Loadings of North Sea crude oil grade Gullfaks are set to double in July to six cargoes from three in June after the end of planned maintenance this month, traders said Thursday.
Traders said Statoil’s cargo volumes would be 800,000 barrels each, with the only other equity holder, Total, likely to have an 855,000-barrel cargo. The equity holders declined to comment. This would bring total loadings to 4,855,000 barrels in July, compared with 2,565,000 in June.
The main Gullfaks field lies in the northern part of the Norwegian North Sea and has been developed using three concrete production platforms. The complex also utilizes subsea tiebacks to three satellite fields, Gullfaks South, Rimfaks, and Skinfaks and Gullveig.
Oil is loaded directly into shuttle tankers, while associated gas is sent via the Statpipe to Karsto, north of Stavanger, Norway. The partners in the field are Statoil (70%) and Petoro (30%), Statoil’s website said.
OPEC crude exports, excluding those from Angola and Ecuador, are expected to average 23.34 million b/d over the four weeks to June 21, down 110,000 b/d from the previous four-week period, UK-based tanker tracker Oil Movements said Thursday.
Compared with the same period a year ago, the latest forecast from Oil Movements shows a fall in OPEC crude exports of 300,000 b/d. Shipments from the Middle East over the four weeks to June 21 are expected to average 17.01 million b/d, down 110,000 b/d from the previous four-week period. Compared with the corresponding four-week period of 2013, Middle East shipments are expected to register a decline of 310,000 b/d.
Rail shipments of “petroleum and petroleum products” fell for the second-straight week to 13,942 carloads for the week ended May 31, the Association of American Railroads said Thursday.
Petroleum and products traffic declined 640 carloads from the previous week to 13,942 units, after declining by 1,006 units the week before, though activity remained up 4.5% from the same week last year and up 6.7% year-to-date.
Total rail shipments fell back 11,303 carloads week-to-week to 289,633, but rose 7.6% from the same time last year and 3.1% year-to-date. Only “metallic ores and metals,” accounting for 8.3% of total carloads so far this year, had seen year-to-date declines of 2.7%.
Intermodal traffic also declined by 27,352 carloads from the previous week to 242,092 units, despite rising 8.6% from last year. Thus far this year, intermodal traffic was up 5.8% to 5.57 million carloads. Canadian petroleum and petroleum products rail traffic rose 156 units to 7,054 carloads, a 10.7% increase year over year.
Year-to-date traffic was up 7.1% to 158,835 carloads for petroleum and products, but down 2% to 1.69 million units overall. Mexican petroleum and petroleum products rail traffic dropped for a second week, down 32 carloads to 383 units. Total traffic was up 2% to 336,465 thus far this year, while petroleum shipments were down 6% to 8,976 carloads.
United Leadership, the vessel carrying the first cargo of Kurdish pipeline crude to load out of the Turkish port of Ceyhan, has moved further away from the coast of Morocco over the last two days after being turned away from the port of Mohammedia, sources said.
According to Platts ship-tracking software c-Flow, the vessel is currently laden and stationary off of the coast of Morocco and awaiting orders. It had been moving towards Mohammedia earlier this week, and there was speculation that it was planning to offload its cargo at the 200,000 b/d Mohammedia refinery, owned by Samir.
However, shipping source said the vessel never actually docked at the port to offload and was turned away. “She has left for orders, and we don’t know her destination,” a port agent said. “We don’t know her destination, but she was not accepted here by the refinery.” Samir could not be reached for comment on the matter.
The long-standing disagreement between the Kurdish Regional Government and Iraq’s central government over the issue of Kurdish crude exports independent of the country’s state-owned market agency SOMO has had far-reaching political and economic ramifications for the broader oil market.
Market sources said that many end-users in the region have stepped away from the Ceyhan cargo over fears of antagonizing SOMO and jeopardizing existing contracts for other Iraqi crude grades like Kirkuk and Basrah.
“SOMO has asked its term lifters directly not to get involved [with Kurdish crude,]” a refinery source said. “We don’t know who will look at it...But SOMO seems to be quite keen to find out if any of the term lifters [have taken it.]”
Baghdad has filed a request for arbitration with the International Chamber of Commerce against Turkey for allowing the export of the crude from the Botas terminal at Ceyhan. The dispute between Baghdad and Erbil has snowballed since United Leadership loaded at Ceyhan nearly two weeks ago, despite smaller Kurdish exports out of the nearby ports of Mersin and Dortyol that have been flowing steadily in 40,000 mt clips since December last year.
The march of crude quality studies continues, with two high-profile Canadian and US associations in the midst of probes into oil with an eye to safer shipments, representatives of those groups said Thursday.
The US’ American Petroleum Institute and the Canadian Crude Quality Technical Association are looking at an assortment of issues that include the content of crude and the frequency and measurement of crude sampling that may be required prior to loading onto rail tank cars.
Studies of crude quality are stepping up because of several train derailments in the last year. The results could lead to establishment of standards in both countries, the representatives said during the US’ Crude Oil Quality Association meeting in Denver.
Randy Segato, vice president of Canada’s CCQTA and a crude quality specialist for the country’s integrated Suncor Energy, said the association is working on nearly a dozen different studies that include the sulfur aspects of crude, condensate quality and how to estimate vapor in crude.
“We’re also working on a measurement of hydrogen sulfide and vapor on crude by rail,” Segato told the semi-annual gathering, which also met in New Orleans in February and is planning another conference in San Francisco in late October.
Segato said another study that CCQTA is thinking about centers around olefins in crude. “There are some bitumen producers who want to better understand the operational and contamination issues associated with the olefin content of crude, and what the constraints of that are,” said Segato. Also, “we’re looking to expand our knowledge of the source, quantity and impact of mercury in crude.”
Another proposed CCQTA study would be on the flammability of dilbit and conventional Canadian crudes — specifically their flash and fire points, he said. “We’re looking to review the existing test methods and if required, upgrade our testing to meet [new] rail car designs and specifications for crude oil transportation,” Segato said.
In April, Canada set a deadline of May 2017 for total removal or retrofit of all legacy DOT-111 rail cars that currently are used to ship crude oil and ethanol from Western Canada to North American refineries.
By Debjit Chakraborty and Rakteem Katakey Jun 6, 2014 7:02 AM GMT+0700
Gail India Ltd. (GAIL), the nation’s largest natural gas distributor, is offering supplies from the U.S. at prices tied to the American benchmark as an alternative to its oil-linked contracts.
Gail, which agreed to buy U.S. liquefied natural gas starting in four years, is offering to resell it at a fixed premium over the price at Henry Hub, the Louisiana clearinghouse and North American benchmark, Marketing Director Prabhat Singh said in an interview. Asia’s LNG contracts traditionally are tied to oil, making them vulnerable to spikes in crude prices.
“Henry Hub is the cheapest gas, and the price we are offering is getting good response among Indian customers,” Singh said by phone on June 4. “We have already signed term sheets with over 100 potential customers.”
Natural gas for July delivery settled yesterday at $4.701 per million British thermal units on the New York Mercantile Exchange. Singh declined to disclose the premiums over the U.S. benchmark that Indian clients would pay, saying only that they will be fixed for five years.
A U.S. benchmark price of $4 per million Btu would mean Asian importers will pay about $11.10 including liquefaction and shipping, Houston-based Cheniere Energy Inc. said in a May presentation. Japan, the world’s biggest LNG importer, paid an average $16.61 per million Btu for supplies in March.
With the Henry Hub price down about 24 percent from its five-year high in February, contracts linked to the U.S. benchmark may end up costing less than oil-indexed supplies from countries such as Qatar and Australia, Singh said. Anadarko Petroleum Corp., based in Woodland, Texas, said in March that it has signed deals to sell LNG from its Mozambique fields to Asian buyers at a price linked to both oil and U.S. gas prices.
Henry Hub
“If the sales are indexed to Henry Hub, then it’s definitely going to be cheaper than oil-linked prices,” assuming the premium isn’t excessive, said Abhishek Kumar, a London-based energy analyst at Interfax Europe Ltd.’s Global Gas Analytics.
Asia’s LNG buyers, accounting for about 74 percent of global consumption in 2013, are considering North American supplies driven by a boom in extraction from shale deposits. While the U.S. has some of the world’s lowest gas prices, the government still restricts LNG exports.
Gail agreed to buy 3.5 million tons of LNG a year for two decades from Cheniere’s Sabine Pass terminal in western Cameron Parish, Louisiana. Gail also booked 2.3 million tons a year capacity in the Cove Point LNG liquefaction terminal at Lusby, Maryland.
Qatari Imports
Current crude prices mean LNG imported from Qatar to India under a long-term contract costs $15-$16 per million Btu, said Ashish Sethia, head of Asia-Pacific gas and power analysis at Bloomberg New Energy Finance.
India’s natural gas consumption is projected to rise by 1.5 percent a year from 2010 to 2020, while production from local fields will decrease by an average 1.1 percent every year during that period, according to the U.S. Energy Information Administration.
Oil and Natural Gas Corp., Indian Oil Corp., Gail and Oil India Ltd. have invested in gas fields and liquefaction terminals in the U.S, Canada and Mozambique to secure supplies.
“We are aiming at booking nearly half of our U.S. volumes by offering Henry Hub-indexed rates,” Singh said. “We are seeing good demand from industrial users in India and hope to tie up 3.5 million to 4.0 million tons over the next few months,” he said.
To contact the reporters on this story: Debjit Chakraborty in New Delhi at dchakrabor10@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net Mike Anderson
By Julianna Goldman, James G. Neuger and Kateryna Choursina Jun 6, 2014 1:02 AM GMT+0700
Vladimir Putin has just weeks to stop supporting a pro-Russian insurgency in Ukraine or face stiffer penalties, U.S. President Barack Obama and U.K. Prime Minister David Cameron said.
“The G-7 nations are ready to impose additional costs on Russia” if Putin doesn’t take concrete steps to help end the rebellion in Ukraine, Obama told reporters after talks with Cameron today in Brussels. “We will have a chance to see what Mr. Putin does over the next two, three, four weeks.”
Those steps include completing a pullback of troops from the border and working constructively with President-elect Petro Poroshenko, Cameron said. Group of Seven leaders met for the second time since expelling Russia from what had been the G-8 over its annexation of Crimea from Ukraine in March.
“Russia’s actions are completely unacceptable and totally at odds with this group of democracies,” Cameron said, adding that it’s “vital” Putin reverses course in the next few weeks. “The status quo is unacceptable. The destabilization of Ukraine must stop.”
As G-7 leaders met in Brussels, President Putin and Russian Foreign Minister Sergei Lavrov arrived in Paris, where Putin will hold talks with Cameron before dining with his French counterpart, Francois Hollande, and Lavrov met with U.S. Secretary of State John Kerry.
Kerry, Lavrov
Kerry said the U.S. hopes Ukraine can be a bridge between east and west, while Lavrov said both sides need to stop the violence, with the government declaring a cease-fire first.
The Russians will join events tomorrow in northern France to mark the 70th anniversary of the D-Day allied landings during World War II.
Russia this week submitted a draft UN Security Council resolution to establish corridors to supply humanitarian aid to people in the mainly Russian-speaking regions of Ukraine affected by the fighting, which has claimed almost 200 lives. Prime Minister Dmitry Medvedev said today that thousands of people have fled into Russian regions since the violence began.
The State Border Service in Kiev dismissed Medvedev’s claim, saying on its website that “not a single Ukrainian citizen has reported a desire to seek refuge in Russia.” The number of Ukrainians who traveled to Russia last month fell to 340,000 from 540,000 in May 2013, the service said.
G-7 United
Russia’s annexation of Crimea and menace to eastern Ukraine led the U.S. and the European Union to impose asset freezes and travel bans on 98 people and 20 companies, while stopping short of broader curbs on investment and trade that might also damage their own economies.
The G-7 leaders warned Russia that “we stand ready to intensify targeted sanctions and to implement significant additional restrictive measures” in the absence of a peaceful settlement, according to a statement issued late yesterday. Obama said today G-7 nations are in “lockstep” over Ukraine, a country of about 46 million people.
German Chancellor Angela Merkel told reporters before a meeting with Poroshenko in Berlin today that Putin must support the new government of Ukraine and their talks will focus on what kind of support Russia is expected to contribute. Merkel is due to hold talks with Putin tomorrow.
Poroshenko said he’s determined to defend Ukraine’s territorial integrity from the “terrorists” being sent into the country to sow divisions.
‘Political Coercion’
Debate over further penalties is seething in the 28-nation EU, which relies on Russia for 30 percent of its natural gas. Germany’s government has faced down business leaders who objected to sanctions, while gas customers such as Slovakia have opposed a tougher line. Hollande reaffirmed plans to complete the sale of two Mistral helicopter carriers to Russia.
G-7 leaders warned Russia against using energy to force compliance with its political goals, according to a draft of the conclusions from the summit. Russia has set a deadline of June 10 for Ukraine to start paying for gas in advance.
“The use of energy supplies as a means of political coercion or as a threat to security is unacceptable,” the draft statement obtained by Bloomberg News reads. “The crisis in Ukraine makes plain that energy security must be at the center of our collective agenda.”
Fighting Continues
In Ukraine, the fighting continued in the easternmost Luhansk region and neighboring Donetsk, even as authorities said they were making progress in stopping the insurgency.
Militants attacked a checkpoint in Marynivka on the Russian frontier at 4:05 p.m. Kiev time today, the border service said on its website.
The rebels were armed with heavy machine guns and arrived in armored personnel carriers, trucks and minibuses, the service said. The air force responded with airstrikes that killed several “terrorists,” while others fled into Russia, according to the service. At least five patrolmen were wounded.
Control of some areas along the frontier are “utterly complicated” by a high concentration of rebels who are threatening family members of border patrol officers, the border service said in an earlier statement today. Ukraine shut seven border stations in Luhansk and one in Donetsk.
Authorities had more success in Krasny Lyman, a town about 25 kilometers (15 miles) northeast of Slovyansk in the north of Donetsk, which was retaken by the armed forces, Serhiy Pashynskyi, acting chief of the presidential staff, said on the presidential website. Nine districts in northern Luhansk, out of 18 in total, are back under government control, he said.
‘Absolutely Confident’
Pashynskyi said while he’s not expecting the operation to conclude quickly, “I am absolutely confident that if we move on consistently and if the cabinet, parliament and president and Ukrainian society act in sync, we will resolve this.”
Russia is “very worried” about the Ukrainian offensive, Foreign Ministry spokesman Alexander Lukashevich said at a briefing in Moscow. Russia is seeing an influx of refugees from Donetsk and Luhansk, he said.
The G-7 statement faulted Putin for stirring up the insurrection and called on the Kremlin “to exercise its influence among armed separatists to lay down their weapons and renounce violence.” The leaders also called on Ukraine’s authorities to “maintain a measured approach” in their operations to quell the violence.
Tomorrow’s D-Day commemorations will include a lunch where both Obama and Putin will be present. Merkel said that she would make clear the G-7 stance on Ukraine in her discussions with the Russian leader.
“I don’t plan to evade anyone,” Putin said in an interview with France’s Europe 1 and TF1 channel broadcast as the G-7 leaders met. “There will be other guests and I’m not going to avoid any of them. I’ll talk with all of them.”
To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net; Julianna Goldman in Washington at jgoldman6@bloomberg.net
To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net; James M. Gomez at jagomez@bloomberg.net Brad Cook
By Mikael Holter Jun 5, 2014 11:17 PM GMT+0700
Statoil ASA (STL), Norway’s biggest oil company, is preparing to deepen cuts to investment, operating expenses and staff in a bid to generate an extra $5 billion of cash a year.
The state-controlled explorer wants to meet that target for additional pretax cash flow by 2020 by reducing capital expenditure by as much as 25 percent compared with 2013, trimming operating costs by 15 percent and eliminating 20 percent of its technical staff, according to internal documents seen by Bloomberg News.
The goals are more ambitious than those Statoil made public in February, showing the pressure rising costs are putting on profit margins at the world’s largest oil producers as crude prices stagnate. Stavanger-based Statoil has particular challenges in Norway, where drilling is more expensive than anywhere in the world and labor costs are almost double those in the U.S.
“Statoil faces escalating costs and declining returns, and needs to significantly improve cost and resource efficiency,” the company said in the documents, which outline its ambitions. To tackle these challenges, the company is creating what it called a Technical Efficiency Program with “an ambitious but achievable ambition level: when fully implemented, improve Statoil’s pretax cash flow by $5 billion.”
Pretax cash flow last year was $36.5 billion, according to an earnings presentation.
Shares Rise
“We do not wish to comment on internal working documents where early scope and ambitions for our ongoing efficiency program are expressed,” spokesman Jannik Lindbaek said by e-mail today. “We presented our strategy, priorities and deliveries at our capital markets update in February, and these remain firm.”
A contract to design the efficiency program and support Statoil in setting it in motion has been awarded to consulting firm McKinsey & Co Inc. following a tender earlier this year, Lindbaek said, declining to comment on the deal’s value or duration.
Statoil shares rose 1.9 percent, the most since April 29, to close at 185 kroner in Oslo.
Strategic Shift
To achieve the reduction in capital investments, the program aims for a 25 percent cut in well-related costs by 2020, according to the documents. That compares with a reduction of 15 percent by 2016 proposed at the company’s capital markets update in London in February.
Similarly, Statoil, which produces about two-thirds of its oil and gas in Norway, wants to reduce the cost of modifying existing platforms and other assets by 30 percent by 2020, compared with 20 percent by 2016. The company also plans to lower the cost of new facilities by 25 percent in the same period.
In a strategy update in February, Statoil said capital expenditure, which reached $19 billion in 2013, would be 8 percent less than previously planned in the period from 2014 through 2016, or about $20 billion a year. Operating expenses reached 75 billion kroner ($12.5 billion) last year.
Norway’s government, which owns 67 percent of Statoil, reacted to the plans by warning the company and its competitors they should avoid project delays.
Investors welcomed those goals, with Statoil gaining 25 percent in Oslo trading since presenting its strategic shift to focus on higher returns over production growth. The gain is about double that of Royal Dutch Shell Plc (RDSA) in London.
Aside from cuts in investments, costs and staff, Statoil said in the documents it could increase revenue by $1.8 billion through production efficiency measures.
World’s Highest
Reducing drilling costs is ranked first among six projects within the program. Statoil said expenses per meter drilled have risen 240 percent in 10 years as the distance drilled per day fell 44 percent. The cost of production wells is 25 percent higher than for peers on mobile rigs and 20 percent higher on fixed rigs, the documents said.
Drilling costs in Norway, western Europe’s biggest oil and gas producer, are the highest in the world and at least 40 percent higher than in the neighboring U.K., a government-commissioned report said in 2012.
Relaxing rig requirements and lowering labor costs are essential to maintaining production after a 20 percent decline over the past 10 years, according to the government’s report, led by Eivind Reiten, a former chief executive officer of Norsk Hydro (NHY) ASA.
Offshore Rotation
Statoil wants to open discussions with Norwegian authorities both on safety regulations and on offshore-worker rotation systems in order to close the gap between Norway and the U.K. on daily rig rates, which stand at about $100,000, it said in the documents.
Other efficiency measures outlined in the documents range from the standardization of offshore platforms and subsea installations to a 10 percent reduction in research and development spending.
By being more selective on investments and cutting costs, the company has said it expects to cover dividends with organic free cash flow by 2016 after partially funding raising payouts with asset sales of more than $18 billion over the past four years.
To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Alex Devine, Rachel Graham
By Isis Almeida and Anna Shiryaevskaya Jun 5, 2014 9:48 PM GMT+0700
European natural gas buyers are pushing to renegotiate long-term supply contracts as the premium of oil-linked fuel to that on hubs rises to the most since 2009.
GDF Suez SA (GSZ), France’s largest gas company, plans to agree new supply terms with OAO Gazprom (GAZP) next year, Vice Chairman Jean-Francois Cirelli said in a June 3 interview. Gas for next month on Germany’s biggest hub costs 32 percent less than under long-term agreements linked to oil, the biggest gap since March 2009, according to Bloomberg’s gas contract calculator.
More than 50 percent of Europe’s agreements are now linked to hub prices, according to Cirelli. That has helped boost trading on regional hubs, with German volumes gaining 42 percent last year and buying and selling in the Netherlands climbing 10 percent, according to Trayport Ltd. data.
“If there’s more gas market-indexed, on the hub, it will increase liquidity of the hubs and facilitate the development of the market,” he said in London. “We have entered since 2010 fundamental changes in the European market. Until 2009-2010 there was U.K. market-based and continental European oil-indexed. That is over.”
The oil-linked price for July is 26.17 euros a megawatt-hour ($10.44 per million British thermal units), according to the Bloomberg calculator using the 2014 BAFA proxy. That compares with 17.73 euros on the NetConnect Germany hub today, according to broker data compiled by Bloomberg. The oil-linked price was last lower in January.
Revisions, Refunds
European buyers tied to long-term contracts with suppliers including Gazprom and Norway’s Statoil ASA (STL) have sought a link to spot rates rather than crude as prices diverged after the 2008 crisis curbed demand. German month-ahead gas has fallen 32 percent over the past year while Brent crude gained 4.9 percent. Agreements linked to oil can last as long as 35 years in a method that dates back to the 1970s, when the fuel was more widely used in power generation.
Buyers from EON SE to RWE AG have won price revisions with suppliers through talks or arbitrations after they posted losses selling gas into domestic markets. Eni SpA, Gazprom’s largest client, renegotiated a contract with the Russian firm last month, a move Stanford C. Bernstein said would boost operating profit at its gas and power unit by 560 million euros ($760 million).
Eni’s new terms prove Gazprom is “ready to compete in the new European gas market, where prices are now mostly spot based,” Societe Generale SA said today in a report.
“If you are a buyer under long-term oil-indexed contracts, bankruptcy is not far from the center of your mind,” Howard Rogers, director of gas research at the Oxford Institute of Energy Studies, said last month in Amsterdam. “If that rebate goes, you are buying high and selling low. It’s very difficult for buyers to play that game and win.”
Supplier’s Risk
Traditional long-term contracts ensure secure supplies as they set annual volumes the producer needs to meet, Sergey Komlev, head of contracts structuring and price formation at Gazprom, said last month. Oil-indexed prices aren’t always higher than those on hubs, according to Anne-Sophie Corbeau, a senior gas expert at the International Energy Agency.
“It’s a firm obligation on our side to deliver and if we don’t deliver, we have to pay huge fines,” Komlev said at the Flame conference in Amsterdam. “If you have hub prices, the risk of the supplier is increased and in order to make risk more or less balanced, you will have to get an option not to deliver if you don’t like the price.”
Gazprom has had scheduled renegotiations with all of its clients and doesn’t expect extraordinary reviews, Andrei Zotov, deputy head of the department for economic assessment and pricing, said on an April 29 call.
Irreversible Process
There’s not enough market transparency on hub trading for the data to be relied on for contractual purposes, Zach Allen, president of Pan Eurasian Enterprises, said today by e-mail. Changing that would require all transactions to be put through an exchange where there’s open and public access to volumes and price data, he said.
Gas trading on Germany’s NetConnect and Gaspool climbed to 2,242 terawatt-hours last year as volumes on the Dutch Title Transfer Facility rose to 8,290 terawatt-hours, according to Trayport, which compiles data on broker bilateral, broker-cleared and exchange-executed trades.
“The liberalization of the market is an irreversible process,” Rune Bjoernson, a senior vice president at Statoil, said last month in an interview at Flame. “We need to believe in the price, that there’s enough liquidity for us to use it in these large contracts. Therefore we have changed it and long-term I think it’s the only sensible approach.”
To contact the reporters on this story: Isis Almeida in London at ialmeida3@bloomberg.net; Anna Shiryaevskaya in London at ashiryaevska@bloomberg.net
To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Rob Verdonck, Dan Weeks
By Souhail Karam and Nayla Razzouk Jun 5, 2014 8:18 PM GMT+0700
An oil tanker hauling crude from Iraq’s semi-autonomous Kurdish region left Morocco’s territorial waters without unloading, days after the same ship u-turned in the Atlantic Ocean amid a legal challenge relating to its cargo.
“The United Leadership moved into international waters yesterday upon a request from Moroccan authorities,” Nadia Laraki, director general for Agence Nationale des Ports, said by phone today. “The issue is out of our hands. It has not docked and therefore has not unloaded a single cubic meter.”
SOMO, Iraq’s oil-marketing company, said June 1 that buyers should not purchase the tanker’s cargo. Iraq’s oil ministry said May 23 it sought arbitration over Kurdish oil sales from Turkey at the International Chamber of Commerce. The Kurdistan Regional Government says it’s abiding by the Iraqi constitution, according to its website. Two calls to KRG officials today weren’t answered. The ship reached its destination, the KRG said June 3, without specifying where that was.
The tanker is owned by Marine Management Services MC in Piraeus, Greece, a database maintained for the United Nations’s maritime agency shows. Kyriakos Maragoudakis, the company’s operations and marine manager, declined to comment. The ship is about 40 miles off Morocco’s Atlantic coast, having got within five miles of the port of Mohammedia, ship tracking data compiled by Bloomberg show.
“We are monitoring the movements of this tanker and anyone who deals with this oil will be prosecuted,” Iraqi oil ministry spokesman Asim Jihad said by phone from Baghdad today.
Conflict Escalation
Tensions between Iraq and the Kurdish region escalated last month when the KRG began pumping oil through its own pipeline to Ceyhan, the Turkish port in the Mediterranean sea from where ship tracking data show United Leadership loaded. The tanker crossed the Strait of Gibraltar, signaling for the U.S. Gulf, then turned back after about 190 miles. It then sailed to Mohammedia in Morocco, tracking shows.
The KRG estimates its region has about 45 billion barrels of crude reserves. Iraq, which has has about 150 billion barrels without the Kurdish reserves, surpassed Iran in 2012 to become the second biggest oil producer in the Organization of Petroleum Exporting Countries.
Shipping signals can be wrong because much of the information is entered manually and because not all data are captured.
Disputes about cargoes sometimes delay merchant ships. A tanker called the ETC Isis spent months marooned off Singapore in 2012 as part of a dispute between northern and southern Sudan. Earlier this year, U.S. special forces boarded a tanker shipping crude from eastern Libya that the nation’s government said was illegally shipped.
To contact the reporters on this story: Souhail Karam in Rabat at skaram5@bloomberg.net; Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron
By Nick Cunningham | Thu, 05 June 2014 22:27 | 0
Much has been made about the role that hydraulic fracturing – or fracking -- has played in revolutionizing the energy landscape, unlocking vast new reserves of oil trapped in shale rock. This “tight oil” is pouring into the global pool of oil supplies at a crucial time, preventing oil prices from spiking in an age of high demand and geopolitical turmoil.
But the world still relies overwhelmingly on conventional oil production from existing fields, many of which are in decline. The Middle East has dominated the world of oil for half a century and as the list below shows, it remains king. Here are the top five most important oil fields in the world.
1. Ghawar (Saudi Arabia) The legendary Ghawar field has been churning out oil since the early 1950s, allowing Saudi Arabia to claim the mantle as the world’s largest oil producer and the only country with sufficient spare capacity to act as a swing producer. Holding an estimated 70 billion barrels of remaining reserves, Ghawar alone has more oil reserves than all but seven other countries, according to the Energy Information Administration. Some oil analysts believe that Ghawar passed its peak perhaps a decade ago, but Saudi Arabia’s infamous lack of transparency keeps everyone guessing. Nevertheless, it remains the world’s largest oil field, both in terms of reserves and production. It continues to produce 5 million barrels per day (bpd).
2. Burgan (Kuwait) Just behind Ghawar is another massive oil field located in the Middle East. The Burgan field was originally discovered in 1938, but production didn’t begin until a decade later. The field holds an estimated 66 to 72 billion barrels of reserves, which accounts for more than half of Kuwait’s total, and it produces between 1.1 and 1.3 million bpd.
3. Safaniya (Saudi Arabia) The Safaniya field is the world’s largest offshore oil field. Located in the Persian Gulf, the Safaniya field is thought to hold more than 50 billion barrels of oil. It is Saudi Arabia’s second largest producing field behind Ghawar, churning out 1.5 million bpd. Like Saudi Arabia’s other fields, Safaniya is very mature as it has been producing for nearly 60 years, but Saudi Aramco is working hard to extend its operating life.
4. Rumaila (Iraq) Iraq’s largest oil field is the Rumaila, which holds an estimated 17.8 billion barrels of oil. Located in southern Iraq, Rumaila was highly sought after when the Iraqi government put blocks up for bid in 2009. BP and the China National Petroleum Corporation (CNPC) are working together to develop the giant field along with Iraq’s state-owned South Oil Company. The field now produces around 1.5 million bpd, but its operators have plans to boost that production to 2.85 million bpd over the next couple of years.
5. West Qurna-2 (Iraq) Also located in southern Iraq, the West Qurna-2 field is Iraq’s second largest, holding nearly 13 billion barrels of oil reserves. The West Qurna field was divided in two and auctioned off to international oil companies. Russia’s Lukoil took control of West Qurna-2 and successfully began production earlier this year at an initial 120,000 bpd. Lukoil plans on lifting production to 1.2 million bpd by the end of 2017. The neighboring West Qurna-1 field – operated by a partnership of ExxonMobil, BP, Eni SpA, and PetroChina – holds 8.6 billion barrels of oil reserves. They hope to increase production from 300,000 bpd to more than 2.3 million bpd over the next half-decade.
It’s clear that the Middle East is still the center of the universe when it comes to oil. Despite their age, these supergiants remain the oil fields of tomorrow. And as the tight oil revolution in the U.S. plays out, these fields will remain, and the world will continue to depend heavily on the fortunes of a few countries in the Middle East
By Nick Cunningham of Oilprice.com
By Alexis Arthur | Thu, 05 June 2014 21:49 | 0
South America has become a target for shale speculation in the Western Hemisphere, thanks largely to the immense unconventional resources in Argentina. Sitting atop the world’s second largest shale gas and fourth largest shale oil reserves, the country has rightly attracted the attention of the energy world. Successful shale development can be transformational for a nation’s economy – as the United States’ experience shows. But as Argentina, Colombia, and Chile are learning, the early stages of monetizing these assets can be particularly tough.
Argentina, with is 802 trillion cubic feet (tcf) of shale gas reserves, has drawn investor interest in recent years in spite of the country’s sometimes tetchy relationship with developers. Yet as exploration has begun in the lucrative Vaca Muerta formation, the challenges of shale production in Argentina have also come to light.
Local infrastructure is currently inadequate, there is a lack of detailed information about the subsoil, and operations are inefficient when compared to their counterparts in the United States. The costs, if not prohibitive, call for a more efficient approach in Argentina, where a well can cost up to five times its equivalent in the United States.
Notwithstanding these challenges, Argentina must act quickly to address its critical energy situation. The country has experienced 15 years of declining oil production and 10 years of production declines in natural gas. Meanwhile, demand for natural gas is growing at an annual rate of 5 – 6 percent, and despite abundant reserves the country has become a net importer of natural gas. Given the current supply-demand imbalance, Argentina must find a way to fast-track its unconventional learning curve.
Chile may be a country better known for hydropower than hydrocarbons but that has not dampened expectations at state oil company ENAP.
On the back of positive initial exploration efforts in 2013, ENAP has announced its intention to move forward with drilling in the potentially shale-rich Magallanes region. The US Energy Information Administration estimates that the Chile portion of the Magallanes basin (which it shares with Argentina) holds 49 tcf of shale gas and 2.4 billion barrels of recoverable shale oil reserves.
ENAP already began producing tight gas in 2013 and plans to invest $130m in Magallanes exploration and production this year.
The new Bachelet government is also banking on ENAP playing a bigger role in domestic oil and gas production. In its energy strategy released May 15, the government pledged to provide the financing, human resources and technology necessary for the company to fulfil its mission as the national energy provider.
The mining sector in particular stands to benefit from domestic hydrocarbons production, as tight supplies and high energy costs have raised concerns around the future of the country’s multi-billion-dollar mining industry.
That said, with estimates that it would cost at least $500m to fully develop the shale oil and gas potential in Chile, there’s still some way to go.
Chile’s well-established environmental and social movements, which have proved extremely successful in delaying hydro mega projects in the country, should also be considered as Chiles moves ahead with efforts to spark a shale revolution of its own.
Colombia, meanwhile, has piqued the interest of investors and policy makers in the decade since it opened its energy sector. Energy reforms enacted in 2003 quickly doubled oil production from just over 500,000 barrels per day in 2005 to top a million barrels per day today. But with oil production plateauing, and internal demand rising, Colombia is opening more areas to exploration in the hope of repeating its success, this time in the unconventional arena.
Colombia’s geographical advantage – with both Pacific and Caribbean coastlines - has made natural gas exploration and export a priority.
And while Colombia has 55 tcf of technically recoverable shale reserves, so far there has been little progress in unconventional production. The first bid round to include unconventional blocks, in 2012, did not attract much interest.
Ongoing insecurity and attacks on energy infrastructure are doing little to boost investor confidence. Environmental concerns as well as the permitting delays that have irked investors in the conventional oil and gas industry are also likely to come into play as unconventional development moves forward.
But Colombia’s national hydrocarbons agency, ANH, has high hopes for the second unconventional auction as part of Ronda Colombia 2014. Of the 97 blocks offered, 19 are shale oil and gas. ANH has reported interest from some of the oil majors but it remains impossible to gauge real investment potential until proposals are submitted next month.
Across South America, countries seeking to monetize their unconventional resources face a long road ahead. Even as the region gains access to the technology, know-how, and human and financial capital required, countries will continue to struggle with scale. According to RBC Capital Markets, over 20,000 horizontal wells are expected to be drilled in 2014 in the United States. This compares to 250 unconventional wells in Argentina, and just 10 in Colombia, according to energy consulting firm Wood Mackenzie.
Overall, the optimism surrounding South America’s shale oil and gas potential has not been misplaced. But those eagerly awaiting the next shale revolution would do well to adjust their expectations, at least in the short to medium term.
By Alexis Arthur
By Andy Tully | Thu, 05 June 2014 20:46 | 0
Russia’s deal to sell an estimated $400 billion in gas to China may require an initial investment from Moscow.
Vladimir Putin, Russia’s president, told an energy convocation in Astrakhan, Russia, on June 4 that Gazprom, Russia’s government-owned gas company, may need several billion dollars worth of new capital to build pipelines and tap new fields to keep the gas flowing.
Putin gave no details, but indicated the money could come from the country’s gold and foreign exchange reserves.
Moscow estimates that the deal to sell gas to China over 30 years, beginning in 2015, could add between 0.3 and 0.4 percentage points to Russia’s economy. The central bank in Moscow says the economy is forecast to grow by only 0.5 percent in 2014.
Russia has said it intends to invest $55 billion to tap new sources of gas and build the pipeline to China’s border. The China National Petroleum Corp. will build the Chinese section.
The deal with China is certain to help Russia’s economy, which has been sluggish because of a lack of overall reforms since the breakup of the Soviet Union and, more recently, economic sanctions from the West for its invasion and annexation of Crimea in March. Investing billions of dollars in the China project is expected to cause further strain.
In part because of these sanctions, the deal with China is a way for Russia to diversify its customer base if EU countries succeed in weaning themselves from their current heavy reliance on Russian gas. Still, May gas deliveries to Europe were up more than 10 percent over levels from one year ago, Gazprom CEO Alexei Miller said June 3.
But that may be because European clients are stockpiling gas for fear of a cutoff in case Ukraine cannot maintain its payments to Gazprom. EU countries get about 30 percent of their gas from Gazprom, and half of that is piped through Ukraine.
If Ukraine runs out of gas, it may tap its pipelines for gas destined for Western Europe, as it did in 2006 and 2009.
By Andy Tully of Oilprice.com
Jun 2, 2014, 11:07am CDT
An oil pumpjack is silhouetted against the dusk sky. Marathon Oil says it plans to invest more in domestic basins such as the Eagle Ford after the sale of its Norwegian assets.
Marathon Oil Corp. is selling its Norwegian business for $2.7 billion so it can focus on its domestic operations, including those in South Texas’ Eagle Ford Shale.
Houston-based Marathon anticipates $2.1 billion in net proceeds from the divestiture of its Norwegian assets to oil company Det Norske Oljeselskap after adjusting for debt, net working capital and interest.
The company’s Marathon Oil Norge AS subsidiary operates a floating production, storage and offloading vessel plus North Sea drilling licenses. It had daily average net production of 80,000 barrels of oil equivalent last year.
Marathon CEO Lee Tillman, in a written press statement, said organic growth in the company’s domestic operations is its “first priority for additional capital allocation.”
With 230,000 net acres in the Eagle Ford, Marathon is one of the South Texas oil and gas play’s largest acreage holders.
The company budgeted $2.36 billion in 2014 capital expenditures for its Eagle Ford holdings. It plans to speed up rig activity by 20 percent in the formation compared to 2013.
Like other sizable oil companies, Marathon is working to scale back pricey overseas exploration and production activities and focus on drilling in domestic basins where production is hitting new records. Since 2011, the company has completed $6.2 billion in divestitures.
Marathon, which also has been looking to unload its British North Sea business, says it’s canceled those plans because it’s been unable to gather an acceptable offer.
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Energy © 2014 American City Business Journals. All rights reserved.
6/4/2014 11:58 PM ET
Italian state-controlled oil and gas company Eni SpA (E: Quote) and Spanish oil company Repsol SA (REPYY) agreed Wednesday to invest $1 billion in the Perla Field in Venezuela, which is expected to start production by end-2014. The two companies will invest $500 million each to gain access to Perla's condensate reserves which are property of the Republic of Venezuela.
The strategic agreement related to investment was signed by the Venezuelan Minister of Petroleum and Mines and President of Petróleos de Venezuela S.A. or PdVSA Rafael Ramírez, Eni's CEO Claudio Descalzi, and Repsol President Antonio Brufau.
The agreement will see the creation of a new company to develop and produce Perla's condensate reserves. The new company will be jointly run by CVP (PdVSA's affiliate) with 60 percent participation, Eni with 20 percent and Repsol with 20 percent.
The production in the field, which begins in end-2014, will reach the peaks of 300 million standard cubic feet per day in Phase I, 800 million scfd in Phase II, and 1,200 million scfd in Phase III.
However, the agreement is subject to final contracts to be signed and to the approval of local authorities.The Perla field in Venezuela is one of the largest worldwide discoveries of the last decade. It is located in the Cardón IV block in the Gulf of Venezuela, 50 kilometers from the shore in a water depth of 60 meters that was discovered in 2009.
The current estimate of gas in the Perla field is about 17 Trillion cubic feet (Tcf), or 3.1 billion barrels of oil equivalent.
The whole of Cardón IV block is licensed and operated by a joint operating company, Cardón IV S.A., which is 50 percent owned by Eni and 50 percent by Repsol.
Venezuelan state-run oil and gas company PdVSA has now exercised its right to buyback 35 percent ownership of the block, leaving the block jointly operated by Eni and Repsol also with 32.5 percent interest each.
Eni said its net production in Venezuela is currently about 10,500 barrels of oil per day through its participation in the Junín-5 heavy oil block and participation in PetroSucre, the operating company which runs the offshore Corocoro field.
E closed Wednesday's regular trading session at $50.80, down $0.57 or 1.11% on a volume of 86,914 shares.
In Milan, Eni shares closed at 18.62 euros, down 0.24 euros or 1.27% on a volume of 22.02 million shares. Repsol shares closed in Madrid at 20.11 euros, down 0.75 euros or 3.62% on a volume of 158.21 million shares.
by RTT Staff Writer
By Masterforex-V | Commodities | Jun 04, 2014 09:29AM GMT | 1 Comment
The Government of Saudi Arabia stands ready to increase the supply of oil significantly due to the political crisis on the territory of the Ukrainian state.
Information about such a decision of the Government of Saudi Arabia has appeared on the pages of the business periodical International Business Times, which indicates the head of the Ministry of Petroleum Industry of Saudi Arabia Ali Al-Naimi as the source of this decision.
Al- Naimi said that the Saudi government was ready to increase significantly oil supply to the world markets if Russia began to decline the exports of "black gold" into the European states, and militants from groups with pro-Russian sentiment would continue their activities associated with destabilization of the political situation in Ukraine. According to the oil minister of Saudi Arabia, the decision was reviewed by the state government due to the fact that the above events could have an impact on the deficit of oil on the world markets.
According to the head of the Oil Ministry, the Saudi government is ready to compensate in full any shortfall that may arise in connection with the above terms. However, according to Al-Naimi, today it is too early to say that there are similar problems on the world markets. According to the Minister, at this stage of the event the level of oil resources continues to remain fairly stable in the world markets and there are no significant reasons for fundamental changes to date.
Al- Naimi also said that the concerns about oil supplies from the Russian Federation to the territory of Ukraine and European countries had arisen in connection with military operations in the eastern regions of Ukraine, which were triggered by militants of the armed groups, having pro-Russian sentiment. According to Al-Naimi, the military actions, which began in Ukraine, strengthened significantly the already strained relations between the Russian Federation and the leadership of the European countries. Al-Naimi also said that as a result of the emerged fighting actions in the eastern regions of Ukraine the prices for Brent Crude Oil stick the figure $108 per barrel after the price of the same brand of oil rose to an annual maximum - 112.39 USD per barrel on March, 3rd.
In addition, Minister Al-Naimi said that oil resources increasing, delivered from Saudi Arabia might reduce its value on world markets to the level of 100 dollars per barrel.
Let’s recall that these solutions were considered by the government of Saudi Arabia in connection with the holding of a referendum to determine the status of the region by pro–Russian movement activists in Donetsk and Lugansk regions. The holding of this referendum raises concerns associated with the aggravation of the political crisis in Ukraine and further escalation of the situation.
According to the results of the referendum, about which stated the separatists, more than 89 percent of the Donbass residents supported the state independence of "Donetsk People's Republic", which was proclaimed by the state federalization supporters.
The representatives of the OSCE, the European Union, the leadership of the United States and several other countries in the world do not recognize the legitimacy of such a survey, because it has no legal force, which would be confirmed by the current Ukrainian legislation. In addition, the leadership of the United States has expressed threat to the government of the Russian Federation related to the introduction of an additional package of sanctions in case of recognizing the legitimacy of the referendum by the Russian side.
World oil prices are rising because of the events in the east of Ukraine.
The evidences have appeared that in the course of trading on the world market on May, 12th oil prices began to rise. In particular, Brent oil prices have risen for the first time in three trading sessions. This is due to the concerns raised regarding the fact that the tensions in Ukraine increased significantly, that was observed after local referendums; this could lead to the temporary suspension of oil supplies from the Russian Federation to the world market.
June futures for Brent crude oil in the course of trading rose by $ 0.49 (0.45 percent) on London’s exchange ICE Futures. Now the price of oil is 108.38 dollars per barrel.
The futures on WTI crude oil for June during trading on the New York Mercantile Exchange (NYMEX) rose by $ 0.76 (0.76 percent) compared with the ones on May, 9th reaching 100.75 dollars per barrel.
According to experts, the Ukrainian factor has a significant impact on the oil market. In connection with the situation in Ukraine, the experts observe significant geopolitical risks on the global market, which explain the increased demand for oil and oil products, which was observed on the stock exchanges in recently.
The US Energy Information Administration (EIA) has released a paper on the short term domestic forecast for domestic crude oil production by type. According to the EIA, it is important to study crude type production projections for several reasons:
US crude streams vary widely in quality.
The economics surrounding various options for the domestic use of additional domestic oil production are directly dependent on crude quality characteristics.
Actual or potential export values also vary significantly with quality characteristics.
The EIA highlights that production of light sweet crude from tight resource formations. Approximately 96% of the 1.8 million bpd growth in production between 2011 and 2013 consisted of light sweet grades with API gravity of 40 or above and a low sulfur content of 0.3% or less.
http://www.energyglobal.com/media/content/lower-48.gif
EIA analysis suggests that US supply of lighter API gravity crude will continue to outpace that of medium and heavier crudes. More than 60% of EIA’s forecast of production growth for 2014 and 2015 consists of sweet grades.
EIA has additionally analysed crude oil production according to seven regions.
Adapted from a press release by Emma McAleavey
Published on 05/06/2014
Copyright © 2014 Palladian Publications Ltd. All rights reserved
Palladian Publications publishes five international B2B magazines targeted specifically at the global energy sector. Each title provides its subscribers with a unique industry insight via a combination of news, reviews, comments, analysis, regional reports, case studies, technical articles and more. Magazines include Oilfield Technology, World Coal, Hydrocarbon Engineering, World Pipelines and LNG Industry.
ARBIL - Anadolu Agency
KRG Prime Minister Nechirvan Barzani says Turkey and his administration have signed a 50-year deal to export Kurdish oil, but the accord does not mean the divison of the country
The shipping of oil extracted from the Kurdish region last month has further chilled ties both between Baghdad and Ankara, and the central government and Kurdish authorities. AP photo
Turkey and the Kurdistan Regional Government (KRG) have signed a 50-year deal to export Kurdish oil, the prime minister of the administration has announced amid the ongoing spat between Baghdad and Arbil.
“We have signed an energy deal with Turkey that comprises of 50 years and can be extendable if necessary,” Nechirvan Barzani said June 4 during a speech at the Kurdish Parliament in Arbil.
Relations between Arbil and Baghdad have been strained by disputes over the sale of northern Iraqi oil through Turkey.
The central government insists it has the sole right to export Iraqi crude and says contracts between Kurdish authorities and foreign energy firms without its expressed consent are illegal, statements Arbil rejects.
Hussein al-Shahristani, Iraq’s deputy prime minister for energy affairs, has threatened legal action against firms that purchase what he called “smuggled oil,” which Turkey started to export through its territory last week. Turkish Energy Minister Taner Yıldız dismissed claims that Ankara was trying to illegally profit from the exports.
‘No intention of dividing Iraq’
After the Iraqi central government suspended funds from oil income to the KRG, Arbil went on to export oil in late May, saying it would serve as compensation for the budget cut.
“We don’t have any intention of dividing Iraq, and this agreement is not part of such an agenda either,” Barzani said. The oil exports would not pave the way for the independence of the KRG, said Barzani, adding the Kurdish government would continue to exercise its constitutional rights, which grant 17 percent of the budget to the Kurdish region.
He added that the KRG has exported Kurdish oil worth $9 billion to date, which has mainly been used to pay government workers. The KRG had said it needs a total of 850 billion Iraqi dinars ($740 million) to meet outstanding payroll costs.
The Kurdish government needs $31 billion for its citizens to have a normal standard of living, said Barzani. “We need basic services for our citizens, including standard infrastructure such as schools, highways and bridges. We insist on obtaining our constitutional rights and we will not step back under any circumstances,” he said.
The first batch of Kurdish oil transported through Turkey took place on May 23 and had an estimated value of around $110 million. Turkey and the KRG have stated that the flow of Kurdish oil to international markets would continue despite Iraq’s appeal to international arbitration demanding an immediate halt to sales.
June/05/2014
Copyright © 2014 Daily News
Washington, June 5:
With Iran complying with the commitment on its controversial nuclear weapons programme, US President Barack Obama has suspended his action on Iranian oil sanctions for the next six months.
Even though there is enough oil in the international market for countries like India and China to reduce their dependence on Iranian oil, to avoid US sanctions as per Congressional Act, Obama determined that there is no need to do so for the next six months as Tehran is fully co-operating with the US-led international community to address their concerns about its nuclear weapons programme, the White House had said yesterday.
“While market conditions suggest that there is sufficient supply to permit additional reduction in purchases of Iranian oil, the United States has committed to pause efforts to further reduce Iran’s crude oil sales for a six-month period under the Joint Plan of Action between the P5+1 and Iran,” White House Press Secretary Jay Carney said.
“In return for this and other limited relief measures, Iran has committed to take steps that halt and in key respects roll back progress on its nuclear programme.
The International Atomic Energy Agency has verified that Iran is complying with these commitments,” he said.
The analysis contained in the Energy Information Administration’s report of April 24 indicates that global oil consumption has exceeded production in recent months, he said, adding that this resulted in a small withdrawal from global oil stocks, in line with the rates earlier this year.
“Global oil supply disruptions in recent months increased compared with earlier this year, but the resulting supply reduction was offset by increased petroleum production, particularly in the United States,” Carney said.
Global surplus crude oil production capacity has increased modestly in recent months but remains lower than a year ago, he noted.
Oil inventories among the members of the Organisation for Economic Cooperation and Development are three per cent below the year-ago levels, he said.
The Brent crude oil price remains near USD 110 per barrel, in line with the price level 6 months ago when the last determination was made, he added.
(This article was published on June 5, 2014)
Copyright © 2014, The Hindu Business Line.
By Varun Chandan, Arora | More Articles | Save For Later
June 5, 2014 | Comments (1)
Gazprom (NASDAQOTH: OGZPY ) recently signed a major gas deal with China. The 30-year supply contract helps the Russian gas giant to diversify its revenue sources. However, as Russia continues to face isolation in the west in the wake of the crisis in Ukraine, Gazprom will be looking to further diversify into Asia. Indeed, the company had said earlier this year that it sees diversification into the Asian market as a priority in 2014. So where will Gazprom go after China?
Gazprom's focus on Asia
Last month, Gazprom signed a deal with China National Petroleum Corporation (CNPC), the parent company of PetroChina Company (NYSE: PTR ) , under which the Russian company will supply 38 billion cubic meters of Russian gas annually to China over a 30-year period. While the price for gas supplies has not been revealed by Gazprom, it is widely speculated that the price is around $350 per 1,000 cubic meters, lower than what Gazprom charges Europe for gas.
As I noted in a previous article, the deal will be more beneficial for Russia than for Gazprom. However, it does allow the Russian gas giant to diversify its revenue sources. Gazprom currently relies heavily on Europe for its revenue and the company has been looking to diversify in the wake of the Ukrainian crisis, which has isolated Russia. This explains the urgency to sign a deal with China. The key question now is where Gazprom will go to further diversify its revenue.
Japan could be another key customer in AsiaPrior to the Fukushima nuclear power plant meltdown, Japan relied heavily on nuclear energy to generate power. However, since the disaster, the country has shut down all of its nuclear reactors and is relying on imported gas to meet its energy needs. In a recent energy plan, Japan had said that it sees a future for nuclear energy in the country. Indeed, the country is likely to start some of its nuclear reactors. However, that is likely to take some time, given the opposition to nuclear in the country. Also, the share of nuclear energy in power generation is expected to be lower than pre-Fukushima days, which means that Japan will have to rely on imported natural gas.
Importing natural gas has of course had a negative impact on Japan's trade figures. The country currently relies on more expensive LNG, which has significantly inflated its energy bills. Not surprisingly, the country is now looking to Russia to bring down its energy bills. According to a report from Bloomberg, lawmakers in Japan have revived efforts for a $5.9 billion natural gas pipeline from Russia following the deal between Gazprom and CNPC.
Gazprom and Russia are likely to be keen to further discuss a pipeline now that Japan has shown interest.
India could be a major market for Gazprom
Another major market for Russian gas in Asia could be India. According to the U.S. Energy Information Administration, India is the fourth largest energy consumer in the world. Currently 35% of the gas consumed in India is imported.
Like Japan, a large part of India's imports is expensive LNG. With India also looking to bring down its current account deficit and secure its energy needs, it could serve as an important market for Russia and Gazprom.
Why Gazprom needs to diversify
In 2013, gas sales to Europe and Turkey accounted for 32% of Gazprom's total revenue. Even without the Ukraine crisis, there was a need for Gazprom to diversify its revenue sources as the shale boom in the U.S. has changed the dynamics of the global energy market. There are currently restrictions on U.S. LNG exports. Currently, Cheniere Energy's (NYSEMKT: LNG ) Sabine Pass is the only project that has all the required approvals.
However, the U.S. has been under pressure to approve more projects, especially after the Ukraine crisis. In addition, Europe continues to look for alternative sources to meet its energy needs. Given this scenario, it is important for Gazprom to cut its dependence on Europe. After China, Japan and India could be two crucial markets for the company in Asia as it looks to diversify.
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