By Selcan Hacaoglu, Jack Fairweather and Nayla Razzouk Jun 19, 2014 4:06 AM GMT+0700
A tanker containing a million barrels of crude oil is floating around the Mediterranean, and its cargo is available at half-price. Yet if any country seizes the bargain, it may be pushing Iraq closer to disintegration.
The oil aboard the tanker is at the center of a fight over its ownership between the semi-autonomous region of Kurdistan, which pumped and shipped the crude from its territory in northern Iraq, and the central government in Baghdad, which claims the rights to all oil revenue.
Kurdish Peshmerga armed forces seized on the anarchy in northern Iraq, where militant Islamists routed the Baghdad government’s army last week, to occupy the region’s key oil hub, Kirkuk. The oil dispute has raised the possibility of the Kurdish region achieving financial self-sufficiency to go with those expanding territorial ambitions.
“If that tanker docks, Iraq’s Kurdistan Regional Government will take an important step toward independence and hasten the break-up of Iraq,” said Nihat Ali Ozcan, an analyst at the Economic Policy Research Foundation in Ankara, said by phone June 13.
The potential sale has embroiled Turkey, the conduit for the Kurdish oil, and Iraq in legal arbitration, while the U.S. has sought to dissuade the Kurds from going it alone.
Brett McGurk, the deputy assistant secretary of state for Near East affairs, reiterated U.S. opposition to any oil exports that aren’t approved by Baghdad. The U.S. has “informed all interested parties that any such transactions exposes them to potential legal risks,” and proposed a compromise plan to both sides, he wrote on Twitter on May 23.
‘Failed Totally’
The Kurds went ahead with pumping the oil, prompting Baghdad to announce it was suspending the accord under which 17 percent of all oil revenue goes to the Kurds.
“The U.S. failed totally to mediate between Erbil and Baghdad on this issue,” and their standoff has now sparked “growing U.S. fears that Kurdistan is headed for independence,” David Ottaway, senior scholar in the Middle East program at the Wilson Center in Washington, said on June 10.
The violence in Iraq since last week has amplified such concerns, and pushed oil prices higher. Brent crude posted the biggest jump in almost a year last week. It was trading above $114 a barrel yesterday, a nine-month high.
The Islamic State in Iraq and the Levant seized Mosul, the largest northern city, on June 10 and has captured other towns. As Baghdad’s armed forces fled, the Kurds occupied Kirkuk, which they’ve long claimed should be part of their autonomous region.
Baghdad’s Wrath
Even without Kirkuk, the Kurdish region has crude reserves it estimates at 45 billion barrels, a quarter of Iraq’s reserves. Since the U.S. invasion of Iraq in 2003, the Kurdistan Regional Government has claimed the right to handle shipments from its territory.
In 2004, a year after the U.S. invasion that toppled Saddam Hussein, the KRG struck an uneasy agreement with the central government in Baghdad to share oil revenue. The deal left key questions unresolved, including the fate of Kirkuk and how to share untapped oil fields.
Since 2011, KRG has attracted four big oil companies -- Chevron Corp. (CVX), Exxon Mobil Corp. (XOM), Hess Corp. (HES) and Total SA (FP) -- as well as 30 or so smaller ones. Tony Hayward, chief executive office of Genel Energy Plc (GENL), the biggest oil and gas operator in Kurdistan, was among those who risked the wrath of the Iraqi government to truck Kurdish oil to Turkey.
‘Private Deal’
Since January, trucks have been superseded by a new Kurdish link to the main northern pipeline, which runs from Kirkuk to Turkey’s Mediterranean oil terminal of Ceyhan. Turkey agreed to handle the shipment and store it separately from the main Iraqi crude, and allocated seven of 12 storage tanks at Ceyhan for Kurdish oil.
The Iraqi government initiated legal action against Turkey, taking the case to the International Chamber of Commerce in Paris. Asim Jihad, an Iraqi oil ministry spokesman said a lawsuit has also been filed domestically against the KRG’s Ministry of Natural Resources.
Denise Natali of the National Defense University in Washington DC, described the arrangement as a “private deal” between Turkish Prime Minister Recep Tayyip Erdogan and the KRG’s President Massoud Barzani, one which benefited both at the expense of Baghdad.
Price Lowered
The fees Turkey collects from the Kurds are four times higher than what Baghdad pays, according to an official involved in the transactions, who asked not to be identified because the figures aren’t public.
On May 22, the first of two tankers filled with the disputed oil left from the Turkish terminal at Ceyhan with 1 million barrels for Europe.
Then it appeared to be bound for the Americas, as a concerted Iraqi government effort to block its passage led to the tanker turning around on May 30 after getting almost 200 miles across the Atlantic Ocean. The tanker moored about 5 miles off Mohammedia port in Morocco on June 3.
As the search for a customer dragged on, the Kurds lowered the price to $56 per barrel as of June 11, according to the same official.
Iraq’s oil ministry and the state oil-marketing company SOMO have been urging potential buyers to shun the cargo, and threatening legal action. SOMO estimates it is losing $1.2 billion a month in revenue from Kurdish shipments.
‘Sooner or Later’
The Iraqi government has not been able to send oil to Ceyhan since March 2, when Islamic militants sabotaged the oil pipeline outside Mosul. Last year it managed to export 13 million tons of oil out of a 71 million-ton carrying capacity, said the official involved in the trade.
Under threat of legal action from Iraq the shipping agent Boutros, and cargo inspector Saybolt, which handled the first oil cargo from northern Iraq, were not listed for handling a second tanker. The KRG found a replacement in Palmali Shipping & Agency JSC, owned by Turkish-Azeri tycoon Mubariz Mansimov Gurbanoglu.
When the second ship left Ceyhan on June 9, the Iraqi government sent another protest note to Turkish officials and blacklisted Palmali, saying it will pursue the matter in court.
“The fact is that with this much oil now flowing onto the international market from Kurdistan, with Turkey’s help, sooner or later it will find buyers,” said Ottaway.
‘Won’t Forget’
Energy companies operating in the Kurdish region have struggled to get paid as the authority feuds with Iraq’s central government over oil revenue and contract terms. United Arab Emirates-based DANA Gas PJSC (DANA) was forced to restructure about $900 million of Islamic bonds last year after payment delays in Kurdistan and Egypt, its two main areas of production.
Two more tankers will load Kurdish oil at Ceyhan this week, Ashti Hawrami, the KRG’s natural resources minister, said at a conference in London on June 17. Kurdish exports may double to as much as 250,000 barrels a day next month, he said.
Iraq’s Deputy Prime Minister Hussain al-Shahristani said on Iraqiya television on June 17 that Turkey and the KRG are mistaken if they’re calculating that the current chaos in Iraq will leave the Baghdad government unable to defend its interests.
“The Iraqi people won’t forget those who conspired against them during tough times,” al-Shahristani said. “Turkey should be aware that this is like playing with fire. This is plundering the wealth of Iraq.”
To contact the reporters on this story: Selcan Hacaoglu in Ankara at shacaoglu@bloomberg.net; Jack Fairweather in Boston at jfairweathe3@bloomberg.net; Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net
To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net Ben Holland, James Kraus
By Mario Parker Jun 19, 2014 4:02 AM GMT+0700
Ethanol declined to a six-week low after a government report showed production of the biofuel rose to a record.
Futures fell after the Energy Information Administration said output rose 3 percent to 972,000 barrels a day last week, the most in four years of weekly data from the Energy Information Administration.
Corn prices that have dropped 34 percent in the past year have helped reduce production costs for ethanol makers and allowed them to boost operations. One bushel of the grain makes at least 2.75 gallons of the renewable fuel.
“People are looking to place gallons and get rid of supply that they may have laying around,” Mark Ruyack, a manager at StarFuels Inc., a Jupiter, Florida-based broker, said today in a telephone interview.
Denatured ethanol for July delivery slumped 8.5 cents, or 4 percent, to settle at $2.057 a gallon on the Chicago Board of Trade, the lowest level since May 6. Prices have increased 7.6 percent this year.
Domestic corn production is set to reach a record 13.936 billion bushels from 13.925 billion last year, the U.S. Agriculture Department forecast in a June 11 report.
Corn for July delivery increased 2.75 cents, or 0.6 percent, to $4.415 a bushel in Chicago. The corn crush spread, or the difference between the price of the grain and a gallon of ethanol, was at 45 cents.
Gasoline for July delivery rose 0.71 cent to $3.0982 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.
Ethanol’s discount to gasoline widened to $1.0412 a gallon, the widest since April 18, 2012.
Stockpiles of the biofuel declined 3.1 percent to 17.9 million barrels, the least since May 23.
In cash market trading, ethanol sank 13 cents to $2.295 on the West Coast, 13 cents to $2.145 on the Gulf Coast, 11.5 cents to $2.105 in Chicago and 6 cents to $2.17 in New York, data compiled by Bloomberg show.
Corn-based ethanol Renewable Identification Numbers, the certificates attached to each gallon of biofuel that helps the government track consumption mandates, were at 49 cents for 2014 and 48.5 cents for 2013, according to data compiled by Bloomberg.
Advanced RINs, which covers biodiesel, was at 52 cents for 2014 and 46 cents for 2013.
To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Richard Stubbe, Stephen Cunningham
Enbridge’s Toughest Gateway Pipeline Tests Still to Come
By Jeremy van Loon and Andrew Mayeda Jun 19, 2014 3:31 AM GMT+0700
Enbridge Inc. now faces its sternest challenge -- selling Northern Gateway’s benefits to skeptical British Columbians -- after the Canadian government approved the C$6.5 billion ($6 billion) pipeline project.
Aboriginal and environmental groups are preparing legal challenges and blockades to halt construction of the pipeline, which would transport Alberta oil to the Pacific coast for shipment to Asia. Prime Minister Stephen Harper’s cabinet endorsed Northern Gateway late yesterday subject to Enbridge satisfying 209 conditions set by a regulatory review panel in December.
“Regardless of this decision, the Enbridge Northern Gateway pipeline will never be built because First Nations and others in British Columbia won’t allow it,” said Art Sterrit, executive director of the Coastal First Nations, as some aboriginal groups are called. “This pipeline is doomed because it is highly risky and provides no reward to the people being asked to bear that risk.”
Enbridge Chief Executive Officer Al Monaco acknowledged the company faces an uphill battle convincing British Columbia residents the benefits of the project outweigh the risks. Even with federal-government approval, the Calgary-based company has yet to fulfill four of five deal-breaking conditions set by the province, which holds local licensing rights, Environment Minister Mary Polak said yesterday.
‘Not Enough’
“There’s not much disagreement about the economics,” Monaco said in a conference call after the government released its decision. “The economic benefits alone are not enough to sustain public support.”
That’s probably an understatement.
As a tangible symbol of their resistance, the Gitga’at First Nation, based in the village of Hartley Bay at the entrance to the Douglas Channel, plan to stretch an 11,500-foot chain stitched with yarn and fishing floats across the waterway on June 20. Oil tankers would pass through the channel, an ecologically rich maze of islands stretching 90 kilometers (56 miles) from the port of Kitimat, Gateway’s endpoint, to the open Pacific.
More than 150,000 British Columbians have joined the LetBCvote.ca website which asks signatories to support a citizens’ initiative for a vote on pipeline expansion and oil tanker traffic.
Complex Issues
The federal government is largely to blame for the “entrenched opposition” to the Northern Gateway pipeline in British Columbia because politicians and officials allowed Enbridge to deal with complex aboriginal issues on its own, Doug Eyford, the prime minister’s special envoy on aboriginal and energy issues, said last week at a conference, the Globe and Mail reported on June 16.
Enbridge fell 1.1 percent to C$51.38 at the close in Toronto. The shares have gained 11 percent this year.
The West Coast Environmental Law Association is drafting legislation which, if introduced via a citizens’ initiative, would ensure British Columbia uses its legislative authority to keep “our rivers and streams free from Enbridge oil,” said Jessica Clogg, the group’s executive director.
Proponents of the pipeline are seeking ways to get land-locked and price-depressed Alberta crude to world markets, especially after delays to TransCanada Corp. (TRP)’s proposed Keystone XL pipeline to the U.S. Gulf Coast. Harper’s government has made building energy infrastructure a national priority, part of C$650 billion of industry investment in more than 600 existing or planned projects over the next decade to develop the country’s natural resources. Canada boasts the world’s third-largest pool of recoverable crude reserves.
Engage Natives
Crude producers such as Canadian Natural Resources Ltd. and Cenovus Energy (CVE) Inc., facing a five-year average discount of almost $20 a barrel for their oil relative to U.S. benchmarks, are seeking new markets. Canadian oil-sands output is set to more than double to 4.1 million barrels a day by 2025 from 2013, according to the Canadian Association of Petroleum Producers, an industry group.
The 1,177-kilometer (731-mile) conduit would start in the eastern Alberta plains at Bruderheim, about 35 miles northeast of Edmonton, and cross the Rocky and Coast mountain ranges to Kitimat, carrying as much as 525,000 barrels a day of diluted bitumen.
Appeal Process
“The proponent clearly has more work to do in order to fulfill the public commitment it has made to engage with Aboriginal groups and local communities along the route,” Natural Resources Minister Greg Rickford said in a statement yesterday from Ottawa.
British Columbia Premier Christy Clark has said her government will only back the pipeline if it satisfies five conditions: successful completion of an environmental review, “world-leading” oil-spill response systems on water and land, adequate involvement of aboriginal groups and the allocation of a “fair share” of the fiscal and economic benefits.
Opponents have 15 days after the government’s decision to file their objections. Cases would be heard in the federal court of appeal, said Thomas Isaac, a Vancouver-based lawyer at Osler, Hoskin & Harcourt LLP.
“The issue from a legal perspective is whether the decision was decided based on a fair process,” Issac said in an interview. “The law is the law and presumably it will be applied.”
Even with government approval, Enbridge hasn’t yet made a final call on Gateway.
Planned Protests
“The cabinet decision is important, but it’s just one of a bunch of important moments before the final investment decision,” said Chuck Strahl, a former federal minister of aboriginal affairs who works for Enbridge’s Northern Gateway unit on its discussions with aboriginal groups.
“There’s going to be several of these pivotal moments, and they’re going to involve the provincial government, aboriginal people and the communities in the north,” he said. “There’s a lot more to do.”
Residents along the proposed route and in Vancouver are planning protests and will begin training to learn about protesting and resistance, said Nikki Skuce, a Smithers, British Columbia, campaigner for Forest Ethics.
“There will be a lot more monitoring of activity by Enbridge,” she said in an interview. “We’ll be watching closely where the B.C. government draws a line in the sand.”
To contact the reporters on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net; Andrew Mayeda in Ottawa at amayeda@bloomberg.net
To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net Chris Fournier, David Scanlan
Gore Predicts Obama Will Reject TransCanada’s Keystone XL
By Jim Snyder Jun 19, 2014 2:57 AM GMT+0700
Al Gore, who has called the Keystone XL project “ridiculous” and an “atrocity,” said he thinks President Barack Obama will reject the controversial pipeline between Alberta’s oil sands and U.S. Gulf Coast refineries.
Former Vice President Gore, who shared a Nobel Peace Prize for advocating action on climate change, wrote in Rolling Stone magazine issue dated June 18 that Obama “has signaled that he is likely to reject the absurdly reckless Keystone-XL pipeline.”
In the article, Gore expresses optimism that the world is finally acting to address the risks of carbon dioxide, including by promoting clean energy that doesn’t produce greenhouse gases that warm the planet. He wrote that his optimism is based in part on Obama’s recently announced plan to limit carbon from power plants.
Gore doesn’t say exactly what signals Obama has sent on Keystone.
“Former U.S. Vice President Al Gore inconveniently ignores several facts,” Shawn Howard, a spokesman for TransCanada Corp. (TRP) that proposed building the line in 2008, said in a statement. “Keystone XL will move Canadian and American oil to U.S. refineries, where tens of thousands of skilled refinery workers create products we all rely on. This includes fuels that power equipment in the television studios that Gore used to own and consumer products like gasoline and jet fuel that he relies on.”
‘Not Changed’
At the White House, press secretary Jay Carney in response to a question about Gore’s remarks reiterated that the pipeline review is continuing at the State Department.
“The president’s position, opposition on the pipeline has not changed,” Carney said today. “The process continues. It’s being run by the State Department, in keeping with the practice of administrations of both parties.”
Gore noted that he criticized Obama in Rolling Stone three years ago for his apparent diffidence to climate change. Now he says the president has “taken hold of the challenge.”
Last year, Obama gave a speech at Georgetown University and said he wouldn’t approve Keystone if it would significantly exacerbate carbon dioxide emissions.
Alberta Oil
The State Department environmental review concluded that the line probably wouldn’t have a big impact on the climate because crude from Alberta would likely be developed even if the pipeline were rejected.
Environmentalists say Keystone would encourage production of Alberta’s carbon-heavy oil.
The State Department suspended its review of the project after a Nebraska state court threw into question the process under which Governor Dave Heineman approved the route through his state. The case is now before the Nebraska Supreme Court.
A U.S. Senate committee approved legislation today that would bypass Obama and permit Keystone, though it’s not clear if the bill will be brought to the full Senate for a vote. Obama could veto the measure, too, forcing its backers to round up even more votes to override.
To contact the reporter on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net
To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Romaine Bostick
Gasoline Output Rises to Record in the U.S. as Demand Grows
By Moming Zhou and Lynn Doan Jun 19, 2014 2:10 AM GMT+0700
U.S. gasoline production increased to a record last week as demand grew and the profit to process oil into the fuel rose.
Output jumped 11 percent from the previous week to 9.84 million barrels a day in the seven days ended June 13, the highest level since Energy Information Administration data started in 1982. Demand jumped 7.4 percent in the same period. The crack spread, the profit for refineries to process crude and sell gasoline, surged to the highest since April.
“It’s the summer driving season and demand is going to be rising over the next few months,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “The margins are high.”
Gasoline production is up 18 percent from this year’s low of 8.33 million on Jan. 10. The weekly data are adjusted to include blending of fuel ethanol and gasoline blending components.
Gasoline futures climbed for a third day, adding 0.2 percent to $3.0982 a gallon on the New York Mercantile Exchange. Crude oil futures dropped 0.4 percent to $105.97. The gasoline crack rose to $24.15 a barrel based on front-month futures, the highest since April 30, according to data compiled by Bloomberg.
Driving Season
Demand for the fuel increased 634,000 barrels a day last week to 9.26 million, the EIA, the Energy Department’s statistical arm, said. The summer driving season traditionally starts on Memorial Day in late May and ends in early September on Labor Day.
Regular gasoline prices at the pump averaged $3.669 a gallon yesterday, up for a seventh day, according to AAA, the largest U.S. motoring company.
Production rose last week even as refineries reduced their utilization rate to 87.1 percent from 87.9 percent. Ethanol used in gasoline blending increased 22,000 barrels a day to 891,000 barrels, the highest since May 23.
“The refinery rate is down and gasoline production is up, and that’s because it includes ethanol blending,” Williams said.
Refineries processed 15.4 million barrels a day of crude last week, down 1 percent from the previous week, the EIA said. In the Midwest area, known as PADD 2, they used a record 3.71 million barrels. Crude rates there have been at the highest-ever seasonal levels since April, according to the agency.
BP Plc’s Whiting refinery in Indiana installed a 102,000 barrel-a-day coker in November to increase the plant’s ability to run heavy, sour Canadian crudes. The company said March 6 that Whiting’s heavy oil throughput would reach 280,000 barrels a day in the second quarter.
To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net; Lynn Doan in San Francisco at ldoan6@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Stephen Cunningham
By Nayla Razzouk, Bradley Olson and Kadhim Ajrash Jun 19, 2014 2:01 AM GMT+0700
Exxon Mobil Corp. and BP Plc began removing employees in Iraq as militants continued a push toward Baghdad and a battle raged for control of the nation’s largest oil refinery.
The evacuations come amid government and company assertions that Iraq’s output of almost 3 million barrels a day should remain unaffected by escalating sectarian tensions. Exxon has removed some workers from the West Qurna oil field as operations continue, according to a person familiar with the company’s Iraq operations. BP Plc has removed non-essential workers, Chief Executive Officer Bob Dudley said yesterday.
While violence is sweeping northern Iraq, the conflict so far spared Iraq’s crude production in the south and the Kirkuk oilfield in the north is being defended by Kurds.
“The only infrastructure that is currently producing and supplying international markets is in the south and will remain untouched,” said Kyle Stelma, managing director of Dubai-based Dunia Frontier Consultants, which researches Iraq for clients.
Meet al-Qaeda's Heirs Fighting to Reshape the Arab World
Fighters from ISIL battled government forces for control of the Baiji refinery in northern Iraq today, a day after clashes in Baquba, 34 miles (55 kilometers) northeast of the capital. A military spokesman said elite Iraqi forces were defending the Baiji refinery, but the comments contradicted local police who said militants had captured the facility.
A fuel tank at the refinery caught fire after shelling by militants, according to the Salahuddin provincial police command. The refinery halted operations yesterday because its storage tanks were full, according to Iraq’s Oil Ministry.
Market Impact
The market impact of the clashing continued to be muted, with Brent crude little changed at $114.23 a barrel on the London-based ICE Futures Europe exchange as of 2:27 p.m. in New York.
Companies such as Chevron Corp., Total SA and Marathon Oil Corp., which are drilling in the Kurdistan region, are continuing to operate. Marathon hasn’t evacuated employees, spokeswoman Lee Warren said. Chevron’s operations continue “as normal,” spokesman Kurt Glaubitz said. Toronto-based Oryx Petroleum Corp. Ltd. today announced successful testing and a ramp-up in drilling activity in Kurdistan.
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The rapid battlefield success of the Islamic State in Iraq and the Levant, or ISIL, a Sunni Muslim al-Qaeda breakaway group also embroiled in battles in neighboring Syria, threatens to re-ignite a sectarian civil war in Iraq. It also risks escalating into a wider conflict that draws in the U.S. and Iran in defense of Prime Minister Nouri al-Maliki’s Shiite-led government three years after the withdrawal of U.S. forces. Iraq is the largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, .
Regional Implications
BP Chief Executive Officer Bob Dudley said the violence, which he called “terrible” and said would have “far-reaching, wide-ranging implications” for the region, isn’t likely to spread all the way to the country’s southern oil fields.
“The implications for oil production at the moment appear limited,” he told reporters yesterday in Moscow. “We are of course very vigilant.”
Anti-terrorism forces killed a Saudi fighter identified as Abu Yamama al-Dossary during the “failed attack” on the Baiji refinery, state-sponsored Iraqiya television reported. A fuel tank at the plant caught fire during the clashes. The refinery has halted operations since June 15, the police said. Baiji has about 40 percent of Iraq’s refining capacity, data compiled by Bloomberg show.
“Iraq will have to increase the import of oil products to make up for the loss of Baiji’s production,” Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting and Project Management, said in an interview in Dubai. “Baiji mainly supplies the north, but also Baghdad.”
To contact the reporters on this story: Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net; Kadhim Ajrash in Baghdad at kajrash@bloomberg.net; Bradley Olson in Houston at bradleyolson@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net; Susan Warren at susanwarren@bloomberg.net Carlos Caminada, Susan Warren
By Laura Litvan Jun 19, 2014 12:51 AM GMT+0700
A U.S. Senate committee approved a bill that would bypass President Barack Obama and permit the long-delayed Keystone XL pipeline, part of a drive by a bipartisan group of lawmakers to force a vote by the full Senate.
The Energy and Natural Resources Committee voted 12-10 today for legislation that would let Calgary-based TransCanada Corp. (TRP) build then operate the $5.4 billion Canada-to-U.S. oil pipeline that has been snagged in disputes for more than five years. Democrats Joe Manchin of West Virginia and Chairman Mary Landrieu of Louisiana, who helped write the bill, joined all the Republicans in backing the legislation.
“This is about what our future energy policy should look like,” said Landrieu, pointing to the need to boost construction employment and expand oil imports from Canada and also Mexico, both long-time allies.
The measure’s prospects aren’t good, however. Senate Majority Leader Harry Reid, who sets the agenda for chamber action, hasn’t agreed to bring the issue up for a vote. Obama could veto it if it did pass.
Senate Republican Leader Mitch McConnell dismissed the committee action as a “political show vote.”
“The question isn’t whether energy-state Democrats can support a Keystone bill in committee,” McConnell of Kentucky said in an e-mailed statement. “It’s whether or not they’ll continue to stand with their party and their leader in blocking the full Senate from voting on it, or whether they’ll stand up for jobs and demand a vote.”
Efficiency Bill
The committee advanced its bill after negotiations to allow a vote on the Keystone measure as an amendment on an energy efficiency bill fell apart last month. At the time, supporters said they had backing from 56 senators, four shy of the needed 60 to prevent it from being blocked. The backers included all 45 Senate Republicans.
Landrieu, who is seeking re-election in a state Obama lost in 2012, has used her support of the pipeline to highlight her independence from the president and her party. Her race against U.S. Representative Bill Cassidy, a Republican, is considered her toughest yet.
Senator Richard Durbin, the No. 2 Democratic leader, said yesterday that party leaders haven’t ruled out letting it come before the full chamber on a different bill later this year.
“We’ve been preparing to consider that as an amendment,” Durbin said. “I’m not sure if and when it will come up.”
‘Cheerleading Exercise’
Senator John Barrasso, a Wyoming Republican and a Keystone supporter, said today he doubts that will happen and said Landrieu’s vote is “a cheerleading exercise rather than a meaningful effort to get the pipeline approved.”
Most Democrats on the panel said approving the permit by legislation would sidestep an intense review process by the Obama administration and the measure shouldn’t advance.
“These things are bad precedents to put into statutes,” said Senator Maria Cantwell, a Washington Democrat.
The proposed pipeline would link Canada’s oil sands with refineries on the U.S. Gulf Coast. The administration is under pressure to block the project by environmentalists who say the project would boost greenhouse-gas emissions. Backers say it would create jobs and promote North America energy independence.
Trade Gro
“We urge the Senate to take a leadership role and complete the process that has taken far too long in creating good-paying American jobs,” said Jack Gerard, president of the oil-industry trade group American Petroleum Institute, in an e-mail.
The State Department, which is leading an interagency review of the pipeline proposal, had asked other agencies to file comments on the plan by early this month. On April 18, it announced it would extend that deadline until a legal challenge to the route through Nebraska is settled by the state Supreme Court. That probably extends consideration into 2015.
The Natural Resources Defense Council, a top environmental group that opposes the pipeline’s construction, called the Senate panel’s measure a “political ploy” that will boost greenhouse-gas emissions.
‘Bad Policy’
“This latest vote on the Keystone XL tar sands pipeline is all about politics and bad policy,” said Anthony Swift, an NRDC attorney. “Locking ourselves into a massive infrastructure to move the dirtiest oil on the planet for the next 50 years would greatly worsen carbon pollution -- at a time when we’re facing growing and grievous costs wrought by climate change.”
Republicans are seeking to cast Landrieu’s inability to get the legislation through the Senate as a liability. Today, the National Republican Senatorial Committee released a web video highlighting Landrieu’s “ineffectiveness,” and a press release pointing out that keeping her in office helps keep Democrats in control of the Senate.
“A vote for Landrieu actually hurts pro-energy states like Louisiana,” Brad Dayspring, and NRSC spokesman, said in a statement.
Republicans need a net gain of six seats to take the chamber’s majority. They’re likely to win three open seats, and are targeting four incumbents in states that Obama lost in 2012: Landrieu, Mark Begich of Alaska, Mark Pryor of Arkansas and Kay Hagan of North Carolina.
To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net
To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Steve Geimann
By Dan Murtaugh Jun 18, 2014 11:12 PM GMT+0700
North Dakota, which yesterday became just the fourth state to record oil production above 1 million barrels a day, could see even stronger growth over the summer as improved weather makes life easier for drilling crews.
Output increased to 1,001,149 barrels a day in April, the state’s Department of Mineral Resources reported yesterday. Texas, California and Alaska have crossed the million-barrel mark. Only Texas remains above the state, at almost 3 million barrels a day.
April oilfield work was hampered by heavy rain that shut roads and strong winds that closed down operations. Crews completed 200 wells during the month, and another 600 are already drilled and just waiting on hydraulic fracturing, or fracking. Better weather in the summer months should allow more new wells to start gushing oil.
“As the weather improves, operators should have full utilization of all their rigs, and possibly additional completion crews to whittle down the backlog,” Jonathan Garrett, an upstream analyst at Wood Mackenzie Ltd. in Houston, said in a phone interview today. “I wouldn’t be surprised to see quite a bit of production growth over the summer. It should be pretty impressive.”
Oil and gas from the Bakken and other shale formations helped the U.S. produce the equivalent of 87 percent of its energy needs in 2013, the highest level since 1985, according to data from the Energy Information Administration. The U.S. imported 7.7 million barrels of crude a day in 2013, the least since 1996.
Hydrocarbon-Rich
Most oil produced in North Dakota comes from the Bakken and Three Forks shale formations, layers of hydrocarbon-rich rock more than a mile beneath the Earth’s surface. High crude prices and improvements in drilling technology have helped companies like Continental Resources Inc. (CLR) and Whiting Petroleum Corp. (WLL) tap into the previously inaccessible shale.
Creating wells in the Bakken is a two-step process. Drillers make horizontal bores along the shale, and then completion teams inject a high-pressure mixture of water, chemicals and sand to create micro-fissures in the rock through which gas and oil can seep.
Output from shale wells declines by 60 percent to 70 percent in the first year, according to Austin, Texas-based Drillinginfo Inc., faster than traditional wells. Because of the steep decline rate, companies need to finish new wells constantly. Bad weather can slow the completion process, curbing production growth.
Adverse Weather
In April, roads were shut for three days because of heavy rain, and there were nine to 11 days of wind blowing faster than 35 miles per hour, too strong for completion work, Lynn Helms, the director of the state’s Department of Mineral Resources, said during a conference call with reporters yesterday. The weather in May and June has been much more benign.
“Permitting and drilling activity indicates that we’ll continue to see production grow and build well above 1 million barrels a day,” he said.
Producers are also drilling better wells, Garrett said. They’re increasing horsepower and using more water and sand in the fracking process, which is helping to increase initial production and slow decline rates.
Bakken crude priced at Enbridge Inc. (ENB)’s pipeline hub at Clearbrook, Minnesota, traded at a discount of $6.50 less than West Texas Intermediate in Cushing, Oklahoma, at 8:59 a.m. New York time, according to data compiled by Bloomberg.
About 30 percent of North Dakota’s oil left the state by pipeline and 63 percent by rail in April, according to the state’s pipeline authority. It’s the lowest percentage of rail transportation since September.
It costs $9 to $10 a barrel to transport oil by train to East Coast refineries, and $6 to $7 a barrel to rail crude to Washington plants, Tesoro Corp. (TSO) said in a February presentation to investors.
The discount of Bakken crude priced at the wellhead to Brent crude, the benchmark for global waterborne crude, is about $20.71 a barrel, according to data compiled by Bloomberg.
To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Stephen Cunningham
By Isis Almeida and Anna Shiryaevskaya Jun 18, 2014 9:26 PM GMT+0700
Ukraine seeking closer ties to the European Union means natural gas flows from Russia to the 28-nation bloc are unlikely to be disrupted, according to Maplecroft Ltd. and Energy Aspects Ltd.
UkrTransGas is shipping full volumes from Russia to Europe, the Ukrainian pipeline operator said yesterday, the day after its own supply was cut by Russia amid a two-month long pricing dispute. All imports needed to meet domestic needs can be replaced with gas from Europe for now, NAK Naftogaz Ukrainy’s Chief Executive Officer Andriy Kobolyev said yesterday.
Russia’s OAO Gazprom (GAZP) cut supplies after a payment deadline expired, echoing disputes that disrupted flows in 2006 and 2009, when the state-run company accused Ukraine of siphoning off transit gas, a charge it denied. Ukraine, which carries Russian gas meeting about 15 percent of the EU’s needs, is seeking closer relations with the bloc after former President Viktor Yanukovych was ousted after refusing to sign a deal to strengthen ties and Russia annexed the Crimean peninsula.
“What happened on previous occasions with Ukraine is just that it said, well that’s our gas and it’s just taken it,” Daragh McDowell, a senior Russia analyst at risk consultants Maplecroft in Bath, England, said by phone on June 16. “At this point, Ukraine doesn’t want to alienate its European partners, so it won’t be like the 2005-2006 gas crisis.”
Gas in the U.K., Europe’s biggest market, extended losses after tumbling the most in more than three months on the ICE Futures Europe exchange yesterday, erasing gains from the Russian cut. Futures rallied as much as 8.8 percent June 16. That was the most since March 3, the first trading day after Russia got approval from lawmakers to send troops into Crimea.
Pipeline Fire
Front-month U.K. gas fell 1.3 percent to 40.5 pence a therm ($6.87 a million British thermal units) at 2:47 p.m. in London. Prices, which tumbled as much as 5.8 percent yesterday, closed 3.7 percent lower after a fire on a transit pipeline. Ukraine said shipments weren’t disrupted and the fire, probably caused by a terror attack, was extinguished.
Gazprom said June 16 Ukraine failed to pay a debt of more than $4.4 billion for gas deliveries in November, December, April and May. The Moscow-based company is providing full volumes to European partners and has alerted the EU about possible gas transit risks, it said.
Russia raised prices for Ukraine by 81 percent to $485 per 1,000 cubic meters by canceling discounts in April. While Gazprom offered to lower prices by $100, Ukraine said it would only be prepared to pay $326, a compromise proposed by the EU. The bloc has tried to broker a deal between the two nations since May 2 and said June 16 it was convinced a solution was still possible.
Ukrainian Deputy Energy Minister Vadym Ulyda said today that his country hopes for further gas talks with Russia’s Gazprom and the EU as “it is in the interest of three sides.”
Transit Flows
“If you look at it, Russia holds all the cards, Ukraine is not that big a market for them,” Trevor Sikorski, head of gas, coal and carbon at consultants Energy Aspects Ltd., said by phone from London June 16. “When we see gas supplies significantly disrupted to western Europe, there will certainly be political pressure on the Ukrainians.”
Gas flows from Ukraine to Poland were normal today, the country’s gas pipeline operator Gaz-System said by e-mail. Slovakia hasn’t yet seen a dip in gas pressure or volumes, grid company Eustream said on its website today.
Ukraine, which yesterday got a 500 million euro ($677 million) loan from the bloc, probably doesn’t have to tap into transit gas for now, said Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen.
‘Too Risky’
It’s “too risky” for Ukraine to take gas and “they don’t have to, at least not for a considerable time,” he said by e-mail yesterday. “This means that Russia has been able to make a statement but at the same time they can still come to an agreement before it gets critical later this year.”
Petro Poroshenko, sworn in as Ukraine’s president on June 7, vowed to complete a trade agreement with the EU “soonest” as he battles pro-Russian rebels in the country’s easternmost regions. Poroshenko and Russian President Vladimir Putin talked yesterday about a possible cease-fire for southeastern Ukraine.
“It’s really difficult to see where a compromise comes here because the gas talks, as much as they try to keep them separate from the peace talks, the two can’t really be differentiated that much,” Maplecroft’s McDowell said. “They have a warm summer so they can afford to cut down the gas a bit, so it’s a question of who blinks first and in that case I think it’s likely to be Ukraine.”
Reverse Flows
Ukraine uses 1.6 billion to 1.8 billion cubic meters (64 billion cubic feet) of gas a month in the non-heating season, Alexey Grivach, deputy director of National Energy Security Fund, said in a June 16 interview in Moscow. Demand jumps to as much as 7 billion a month in the winter, he said.
The EU can supply Ukraine with 15 billion cubic meters of gas, Prime Minister Arseniy Yatsenyuk said in Kiev yesterday. RWE AG, Germany’s second-biggest utility, started delivering gas to Ukraine from Poland in April and volumes are flowing between the two nations, said spokesman Michael Murphy. Gas can also go from countries including Hungary and from Slovakia.
“It will be quite a complicated job if we do not find sufficient supplies in Europe, that’s why it’s crucial for us to resolve this situation” Nafotgaz’s Kobolyev said yesterday on Bloomberg Television. “If we do not resolve the issue right now, the Russians will do the same in December.”
Winter Time
While Ukraine’s own gas output and supplies from Europe can meet summer demand, it will not be enough in the winter, Laszlo Varro head of gas, coal and power at the International Energy Agency, said yesterday in an interview in Paris.
Ukraine’s gas consumption has fallen as the conflict reduces output in the industrial areas in the east of the country, which are under rebel control, McDowell said.
“Now that we are in summer, it’s not a freeze to death or take the gas kind of issue,” Sikorski said. “It becomes a much bigger issue for Ukraine mostly because of the storage, what very low storage means for them during the winter time when it does get bitterly cold.”
To contact the reporters on this story: Isis Almeida in London at ialmeida3@bloomberg.net; Anna Shiryaevskaya in London at ashiryaevska@bloomberg.net
To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Rob Verdonck, Torrey Clark
By Anthony DiPaola Jun 18, 2014 8:10 PM GMT+0700
Brent pared gains as Islamist militants fought Iraq’s government for control of a northern refinery, while the main southern oilfields in OPEC’s second-biggest producer were spared. West Texas Intermediate rose amid forecasts that U.S. oil stockpiles fell.
Futures gained as much as 40 cents in London. The Baiji refinery in northern Iraq was damaged as Islamist militants fought with the army for control of the country’s largest crude-processing plant. U.S. crude inventories probably slid by 750,000 barrels last week, a Bloomberg News survey showed before an Energy Information Administration report today.
“The situation in Iraq is so volatile now that things can move it quite quickly,” Nic Brown, head of commodities research at Natixis SA in London, said by phone. “While the country’s main oil fields are in the south, Baghdad is not, and, if there are any attacks there, that could hurt the Iraqi government.”
Brent for August settlement rose as much as 0.4 percent to $113.85 a barrel on the London-based ICE Futures Europe exchange, before falling to $113.67 at 1:42 p.m. The contract rose 51 cents to $113.45 yesterday, the highest close since Sept. 9. The volume of all futures traded was about 2.8 percent above the 100-day average for the time of day. Prices have increased 2.6 percent this year.
WTI for July delivery was 33 cents higher at $106.69 a barrel in electronic trading on the New York Mercantile Exchange. Brent was trading at a premium of $7.50 a barrel to WTI on ICE.
Iraq Fighting
Brent rallied 4.4 percent last week, the most since July, as the unrest in Iraq fanned concern that oil supplies may be disrupted and drawn-out strife would slow long-term growth in crude production. Iraq pumped 3.3 million barrels a day last month, data compiled by Bloomberg show.
“We have settled into a $112 to $114 a barrel range for now,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said. “Traders want to trade this market from the long side.”
Elite Iraqi forces were defending the Baiji refinery, a military spokesman said today. The comments contradicted local police who said militants had captured the facility. A fuel tank at the refinery caught fire after shelling by militants, according to the Salahuddin provincial police command. The refinery halted operations yesterday because its storage tanks were full, according to Iraq’s Oil Ministry.
Drone Operations
The U.S. is conducting aerial drone operations over northern Iraq at the government’s request, Treasury Secretary Jacob J. Lew said in Jerusalem today. President Barack Obama is still deciding on whether to use military options, National Security Council spokeswoman Bernadette Meehan said yesterday.
Exports of Basrah Light, southern Iraq’s main crude, may reach about 2.8 million barrels a day next month, according to a preliminary loading plan obtained by Bloomberg News on June 16. That would be near February’s record level of shipments, which was the last month Iraq shipped Kirkuk grade crude via a pipeline to the Mediterranean. The fighting hasn’t spread to the south, which the EIA estimates is home to three-quarters of Iraqi output.
The Kurdish region may be able to increase its own crude exports after taking control of territory around the Kirkuk oilfield, the nation’s fourth-largest, according to David Wech, managing director at JBC Energy GmbH in Vienna.
Oil Supplies
Crude inventories in the U.S., the world’s biggest oil consumer, decreased by 5.7 million barrels in the week ended June 13, said a person familiar with data from the American Petroleum Institute. The industry group in Washington collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines.
U.S. crude supplies rose to 399.4 million through April 25, the highest level since the EIA, the Energy Department’s statistical arm, started publishing weekly data in 1982.
Gasoline stockpiles nationwide shrank by 48,000 barrels, according to the API. A decline of 550,000 barrels is forecast in the Bloomberg survey of eight analysts.
To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron, Bruce Stanley
By Anthony DiPaola Jun 18, 2014 7:55 PM GMT+0700
Crude oil exports from Iraq’s southern terminals in the Persian Gulf are poised to accelerate even as fighting plunges the country’s north into chaos and Islamist militias encroach on towns near Baghdad.
Exports of Basrah Light crude, the country’s main grade, may reach about 2.8 million barrels a day next month, according to a preliminary loading plan obtained by Bloomberg News on June 16. That’s 11 percent more than this year’s average and would come close to matching a three-decade high reached in February. OPEC’s second-largest producer shipped 5.43 million barrels from Basrah on June 11, Iraqi Oil Minister Abdul Kareem al-Luaibi said in Vienna the following day.
“The only infrastructure that is currently producing and supplying international markets is in the south and will remain untouched,” Kyle Stelma, managing director of Dubai-based Dunia Frontier Consultants, which researches Iraq for clients, said by phone yesterday. “They are systematically increasing production and export capacity, so, on average, we should keep seeing new monthly records being set.”
Fighters from the Islamic State in Iraq and the Levant battled government forces for control of the Baiji refinery in northern Iraq today, a day after clashes in Baquba, 55 kilometers (34 miles) northeast of the capital. The U.S. is conducting aerial drone operations over Iraq at the government’s request, Treasury Secretary Jacob J. Lew said in Jerusalem. Southern Iraq, where about three quarters of the nation’s oil is produced, was “calm,” Thamir Ghadhban, an adviser to Iraq’s prime minister, said in London yesterday.
Stability Needed
“We’re seeing growth because the Iraqis have invested in export capacity and new spending has been put into fields to add production,” David Wech, managing director of researcher JBC Energy GmbH in Vienna, said by phone yesterday. “I won’t be surprised if they ship 2.8 million barrels a day. We need to see if they can maintain it and keep the infrastructure working.”
Rising exports in the south, helped by the start of a third tanker-loading point this month, contrast with the situation for Kirkuk crude. This light grade from the northern field of the same name hasn’t been exported since March, when sabotage damaged a pipeline to the Turkish port of Ceyhan. Repair work ceased this month when fighting started.
Brent Gains
Brent crude rose as much as 0.4 percent today on the ICE Futures Europe exchange after closing yesterday at $113.45 a barrel, the highest in more than nine months. U.S. benchmark grade West Texas Intermediate gained as much as 0.6 percent to $106.97 on the New York Mercantile Exchange.
While the south is safe from attack for now, strife will hurt Iraq’s investment climate and slow the pace of oil production and export growth, HSBC Holdings Plc analysts Peter Hitchens and Gordon Gray said in a note. Iraq has played a key role in the Organization of Petroleum Exporting Countries, with its production gains helping to offset losses in supply from Libya, they said.
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Iraq is targeting production of 8.4 million barrels a day after 2018, al-Luaibi, the oil minister, said June 9 in Vienna. Most analysts expect capacity to reach only about 6 million barrels a day this decade, HSBC’s Gray and Hitchens and Dunia’s Stelma said.
Capacity will increase by 1.28 million barrels a day in the six years through 2019, the most of any nation in OPEC, the International Energy Agency said yesterday. Output surged to 3.4 million barrels a day in February, the highest level since 2000, and was 3.3 million last month, according to data compiled by Bloomberg.
“The building of infrastructure to export crude oil is facilitating export growth this year and potentially into next,” Citigroup Inc. analysts led by Ed Morse wrote in a June 13 report. Still, the fighting “points to a systemic and seismic shift geopolitically” in Iraq and makes the growth harder sustain, according to Citigroup.
To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley, James Herron
Shell to Sell Shares in U.S. Pipeline Unit Amid Energy Boom
By Will Kennedy and Jim Polson Jun 19, 2014 1:36 AM GMT+0700
Royal Dutch Shell Plc (RDSA) will sell shares in a U.S. pipeline business in the second half of this year as Europe’s largest oil company takes advantage of investor appetite for North America’s energy infrastructure.
Shell Midstream Partners LP’s assets are expected to consist of ownership interests in four onshore and offshore pipelines located primarily in Texas and Louisiana, according to a filing today. The Houston-based partnership will trade on the New York Stock Exchange under the ticker SHLX.
Pipeline companies structured as tax-exempt master limited partnerships, or MLPs, have attracted investors by returning almost all their income to shareholders. Share prices have soared amid a boom in oil and gas production from U.S. shale fields. Shell Midstream forecasts $96.5 million of cash available for distribution to investors over the next 12 months.
“Everybody and their dog has got an MLP now in the U.S.,” Iain Reid, a London-based analyst for BMO Capital Markets who rates Shell a buy and owns none of the shares, said today by phone. “The majors have kind of shied away from it, so this may be breaking new ground.”
The announcement comes two days after Williams Cos. (WMB) said it will pay $6 billion to buy control of Access Midstream Partners LP (ACMP), the pipeline operator taken public in 2010 by Chesapeake Energy Corp. (CHK) under ousted chief executive officer Aubrey McClendon. The shale wildcatter now plans to invest in pipelines and processing plants through a midstream unit of his American Energy Partners LP, according to a statement today.
Dominion Resources Inc. (D), owner of Virginia’s largest electric utility, plans to sell stakes in a partnership holding its liquefied natural gas terminal in Maryland and other assets.
Partnership Proposal
“Now you’ve got the first major and that’s got us excited,” Matt Sallee, who helps manage $17.5 billion at Tortoise Capital Advisors in Leawood, Kansas, including the first closed-end fund focused on MLPs. “It would not be surprising to see others follow suit. Shell’s putting a seal of approval on the MLP space today.”
Shell didn’t say how much cash it will raise from the initial public offering. It’s proposing to sell a 49 percent stake in the partnership that will own the assets and a 2 percent stake in the unit that will run the operation.
The company appears to be following the well-worn path of initially offering stakes in MLP with a few assets, then selling it more pipelines and processing plants in so-called “drop downs,” harvesting cash while adding operations that increase investor payouts, Sallee said.
Extensive Assets
Shell’s U.S. assets suitable for MLP ownership are extensive enough to rival the likes of Enterprise Products Partners LP. (EPD) Enterprise market cap is $69 billion, it pays investors a 3.8 percent return on the current share price, and that payout has risen by 5.7 percent over the past five years, according to data compiled by Bloomberg.
The Cushing 30 MLP index, which tracks the partnerships, has produced total returns of 24 percent over the last year, beating the Standard & Poor’s 500 Index’s 20 percent total return, which includes reinvested dividends.
Shell would be the largest oil company to launch a master-limited partnership. It ranks behind Exxon Mobil Corp. (XOM) in market value.
Barclays Plc (BARC) and Citigroup Inc. (C) are managing the proposed share sale, Shell said. The banks are the two leading advisers on North American pipeline deals this year, according to data compiled by Bloomberg.
Ho-Ho Network
Assets Shell will put into the partnership include stakes in the Ho-Ho network linking Houston and Houma in Louisiana, an offshore pipeline from the Mars field in the Gulf of Mexico and the Bengal and Colonial pipelines, which deliver fuel through the eastern U.S.
Shell Chief Executive Officer Ben van Beurden is selling assets to focus capital on projects with highest returns for investors. Yesterday the oil major announced it would raise $5 billion by selling a stake in Woodside Petroleum Ltd., Australia’s largest oil and gas producer.
To contact the reporters on this story: Will Kennedy in London at wkennedy3@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net; Susan Warren at susanwarren@bloomberg.net Robin Saponar
Putin Talks Peace With Ukraine Leader After Gas Pipe Fire
By Volodymyr Verbyany, Elena Mazneva and Anastasia Ustinova Jun 18, 2014 3:00 PM GMT+0700
The Russian and Ukrainian presidents discussed a possible cease-fire for southeastern Ukraine hours after a pipeline fire blamed by the government in Kiev on sabotage threatened natural gas flows to Europe.
Presidents Vladimir Putin of Russia and Petro Poroshenko of Ukraine talked last night about bilateral relations between the countries and about the death of Russian journalists working in Ukraine, according to a Kremlin statement.
“The issue of a possible cease-fire in the area of a military operation in Ukraine’s southeast has been touched upon,” the Kremlin said after the leaders’ phone call.
Putin and Poroshenko spoke a day after Russia cut gas supplies to the Ukraine over unpaid bills and demanded advance payments from its former Soviet Union ally. The gas dispute has stoked tensions between the two governments as Ukraine battles pro-Russian insurgents in its eastern region.
A Snapshot of Ukraine's Past and Future
Russia’s ruble weakened for a sixth day against the dollar today, dropping 0.1 percent, while the Micex stock index gained 0.1 percent, its first advance in three days, data compiled by Bloomberg show. The yield on Ukrainian dollar debt due 2023 rose four basis points to 9.29 percent, the most in almost a month.
Journalists’ Deaths
Russian Prime Minister Dmitry Medvedev condemned Ukraine yesterday over the death of reporter Igor Kornelyuk, killed by mortar fire in the violence-torn Luhansk region in the nation’s east. Sound producer Anton Voloshin, also from the Russian State Television and Radio Broadcasting Company, was found dead later, the Interfax news service said, citing separatist forces.
“Those who call themselves the authorities in neighboring Ukraine answer for the situation there and it’s in their power to halt the bloodshed,” Medvedev said on his Facebook account.
Poroshenko ordered a probe into the deaths, as did the Organization for Security and Cooperation in Europe, which has tried to broker a peace plan.
While the fact last night’s call happened at all is positive, it doesn’t mark a major breakthrough, according to Tim Ash, chief emerging- market economist at Standard Bank Group Ltd.
“The two sides weren’t exactly playing up the outcome of the phone call so expectations should be downplayed,” he said today by e-mail from London.
Embassy, Pipeline
The deaths stoke tensions three days after an attack by protesters on the Russian embassy in Kiev following the shooting down of a Ukrainian military plane by the rebels that killed all 49 people on board. Yesterday, Ukraine’s Interior Ministry blamed “terrorism” as the likely cause of the fire at the Urengoy-Pomary-Uzhgorod link in the central part of the country. It was the second pipeline fire in six weeks.
“Local residents reported hearing two strong claps that may indicate deliberate explosions,” Interior Minister Arsen Avakov said in the statement, blaming Russia for trying to discredit Ukraine as a reliable “partner in the gas sphere.”
The blaze was detected at about 2:20 p.m. local time, with flames shooting as high as 100 meters (330 feet), and emergency workers extinguished the blaze about two hours later, according to state pipeline operator UkrTransGas. Flows to Europe weren’t affected. About 20 kilometers of the pipeline were sealed off, with shipments redirected to a parallel section.
Increased Security
Ukrainian officials said they will boost security along the entire network to guard against any future attacks. The Urengoy-Pomary-Uzhgorod system has a capacity to carry about 28 billion cubic meters of gas a year, while Ukraine can send as much as 142 billion cubic meters of Russian gas annually to central and western Europe.
“It is a very alarming situation and a very strange coincidence,” Naftogaz CEO Andriy Kobolyev said on his Facebook page. “We will do everything possible” to boost security across the system, he said.
The Interior Ministry foiled two attempted attacks on pipelines before Ukraine’s May 25 presidential election, according to Avakov. Those attacks were designed to “discredit” Ukraine as a reliable transit corridor and “promote” Gazprom’s South Stream project to export gas through the Black Sea to Bulgaria and beyond, circumventing Ukraine, Avakov said.
Merkel Call
Poroshenko discussed his proposal for a cease-fire with German Chancellor Angela Merkel yesterday, his office said in a statement. The proposal envisions the creation of a 10-kilometer buffer zone on the Ukrainian border with Russia, the withdrawal of insurgent groups, the return to Ukraine’s government of seized buildings and the decentralization of power.
Russia has as many as 38,000 soldiers on Ukraine’s borders and continues to supply arms and personnel to rebel forces in the eastern part of the country, Ukraine’s National Security Council chief, Andriy Parubiy, said June 16.
There are about 16,000 troops on Ukraine’s eastern frontier and another 22,000 in Crimea, the Black Sea peninsula that Russia annexed from Ukraine in March, Parubiy said.
The number of militants in Luhansk and the neighboring Donetsk region is about 15,000 to 20,000, half of whom are from Russia, including special forces, Parubiy said.
Igor Konashenkov, a spokesman for the Defense Ministry in Moscow, declined to comment on Parubiy’s assertions.
To contact the reporters on this story: Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net; Elena Mazneva in Moscow at emazneva@bloomberg.net; Anastasia Ustinova in Chicago at austinova@bloomberg.net
To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Andrew Langley
Japan imported 13.478 billion liters (2.73 million b/d) of crude oil on a CIF basis in May, down 19.3% year on year, preliminary figures released Wednesday by the Ministry of Finance showed.
The May total was down 14.9% from the 15.846 billion liters imported in April, according to the data. Crude imports over May 21-31 were 4.363 billion liters, down 28.5% year on year. Japan’s CIF crude price in May fell 0.6% month on month to Yen 70,080/kiloliter ($109.11/barrel) in May, MOF data showed.
The May price was 5.3% higher year on year. The dollar averaged Yen 102.11 in May, compared with Yen 102.39 in April and Yen 99.34 a year ago. Both the MOF and the Ministry of Economy, Trade and Industry release data on Japan’s monthly crude imports, but their figures vary due to differing accounting practices.
METI’s data is based on monthly reports it gets from refiners and trading houses and takes into account barrels lifted during the period, including condensates. The MOF data comprises crude cargoes cleared by customs. It excludes condensates but includes fuel oil used as refinery feedstock. METI’s monthly crude imports data is due to be released June 30.
The International Energy Agency believes “practical ways” will be found to get around the US’s de facto ban on crude exports within the next five years, IEA’s director for energy markets and security Keisuke Sadamori said Wednesday.
Sadamori said a “partial deregulation” of US export restrictions is assumed in the IEA’s Medium Term Oil Market Report, which covers the period to 2019 and was published on Tuesday.
“There are a lot of discussions pointing out the possibility that the American crude production capacity may hit a wall if they cannot export, with the various gaps in transport and refining capacity,” he told Platts at the World Petroleum Congress in Moscow.
In the medium term “we do not assume the total elimination of the export ban from the US, but we assume that some more practical ways to allow some flexibility could be introduced in North America -- a gradual or partial deregulation,” he said.
“There are various discussions going on with respect to how they need to deal with the condensates, so there could be some room to gain flexibility, actual exports. Currently there’s a discussion going on in the US. It’s even more actively discussed.”
US crude stocks fell a marginal 600,000 barrels last week, far less than expectations, with a 1.2 million-barrel Gulf Coast stock draw mostly offset by a rise in Midwest inventories, data Wednesday from the US Energy Information Administration showed.
Total crude stocks fell to 386.3 million barrels for the June 13 reporting week, putting the total at a 3.52% surplus to the EIA’s five-year average. The surplus has narrowed from more than 10% in mid-December.
Analysts polled by Platts were anticipating a 1.4 million-barrel draw. Gulf Coast stocks fell 1.2 million barrels to 205.8 million barrels, even with refiners in that region dropping utilization rates to 84% of capacity, down 0.7 percentage point.
Crude imports to the USGC were nearly flat, up just 12,000 b/d to 3.177 million b/d. Total crude imports fell 88,000 b/d to 7.234 million b/d.
Midwest crude stocks rose 800,000 barrels to 89.9 million barrels last week, including a 200,000-barrel increase in crude stocks at the NYMEX hub at Cushing, Oklahoma. The build at Cushing is the first in 10 weeks. Still, stocks at the hub were 46.7% below the five-year average.
Total refinery utilization in the US fell 0.8 percentage point to 87.1% of capacity. Analysts were anticipating a 1.3 percentage point increase in rates based on reports that Marathon Petroleum last week restarted a 256,000 b/d crude unit at its 522,000 b/d Garyville, Louisiana, refinery, which had been shut after a tornado damaged the plant May 28.
Other units across the US remained down last week, however, including one at ExxonMobil’s 502,500 b/d Baton Rouge refinery. Units at Motiva’s 600,000 b/d Port Arthur refinery -- the largest in the US -- remain in turnaround, according to Platts data.
In addition, Motiva confirmed operational incidents took place last week, resulting in unplanned work. On the West Coast, Shell was forced to shut a major unit at its 165,000 b/d Martinez, California, refinery last week. Four other West Coast refineries have units under maintenance.
The average daily loading rate of Urals crude oil from the Baltic Sea ports of Primorsk and Ust-Luga and the Black Sea port of Novorossiisk is set to tick upwards to 1,945,527 b/d in the first 11 days of July, according to a copy of the preliminary loading schedule seen by Platts Wednesday.
This is up a marginal 6,572 b/d from the same period in June, with volumes set to increase at both Baltic Sea terminals, even as early exports out of Novorossiisk are due to slide. Exports are set to increase by a combined 290,000 mt out of the Baltic Sea ports of Primorsk and Ust-Luga, according to Wednesday’s program, jumping 200,000 mt over the first decade of the month at Primorsk and by 90,000 mt at nearby Ust-Luga.
Loadings at Primorsk, which typically sees the greatest volume of exports each month, are set to come in at 1.5 million mt across the first 11 days of July, up from 1.3 million mt over the same period in June.
The average daily loading rate is currently set at 959,909 /d across 15 cargoes of 100,000 mt each. Volume is set to increase by 90,000 mt at Ust-Luga, with one more cargo on the schedule than for the same period in June.
All seven of the cargoes currently scheduled out of the terminal in July are 100,000 mt; there were two 105,000 mt cargoes in June. The average daily loading rate at the terminal is 460,091 b/d across the first 11 days of July, though Wednesday’s schedule only includes loadings through July 10 out of Ust-Luga, opening up the possibility that additional volumes may become available before the program is finalized later in the month.
Provisional schedules are subject to change. By contrast, exports are set to drop by 280,000 mt out of the Black Sea port of Novorossiisk, which is currently two 140,000 mt Aframax cargoes shorter than the first decade of June.
Wednesday’s schedule currently includes loading dates through July 12, but may also be subject to amendment ahead of the release of the final program later in the month. Total volumes out of Novorossiisk are currently set to come in at 760,000 mt over the first 12 days of July, with an average daily loading rate of 499,527 b/d across six Aframaxes and two Suezmaxes.
While the number of Aframaxes is currently unchanged on the month, the program is shorter by two larger Suezmax cargoes than over the same period in June. There is one cargo of Siberian Light scheduled to load out of the port during the first decade of July, up from the none seen in the first decade of June. Typically, two to three cargoes a month of Siberian Light load from Novorossiisk.
The Kurdistan Regional Government is proposing to use its own pipeline system to enable the federal Iraqi government to continue exporting some crude from the Kirkuk oil field in the troubled north of the country.
Baghdad has been unable to export any crude from Kirkuk to Ceyhan on the Turkish Mediterranean since an attack by insurgents closed the main Iraq-Turkey crude pipeline March 2.
Iraq had been exporting some 300,000 b/d of crude from Ceyhan before the latest attack on the line put it out of action. Iraqi Kurdistan, on the other hand, has been moving its own crude to Ceyhan via a link to the main ITP at the Iraq-Turkey border that it completed in December.
Two KRG cargoes were exported from Ceyhan in May and earlier this month and, according to KRG natural resources minister Ashti Hawrami, two more will load this week from the Turkish port.
Hawrami, who was speaking at a CWC conference on Iraq, said that Erbil had already built a new section of pipeline that would connect Kirkuk’s central Avana dome to the northern Khurmala dome as a means of helping maintain northern oil exports from Iraq as the so-called Islamic State of Iraq and the Levant, or ISIS, continues its offensive across large swathes of northern Iraq.
Khurmala, from which the KRG crude export pipeline to Turkey arises, lies in disputed territory that has been under KRG administration for the past decade. Avana, along with the Kirkuk field’s southern Baba dome, is in territory that until recently was controlled by Baghdad.
Currently, however, the area around Avana is being defended by Kurdistan’s Peshmerga regional military force against ISIS insurgents. KRG Prime Minister Nechirvan Barzani has said the Peshmerga were deployed there at Baghdad’s request.
A senior official with Iraq’s North Oil Company, which manages Kirkuk and other northern fields, said there had been talks with the KRG in the past couple of months to discuss the option of building this new section of pipeline, specifically to enable Baghdad to export some Kirkuk oil while the insurgents ensured that the ITP remained offline.
The KRG would build the line from Khurmala to Avana and NOC would build it from Baba to Avana, the official said. The KAR Group would build the line on the KRG side and would possibly work with NOC as well. KAR operates the Khurmala dome and the nearby Kalak refinery, which is fed by the Khurmala dome.
It also built the KRG pipeline to Turkey. The NOC official said the KRG had approved the plan and had sent it to Baghdad but that there had been no movement forward. He added that the line could be reversed to take crude from Avana and Khurmala down to the original start of the ITP and, assuming the security situation changed, through the ITP.
By International Business Times | Commodities News | Jun 18, 2014 01:29PM GMT | Add a Comment
By Maria Gallucci - Russia’s natural gas giant Gazprom (MCX:GAZP) on Wednesday defended the profitability of a $400 billion contract with China, the terms of which remain shrouded in secrecy.
Gazprom Exec Says China To Prepay $25B In Gas DealGazprom Exec Says China To Prepay $25B In Gas Deal
Alexander Medvedev, the company’s deputy chief executive, insisted the deal will make money for stated-owned Gazprom, though he declined to disclose the price that China National Petroleum Corp. agreed to pay for the Russian natural gas, the Wall Street Journal reported.
It would be “complete nonsense” to suggest that Gazprom could lose on the deal, Medvedev said, according to WSJ.
He also announced that China will pay Russia $25 billion in pre-agreed advance payments. The capital will help to build the “Power of Siberia” pipeline, which will ship gas from untapped gas fields in Eastern Siberia to China’s main consumption centers starting in 2017, Penza News reported.
Russia and China inked the $400 billion deal in May after a decade of negotiation. Medvedev at the time.
Energy experts have said Russia likely lost significant potential profit on the deal, since China was able to secure gas supplies from other nations while the Gazprom proposal hung in limbo, Penza News wrote.
Under the May deal, Russia will supply China with an annual average of 38 billion cubic meters of gas for 30 years. Earlier this month, Russian officials touted the prospect of a second major energy deal in China, suggesting that Gazprom might resume talks with China over a long-stalled western pipeline.
By International Business Times | Commodities News | Jun 18, 2014 01:25PM GMT | Add a
By Meagan Clark - Giant oil companies Exxon Mobil (NYSE:XOM), BP (LONDON:BP) and Petrochina (NYSE:PTR) have begun evacuating staff from southern Iraq, though production so far has remained unaffected as militant Islamists roam the northern region.
Big Oil Companies Are Evacuating Staff In IraqBig Oil Companies Are Evacuating Staff In Iraq
On Tuesday, BP’s chief executive Bob Dudley told reporters in Moscow: "We are just very vigilant in Iraq. Non-essential production people have left, but operations continue." UK-based BP is a major investor in Iraq through the giant Rumaila field. A BP spokesman said Wednesday the company would not comment further at this time.
BP has evacuated 20 percent of its staff, and Texas-based Exxon has carried out a “major evacuation” of its staff, the head of Iraq’s state-run South Oil Company Dhiya Jaffar told Reuters.
ExxonMobil did not immediately comment.
"I assure the companies that the current developments in the country have not affected and will not affect in any way the operations in the south,'' he said. He expects that Iraq’s export level for June will be 2.7 million barrels per day, unaffected by the crisis in the north.
Jaffar also said Italy-based oil company Eni Spa Roma (OTC:EIPAF), Houston-based oil field services companies Schlumberger (NYSE:SLB) and Baker Hughes (NYSE:BHI) and Switzerland-based oil services company Weatherford International (NYSE:WFT) have no plans to evacuate staff.
However, PetroChina, the single biggest investor in Iraq’s oil sector, is pulling staff. The company’s joint secretary Mao Zefeng told Reuters some non-essential staff have been evacuated, without saying how many or if they were transported out of the country or into safe zones in Iraq.
