Low sulfur crude grades in the North Sea are correcting downwards on differentials, said traders Wednesday, but still have a long way to go before they become as profitable to refine as Russian sour grade Urals, according to traders and Platts data.
“Sweets needed to correct closer to sour,” said one trader.
Oseberg was assessed down $0.43/barrel Tuesday at Dated Brent plus $0.82/b, its lowest in six months, and was heard at similar levels Wednesday for June loading, although perhaps with higher differentials for July-loading dates at plus $1.10-$1.20/b.
Ekofisk was assessed down $0.12/b at Dated Brent plus $0.865/b Tuesday, likewise heard at similar six-month lows Wednesday, but with higher levels for July loading dates compared to June.
“It’s been volatile, but needed a correction,” said the trader. “Margins were getting smashed, Dated [Brent] had to come off, it was not affordable any more... [and] There are still Ekofisk cargoes around.” Despite the falls in sweet crudes values, it is still more profitable to refine sours, according to Platts data.
The Forties versus Urals differential on margins (basis Amsterdam-Rotterdam-Antwerp) has remained above $3/b so far in June, its highest in two years. The sour crude market is under pressure from weak fuel oil cracks and run cuts according to traders.
Despite sharp falls in Urals differentials so far in June, traders were unsure it had reached its lowest point yet as of Wednesday. “There’s a big question mark about where the bottom is. There’s too much availability around. Of course refineries cutting runs doesn’t help,” said a trader.
As in the North, sweet Mediterranean crudes have also run up against poor margins. “The naphtha crack is significantly affecting CPC Blend and Saharan...They’re being dragged down,” said another trader. “Urals has completely collapsed, and it’s been non-seasonal. Margins are not fantastic, because the shape of the Dated curve is affecting prompt margins...The market is over-supplied even without Libya.”
The value of Nigerian crude grades fell Wednesday as depressed refining margins were undermining European demand for crudes from West Africa, sources said.
There were expectations last week that the remaining cargoes from Nigeria’s July loading program would go to Europe. But European refiners have mostly ignored Nigerian light sweets in favor of cheaper regional crudes in the North Sea and the Mediterranean.
The cargoes still unsold from the July program are said to number 20 to 25 and include Qua Iboe, Forcados, Brass River, Bonga, Akpo and Bonny Light. “WAF is seeing less demand from the East, which means that the Atlantic Basin acts as a clearing house for those cargoes that have been left behind,” said a trader. “Everything is coming down from what was last done...There are early July cargoes available, which is a deviation from the normal,” the trader added.
Sources said Qua Iboe continued to be steady while the other grades were prone to further declines. Qua Iboe had seen good demand from Indonesia and India, with seven of the 13 stems for July placed in the Asian tenders. Qua Iboe was assessed at Dated Brent plus $2.48/b on Wednesday, the lowest value seen since April 25, Platts data showed.
One cargo of Qua Iboe was being used for the domestic Nigerian refinery system. Sources said a mid-July cargo was heard sold by a trader to a Northwest European refiner, though further details were not available.
“Margins are not great...gasoil cracks are very weak. Forcados has not moved much at all and we still have some Qua Iboe left,” another trader said. Forcados has been very slow to sell, and as a result its values have fallen substantially. Forcados was assessed at Dated Brent plus $2.92/b on Wednesday, the weakest value seen since February 27, Platts data showed.
“The market is still coming off, and it is still very low...we have a very bearish situation at the moment,” a third trader said. The source added that European demand for West African crudes for July was unlikely to pick up soon unless values fell further.
“The market is very weak, people are holding off from buying, not many cargoes are moving,” the trader said. “...We are not confident of the current situation on the market.”
Mexico’s Pemex will increase the constant term — or “K factor” — for its price formula for July deliveries of Maya crude to the Americas, Europe and Asia, the state-owned firm’s trading arm, PMI, said Wednesday.
The differential for Maya deliveries in the Americas in July was increased 5 cents to minus 40 cents/ barrel, PMI said. Pemex’s exports of Maya crude to the Americas, apart from the US West Coast, are usually priced at a premium or discount to a formula based on the values of similar regional crudes. The US Gulf Coast and European formulas for Maya also reflect fuel oil values, due to Maya’s sizable fuel oil yield.
Maya has a 22 API gravity and 3.3% sulfur content. The Maya differential for July-loading cargoes to Europe was increased 75 cents to a discount of 10 cents/b to PMI’s European regional formula.
For Asian deliveries, the Maya differential was increased 5 cents to a discount of $9.60/b to the PMI formula for the region. Meanwhile, the Isthmus crude differential for deliveries to the Americas was left unchanged at a premium of $1.10/b.
For deliveries to the US West Coast, the Isthmus K factor was also unchanged at a premium of $2.40/b to the Pemex price formula.
For European deliveries, the differential for Isthmus rose 15 cents for a premium of 10 cents/b to the Pemex price formula for Europe.
The Isthmus differential for Asian deliveries fell 20 cents to a discount of 50 cents/b to the formula.
Pemex also left the differential for Olmeca crude deliveries to the Americas unchanged at a premium of $2.25/b to the applicable formula in the region. For European deliveries, the differential for Olmeca increased 30 cents to a discount of $1.90/b to the Pemex price formula.
US midstream company Global Partners LP announced plans Wednesday to build a new crude transportation system in the prolific Bakken shale, along with expanded North Dakota storage for the oil.
Meadowlark Midstream Company LLC has agreed to build, own and operate the the new system, which is expected in place by second-quarter 2015, Global said.
Plans include a new truck unloading station with 55,000 barrels of tankage on Meadowlark’s Divide Gathering System, along with a 47-mile pipeline serving Global’s crude storage at Basin Transload’s Columbus rail loading terminal in Burke County, North Dakota.
Crude delivered to the Columbus terminal has single line haul rail access to Global’s Albany, New York, terminal and can also access other US rail-serviced terminals. Global also said it has begun building an additional 176,000 barrels of tankage at the Columbus facility that will bring total capacity to 446,000 barrels.
“The crude oil transportation system being developed by Meadowlark further expands our gathering capabilities in the Bakken region, providing our customers with even greater access to refineries and other downstream distribution points on both the East and West Coasts,” Global CEO Eric Slifka said in a statement.
On the East Coast, Global has a five-year, take-or-pay agreement with refiner Phillips 66 to buy 91 million barrels of Bakken crude barged from Albany to Linden.
Alison Ciaccio, Platts Markets Editorr
New York - June 11, 2014
U.S. commercial crude oil stocks dipped 2.6 million barrels the week ended June 6, even as imports inched higher and refinery utilization rates fell, mainly on the U.S. Gulf Coast (USGC), U.S. Energy Information Administration (EIA) data showed Wednesday.
Crude oil stocks were at 386.9 million barrels for the June 6 reporting week, putting them at a 3.63% surplus to the five-year average. That surplus, however, has narrowed since reaching more than 13% in November 2013.
Analysts polled by Platts on Monday were anticipating a smaller, 1.2 million-barrel draw in crude oil stocks, mainly on expectations that refinery run rates would remain elevated.
Refinery utilization rates were at 87.9% of capacity the week ended June 6, down from 90.8% of capacity the week prior. Still, rates are running 0.4 percentage point above year-earlier levels.
On a four-week moving average, total rates at 89.3% of capacity the week ended June 6 were above 2013's four-week average of 87.4% of capacity.
The decline in overall run rates was centered on the USGC where utilization rates sank 5.4 percentage points to 84.7% of capacity. Despite the run rate decline, crude oil stocks on theUSGC fell 1 million barrels the week ended June 6 even as imports to the region climbed 290,000 barrels per day (b/d) to 3.17 million b/d.
Marathon Petroleum's 522,000 b/d Garyville, Louisiana, refinery idled a crude oil unit after a tornado damaged the plant May 28.
The company expects the unit to be back online by mid-June.
Analysts contend, however, it was going to be hard to get refiners to leave the good profits of running domestic crude oils. In fact, U.S. crude oil production in the lower 48 states rose to 7.93 million b/d the week ended June 6, up 80,000 b/d from the week prior.
At the same time, cracking margins for Louisiana Light Sweet crude oil (LLS) have averaged around $12.79 per barrel (/b) so far this June, according to Platts data and Turner, Mason & Co. yield formulas. That's more than $3/b higher than last year, when LLS cracking margins averaged around $9.46/b during the month.
Total U.S. crude oil imports rose 230,000 b/d to 7.15 million b/d, led by a 266,000 b/d increase in Venezuelan imports to 793,000 b/d and a 167,000 b/d rise in Kuwaiti imports to 397,000 b/d.
CUSHING DOWN AGAIN, PRODUCT STOCKS RISE
Crude oil stocks at the New York Mercantile Exchange (NYMEX) delivery hub at Cushing, Oklahoma, fell nearly 200,000 barrels to 21.17 million barrels the week ended June 6, putting stocks at the hub at a 47.3% deficit to the five-year average.
Analysts are anticipating higher-volume moves soon as Seaway Pipeline's twin line -- which more than doubles the capacity of the Cushing-to-USGC pipeline to 850,000 b/d -- is expected to come online shortly.
Speculation continues in the market though as to whether the hub is nearing a minimum operating level at which it needs to operate properly.
Analysts have said that it's possible that oil at Cushing is near levels where owners don't have the ability to get storage tanks filled enough to keep roofs elevated. But since tanks are privately owned, it's hard to find a specific minimum operating level for the hub.
Recently, Harry Tchilinguirian, global head of commodity markets strategy at BNP Paribas, said there is some debate about the actual minimum operating level at Cushing, as different people assume different percentages for tanks’ bottoms.
"We do not have an exact figure in mind, but sub-20 million barrels," Tchilinguirian said.
U.S. gasoline stocks rose 1.7 million barrels to 213.5 million barrels the week ended June 6, counter to expectations of a 500,000-barrel draw, EIA data showed. Implied demand* for the fuel dipped 479,000 b/d to 8.62 million b/d. Still, on a four-week moving average basis, demand at 9.05 million b/d the week ended June 6 was 2.8% above the same week in 2013.
Imports of motor gasoline to the U.S. Atlantic Coast (USAC) fell 290,000 b/d to 531,000 b/d. Gasoline stocks on the USAC -- home to the New York Harbor-delivered NYMEX RBOB contract -- rose 200,000 barrels to 60.8 million barrels.
U.S. distillate stocks were up 900,000 barrels the week ended June 6 to 119 million barrels, surpassing expectations of a 750,000-barrel increase.
The increase in stocks slightly narrowed the deficit to the five-year average to 13.3% the week ended June 6, down from more than 16% on May 2.
* Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.
# # #
About Platts: Founded in 1909, Platts is a leading global provider of energy, petrochemicals, metals and agriculture information and a premier source of benchmark prices for the physical and futures markets. Platts' news, pricing, analytics, commentary and conferences help customers make better-informed trading and business decisions and help the markets operate with greater transparency and efficiency. Customers in more than 180 countries benefit from Platts’ coverage of the biofuels, carbon emissions, coal, electricity, oil, natural gas, metals, nuclear power, petrochemical, shipping and sugar markets. A division of McGraw Hill Financial (NYSE: MHFI), Platts is based in London with approximately 900 employees in more than 15 offices worldwide. Additional information is available at http://www.platts.com.
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Up 250,000 Barrels Per Day from April, Led by Increased Saudi Production
LONDON, June 11, 2014 /PRNewswire/ -- Platts – Oil production from the Organization of the Petroleum Exporting Countries (OPEC) climbed for the third consecutive month in May to total 29.97 million barrels per day (b/d), according to the latest Platts survey of OPEC and oil industry officials and analysts. That is up 250,000 b/d from the April level of 29.72 million b/d.
"The call on OPEC crude, according to the International Energy Agency, is 30.7 million b/d for the third and fourth quarters of 2014," said John Kingston, Platts global director of news. "That means OPEC needs to add about 1 million b/d of output from what we estimate the group produced in May. This is a tall task, given how many countries in OPEC are under all sorts of politically-linked limitations on increasing output. The Saudis may be called upon to open their taps wider than they normally prefer."
OPEC's top producer, Saudi Arabia, boosted output last month by 100,000 b/d to 9.75 million b/d, the kingdom's highest volume since January's estimated 9.76 million b/d, the survey showed.Saudi production tends to rise in the summer months when the volume of crude burned directly in power plants increases. Production in 2013 averaged 10 million b/d in August and September.
Other smaller output increases in May came from Angola, Ecuador, Iraq, Nigeria and the United Arab Emirates.
The only production decrease in May came from Libya, where the ongoing political chaos and civil strife is keeping crude production at a fraction of pre-2011 uprising levels of close to 1.6 million b/d.
According to survey respondents, Libyan production in May dipped 10,000 b/d from April to 200,000 b/d. This was the lowest monthly average since protesters began disrupting key oil infrastructure, shutting in fields and blockading export terminals in a bid to win improved rights and greater political influence in post-Qadhafi Libya. In May 2013, Libya was pumping 1.4 million b/d.
The May production totals put OPEC output within a few barrels of the group's 30 million b/d crude production target that has been in force since January 2012. Ministers, including Ali Naimi of Saudi Arabia and Bijan Zanganeh of Iran, have said they see no need for OPEC to change current output policy at the upcoming meeting on Wednesday.
The group's economic experts expect demand for OPEC crude to average more than 30 million b/d during the second half of this year.
For output numbers by country, click here. You may be prompted for a cost-free, one-time-only log-in registration. For an OPEC guide, access this link: http://www.platts.com/news-feature/2014/oil/opec-guide/prod_table
Additional information on oil, energy and related information may be found on the Platts website at www.platts.com.
About Platts: Founded in 1909, Platts is a leading global provider of energy, petrochemicals, metals and agriculture information and a premier source of benchmark prices for the physical and futures markets. Platts' news, pricing, analytics, commentary and conferences help customers make better-informed trading and business decisions and help the markets operate with greater transparency and efficiency. Customers in more than 150 countries benefit from Platts' coverage of the biofuels, carbon emissions, coal, electricity, oil, natural gas, metals, nuclear power, petrochemical, shipping and sugar markets. A division of McGraw Hill Financial (NYSE: MHFI), Platts is based in London with approximately 900 employees in more than 15 offices worldwide. Additional information is available at http://www.platts.com.
About McGraw Hill Financial: McGraw Hill Financial (NYSE: MHFI), a financial intelligence company, is a leader in credit ratings, benchmarks and analytics for the global capital and commodity markets. Iconic brands include: Standard & Poor's Ratings Services, S&P Capital IQ, S&P Dow Jones Indices, Platts, CRISIL, J.D. Power and McGraw Hill Construction. The Company has approximately 17,000 employees in 29 countries. Additional information is available at www.mhfi.com.
New York (Platts)--11Jun2014/350 pm EDT/1950 GMT
US midstream company Global Partners LP announced plans Wednesday to build a new crude transportation system in the prolific Bakken shale, along with expanded North Dakota storage for the oil.
Meadowlark Midstream Company LLC has agreed to build, own and operate the the new system, which is expected in place by second-quarter 2015, Global said.
Plans include a new truck unloading station with 55,000 barrels of tankage on Meadowlark's Divide Gathering System, along with a 47-mile pipeline serving Global's crude storage at Basin Transload's Columbus rail loading terminal in Burke County, North Dakota. Crude delivered to the Columbus terminal has single line haul rail access to Global's Albany, New York, terminal and can also access other US rail-serviced terminals.
Global also said it has begun building an additional 176,000 barrels of tankage at the Columbus facility that will bring total capacity to 446,000 barrels.
"The crude oil transportation system being developed by Meadowlark further expands our gathering capabilities in the Bakken region, providing our customers with even greater access to refineries and other downstream distribution points on both the East and West Coasts," Global CEO Eric Slifka said in a statement.
On the East Coast, Global has a five-year, take-or-pay agreement with refiner Phillips 66 to buy 91 million barrels of Bakken crude barged from Albany to Linden.
--Beth Evans, beth.evans@platts.com
--Edited by Valarie Jackson, valarie.jackson@platts.com
London (Platts)--11Jun2014/752 am EDT/1152 GMT
The Northwest European Urals crude market slid further Tuesday, with differentials to the Mediterranean hitting a 26-month low as prompt cargo availability and low end-user demand weighed on prices.
The Urals CIF Rotterdam differentials were assessed at a discount of $3.49/barrel against the Mediterranean Dated Strip on Tuesday, the biggest discount seen in the market since April 17, 2012, Platts data showed.
Tuesday's decline was the latest fall in the market, which has been steadily weakening since March, although the drop in NWE differentials has accelerated over the last month.
Since May 9 when the differential was assessed at a $1.90/b discount to the Mediterranean Dated Strip, prices have drooped by 83.6%, according to Platts data.
"It has been a while since we've seen these kind of differentials,"a trader said. "It is hard to understand why the market is so weak, considering that we don't see [many arbitrage barrels] coming into Europe."
In the Platts Market on Close assessment process Tuesday, Trafigura offered a 100,000 mt Urals cargo, ex-Primorsk/Ust-Luga, loading June 21-25 CFR basis Rotterdam at Dated Brent minus $3.70/b before being lifted by ENI.
On Monday, Vitol hit a Total bid for a similar cargo loading June 28 to July 2 CIF basis Rotterdam at Dated Brent minus $3.35/b.
"Products have been suffering, refiners are not interested in increasing runs," a trading source said.
--Edwin Yeo, edwin.yeo@platts.com
--Paula VanLaningham, paula.vanlaningham@platts.com
--Edited by Jeremy Lovell, jeremy.lovell@platts.com
Vienna (Platts)--11Jun2014/627 am EDT/1027 GMT
Libya can boost crude production to 700,000 b/d from current levels of "around 200,000 b/d" if it succeeds in bringing a number of key fields back into operation, a senior Libyan delegate said Wednesday ahead of OPEC talks in Vienna.
Strikes and protests across the country over the past year have closed the Sharara, Elephant and other major oil-producing fields, slashing Libyan crude production from early 2013 levels of around 1.4 million b/d.
If key fields can be brought back into production, "Libya could get to 700,000 b/d in two months," Samir Salem Kamal, the country's OPEC governor, said.Asked what Libya expected to produce in 2014, he said that the country's target for 2014 had been 1.4 million b/d.
"Now as an average we'll get 800,000-900,000 b/d if we resume production soon," he said.
Pressed on when the Sharara and Elephant fields could return to production, Kamal said there was no way of knowing.
"There are negotiations," he said, with government officials looking to reach a resolution with protesters blocking the fields and the pipelines linking them to export terminals on Libya's northern coast.
SUPPLYING ZAWIYA REFINERY
Kamal said Libya had also been diverting exports from ports across Libya -- including the offshore terminals of El-Jurf and Bouri -- to supply the 120,000 b/d Zawiya refinery in western Libya.
In the past few months, supplies to the refinery had been coming by tanker from the small port of Brega in eastern Libya, but shipments from there have also dried up because the fields that serve the port have been closed.
"We have been shipping crude from Brega and we have had one or two shipments from Jurf and Tobruk (Marsa al-Hariga) so we don't have to shut down the refinery," Kamal said.
Libya was forced to use the offshore oil production -- currently running at some 70,000 b/d -- meaning the crude could not be used for export.
Normally, Zawiya is supplied by the Sharara field, which is currently shut in.
The fields that supply the Brega port are slowly resuming production now, Kamal said.
"Now we are bringing Brega back -- it is coming back a little bit. We started a couple of days ago, but we are going gradually," he said.
"Hopefully then we will have a shipment from Brega [to supply Zawiya]," he said.
With Brega set to resume shipments to Zawiya, "we will resume exporting from the offshore."
OPEC ROLE
Kamal also slammed suggestions that Libya's role in OPEC had been diminished by the fact that its exports have been reduced to a mere trickle.
"The is the message I want to pass on -- we are still a very active member of OPEC. Production is low because it is out of our control."
He said Libya's reserves were the biggest in Africa, the seventh-biggest in OPEC and the ninth-biggest in the world.
"We are still an oil producing country," Kamal said.
Libya's estimated oil reserves are some 76.4 billion barrels.
--Staff report, newsdesk@platts.com
Vienna (Platts)--11Jun2014/614 am EDT/1014 GMT
Angola's oil production has fallen to 1.6 million b/d, oil minister Jose Maria Botelho de Vasconcelos said Wednesday, making it increasingly unlikely that Africa's second-biggest producer will reach its output target of 2 million b/d next year.
Vasconcelos Wednesday blamed the country's declining output on lengthy maintenance issues and supply disruptions at some of its fields. Rapid reservoir depletion has also resulted in steep decline rates at some developments, the minister said on the sidelines of Wednesday's OPEC meeting in Vienna.
Oil production has averaged 1.65 million b/d in the last six months and has been declining month on month since November, according to data compiled by Platts.
Despite the problems, Angola has several oil projects scheduled to start producing in the next five years. Total's Clov development in block 17 is expected to start up next month before peaking at 160,000 b/d in the last quarter in 2014, the minister said.
Eni forecasts that its Western Hub project, which would be the first production in the Italian major's operated block 15/06, will start in 2014 and peak at 80,000 b/d, while Chevron is hoping to pump 110,000 b/d next year from the $5.6 billion Mafumeira Sul development.
The minister also said that Angola LNG's Soyo plant will remain offline until next year to allow its contractor, Bechtel, to initiate repairs and increase capacity at the plant.
The plant has been shut since mid-April because of technical problems at the 5.2 million mt/year facility.
Shareholders in the project are Chevron (36.4%), Sonangol (22.8%), BP (13.6%), Eni (13.6%), and Total (13.6%).
--Staff, newsdesk@platts.com
By Heesu Lee and Mark Shenk Jun 11, 2014 10:36 PM GMT+0700
A four-decade-old U.S. ban on crude exports should remain until a “saturation” point when domestic refining capacity can’t absorb increased oil production, according to Goldman Sachs Group Inc. (GS)
Maintaining the statutory curb on shipments overseas will deliver the “highest value” to the U.S. economy, the bank said in an e-mailed report today. At current extraction costs, the export ban may start to weigh on U.S. output growth in coming years, it predicted.
“The Goldman view is very credible,” said Sarah Emerson, managing principal of ESAI Energy Inc. in Wakefield, Massachusetts. “Refiners are processing increasing output here and that’s a greater benefit to the economy.”
Rising production from shale formations has allowed the U.S., the world’s biggest oil consumer, to import less crude, fueling speculation that the curb on exports could be lifted. A 1975 federal law bans most shipments overseas, with only deliveries of refined products including gasoline and diesel allowed. Supporters of the ban say keeping U.S.-produced oil at home helps reduce fuel prices for industry and consumers.
‘Optimal Decision’
“Keeping the ban in place would be the optimal decision until saturation is reached to maximize the contribution of the refining sector,” said Damien Courvalin, a Goldman analyst in New York. “Once saturation is reached, it would then be optimal to lift the ban as value added from higher production outperforms value added from the refining sectors.”
Uncertainty over the future of the ban is probably delaying investment in U.S. refining capacity, according to Goldman. Oil companies are seeking ways around it by using simple, one-step plants capable of turning crude into products for exports. BP Plc signed on to take at least 80 percent of the capacity of a new $360 million mini-refinery in Houston that will process just enough to escape the restrictions.
IHS Inc. last month said the ban should be lifted because the U.S. will benefit from higher oil production and reduced gasoline prices. The nation may save an average of $67 billion a year from its import bill in 2016 and add 964,000 jobs by 2018, according to the Colorado-based consultant.
‘Premature’ Urgency
“The urgency of the debate has been premature,” Emerson said. “We aren’t at the saturation point and won’t be for a long time because there are a bunch of ways refiners are able to transform these molecules and make products for export.”
U.S. crude production rose 77,000 barrels a day to 8.46 million last week, the Energy Information Administration said today. Output reached 8.47 million barrels a day in the week ended May 23, the most since October 1986, according to the EIA, the Energy Department’s statistical arm.
To contact the reporters on this story: Heesu Lee in Seoul at hlee425@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net David Marino, Stephen Cunningham
Alberta Energy Minister Diana McQueen said she expects Canada’s government to approve the Northern Gateway pipeline this month, putting crude producers a step closer to easing bottlenecks that are suppressing prices.
“We’re very optimistic that Gateway will be approved by the federal government,” McQueen said today in an interview at Bloomberg headquarters in New York. “It’s a very important pipe for us in Alberta but certainly nationally as well.”
Prime Minister Stephen Harper’s cabinet must decide by June 17 whether to approve Enbridge Inc. (ENB)’s Northern Gateway, which would transport crude from Alberta’s oil sands to the British Columbia coast. The C$6.5-billion ($6 billion) route would enable Canada to ship more crude to Asia, fetching higher prices.
The National Energy Board recommended approval in December, subject to 209 conditions. While Harper’s cabinet could send the route back to regulators, McQueen doesn’t expect the government to defer. “We expect a decision,” she said.
Producers such as Royal Dutch Shell Plc (RDSA) and Total SA (FP) are counting on pipelines such as Northern Gateway and TransCanada Corp (TRP)’s Keystone XL to ease a glut that’s holding down the price of Canadian heavy crude. Finance Minister Joe Oliver said this week the discount cost the world’s 11th biggest economy C$30 billion last year.
Curb Development
The pipeline shortage is threatening to curb development of the oil sands, which contain the majority of Canada’s recoverable crude reserves, the world’s third largest. The Canadian Association of Petroleum Producers this week lowered its forecast for crude production by 2030, citing high costs and project delays. Output in western Canada will exceed pipeline and rail capacity by next year, the association said in a June 9 report.
Federal Natural Resources Minister Greg Rickford declined to comment on the Gateway decision in an interview in New York today. “We’ve taken a report that they have submitted that includes 209 conditions,” Rickford said, adding the government can approve, reject or add conditions to the proposal. “We’re making careful considerations of that.”
Several Options
McQueen, 53, said the province is pursuing several options to relieve the bottlenecks, including TransCanada’s Energy East pipeline to a refinery in New Brunswick and shipping more crude by rail.
“Market access is job one,” said McQueen, who took over as energy minister last year after serving as environment minister. “But it’s from different perspectives, whether it’s crude or rail.”
B.C. Premier Christy Clark has said her support for Northern Gateway hinges on five conditions: completion of an environmental review, “world-leading” oil-spill response systems on water and land, adequate involvement of aboriginal groups, and the distribution of a “fair share” of the fiscal and economic benefits to her province.
A majority of British Columbians want the federal government to either delay or reject the pipeline, according to a Bloomberg-Nanos poll released this month. Environmentalists say it will raise the risk of an oil spill, while aboriginal groups have threatened lawsuits and protests.
Keystone Delay
President Barack Obama said in April he was delaying Keystone XL, which would transport Canadian crude to Gulf Coast refineries, because of a court battle in Nebraska, extending a review now in its sixth year.
Obama has said he won’t approve Keystone XL if it significantly exacerbates the “problem of carbon pollution.”
Alberta requires companies that emit more than 100,000 metric tons of greenhouse gases a year to cut emissions per barrel by 12 percent or pay a penalty of C$15 per ton. The proceeds of the levy are paid into a fund that invests in technologies that cut carbon output. The provincial rules expire in September.
The province shouldn’t increase its carbon levy until the U.S. imposes its own regulations, former federal industry minister Jim Prentice said in an interview last month. Prentice is running to replace Alison Redford, who stepped down as premier in March. The governing Progressive Conservatives will choose their next leader in September.
McQueen said the province may extend the existing rules past the September expiry deadline. “We could choose to just renew for a few months as we review this file,” she said.
To contact the reporter on this story: Andrew Mayeda in New York at amayeda@bloomberg.net
To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net Chris Fournier
By Aibing Guo Jun 12, 2014 3:00 AM GMT+0700
Cnooc Ltd. (883), China’s biggest offshore energy explorer, is expanding oil production in waters off its southern coast to reach a target missed since 2011.
Cnooc is developing new projects based on findings near the island of Weizhou, 80 nautical miles east of the border with Vietnam, said Liao Hongyue, director of the Weizhou Island Terminal. It’s also enhancing current projects, he said.
“I’m positive more production should be possible out of this site once some of the programs underway begin to produce results,” Liao told reporters visiting the Weizhou Island Terminal on June 10.
The Weizhou rigs produce 45,700 barrels of oil equivalent a day, about 4 percent of the Beijing-based company’s global output. Cnooc produced 412 million barrels of oil equivalent in 2013, including 61 million barrels that came from Canadian unit Nexen Inc.
Weizhou is Cnooc’s biggest oil producer in the western part of the South China Sea, one of four major oil and gas producing areas off the shores of China. Cnooc started a new project in the Weizhou area last year, increasing the number of operational oilfields to four.
Rigs WZ11-4, WZ11-1, WZ12-1 and WZ6-12 produce mostly crude oil. Cnooc, which started WZ6-12 last year, has announced a new finding in an area called Weizhou 12-11.
Paracel Islands
Cnooc’s state-owned parent China National Offshore Oil Corp. last month placed an oil rig near the disputed Paracel Islands off the coast of Vietnam, leading to confrontations between Vietnamese and Chinese boats. The move set off violent anti-China protests in Vietnam and prompted China to evacuate thousands of its citizens.
The dispute comes amid rising tensions between China and its Asian neighbors, who are pushing back against Chinese efforts to exploit resources in disputed maritime areas. While the Weizhou projects border Vietnam, they are well within China’s territory and have never caused any sovereignty disputes in the past, Liao said.
Cnooc’s Zhanjiang unit, which runs the Weizhou projects, plans to increase oil and gas output in the western part of the South China Sea to 0.26 million barrels of oil equivalent a day by 2015, and 0.35 million barrels by 2020, according to presentation materials from Weizhou projects. The company didn’t provide current production numbers.
Aging Fields
Cnooc has failed to achieve the 6 to 10 percent growth target since 2011 as production at its aging offshore oilfields in China slowed. Chief Executive Officer Li Fanrong said the company can still achieve the 2011 to 2015 average growth targets by delivering higher growth this year and next.
Weizhou produces mostly crude and a limited quantity of gas as a byproduct. Production from Weizhou counts for 4 percent of its global total, and 60 percent of crude produced out of the western South China sea, according to a Bloomberg calculation based on numbers provided by the company.
Cnooc has four oil and gas producing areas in China, including Bohai Bay, East China Sea, eastern South China Sea and western South China Sea. The western South China Sea area shares its maritime border with Vietnam.
To contact the reporter on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Indranil Ghosh, Alex Devine
By Zain Shauk Jun 12, 2014 3:44 AM GMT+0700
Anadarko Petroleum Corp. (APC) jumped to a record high on speculation the global oil and natural gas producer may be on the brink of a takeover.
Anadarko climbed 4.2 percent to $108.32 at the close in New York after Theflyonthewall.com reported “takeover chatter” today surrounding The Woodlands, Texas-based company. Anadarko’s settlement of a long-running pollution case in April helped clear the way for suitors for a company that has long been viewed as a likely target for one of the major international oil companies such as Exxon Mobil Corp. (XOM)
“It’s just the start of summer and guys are kind of out there flogging the old reliable story that Exxon’s about to buy somebody really cool,” Andrew Coleman, a Houston-based analyst for Raymond James & Associates Inc., said in a phone interview. Anadarko has “an asset base that would be coveted by any large player looking to make that kind of a splash. The question would be, is now the time for that? And that’s a question for guys in pinstripe suits.”
Anadarko has soared 26 percent since it agreed with the U.S. Justice Department in early April to pay $5.15 billion to clean up 85 years worth of pollution left behind by its Kerr-McGee unit. Built for a potential sale by former Chief Executive Officer James Hackett, a renowned deal maker, the $54.7 billion company may have outgrown all but a few possible buyers.
John Christiansen, an Anadarko spokesman, said in a phone interview that the company doesn’t comment on rumors. Exxon also declined to comment.
The stock has rallied for the past six days, the longest streak since July 2012. About 11.7 million Anadarko shares changed hands as of 4:15 p.m. in New York, compared with average daily trading of 4.7 million this year, according to data compiled by Bloomberg.
Anadarko shares are up 37 percent this year, compared with a 5.2 percent advance in the Standard & Poor’s 500 Index.
Options trading on the stock jumped as Anadarko advanced. More than 99,000 contracts betting on a rise in the shares traded today, nine times the 20-day average, data compiled by Bloomberg show. Calls that will be profitable if Anadarko reaches $120 by January have the highest ownership.
Anadarko would probably be at the top of the list for multinational oil companies seeking purchases to turn around years of declining production, David Neuhauser, managing director of investment firm Livermore Partners, said in December. A buyer would get a presence in fields including the Niobrara formation in Colorado, Texas’s Eagle Ford shale basin, and offshore Africa.
Shale Output
In addition to expanding in deep-water offshore assets in Africa and the Gulf of Mexico, Anadarko has seen surging U.S. output with projects such as Colorado’s Wattenberg field, which includes the Niobrara and Codell formations. The company is targeting compound annual production growth of 5 percent to 7 percent over the next decade.
Multinational oil companies struggling with production declines could solve the problem by making a sizable acquisition, said Neuhauser with Livermore Partners, which focuses on undervalued energy companies.
Exxon, Chevron Corp., BP Plc, Total SA, ConocoPhillips and Royal Dutch Shell Plc all would have been suggested as potential acquirers of Anadarko to gain access to its portfolio of projects around the world.
To contact the reporter on this story: Zain Shauk in Houston at zshauk@bloomberg.net
To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Tina Davis, Carlos Caminada
By Theophilos Argitis Jun 12, 2014 2:31 AM GMT+0700
Canadian Natural Resources Minister Greg Rickford said he’s confident the country’s oil industry will have access to new pipeline capacity by the end of this decade.
A period of four to six years is consistent with a “medium-term” timeframe for other major energy projects in North America, Rickford said in an interview in New York, where he was attending the Goldman Sachs North American Energy Summit. Proposed projects include TransCanada Corp. (TRP)’s Keystone XL and Energy East conduits, Enbridge Inc. (ENB)’s Northern Gateway and the expansion of Kinder Morgan Energy Partners LP’s Trans Mountain line.
There are “some fairly safe bets that some of these projects will come to fruition” between 2018 and 2020, Rickford said.
Prime Minister Stephen Harper’s government has made building new energy infrastructure a national priority as the country’s oil industry seeks to overcome bottlenecks while boosting production from Alberta’s oil sands.
Those efforts have run into opposition in both Canada and the U.S.
President Barack Obama said in April he was delaying a decision on the Keystone project, which would transport Canadian oil to Gulf Coast refineries, extending a review now in its sixth year.
Compelling Case
Rickford said there’s a compelling case for Keystone on both environmental and economic grounds, and said public opinion in the U.S. backs the project. He cited the State Department’s final Environmental Impact Statement released in January that concluded the pipeline’s construction would have no significant impact on the environment.
“I think we can make very good representations that we have a responsible approach to resource development and that on pipelines it is a safe way to transport energy products,” Rickford said. “The proof is in the pudding by virtue of the state department reports that are there for all of us to consider.”
Enbridge also faces local opposition to its Northern Gateway pipeline to transport crude from Alberta’s oil sands to the Pacific Coast across British Columbia.
Harper’s cabinet must decide by June 17 whether to permit the pipeline. A regulatory panel in December recommended the Canadian government approve the line, subject to 209 conditions. Rickford declined to comment on the Gateway decision.
“We’ve taken a report that they have submitted that includes 209 conditions,” Rickford said, adding the government can approve, reject or add conditions to the proposal. “We’re making careful considerations of that.”
To contact the reporter on this story: Theophilos Argitis in New York at targitis@bloomberg.net
To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net Chris Fournier
By Wael Mahdi, Grant Smith and Nayla Razzouk Jun 12, 2014 6:00 AM GMT+0700
Nigeria’s Petroleum Minister Diezani Alison-Madueke said the Organization of Petroleum... Read More
OPEC, which supplies about 40 percent of the world’s crude, kept its production target unchanged in a widely anticipated move that left the group’s output below forecast demand for the rest of the year.
The Organization of Petroleum Exporting Countries reaffirmed yesterday its production ceiling of 30 million barrels a day for a fifth consecutive meeting. The group forecasts demand for its crude of 30.4 million barrels a day in the coming six months, while its 12 members produced 29.6 million barrels a day in April, the organization’s data show.
OPEC ministers said at a meeting in Vienna that they were at ease with supply and demand in global oil markets. While the formal limit remains unchanged, the burden will fall to Saudi Arabia to increase output to meet higher demand in the second half as political turmoil constrains Libyan output and sanctions curb Iranian exports, according to Barclays Plc, Societe Generale SA and Energy Aspects Ltd.
“This meeting was to be a non-event and it is,” Olivier Jakob, managing director of Petromatrix GmbH, a Zug, Switzerland-based consulting firm, said by e-mail yesterday. “Saudi Arabia likes the lack of price volatility and the outright price. They want to keep it that way as long as possible.”
Brent crude, the international benchmark, traded for $109.92 a barrel at 4:55 p.m. on the ICE Futures Europe exchange in London yesterday. It has averaged about $110 a barrel every year since 2011.
Steady Market
“The relative steadiness of prices during 2014 to date is an indication that the market is adequately supplied,” OPEC said in a statement following the meeting. Growth in oil demand this year will be covered by production growth in countries outside the group, it said.
“We don’t need to worry about anything, this is the best time for the market,” Ali al-Naimi, Saudi Arabia’s oil minister, told journalists in a briefing before the meeting began. “Everything is good, stable and everyone is happy.”
The International Energy Agency, the Paris-based adviser to 29 nations, recommended on May 15 a “significant rise in OPEC production” to meet its forecast of demand for the group’s crude, known as the call on OPEC, 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.
Tight Quarter
In Libya, output has fallen to a 10th of pre-conflict capacity because of protests at oil fields and strikes at export terminals. Iran faces an end in July to relief from sanctions, which have reduced oil exports, if it cannot reach a broader deal on its nuclear program.
“I think the third quarter is going to be pretty tight again,” Johannes Benigni, analyst at JBC Energy GmBH, said in an interview in Vienna. “The market needs OPEC oil and we see the call on OPEC increasing.”
Saudi Arabia is able to sustain production as high as 12.5 million barrels a day, compared with current output of 9.7 million, al-Naimi said.
OPEC Secretary General Abdalla El-Badri said at a press briefing that his tenure has been extended for six months to June 30 2015. His current term, already extended by two years, was due to finish in December. OPEC will choose a successor to el-Badri when it meets next on November 27, Venezuelan Oil Minister Rafael Ramirez told reporters.
Secretary General
Current candidates for the position are Saudi Arabia’s Majid al-Moneef, Iran’s Gholamhossein Nozari, and Iraq’s Thamir Ghadhban. The potential candidacy of Nigerian Petroleum Minister Diezani Alison-Madueke was also raised at yesterday’s meeting, Bijan Namdar Zanganeh, Iran’s minister of petroleum told reporters.
Alison-Madueke said before the meeting that “I didn’t decide to throw my name in the hat. It’s not on the agenda.”
A Nigerian candidate could break a deadlock over who should replace El-Badri, Iraqi Oil Minister Abdul Kareem al-Luaibi said in a press briefing June 10.
The 12 members of OPEC are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
The April oil-production figure of 29.6 million barrels a day from OPEC is from data gathered from secondary sources. The group’s members’ own estimates for their output in March amounted to 30.5 million barrels a day, OPEC data show.
To contact the reporters on this story: Wael Mahdi in Manama at wmahdi@bloomberg.net; Grant Smith in London at gsmith52@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, Rachel Graham
By Bloomberg News Jun 12, 2014 2:53 AM GMT+0700
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China is hoarding crude at the fastest pace in at least a decade, shielding itself from supply disruptions and helping keep prices above $100 a barrel.
The country imported a record volume in April as it emulates steps taken by the U.S. in the 1970s to create a strategic petroleum reserve, government data show. Chinese President Xi Jinping is building stockpiles as his nation clashes with Vietnam over resources in the South China Sea and faces potential risks to oil sales from Russia, Africa and the Middle East because of sanctions and violence.
The purchases are helping drive oil prices higher, according to Barclays Plc, Citigroup Inc. and Nomura Holdings Inc. As China’s thirst for crude grows with the expansion of its emergency stockpiles and refining, the International Energy Agency estimates that the Asian nation is poised to surpass the U.S. as the world’s largest oil consumer by 2030.
“This panicked stockpiling is one of the ways that geopolitical tensions can actually tighten physical oil markets,” Seth Kleinman, a London-based analyst at Citigroup, said yesterday by e-mail. “This buying spree is partly driven by the infrastructure needs of China’s ongoing refinery expansion, but also reflects the rise in geopolitical tensions.”
West Texas Intermediate crude, the U.S. benchmark, gained 9.5 percent over the past year to $104.40 a barrel on the New York Mercantile Exchange. Brent, the marker for more than half the world’s oil, climbed 6.9 percent on the London-based ICE Futures Europe exchange to $109.95.
Significant Rise
China bought more than 600,000 barrels a day of surplus crude from January to April, a record for that time of the year based on data compiled by Bloomberg from Chinese statistics tracked since 2004. The surplus supplies are calculated by subtracting refinery runs from the combined total of net imports and domestic production.
The imports suggest a “significant” rise in commercial and emergency stockpiles, according to the IEA, an adviser to 29 of the most industrialized nations on energy policy.
The buying “would benefit energy security not just in China but globally and crude imports of that scale might also support oil markets and keep commercial stocks from rising further elsewhere,” the Paris-based agency said in its monthly market report released May 15.
China doesn’t announce when it fills the emergency reserve and stockpile totals are not made public.
Black Box
“There’s no official record,” Shi Qi, an analyst with CEBM Group, said by phone May 23. “Actual filling progress of China’s strategic oil reserves is in a black box.”
The official website of China’s Center for Oil Reserves has a two-paragraph description of the office, a branch of the National Energy Administration, though no information about the level of the reserves themselves.
A spokesman for the National Development and Reform Commission, the country’s top planning agency, declined to comment when contacted today by phone. He asked not to be identified because of internal policy.
The world’s second-largest economy, which gets more than half of its crude from overseas, plans to build emergency reserves equivalent to 100 days of net imports by 2020, China Petrochemical Corp., the nation’s top refiner, said in 2009, citing the plan approved by the State Council.
That volume is equal to more than 680 million barrels based on April’s customs figures, compared with the equivalent of 349 million in 2008.
Three Phases
According to the U.S. Energy Information Administration, officials decided in China’s 10th Five-Year Plan, which covered 2000 to 2005, to establish a government-administered strategic oil reserve to help shield the nation from potential supply disruptions.
The country had 141 million barrels of strategic reserve capacity at the end of last year, China National Petroleum Corp., the nation’s top energy producer, said in an annual report released in January. China finished building four sites in 2009 that can hold about 103 million barrels under the first of three phases of the reserve plans.
Two of seven sites in the 191 million-barrel second phase were completed by the end of last year and construction has begun on two of the three sites for the third phase, according to CNPC.
Potential Disruptions
“We expect prices to strengthen slightly going forward due to continued supply shortfalls and geopolitical tensions, and continued Chinese buying would help tighten the market as well,” Sijin Cheng, a commodities analyst at Barclays in Singapore, said in an e-mail on May 30.
Crude production from the Middle East and North Africa has been curtailed by a battle for political control in Libya, pipeline attacks in Iraq and prolonged sanctions against Iran. Russia’s conflict with Ukraine has also stoked fears of a disruption of supplies from the world’s largest energy exporter.
China is building reserves while it hunts for future resources. Its claims in the South China Sea have put it at odds with neighboring Vietnam and the Philippines, which are also exploring for oil and gas in the disputed waters.
“The escalating maritime tensions in offshore China also call for accelerated strategic oil reserves stockpiling,” Gordon Kwan, regional head of oil and gas research at Nomura, said in an e-mail May 23. The buying will sustain “high oil prices at least above $100 for the rest of the year,” he said.
Oil Embargo
Crude imports are also fed into new refineries, which build stockpiles before starting full operations. China’s refining capacity is forecast to rise 6.5 percent to 40.6 million tons this year, CNPC said in the January report. That’s about 13.4 million barrels a day. The country imported 6.17 million barrels a day during May, up 11 percent from the same month last year, the General Administration of Customs said June 8.
The U.S. established its strategic petroleum reserve in 1977 after the 1973-74 Arab oil embargo. The storage, located in the Gulf Coast where more than half of U.S. refining capacity is located, peaked in 2009 at 726.6 million barrels, according to the EIA, the Energy Department’s statistical arm. Supplies were 691 million as of May 23, enough to support 37 days of consumption.
The SPR has been tapped three times for emergency releases, most recently in June 2011 when a sale of 30 million barrels was announced as part of an IEA plan to ease shortages of Middle East supply.
21 Days
The U.S. reserve can hold the equivalent of about 95 days of imports, while China’s can probably now cover about 21 days, according to estimates by Amrita Sen, a London-based analyst with Energy Aspects Ltd., a research company.
Purchases for China’s strategic supply will pull 200,000 to 300,000 barrels a day of crude from the global market this year, CEBM Group, an independent investment advisory firm based in Shanghai, said in a March research note.
The buying may add $2 to $3 a barrel to Brent prices, according to Guo Chaohui, an oil analyst at China International Capital Corp., a Beijing-based bank.
To contact Bloomberg News staff for this story: Sarah Chen in Beijing at schen514@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Ramsey Al-Rikabi, Dan Stets
By Mark Shenk Jun 12, 2014 1:19 AM GMT+0700
U.S. fuel imports fell to a 15-year seasonal low as refineries processed increasing domestic crude output, moving the nation closer to energy independence.
Deliveries slid 653,000 barrels a day to 1.68 million in the week ended June 6, the fewest for the period since 1999, the Energy Information Administration data showed today. The 28 percent drop was the biggest decline since the week ended June 18, 2013. Fuel imports peaked at 4.97 million barrels a day in October 2005.
“There’s a change in the dynamic,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “We’re not going to stop importing products but the overall number should move lower. We’re turning into a hub where products are both imported and exported based on price.”
Shipments to the U.S. from abroad have dropped as the shale boom provided refiners with an ample supply of cheaper domestic crude to make fuel. West Texas Intermediate, the U.S. benchmark crude, has traded at an average discount of $12 to Brent oil from the North Sea over the past four years. WTI traded at an average premium of more than $1 to the European grade from 1988 to 2008.
“Brent traded at a discount to WTI, which encouraged East Coast refineries to process imported barrels,” Flynn said. “This is no longer the case.”
U.S. crude output rose 77,000 barrels a day to 8.46 million last week, the EIA said. Production reached 8.47 million barrels a day in the week ended May 23, the most since October 1986, according to the EIA, the Energy Department’s statistical arm.
Shale Boom
The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S., including the Bakken in North Dakota and the Eagle Ford in Texas.
Refineries in the U.S. have operated at an average 88.4 percent of capacity so far this year, up from 85.5 percent during the same period a year earlier, EIA data show.
“The rise in crude output is helping the U.S. refining industry,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
The U.S. met 87 percent of its energy needs in 2013 and 90 percent in December, the most since March 1985, according to the EIA.
WTI for July delivery slipped 8 cents to $104.27 a barrel at 1:12 p.m. on the New York Mercantile Exchange. Brent for July settlement climbed 34 cents, or 0.3 percent, to $109.86 a barrel on the London-based ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.netTo contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Bill Banker
