 2016 and would return to a rising trend in 2017 when it was seen at 526 million tons.
It gave no explanation for the decline, saying that it had sent the forecast to the Economy Ministry and that this was the figure that should be used to map out taxation for minerals' extraction as well for social and economic development.
However, oil production has been broadly in decline this year mostly due to the depletion of West Siberia's oilfields and uncertainty over the government's taxation policy.
Russia plans to maintain its oil production at no less than 10 million barrels per day this decade
