State-owned Indian refiners bought 12.45 million barrels of West African crudes through tenders for July loading, up 49% from 8.35 million barrels for June, Platts data showed Friday.
The rise was driven by increased buying from state-owned Bharat Petroleum Corp Ltd. and Indian Oil Corp. IOC, in two tenders, more than doubled its buying to 7.65 million barrels for July — mostly Nigerian crudes — from 2.95 million barrels for June.
Its Nigerian grades were 1.9 million barrels of both Bonny Light and Qua Iboe, 1 million barrels of Amenam, and 950,000 barrels of both EA blend and Escravos. IOC also bought 950,000 barrels of Angola’s Hungo.
BPCL’s barrels for July loading rose 68% month on month to 4.8 million barrels, again mostly Nigerian crude — 1.95 million barrels of Qua Iboe, 1.9 million barrels of Agbami. The balance was 950,000 barrels of Angola’s Nemba.
Neither Hindustan Petroleum Corporation Ltd. nor Mangalore Refinery and Petrochemicals Ltd. made any July loading tender purchases, having bought 1.9 million barrels and 650,000 barrels, respectively, for June.
India has emerged as the biggest buyer of Nigerian crudes over the past 18 months, becoming a key player in a West African crude market coming to terms with declining sales to North America. BPCL, HPCL, IOC and MRPL typically buy crude through tenders that are normally announced on a monthly or fortnightly basis for loading 4-6 weeks ahead.
Angola’s medium sweet crude Cabinda, has fallen close to an 11-month low on lackluster Asian demand and weak crack margins, Platts data showed.
Cabinda was assessed at Dated Brent minus $1.18/barrel Thursday, the lowest seen since July 18 last year, Platts data showed. Sources attributed the sudden fall in values to the lack of Asian appetite for this grade. This medium sweet grade is heavily reliant on Asian demand and a withdrawal of interest from its key buyers has been instrumental in the recent decline, they said.
“Cabinda is very popular amongst the Chinese and Taiwan’s CPC so if they don’t buy, the values fall,” a trader said. Sources said that the most recent trade reported for Cabinda was the Cabinda July 6-7 cargo which was heard to have sold at Dated Brent minus $1-1.20/b Thursday.
This is a drop of almost $0.80-1.00/b from the initial offer price floated Wednesday. The fall comes into sharper relief when a month-on-month comparison is used. On May 6, Cabinda was assessed $1.68/b higher than on Thursday at Dated Brent plus $0.50/b. “Nobody is calling, no one wants to buy,” one said. “The market is getting lower and lower,” he said.
The source said that crack margins in Europe could even go below the extremely low levels they are at now.
Additional takeaway capacity from the storage hub in Cushing, Oklahoma, has relieved a bottleneck and helped close the price gap between cheap Canadian crudes and other sour grades on the US Gulf Coast.
The outright price difference between WCS at Cushing and USGC sour benchmark Mars was $18.77/ barrel on January 22, the day crude flows started on TransCanada’s 700,000 b/d Gulf Coast pipeline, which runs from Cushing to Nederland, Texas.
A week later, on January 29, the spread narrowed to $10.54/b. It has been shrinking ever since. “With Cushing having plenty of takeaway capacity, WCS at Cushing is now normalized with USGC sour grades,” one analyst said. “That should be here to stay.”
The price spread between WCS at Cushing and Mars was $7.60/b Thursday, mainly due to a stronger cash market for the heavy Canadian grade. Demand on the USGC has increased for WCS with more barrels now available, lending support to the crude’s differential.
WCS at Cushing was assessed at the WTI calendar month average (WTI CMA) minus $7.80/b Thursday, its highest value since being at WTI CMA minus $7.35/b on October 3, 2012. Coking netback margins on the USGC paint an even more detailed picture.
Platts margins reflect the difference between a crude’s netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.
The margin for WCS was at a $13.50/b premium to Mars on January 22. That spread inverted April 24, when the margin for Mars surpassed WCS by 9 cents/b, the first time any US-produced crude coking margin on the USGC was greater than WCS since Platts launched the assessment on September 2, 2013. The spread between the Mars and WCS margins was $3.04/b as Wednesday.
STOCKS REVERSE, IMPORTS DROP
The new infrastructure has also impacted fundamentals for the USGC, decreasing imports and reversing crude stock levels. Stocks at Cushing have fallen all but one week since January 22, and the latest total of 21.37 million barrels the week ended May 30 is the lowest since November 21, 2008, the most recent US Energy Information Administration data showed.
Commissioning of the 300,000 b/d Colorado City to Houston BridgeTex crude oil pipeline is set to start in the third quarter, partners in the joint venture said Friday in a statement.
BridgeTex will have a spur line extending from Houston to Texas City and will ship mostly light sweet West Texas Intermediate crude from the Permian Basin. Occidental Petroleum and Magellan Midstream Partners are equal partners in BridgeTex Pipeline Co.
“Given the significant need for crude oil transportation service from the Permian Basin to the Houston Gulf Coast area, and in order to accommodate requests of committed and prospective spot shippers to provide access to available transportation infrastructure as soon as it becomes available, BridgeTex intends to begin limited commercial operations on the pipeline as part of the initial commissioning process,” the joint statement said.
By Matthew Martin Jun 9, 2014 3:00 AM GMT+0700
Saudi International Petrochemical Co. (SIPCHEM) and Sahara Petrochemicals Co. put on hold a planned merger that would have created a Saudi Arabian chemicals company with about $5.8 billion in market value. Their shares declined.
The companies said it would be difficult to proceed with the merger using a structure acceptable to both sides under the current regulatory framework, according to a statement yesterday. Saudi International Petrochemical, known as Sipchem, and Sahara may revive talks in the future, they said.
The proposed deal was a rare sign of merger and acquisition activity in the kingdom that has fallen 83 percent this year, according to data compiled by Bloomberg. Saudi Basic Industries Corp., the world’s biggest petrochemicals maker by market value, said in July it was seeking investment opportunities in the U.S. as sales in Europe and China slow.
“The possibility of merger talks restarting in the short-term seems unlikely,” Muhammad Faisal Potrik, senior research analyst at Riyad Capital, said by phone yesterday. “It’s taken them a year to get to this stage and I don’t see them being able to decide on a new structure for the merger quickly.”
Shares Decline
Shares in Sipchem fell as much as 3 percent yesterday, the most in two months, while Sahara dropped as much as 2.9 percent. The companies had a combined market value of 21.7 billion riyals ($5.8 billion) at the close of trading last week.
Sipchem and Sahara in December proposed a share-swap merger and expected to sign a deal in the first half. HSBC Saudi Arabia Ltd., Zeyad S. Khoshaim Law Firm, Allen & Overy LLP, Jacobs Consultancy and Nexant were advising Sipchem. Sahara appointed Morgan Stanley Saudi Arabia, Al-Jadaan & Partners Law Firm, Clifford Chance LLP and IHS Inc.
Sipchem and Sahara, in which state-run General Retirement Organization and Al Zamil Holding Group are both shareholders, said they plan to pursue their business and strategic objectives independently and without liaising. The decision to put the merger plan on hold isn’t expected to affect the companies’ operations, they said.
To contact the reporter on this story: Matthew Martin in Dubai at mmartin128@bloomberg.net
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net Shaji Mathew, James Doran
By Moming Zhou Jun 9, 2014 6:01 AM GMT+0700
Speculators cut bullish bets on U.S. crude oil from a record as inventories were close to a seasonal high following the Memorial Day weekend.
Hedge funds reduced net-long positions in benchmark West Texas Intermediate by 1.5 percent in the week ended June 3, the U.S. Commodity Futures Trading Commission said. Long positions slid 1.1 percent and shorts jumped 5.3 percent.
Prices dropped to a two-week low after the May 26 U.S. holiday, the traditional start of the vacation season, as gasoline consumption fell from the highest level in almost three years. While total U.S. crude inventories gained 8.8 percent this year, bullish bets had risen to a record as the supply held at Cushing, Oklahoma, the delivery point for WTI, dropped to a five-year low as oil moved to the Gulf Coast.
“The fact that you still have near record-high crude inventories has people pulling back,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said June 6 by phone. “The low Cushing numbers get people’s attention, but in the long run you’ve got to wonder about the overall supplies.”
WTI futures dropped $1.45 to $102.66 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. They settled at $102.47 on June 2, the lowest since May 20. The contract rose 18 cents to $102.66 on June 6.
Crude Inventories
Crude stockpiles were at 399.4 million on April 25, the most since the Energy Information Administration began publishing weekly data in 1982. They pulled back to 389.5 million by May 30 as imports contracted.
A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked oil trapped in shale formations in North America. Output reached 8.47 million barrels a day in the week ended May 23, the most since 1986, and stood at 8.38 million on May 30, according to the EIA.
“We had a big drop in imports and that’s why crude stocks went down,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Demand is still not that strong.”
Gasoline consumption slid 2.2 percent to 9.1 million barrels a day in the week ended May 30, according to the EIA. That’s down from 9.31 million the previous week, the most since June 17, 2011. Total fuel demand decreased by 977,000 barrels, the biggest drop since December.
Cushing Stocks
Oil bets had surged 30 percent this year as the southern leg of the Keystone XL pipeline began moving oil to Gulf refineries from Cushing in January. Stockpiles dropped to 21.4 million barrels in the week ended May 30, the lowest since November 2008. Inventories in the Gulf were 207.1 million on May 30, a record for this time of year in EIA going back to 1990.
“All you are doing is moving oil out of Cushing to the Gulf,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “You still have a very sluggish economy and that’s going to weigh on demand.”
Regular gasoline at the pump may fall through the end of June as demand slows, according to AAA in Heathrow, Florida, the largest U.S. motoring company. Retail gasoline prices averaged $3.654 a gallon on June 7, down from $3.669 on May 31.
Gasoline Bets
Bullish bets on gasoline climbed 209 to 60,339 futures and options in the week ended June 3. Futures fell 4.65 cents, or 1.6 percent, to $2.9487 a gallon on Nymex in the reporting period.
In other markets, money managers’ bullish wagers on ultra low sulfur diesel slid 8,428 to 19,229. The fuel declined 7.41 cents to $2.8658 a gallon in the CFTC week.
Net longs on U.S. natural gas dropped 18,148 to 308,562. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract.
Nymex natural gas advanced 12.4 cents to $4.629 per million British thermal units during the report week.
Hedge funds and other money managers cut net-long positions in WTI by 5,064 to 343,005 futures and options. Long positions fell 3,975 and shorts grew 1,089.
“The market is taking a step back,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone on June 6. “The overall inventories are putting downward pressure on oil and demand’s been a bit lackluster.”
To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloo
By Bloomberg News Jun 8, 2014 12:03 PM GMT+0700
China’s daily crude oil imports fell in May after reaching a record high the previous month, as refining capacity dropped the most this year due to maintenance.
Net overseas purchases were 26.08 million metric tons, according to data released by the General Administration of Customs in Beijing today. That’s about 6.17 million barrels a day, declining from a record 6.81 million in April.
Crude-processing capacity in China, the world’s second-largest oil consumer, dropped 3.93 million metric tons in May, the sharpest plunge this year, according to ICIS-C1, a commodities researcher based in Shanghai. The decline was even greater than in April, when capacity fell 3.1 million metric tons as more than 80 of the nation’s biggest refineries were taken off-line. Plants in China typically conduct maintenance in the second quarter before fuel consumption peaks during summer.
PetroChina Co. halted the Dalian refinery, its largest by capacity at 20 million metric tons a year, from April 10 to May 24 for seasonal repairs, an official said on May 28. China Petroleum & Chemical Corp., known as Sinopec, closed the 11.5 million-metric ton Changling plant from March 18 to May 15 and is carrying out upgrading and expansion work at its 8 million-metric ton Shijiazhuang facility between April and July.
To contact Bloomberg News staff for this story: Sarah Chen in Beijing at schen514@bloomberg.net; William Bi in Beijing at wbi@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Andrew Monahan, Garry Smith
By Grant Smith Jun 8, 2014 11:00 PM GMT+0700
OPEC ministers say they will almost certainly leave their oil-production ceiling unchanged when the group meets this week. What really matters for global markets is whether Saudi Arabia will respond to global supply shortfalls by pumping a record amount of crude.
Just six months ago, energy analysts predicted output from the Organization of Petroleum Exporting Countries would climb too high and Saudi Arabia needed to cut to make room for other suppliers. They changed their minds after production from Libya, Iran and Iraq failed to rebound as anticipated, and industrialized nations’ stockpiles fell to the lowest for the time of year since 2008. Saudi Arabia may need to pump a record 11 million barrels a day by December to cover the other member nations, says Energy Aspects Ltd., a consulting firm.
“Now it’s not whether the Saudis will make room, but whether they’ll keep it going and maintain enough spare capacity,” said Jamie Webster, a Washington-based analyst at IHS Inc., an industry researcher. “OPEC is increasingly having a hard time just doing its job of bringing all the barrels needed.”
Even as the North American shale revolution propels U.S. production to a three-decade peak, supply in other parts of the world is faltering. A battle for political control in Libya, pipeline attacks in Iraq and prolonged sanctions against Iran are preventing those nations from reviving output. While U.S. crude inventories rose to a record in April, restrictions on exports are keeping those supplies in the country, tempering forecasts that global oil prices will decline this year.
Supply Risks
Deutsche Bank AG, Morgan Stanley, Barclays Plc and Citigroup Inc. raised their 2014 Brent price forecasts over the past three months, citing supply risks. The median estimate of the four banks climbed to $107.75 a barrel, from $100.25 as of Dec. 31. The grade has averaged $108.24 a barrel this year.
OPEC, which produces about 40 percent of the world’s oil, will meet in Vienna on June 11 to discuss its 30 million barrel daily production target. Ministers from Saudi Arabia, Angola and Kuwait said they expect no change, as did 22 of 23 analysts and traders surveyed by Bloomberg News.
OPEC’s Economic Commission Board, a panel that reviews supply and demand levels before the meeting, concluded on June 5 that the current production level is adequate, according to two OPEC delegates.
Low Inventorie
The International Energy Agency, the Paris-based adviser to 29 nations, recommended on May 15 a “significant rise in OPEC production” to meet demand of 30.7 million barrels a day in the second half of the year. Oil inventories in advanced nations were at 2.62 billion barrels in April, the lowest for that month since 2008, the year Brent reached a record $147.50 a barrel, IEA data show.
Boosting output that high would be “a Herculean task for the group to surmount given that production has been below 30 million barrels a day for the last five months,” London-based Energy Aspects said in a May 27 research note.
The situation has reversed since OPEC last met in December. At that time, the IEA indicated the group would need to reduce output by about 3 percent in the first half of 2014 to make way for North America’s booming shale oil supplies.
U.S. oil production rose to 8.47 million barrels a day in the week ended May 23, the highest since 1986, according to the Energy Information Administration. The nation’s crude inventories were at 399.4 million barrels through April 25, the highest in data beginning in 1982, the EIA estimates.
December Meeting
Several OPEC nations have failed to boost output as their ministers suggested at the group’s last meeting in December. Iraq was aiming for a surge of about 30 percent in 2014 to 4 million barrels a day, Oil Minister Abdul Kareem al-Luaibi said. Libya intended to restore within 10 days full daily capacity of almost 1.6 million barrels, from less than 20 percent previously, Oil Minister Abdulbari al-Arusi said. Iran had secured six months of relief from sanctions imposed by western governments and was seeking its highest output in five years, Oil Minister Bijan Namdar Zanganeh said.
Iraq’s daily production contracted 8 percent since reaching a 35-year peak of 3.6 million barrels in February amid political disputes and pipeline bombings, according to the IEA. In Libya, output has fallen to a 10th of capacity because of protests at oilfields and strikes at export terminals. Iranian supply is little changed, while an end to sanctions relief looms in July if it cannot reach a broader deal on its nuclear program.
Expectations Fade
As a result, inventories of crude and refined oil in Europe were 86 million barrels below their five-year average at the end of March, according to the IEA. U.S. benchmark West Texas Intermediate is about $6 a barrel cheaper than North Sea Brent.
“At the start of this year, expectations around the return of Libyan, and subsequently Iranian, barrels were high,” Amrita Sen, chief oil market strategist at Energy Aspects, said by e-mail on May 20. “Today those possibilities have diminished substantially. The real question concerns how OPEC will meet higher demand for its crude in the third quarter. The onus falls on Saudi Arabia to do much of the heavy lifting.”
Saudi Oil Minister Ali Al-Naimi told reporters in Seoul on May 12 that any supply shortage in the oil market can be covered. The kingdom is capable of producing as much as 12.5 million barrels a day of crude oil and pumped 9.67 million in May, according to data compiled by Bloomberg. Media officials at Saudi Arabia’s oil ministry in Riyadh weren’t available to comment when contacted by Bloomberg on June 6 and yesterday. There was no response to an e-mail to Saudi Aramco’s media department yesterday.
Estimates vary on how much Saudi Arabia needs to produce before the end of the year. IHS projects about 10.3 million and while Societe Generale says between 10.2 million barrels and 10.5 million barres a day in the third quarter. The high of 11 million that Energy Aspects says could be needed from Saudi Arabia would be higher than the quarterly peak of 10.1 million reached in late 1980, according to OPEC data.
“At the time of the last OPEC meeting, there was a fair amount of concern about what would happen if disrupted production in key countries starts to come back in a big way,” said Mike Wittner, the head of oil market research at Societe Generale SA in New York. “It’s not all happening in a big way. It means the market needs the Saudis to produce more crude.”
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron
By Will Kennedy Jun 6, 2014 9:49 PM GMT+0700
0 Comments Email Print
OAO Bashneft, the oil producer controlled by Russian billionaire Vladimir Evtushenkov, is preparing to raise at least $1 billion in a share sale in London or Moscow later this year.
While no decision has been taken on whether or where the sale will go ahead, the company will be ready should market conditions allow, Chief Executive Officer Alexander Korsik said in an interview yesterday. The sale, designed to increase the stock’s liquidity, may comprise shares held by Evtushenkov’s Sistema group or new shares, he said.
The choice between London or Moscow will be guided by financial considerations and not politics, Korsik said. The Russian government is encouraging businesses to raise money in home markets after President Vladimir Putin’s decision to annex Crimea prompted the imposition of U.S. and European Union sanctions on some Russian businesses and individuals.
“London is a major option,” Korsik said. “Investors are meeting us. No final decisions have been taken.”
The Moscow-based company will continue with a dividend policy of paying 100 percent of free cash flow to investors, Korsik said. The policy is prudent as long as the ratio of debt to earnings remains below two, he said.
The company is working with one international bank and two Russian banks on planning the fundraising, Korsik said, declining to name them.
Ural Mountains
Bashneft, whose main fields are in the Bashkortostan region in Russia’s southern Ural mountains, has expanded production through the acquisition of Siberian explorer Burneftegaz LLC earlier this year for $1 billion.
Production is estimated to rise more than 10 percent this year to 17.7 million metric tons (about 350,000 barrels a day), Korsik said. Output from the Burneftegaz fields is forecast to rise to 40,000 barrels daily by 2020 from 12,000 now, helping to offset declines at existing fields, he said.
Bashneft estimates its capital expenditures at $8 billion in the next five years, Sberbank CIB analysts in Moscow said today in an e-mailed note after meeting the company in London yesterday. More than $5 billion may be spent in upstream, the Moscow-based VTB Capital said in an e-mailed note after the meeting.
Bashneft common shares increased 3.6 percent to at 2,393.2 rubles in Moscow today. Preferred shares gained 0.2 percent.
To contact the reporter on this story: Will Kennedy in London at wkennedy3@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Torrey Clark
By Julia Mengewein and Rachel Morison Jun 6, 2014 9:15 PM GMT+0700
7 Comments Email Print
Europe faces hotter-than-usual weather through August as German solar-energy production is set to advance to a record, potentially driving power prices lower.
Five of six meteorologists polled by Bloomberg projected higher-than-usual temperatures in the next three months after the region had its warmest spring in 34 years. Deutscher Wetterdienst, Germany’s state forecaster, sees an 80 percent chance that Europe’s biggest economy will meet or exceed the seasonal average of 17.1 degrees Celsius (62.8 degrees Fahrenheit) in the period.
European solar capacity is set to more than triple through 2035 from 2010, Citigroup Inc. said yesterday in a report. The region is increasing its reliance on renewable sources at the same time as electricity demand falls, pushing power prices to record lows and curbing profit at utilities from Germany’s EON SE to CEZ AS in Prague.
“Power prices for July and August should further drop this summer, I would say as more solar power will hit the market,” Ricardo Klimaschka, an energy trader at Energieunion GmbH, said yesterday by e-mail from Schwerin, Germany.
Klimaschka singled out 30 euros ($40) a megawatt-hour as a “good floor” for prices. German power for delivery next month fell 0.5 percent to 31.20 euros at 3:42 p.m. Berlin time, broker data compiled by Bloomberg show. The August contract was at 30.80 euros. German power for delivery in 2015, a European benchmark, touched a record low of 33.65 euros on April 3.
German Solar
Solar output in northern Europe probably will exceed norms, while wind and rainfall will be lower than normal, Todd Crawford, an Andover, Massachusetts-based meteorologist at WSI Corp., said in a report. Solar production in Germany may climb to a record in July on an “ideal day” for generation, Andreas Gassner, an Appenzell, Switzerland-based meteorologist at MeteoGroup Schweiz AG, said yesterday by e-mail.
German solar output reached an all-time high 24,234 megawatts on April 17, according to data compiled by Bloomberg. The average operating margin of 16 European utilities narrowed to 6.9 percent last year from 14 percent in 2004, company data compiled by Bloomberg show.
Europe’s installed solar capacity is poised to triple to 56,338 megawatts in 2035 from 17,320 megawatts in 2010, Citigroup said, citing data from the European Commission, the European Union’s executive arm.
Solar output should offset higher electricity demand for air conditioning through this summer, according to Gassner. Rain in recent weeks should also prevent any cooling-water shortages, he said.
Meteorologist Forecasts
Meteorologists at DWD, MetraWeather, WSI, MeteoGroup and Commodity Weather Group LLC predicted warmer-than-normal weather in most of Europe for the summer period. MDA Information Systems Inc. sees temperatures near norms in June and July and slightly below normal in August in central Europe.
“The focus of the coolest departures are found in the east, while Iberia, the U.K. and Scandinavia favor a seasonal month,” Bradley Harvey, a meteorologist at MDA Information Systems LLC, said yesterday in his August forecast from Gaithersburg, Maryland.
Paris and Amsterdam may have record temperatures for the time of year tomorrow, while Berlin is set for new highs in the June 8-10 period, CWG said in an e-mailed report yesterday. Temperatures will be similar to 2003, the hottest summer in Europe on record, Mike Thomas, a meteorologist at CWG, said in the report.
Gas Benchmark
Mild weather also is weighing on natural gas prices. U.K. gas for delivery next month, a regional benchmark, declined to the lowest price since August 2010 today, according to broker data. Societe Generale SA yesterday reduced its price forecast for U.K. gas in the July-to-September period by 11 percent in a report. In Germany, gas for delivery next month on the NetConnect Germany hub dropped 3.3 percent to 17.15 euros a megawatt-hour, the lowest price since June 3, 2010, broker data show.
German power prices might jump as much as 27 percent in a day if there are unplanned plant failures or renewable generation drops, according to Energieunion’s Klimaschka. German nuclear plants go offline in summer for annual maintenance, potentially leading to supply bottlenecks.
“Should any large power plant go offline unexpectedly, that means we can see price increases this summer, to as much as 40 euros” a megawatt-hour for the July contract, he said.
Nuclear Reactors
German grid operator Tennet TSO GmbH warned last month that the simultaneous revision of two nuclear plants would risk grid stability. The power-line manager asked EON to delay maintenance of its 1,410-megawatt Brokdorf nuclear reactor until the company’s Grohnde reactor, with a capacity of 1,360 megawatts, came back online after a yearly inspection. A supply of 1,000 megawatts is enough to power about 2 million European homes.
German 2015 power should trade little changed during the summer, Paolo Coghe, a senior analyst for European power at Societe Generale in Paris, said yesterday in an e-mailed report. He expects the contract to average 34 euros a megawatt-hour for the rest of this year. The contract traded today at 34.15 euros.
“Demand from air conditioning and fans won’t be enough to make much difference,” Coghe said by telephone. “It certainly won’t reverse the downtrend in demand.”
To contact the reporters on this story: Julia Mengewein in Frankfurt at jmengewein@bloomberg.net; Rachel Morison in London at rmorison@bloomberg.net
To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Dan Weeks, Andrew Reierson
By Daniel J. Graeber | Sun, 08 June 2014 00:00 | 0
The Norwegian energy company DNO International says it has exceeded 100,000 barrels of oil per day from its operations in the Kurdish north of Iraq, while Russian energy company Gazprom Neft is boasting of its own success in the south. The two announcements form part of a bigger picture that has important implications for the global oil market of the future.
Production from the Tawke field in the Kurdish region of Iraq reached 120,021 barrels per day (bpd) last month, the first time ever that the average monthly rate passed the 100,000 bpd mark for the Norwegian oil and gas operator in Iraq.
Gazprom Neft, the oil arm of Russian gas monopoly Gazprom, said it started its drilling program in the Badra oil field near the Iraqi border with Iran. Badra is estimated to hold as much as 3 billion barrels of oil, and in March, the Russian oil company connected the field to the main pipeline system in Iraq that runs to an export terminal in the Persian Gulf port of Basra.
Those two developments matter because the international marketplace is going to be looking to Middle East oil producers like Iraq to make up for the decline in oil output from North America that's expected in the coming years.
OPEC predicts the world will need 1.15 million more barrels per day this year than it did last year. The United States, the world's leading economy, is relying more on its own reserves, and Europe, which collectively represents the second-largest economy, is still struggling to gain traction. Nearly half the annual oil demand growth is from economies in Asia and the Middle East.
That means Iraq, one of the largest oil producers in the world, will play a leading role in the future oil market. And even with the increase in production from U.S. shale deposits, Iraq is still the No. 5 oil exporter to the U.S. market.
For Iraq itself, however, rivalries between the semiautonomous government in Erbil, which controls the Kurdish north, and the central government in Baghdad, make predictions about a unified national oil sector difficult.
The government of Kurdistan last month made its first-ever export of crude oil, which shipped from a Turkish seaport. The move may have signaled the start of a geopolitical and economic power struggle between the two Iraqi governments and foreshadow a move towards eventual Kurdish independence.
Baghdad called the oil exports illegal, but the Kurdish government said its hand was forced because it wasn't getting its fair share of the federal budget. It maintained as well that Kurdish oil exports weren't part of a move for independence.
But adding Kurdish oil to the world market isn’t as simple as sending ships from Point A to Point B. Erbil’s defiance of Baghdad has created nervousness among potential customers, and the KRG has yet to find a buyer for its first shipment, now docked in Morocco.
Shwan Zulal of London-based Carduchi Consulting told the Turkey’s Daily Sabah, “Companies or countries are cautious about Kurdish crude because they do not want to be dragged into an internal dispute in another country."
Already, Italy, under pressure from Baghdad, has warned against buying KRG oil.
Reuters obtained a copy of a letter from the Italian Industry Ministry that “warned traders and refineries that the Iraqi government had told [the Italian] embassy in Baghdad that such crude sales were illegal, and they could face penalties from its oil marketing arm, SOMO.”
The KRG seems undeterred. According to the latest reports, a second tanker carrying Kurdish oil has just left Turkey.
The international reaction, as well as internal disputes in Iraq, could be pivotal for a future oil market that depends on the Middle East to thrive.
A crude oil trader based in London who spoke Daily Sabah anonymously also confirmed that Kurdish oil was being sold. "The sale of first Kurdish crude is already done. I cannot identify name of buyer company but it's one of the big players in the market." Furthermore the oil trader affirmed that market players are ready to buy more oil from the KRG without any hesitation.
By Daniel J. Graeber of Oilprice.com
By Andy Tully | Sun, 08 June 2014 00:00 | 0
Bulgaria is accusing its fellow EU nations of placing Sofia uncomfortably in the middle of a dispute between Europe and Russia over the unrest in Ukraine. The situation also is threatening the stability of the Bulgarian government.
The European Commission has directed Bulgaria to suspend work on the South Stream Pipeline, a conduit through Bulgaria for supplying Russian gas to Europe that bypasses Ukraine.
The EC withdrew its approval of South Stream construction in March after Russia annexed Ukraine’s Crimean peninsula. It also says the pipeline violates EC rules against gas suppliers controlling pipeline access.
Despite this, Bulgaria decided to continue work on the pipeline, which is being built by Russia’s state-owned gas company, Gazprom. Bulgaria, the EU’s poorest member, depends on Russian gas and hopes to stockpile it. Russia wants South Stream to ensure uninterrupted income from EU customers.
“This is a priority infrastructure project and I hope the European Commission will find more solidarity in its future relations,” said Dragomir Stoynev, the economy and energy minister of Bulgaria. “The point is to avoid South Stream being used as a hostage of future relations and of the conflict between Ukraine and Russia.”
In Sofia, the liberal Movement for Rights and Freedoms (DPS) Party, a junior partner in the government, said Bulgaria should comply with the EC’s call. Party leader Lyutvi Mestan told parliament that defying Brussels would be dangerous, and said the government should press its national interest “in cooperation, not in confrontation” with Europe.
Mestan said the dispute demonstrates that the current government, elected in May of last year, has failed in its mandate. He called for early elections to be held in late November or early December.
Dimitar Dabov, a leader of the ruling Socialist Party, dismissed Mestan’s demands and said the pipeline will proceed as planned.
But Slavtcho Neykov, formerly head of Bulgaria’s EU integration for the country’s economy and energy ministry, said that to continue building the pipeline would be a “disaster.”
“Russia is Bulgaria’s main partner for energy, and the South Stream is a good option for us,” Neykov told Bloomberg News. “But first and foremost, we’re an EU member, and we shouldn’t forget that.”
By Andy Tully of Oilprice.com
Khalid Mustafa
Sunday, June 08, 2014
ISLAMABAD: In a major development, Pakistan’s oil production climbed 30 to 40 percent in one year to 100,000 barrels per day from 68,000 barrels per day, Zahid Muzaffar, Advisor to the Ministry of Petroleum and Natural Resources, divulged on Saturday.
In July 2013, the oil production stood at 68,000 barrels per day, which escalated to 100,000 bpd as of today – up over 30,000 bpd, he told the Finance Minister Senator Ishaq Dar during a briefing. Chairman Oil and Gas Development Company Limited was also present.
The advisor said the government issued over 41 block licences in 2014.
He said the total consumption of petroleum products in the country stands at 21.2 million tonnes of oil equivalent annually, while the country produces 4.7 mtoe of crude oil annually.
Muzaffar sensitised Dar about the positive development with regard to increase in the volume of gas production, saying during the last one year, 539 million cubic feet per day of natural gas has been added to the system.
However in the old gas fields, there has been a significant decline due to non-availability of modern equipment needed for gas exploration, he added. There is no equipment with the OGDCL for shale gas exploration and efforts are being made to invite local and foreign private investors for joint ventures in this sector.
The ministry advisor further said Pakistan is an under explored country where only 44 percent of the area is explored whereas the success rate is much higher in the country as compared to other regions, including Middle East.
In Pakistan, exploration well success ratio is 1:3, whereas in Middle East, it is 1:5 or more. He said the OGDCL plans to increase efficiencies in the seismic, drilling, production and processing by establishing partnership with the latest technology partners.
Foreign exploration and production companies will be invited to participate as joint venture partners.
The ministry advisor discussed the plans for attracting foreign direct investment to accelerate domestic production in oil and gas sector.
In the last one year, the domestic production of liquefied petroleum gas was doubled from 1,000 metric tonnes per day in July 2013 to over 2,000 metric tonnes per day.
In line with directives of the Prime Minister, LPG will be provided to cities of Balochistan and far flung areas where there is no gas transmission line and distribution system, he added.
The Finance Minister said that the government had already announced special incentives for foreign direct investment in oil and gas exploration. He said that it was high time that the foreign companies should be invited to invest in Pakistan.
The minister said the corporate tax rate has been reduced from 33 percent to 20 percent for the investment project set up by June 13, 2017 and at least 50 percent of the total project cost is in the form of equity through FDI.
Dar said to achieve the vision of an industrialised Pakistan in the future, “We have announced this special package”.
The finance minister directed the advisor petroleum ministry for adopting an aggressive marketing strategy to attract foreign investment in the light of the new incentives given in the Finance Bill 2014-15.
Senator Dar added that a comprehensive strategy and vision was required to overcome the energy crisis and to increase significantly the oil and gas production in order to operate it on international standards. He said the finance ministry would facilitate foreign investment in oil and gas sector.
by Reuters | June 06, 2014 , 6 : 54 pm GST
Tripoli: Libya has lost $30 billion due to 10 months of protests at oilfields and export terminals but has sufficient foreign currency reserves to keep the country running, a central bank official said.
A wave of protests at oil facilities has reduced the North African country's oil output to less than 200,000 barrels a day down from 1.4 million bpd in July before the strikes started.
The protests are part of wider turmoil in the North African country since the overthrow of Muammar Gaddafi in 2011. The government is unable to control militias and armed tribesmen who helped oust Gaddafi but now seize oilfields or state institutions at will to make political or financial demands.
"The damages the state has now suffered after more than 10 months, Libya has lost not less than $30 billion," Musbah Alkari, director of the central bank's reserves department, said.
Reserves are currently around $110 billion, down from around $130 billion last summer when protests started. The situation could get worse in the next few days.
State oil firm National Oil Corp (NOC) has said that it might be forced to use crude from its two offshore oilfields, so far unaffected by protests, to feed a domestic refinery. That could mean Libya stops exporting oil for the first time since 2011.
Alkari said Libya was currently earning around $1 billion each month in oil revenues, having brought in between $4 billion and $5 billion a month before the oil protests started.
Oil and gas exports are the only source of revenue for the country's $50 billion budget and to fund food purchases and other imports worth $30 billion, as Libya has no sizeable industrial production outside the oil sector.
"The reserves will last (cover the budget and imports) for three and a half years ... (but) we want suitable solutions for these problems," he said.
Political solutionAlkari said there needed to be a political solution for the oil crisis but did not elaborate. A rebel group in eastern Libya has seized several oil export ports to press for financial demands and regional autonomy.
The government signed an agreement in April with the rebels to reopen the ports but implementation has been slow due to mutual distrust. The rebels have refused to deal with the new premier Ahmed Maiteeq who was elected by parliament in a chaotic vote disputed by some lawmakers.
Alkari said the central bank had diversified its foreign currency reserves, which are split between cash, short-term deposits, foreign bonds and equity stakes in banks and insurers.
Discussing the bank's little-known investment strategy, he said it favoured dollar bonds such as United States Treasuries as its oil is sold in dollars. It also holds sovereign or other highly rated bonds from European countries and stakes in companies including Italy's UniCredit, a Gulf lender and insurers.
"We have a good mix geographically and in terms of risks," Alkari said. The bank still buys overseas assets sometimes "but less than before".
"We receive $1 billion (a month) in this hand, but in the other hand we pay $3.6 billion so how can we invest new money?" Alkari said.
By Osamu Tsukimori and James Topham
Business Jun. 09, 2014 - 06:28AM JST ( 2 )
TOKYO —
For once, China looks to have done Japan a favor.
In clinching a $400 billion deal last month to buy Russian gas, China may end up helping out its old political and economic rival in a way that matters hugely for Japan - energy security.
The China-Russia agreement, the biggest gas deal ever, unlocks new gas supplies and could bring down gas prices across Asia, a development that would pay the biggest dividends for Japan, the world’s top buyer of liquefied natural gas.
Other big Asian gas buyers such as South Korea and Taiwan could also benefit.
The deal, signed on May 21, cemented a dramatic shift in energy flows from the West to the East. Gas will be transported to China via a new pipeline linking Siberian gas fields from 2018, building up gradually to 38 billion cubic metres a year.
China has massive gas needs, but access to more of the fuel is also vital for Japan since its utilities pay the world’s highest prices. Japan buys about a third of global LNG shipments and spent a record 7.06 trillion yen ($70 billion) last year, mostly for electricity generation to replace idled nuclear reactors following the Fukushima disaster in 2011.
There are hopes that piping Russian gas to China will create a new price benchmark that could cut prices for Asian LNG buyers as well as providing new gas sources.
“This will surely put downward pressure on gas prices and some say it is the beginning of the end of the Asia premium,” Masumi Kimura, a researcher at Japan Oil, Gas and Metals National Corp (JOGMEC), said in a note, referring to the higher price paid for gas in Asia compared to other parts of the world.
Russia’s Gazprom declined to confirm what price the deal with China was struck, but industry sources say it translates to about $10-$10.50 per million British thermal units, an international pricing standard, well below the current level of around $13 for spot Asian cargoes (LNG-AS).
A source at one of the biggest Japanese buyers of gas shipped in liquid form said that the new Russian gas should absorb some Chinese pressure on LNG demand in Asia.
Others were cautious, however, over the potential impact.
“The Russian gas will be coming into the northeast of China, into a market that was never going to be served by LNG in the first place,” said Gavin Thompson, head of Asia-Pacific gas and power at consultancy Wood Mackenzie.
Takashi Hayasaki, general manager of the Japan Petroleum Development Association, said the China-Russia pipeline would “also spur further development of gas fields in Siberia that could be a source of LNG for Japan.”
Japan’s Russian purchases have grown with oil and gas flowing from Sakhalin island to the north of Japan since 2009 and oil via the East Siberian Pacific Ocean extension from 2012.
Imports of Russian LNG rose 3.1% last year to 8.57 million tons, or 9.8% of total imports. The ratio is up from 4.3% in 2009 when Japan started Russian gas imports.
Prime Minister Shinzo Abe met Russian President Vladimir Putin five times in the last 18 months, more than any other leader. Amid a flurry of agreements there was talk that closer energy ties could come with the resolution of an island dispute dating from the end of World War II.
But the diplomatic efforts to take a bigger role in gas projects appear to have fizzled out since the Ukraine crisis, which has led to sanctions on Moscow that Tokyo has supported.
Gazprom and Royal Dutch Shell operate Russia’s only LNG plant on Sakhalin, with Japan’s Mitsuibishi Corp and Mitsui & Co as junior partners.
The Chinese deal has also revived talk of a pipeline from Russia to Japan. A group of 33 ruling party lawmakers plans to lobby Abe to sign a deal on a gas link with Putin at an estimated cost to build of about $6 billion compared with more than $40 billion for the Chinese pipeline.
But Daiske Harada, an economist with JOGMEC focusing on Russia, said Rosneft and Gazprom were more interested in pushing exports by LNG to the Pacific market, not by pipeline.
Gazpom plans to build a second plant in Vladivostok by 2018, with a capacity of 10 and 15 million tons of LNG per year, and also a spur to the Chinese pipeline to bring gas to Vladivostok.
Rosneft and ExxonMobil also plan an LNG plant on Sakhalin to produce 5 million tons a year from 2018.
Along with Russian supplies, Japan could also benefit with the United States due to start shipping shale gas from as early as 2015. Other potential sources include West Africa and Canada.
And faced with potential new supplies, Japanese buyers are holding off from signing long-term LNG contracts starting from around 2017 until there is more clarity on nuclear power, said a source in the natural gas division of a Japanese trading firm.
(c) Copyright Thomson Reuters 2014.
