High sulfur fuel oil barges in Northwest Europe surged to their highest level in just over nine months Wednesday, tracking Brent crude’s continued rise amid supply concerns over the ongoing militant insurgency in Iraq.
HSFO barges on a FOB Rotterdam basis rose to be assessed by Platts at $597.25/ mt Wednesday, the highest since September 9 when they reached $599.75/mt. “The flat price is directly linked to Brent prices going up,” a trader said Thursday.
In addition, the possibility of the long-shut Rotterdam-Singapore arbitrage route opening up again lent weight to slightly more bullish sentiment. The Princimar Loyalty and Ottoman Equity Suezmaxes were seen on shipbrokers fixtures list Wednesday, reportedly fixed for 130,000 mt of fuel oil each on the Rotterdam-Singapore arbitrage route, fixed to BP and Vitol respectively. BP and Vitol weren’t immediately available for comment on the matter.
“There were two Suezmaxes fixed east, I haven’t heard about anything else for June,” a trader said. Traders said that a rally in the East-West spread -- the relative value of 180 cst HSFO in Singapore to HSFO barges in Rotterdam -- has resulted in arbitrage deliveries becoming theoretically workable. June has seen no VLCC fixtures east from Northwest Europe so far, with weak Singapore bunker fuel demand weighing on values, despite historically low Western arbitrage supply volumes landing in Asia.
Crude shipments by northern Iraq’s Kurdistan region through Turkey are lawful, Turkish minister for energy and natural resources Taner Yildiz said Thursday after Baghdad initiated legal action to stop shipments seen in recent weeks.
Turkey “is a state of law and attaches utmost importance to acting in accordance with international law,” said Yildiz. Turkey’s agreements with the Kurdistan leadership in Erbil “all fall within the rule of law,” he told journalists at the World Petroleum Congress.
“It is Iraqi oil being sold and the incomes belong to the entirety of Iraq.” Turkey “will come to terms with Iraq,” he said. “We believe we understand one another,” he said of Turkish relations with Baghdad.
Iraq’s central authorities in Baghdad have initiated a number of lawsuits in recent weeks after the Kurdistan Regional Government began shipping crude from the Turkish port of Ceyhan. Baghdad has also warned potential buyers against dealing with the KRG. Baghdad says only the central government has the authority to sign oil contracts, let alone export and sell oil.
The KRG, assisted by Turkey, has loaded a number of tankers at the Ceyhan, but the ultimate destination of the crude is unclear amid uncertainty about the legality of the shipments. Among other measures, Baghdad has filed for Paris-based International Chamber of Commerce arbitration against Turkey and pipeline firm Botas for allegedly violating the agreement governing the Iraq-Turkey Pipeline.
The KRG last year built a pipeline in its autonomous territory in northern Iraq and tied it into the 40-inch pipeline of the dual Iraq-Turkey Pipeline. The tie is located just after the last Baghdad-controlled metering system but within Kurdish-controlled territory.
US rail transport of petroleum and petroleum products for the week ended June 14 totaled 16,130 rail cars, up 13.2% from the corresponding week a year ago, the Association of American Railroads said Thursday.
Shipments of petroleum and petroleum products have totaled 350,677 carloads so far this year, up 6.7% from the same period in 2013, AAR said in its weekly report. US railroads saw a 2.2% year-on-year increase in total carloads originated last week, with intermodal volumes rising 6.3%, AAR said.
Intermodal traffic involves movement by more than one mode of transportation, be it rail, ship or truck. So far this year, total US rail carloads originated are up 3.2% year on year, with intermodal volume rising 5.8%, AAR said.
Rail traffic is seen as a useful gauge of the health of the US economy. Canadian petroleum carloads rose 10.7% last week and Mexican petroleum carloads were up 0.9% compared with the corresponding week in 2013, AAR said. So far this year, Canadian petroleum carloads are up 7.5%, but Mexican carloads are down 5.1%, AAR said.
ICE August Brent topped $115/barrel Thursday for the first time in nine months, while raising its premium over WTI, as increased violence and unrest in Iraq heightened concerns over oil supplies in the country’s southern region.
August Brent settled at its highest level in nine months at $115.06/barrel after the front-month contract reached $115.71/b. The European benchmark increased its premium over WTI to settle at $9.01/b -- a three-month high.
NYMEX July crude settled 46 cents higher at $106.43/b; August crude settled 46 cents higher at $106.05/b. In products, NYMEX July ULSD settled 1.23 cents higher at $3.0524/gal and July RBOB ended 2.73 cents higher at $3.1255/gal.
The fighting in Iraq continued, though Iraqi government forces regained full control Thursday of the country’s biggest oil refinery . Insurgents pressing the major offensive were repelled from the 320,000 b/d-capacity Baiji plant after clashes Wednesday and early Thursday.
Earlier in the week, BP and ExxonMobil evacuated foreign workers at their Basra, Iraq, operations out of the country. The evacuations, along with those by US embassy staff, came as Sunni insurgents increased their push south, where Shi’ite militia were stepping up recruitment.
“Brent crude continues to find support from the deteriorating situation in Iraq, as Iraqi forces are battling insurgents north of Baghdad,” said Matt Smith, commodity analyst at Schneider Electric.
“WTI appears to have priced in enough woes for now, however, as softer US-specific fundamentals act as a drag on prices, with Cushing stocks building in yesterday’s report for the first week in 10.” Tim Evans, commodity analyst at Citi Futures Perspective, said WTI was more sedate than Brent, suggesting that at least some money managers are not willing to add to Brent long positions without cutting back on WTI exposures.
Analysts at Barclays Capital said in a note Thursday that amid direct threats to energy infrastructure, Islamist ISIS fighters may also be able to destabilize the country indirectly by targeting the domestic energy industry.
Russia will raise the export duty on its main Urals crude export blend and other blends -- except those enjoying a more favorable tax regime -- to $385.20/mt, or $52.77/barrel, for July, a tad higher from $385/ mt in June, the economy ministry said in a statement.
The move reflects an increase in the average Urals price in the international market during the monitoring period. Russia’s crude export duty is set according to a formula. For July, it is derived from an average Urals price of $785.9/mt ($107.66/b) over May 15-June 14, according to the ministry.
In 2014, the top marginal ratio for Russia’s standard crude oil duty is set at 59% of the international Urals price over the monitoring period.
The July diesel export duty is set at $250.30/ mt, up from $250.20/mt in June. The Russian export duty for diesel is now set at 65% of the crude duty.
The gasoline and naphtha duty for July is set to reach $346.60/mt, up from $346.50/mt in June. The export duty for gasoline and naphtha is now 90% of the crude duty.
The July export duty for other oil products, including middle distillates and fuel oil, is set to reach $254.20/mt, up from $254.10/mt in June. Russia’s export duty for other oil products is at 66% of the crude duty.
The July export duty for LPG is set to rise to $89.6/mt from $86/mt in June.
DISCOUNTED DUTY AT $25.25/B
The July export duty for blends enjoying a more favorable tax regime, such as East Siberian and Caspian crudes, is to be fixed at $189.40/mt, or $25.25/b, up from $189.20/mt in June.
The export duty on the blends is lower to support greenfield projects. Five greenfield projects are currently eligible for discounted rates: Lukoil’s Korchagin field in the Caspian Sea, the East Siberian North Talakan and East Alinskoye fields developed by Surgutneftegaz, Gazprom’s Arctic Prirazlomnoye field, and the East Siberian Dulisma, developed by privately held East Siberian Operating Co.
Russia on a quarterly basis sets export volume limits for each field that is eligible for the discounted export duty. Quarterly exports from the fields in excess of those limits are subject to the regular crude export duty.
Oil supply expected to grow faster than demand, says consultancy
OSLO, Norway -- The IEA, on June 17, released its Medium-Term Oil Market Report. Rystad Energy, an independent oil and gas consulting group, has compared the revised IEA demand outlook with its own supply estimates derived from its global upstream database, UCube. The estimates are based on Rystad’s bottom-up analysis of 30,000 fields and 2,500 oil companies in 150 countries.
Analysis shows that oil markets have gradually been tightening over the last two years, while the outlook indicates a possible inflection point in early 2015 and an increasing downward pressure on oil prices for the coming two to three years.
The recent geopolitical outages of oil production from the Middle East and North Africa have, until now, been perfectly balanced by the increased supply of unconventional tight oil from the U.S. This predicted easing of the oil markets is partly driven by an assumption of gradual return over the next two years of oil from Libya, Iran, Iraq and Sudan, while U.S. drillers are continuing their activities with unchanged intensity and increased efficiency.
Rystad Energy now forecasts North American tight liquids production to pass 10 million bbl before 2020, making the region a net exporter of seaborne crude and petroleum products within three years.
06/19/2014
By Debjit Chakraborty and Rakteem Katakey Jun 20, 2014 6:56 AM GMT+0700
India spent the past five years cutting its Iranian oil imports to comply with international sanctions. Now, Asia’s second-largest energy user needs the curbs to ease as fighting threatens its supply from Iraq.
Tougher U.S. sanctions on Iran meant India was obliged to halve purchases from the Persian Gulf nation since 2009. Indian refiners, which get 85 percent of their crude from overseas, say they expect the restrictions to soften.
“We may be exempted from cutting imports from Iran this year,” P.P. Upadhya, managing director of Mangalore Refinery and Petrochemicals Ltd., the second-biggest Indian buyer of Iranian crude, said by phone on June 18. “We expect the U.S. will be softer on Iran as the conflict deepens in Iraq.”
Benchmark crude prices are trading at a nine-month high as Islamic militants battle government forces in Iraq, which is now India’s second-biggest oil supplier. That’s boosting costs for importers and taking a toll on India’s currency.
Iran was the second-biggest supplier to India until three years ago, when it was displaced by Iraq. India cut purchases from Iran to 11 million metric tons in the year ended March 31, compared with a peak of 21.8 million tons in 2008-09, according to data from the oil ministry. The nation’s refiners bought about 25 million tons from Iraq.
“India will have to get the additional crude from wherever it can but with Brent oil rising, it’ll have to pay a higher price,” Praveen Kumar, an analyst at energy consultant FGE in Singapore, said by phone yesterday. “As for India and Iran relations, Indian refiners have had a long-standing relationship with National Iranian Oil Co. and can take more Iranian crude.”
U.S. Sanctions
Indian refiners owe Iran $4.2 billion for crude and 39 percent will be paid off by next month, an oil ministry official said yesterday. The payments, held up by U.S. sanctions on Iran, will be made in dollars and transferred through the United Arab Emirates’ central bank, the official said.
The territorial advances by the Islamic State in Iraq and the Levant has raised the specter of civil war in OPEC’s second-biggest oil producer. ISIL, a breakaway group from al-Qaeda, is fighting government forces near Baghdad, away from the southern part of the country where most of the oil fields are located.
“The real problem will be when the fighting reaches the south,” L.K. Gupta, chief executive officer of Essar Oil Ltd. (ESOIL), India’s biggest buyer of Iranian crude, said by phone June 18. “There’s enough oil in the market, so global supplies may not be affected, but the crisis can push up prices.”
Iran shipped about 28 percent more crude oil and condensate this year after reaching an interim accord over its nuclear program with world powers, customs data and estimates from the International Energy Agency show. Diplomats are meeting again this week to reach a long-term agreement before the existing pact expires July 20.
“The entire Iraq crisis will be nullified for India if the U.S. eases Iran sanctions,” B.N. Bankapur, an oil industry consultant and former refineries director at Indian Oil Corp., said by phone June 18. “It is vital because Indian refiners will otherwise become too dependent on Saudi Arabia.”
To contact the reporters on this story: Debjit Chakraborty in New Delhi at dchakrabor10@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net Indranil Ghosh
Rising U.S. Output Seen Curbing Impact of Iraq on Oil
By Mark Shenk Jun 20, 2014 2:42 AM GMT+0700
The U.S. shale boom, which has sent the nation’s output to a 28-year high, is curbing the impact of the Iraq crisis on the oil market, said Nansen Saleri, former head of reservoir management at Saudi Arabian Oil Co.
Prices would have climbed more this month if techniques such as hydraulic fracturing and horizontal drilling hadn’t bolstered U.S. crude output, said Saleri, who is now chief executive officer of Houston-based consultant Quantum Reservoir Impact. West Texas Intermediate oil, the U.S. benchmark, has climbed $5 to $10 on supply anxiety, he said.
“Were it not for the increase in U.S. production, that’s gained close to 2 million barrels a day, we would see a $20 to $30 rise in prices,” Saleri said in a telephone interview. “The surge in U.S. production is a hugely stabilizing factor.”
WTI for July delivery rose to $107.68 a barrel on the New York Mercantile Exchange on June 13, the highest level since Sept. 19. Prices surged 4.1 percent last week, the most this year, as militants of the Islamic State in Iraq and the Levant seized Mosul, the largest northern city, on June 10. Futures increased 46 cents, or 0.4 percent, to $106.43 today.
Brent for August settlement reached $115.71 a barrel today on the London-based ICE Futures Europe exchange, the highest level since Sept. 6, and settled at $115.06. The European crude, which is used to price more than half of the world’s oil, is typically more sensitive to changes to the global supply-and-demand balance.
Rising Output
U.S. crude output rose 17,000 barrels a day to 8.477 million last week, the most since October 1986, Energy Information Administration data showed yesterday. Much of the gain has come from shale formations including the Bakken in North Dakota and the Eagle Ford in Texas.
“What’s happening in the U.S. is an indication of what the rest of the industry will be doing five to 10 years from now,” he said. “If you look at North Dakota and West Texas, you’re getting a preview of what will be happening globally a decade from now.”
The rise in U.S. production has made up for the disruptions of Libyan, Iranian and now Iraqi output, Christof Ruhl, the chief economist of BP Plc, said in New York on Bloomberg Television.
“So far nothing has happened to production,” Ruhl said. Police near the Baiji refinery, the nation’s largest, said government forces are now in control after a battle with ISIL. Crude shipments from the south, where most production is located, may accelerate next month and Kurds are defending the Kirkuk oilfield in the north.
Production Centers
“The oil production centers of Iraq are relatively safe,” Saleri said. “There are two centers. One, responsible for about 75 percent of production, is in the Shia heartland of Basra province. The other 25 percent comes from the Kirkuk area, which is firmly under the control of the Kurds.”
Iraqi production rose 50,000 barrels a day to 3.3 million in May, according to a Bloomberg survey of oil companies, producers and analysts. Output was up 38 percent from the same month four years earlier, as investment poured into the country.
“Iraq has been the most promising new theater of oil production,” Saleri said.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Richard Stubbe, David Marino
By Selcan Hacaoglu, Jack Fairweather and Nayla Razzouk Jun 20, 2014 1:02 AM GMT+0700
June 18 (Bloomberg) -- In today’s “Global Outlook,” Abhishek Deshpande, oil markets analyst at Natixis, discusses the capture of Iraq’s largest oil refinery by ISIL insurgents and how it impacts oil production in Iraq and the global oil market. He speaks on Bloomberg Television’s “The Pulse.”
A tanker containing a million barrels of crude oil is floating around the Mediterranean, and any buyer will be helping Iraq’s Kurds to win greater independence.
The oil aboard is available at half-price, an official involved in the trade told Bloomberg, an assertion denied by the Kurdish administration. It's at the center of a fight over 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 took control of northern Iraq’s key oil hub, Kirkuk, after militant Islamists routed the Baghdad government’s army last week. The oil dispute has raised the possibility of the Kurdish region achieving financial self-sufficiency to go with the expanding territory.
“If that tanker docks, Iraq’s Kurdistan Regional Government will take an important step toward independence,” Nihat Ali Ozcan, an analyst at the Economic Policy Research Foundation in Ankara, said by phone on June 13.
The KRG says the oil exports are in line with the Iraqi constitution. “We do not view this issue as a path towards Kurdistan’s independence, but rather as the expression of our constitutional rights,” KRG Prime Minister Nechirvan Barzani said on June 4.
Turkey’s Role
Turkey, the conduit for the Kurdish oil, also sees Kurdish crude oil exports through its Mediterranean port of Ceyhan as “entirely legitimate” and will continue as long as oil is sold, Turkey’s Energy Minister Taner Yildiz said in an interview in Moscow today. The next shipment is scheduled for June 22, he said at the World Petroleum Congress.
“At the moment, 100,000 barrels to 120,000 barrels of oil flow from northern Iraq per day,” Yildiz said. “About 2.3 million barrels of oil are stored in Ceyhan.”
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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.”
U.S. Mediation
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.
As the Kurds went ahead with pumping the oil, the Baghdad government announced it was suspending the accord under which 17 percent of all oil revenue goes to the Kurdish authorities in their regional capital, Erbil.
“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 June 10.
Oil Price
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 rose above $115 a barrel in London today, reaching a nine-month high.
Militants of the Sunni Islamic State in Iraq and the Levant seized Mosul, the largest northern city, on June 10 and have captured other towns. As Baghdad’s armed forces fled, the Kurds advanced into Kirkuk, which they’ve long claimed should be part of their autonomous region. Exxon Mobil Corp. (XOM), BP Plc (BP/) and Turkey’s state oil company TPAO began removing employees from Iraq, OPEC’s second-largest oil producer, as the insurgents attempted to capture a major refinery.
Even without Kirkuk, the Kurdish region has crude reserves it estimates at 45 billion barrels, a quarter of Iraq’s total. Since the U.S. invasion of Iraq in 2003, the KRG 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 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.
Turkish Storage
Since 2011, KRG has attracted four big oil companies -- Chevron Corp. (CVX), Exxon Mobil Corp., 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.
Trucks have been superseded since January by a new Kurdish link to the main northern pipeline, which runs from Kirkuk to Turkey’s Mediterranean oil terminal at Ceyhan. Turkey agreed to handle the shipment and store it separately from the main Iraqi crude. It 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.
Higher Fees
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.
“Turkey has nothing to do with marketing of oil from northern Iraq, its price or to which country it is sold,” Turkey’s Yildiz said. “Our responsibility is limited with shipment and we’re relaying all documents regarding it to the central government.”
On May 22, the first of two tankers filled with the disputed oil left the Ceyhan terminal 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.
Lower Price
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.
“The KRG would never consider exporting and selling the natural resources of Iraq at ‘half price,’ either now or in the future,” the Ministry of Natural Resources said in a statement in response to this story. “Despite all the blackmail and threats by SOMO and the Ministry of Oil in Baghdad, the KRG has been able to deliver oil to its customers under commercially viable contracts, and all payments are being made into the KRG’s account in Turkey.”
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.
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.
Baghdad Blacklist
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.
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. “Despite all the unfair treatment and discrimination, the KRG reaches out to Iraq and is ready to cooperate, to work together to resolve these problems.”
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, Mark Williams
Nuclear Regulators ‘Overwhelmed’ as China Races to Launch World's Most Powerful Reactor
By Tara Patel and Benjamin Haas Jun 19, 2014 11:20 PM GMT+0700
China is moving quickly to become the first country to operate the world’s most powerful atomic reactor even as France’s nuclear regulator says communication and cooperation on safety measures with its Chinese counterparts are lacking.
In the coastal city of Taishan, 100 miles (160 kilometers) from the financial hub of Hong Kong, Chinese builders are entering the final construction stages for two state-of-the-art European Pressurized Reactors. Each will produce about twice as much electricity as the average reactor worldwide.
France has a lot riding on a smooth roll out of China’s EPRs. The country is home to Areva SA (AREVA), which developed the next-generation reactor, and utility Electricite de France SA, which oversees the project. The two companies, controlled by the French state, need a safe, trouble-free debut in China to ensure a future for their biggest new product in a generation. And French authorities have not hidden their concerns.
“It’s not always easy to know what is happening at the Taishan site,” Stephane Pailler, head of international relations at France’s Autorite de Surete Nucleaire regulator, said in an interview. “We don’t have a regular relationship with the Chinese on EPR control like we have with the Finnish,” said Pailler referring to another EPR plant under construction in Finland.
Calls and faxes to China’s National Nuclear Safety Administration regulator seeking comment went unanswered. China General Nuclear Power Corp., the atomic operator that is building the reactor with the French, didn’t responded to queries.
First Indications
The first indications of French unease came when Philippe Jamet, one of the regulator’s five governing commissioners, testified before French Parliament in February.
“Unfortunately, collaboration isn’t at a level we would wish it to be” with China, Jamet said. “One of the explanations for the difficulties in our relations is that the Chinese safety authorities lack means. They are overwhelmed.”
Then, in March, EDF’s internal safety inspector Jean Tandonnet published his annual report to the utility’s chief executive that detailed a mid-2013 visit to the Taishan building site. He wrote that “the state of conservation” of large components like pumps and steam generators at Taishan “was not at an adequate level” and was “far” from the standards of the two other EPR plants, one in Finland and the other in Flamanville, France. Tandonnet urged corrective measures and wrote that studies “are under way on tsunami and flooding risks.”
Safety Procedures
Tandonnet’s report notwithstanding, Herve Machenaud, EDF senior executive vice-president in charge of generation said EDF is satisfied with China’s safety procedures. In China, “there is real, independent control that works at least as well as in most countries,” Machenaud said.
At Areva, Chief Operating Officer Philippe Knoche said China’s regulator “is extremely demanding,” in an interview. He said Taishan’s builder is now “getting questions we haven’t faced elsewhere” because it’s so advanced.
Some 28 reactors of various models are currently under construction in China. That’s more building than any other nation on the planet, and the country hasn’t reported a serious nuclear accident in the 22 years it has operated nuclear plants for commercial use.
Still, the international nuclear industry and its regulators have remained skittish following the 2011 Fukushima meltdown in Japan. In that catastrophe, radiation spread well beyond Tokyo, 135 miles from the wrecked power plant, in a disaster that rallied regulators worldwide to be more vigilant.
And in a rare public comment about safety concerns, China’s own State Council Research Office three years ago warned that the development of the country’s power plants may be accelerating too quickly.
‘Current Momentum’
“If the current momentum of development continues, if too many nuclear power projects are started too quickly, it could jeopardize the healthy, long-term development of nuclear power,” Fan Bi, a deputy director at the State Council Research Office, wrote in an article for Outlook Magazine, published by the official Xinhua news agency, two months before the Fukushima disaster.
China General, the country’s biggest atomic operator is forging ahead with EDF. It will begin critical tests on the most advanced of the 1,650-megawatt Taishan EPRs before start-up in 2015, Machenaud said last month. Fuel will be loaded and the plant will “undoubtedly” start up before the European models, he said in the interview, the first time an executive has publicly described the plan.
Taishan Safety
While Pailler said the ASN doesn’t have specific “worries” about safety at Taishan, the French regulator’s comments go beyond the diplomatic language generally used by atomic authorities when speaking about other countries. European regulators mostly “steer a line” between stating concerns clearly and softening language to ensure continued engagement with local authorities, said Tony Roulstone, an atomic engineer who directs the University of Cambridge’s nuclear energy masters program in the U.K.
The French regulatory agency has published hundreds of letters, reports and references on its own website about the Flamanville EPR, in Normandy. It has carried out 140 inspections since 2007 on building quality such as concrete, welding and cables, a regulatory spokeswoman said. Other probes were carried out on equipment suppliers, storage and design. The authority has ordered at least two construction halts after finding faults.
Few Details
By contrast, the Chinese regulator’s website contains relatively little information about safety issues. The most recent post on Taishan is a 2009 report on the start of cement work at the reactor referring to “problems left over from early-stage construction.” It said all current work was up to standards, without elaborating. In total just nine posts on the website mention Taishan, and many are blank apart from the title.
Critics of China’s nuclear safety regime, including Albert Lai, chairman of The Professional Commons, a Hong Kong think tank, says that lack of information risks eroding confidence in safety controls in what’s set to be a 14-fold increase of atomic capacity by 2030.
“The workings of China’s atomic safety authority are a ‘‘total black box,’’ said Lai. ‘‘China has no transparency whatsoever.’’
To contact the reporters on this story: Tara Patel in Paris at tpatel2@bloomberg.net; Benjamin Haas in Hong Kong at bhaas7@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Todd White, Rick Schine
By Saleha Mohsin Jun 19, 2014 6:03 PM GMT+0700
Prime Minister Erna Solberg said, “We know that Johan Sverdrup is going to be built. Of... Read More
Prime Minister Erna Solberg pledged to protect Norway’s oil industry from political interference as the central bank warned it may cut interest rates to save western Europe’s biggest crude producer as investments slump.
The 53-year-old premier, who has warned the country faces a “hard landing” unless it can boost productivity and lower costs in its oil industry, said investors don’t need to fear more delays caused by political wrangling, in an interview yesterday.
The comments come amid signs that firms are reluctant to pour more cash into their operations. A survey last week showed oil companies plan to cut investments by as much as 21 percent in 2015 from a record this year, as high exploration and development costs, as well as political interference, make projects less profitable.
Solberg’s government is hoping that Johan Sverdrup, the biggest discovery off Norway in at least 30 years, will help revive production. Her comments, which include a discussion of opening new oil fields, serve to temper talk that Norway needs to wean itself off reliance on its petroleum industry.
“We know that Johan Sverdrup is going to be built” she said. “Of course the companies have to make sure they can maintain focus. They know there will be no new policies that will affect the first phase.”
Central Bank
The development of the field, which may produce 650,000 barrels a day at its peak and cost more than 100 billion kroner ($16.6 billion) to start, became uncertain after the opposition and government allies tried to force more climate-friendly modes of crude extraction for surrounding facilities.
The central bank responded today, saying it may cut rates for the first time since 2012 to help the economy after predicting oil investments could drop 10 percent next year. The bank rates unchanged for a 14th meeting at 1.5 percent.
“We’re looking in particular at the drop in oil investments,” Norges Bank Governor Oeystein Olsen said at a press conference. “The overall economic growth continues at a moderate pace and we do see some improvement, however oil investments will fall in 2015.”
The governor said that “at least for now” he wouldn’t comment on “discussions on future developments of the oil industry.”
“We stick to the information that we collect through different sources from oil companies, and stick to their plans,” he said in an interview. “ The discussion typically relates to developments further ahead in time.”
Compromise Struck
Solberg this month struck a compromise with the opposition that would allow for so-called electrification of three North Sea oil fields by 2022 while avoiding a delay to Sverdrup. Norway gets more than 20 percent of its economic output from oil and gas. The country has seen crude production fall about 50 percent since the last decade as North Sea deposits dwindle.
Statoil ASA (STL), the government-controlled producer that’s the leading developer on Sverdrup, said this year it will reduce planned investments by 8 percent over the next three years after it explored even deeper cuts. Solberg’s government has said that planned projects must go ahead, even as it pledges to prepare for a future without oil and gas revenue.
Solberg said she’s in no doubt that Sverdrup will boost investments that will filter through to the rest of the economy.
“The impact of the oil industry is not just on investment and new fields,” she said. “It’s also about service and maintenance. We’ll see that part of the large activity along the coast is maintenance and services -- that will increase. We will make sure that new oil fields can be developed, that our cost levels make it possible to produce more. The work we have to do to get our competitiveness up is even more important.”
To contact the reporter on this story: Saleha Mohsin in Oslo at smohsin2@bloomberg.net
To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net Tasneem Hanfi Brogger
Exxon, BP Evacuate Iraq Workers as Oil Drilling Continues
By Nayla Razzouk, Bradley Olson and Kadhim Ajrash Jun 19, 2014 4:36 PM GMT+0700
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Exxon Mobil Corp. and BP Plc began removing employees from Iraq, OPEC’s second-largest oil producer, after Islamist militants seized cities north of Baghdad and attempted to capture a refinery.
Exxon evacuated some workers from the West Qurna oil field, according to a person familiar with the company’s Iraq operations. BP Plc removed non-essential workers, Chief Executive Officer Bob Dudley said June 17. Malaysia’s Petroliam Nasional Bhd. moved 28 of its 166 Iraq employees to Dubai, the company said by e-mail yesterday. Royal Dutch Shell Plc isn’t evacuating staff yet and is ready to do so, Andy Brown, head of Shell Upstream International, said in an interview in Moscow.
The companies all said they’re continuing to pump oil and there are few signs Iraq’s production has been curbed after Islamic State in Iraq and the Levant fighters took northern cities including Mosul. Police near the Baiji refinery, the nation’s largest, said government forces are now in control after a battle with ISIL. Crude shipments from the south, where most production is located, may accelerate next month and Kurds are defending the Kirkuk oilfield in the north.
“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.
Iraqi special forces keep watch as they secure a district in West Baghdad on June 18, 2014.
ISIL Fighters
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 yesterday, 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.
A fuel tank at the refinery caught fire after shelling by militants yesterday, according to the provincial police command. The refinery halted operations on June 15 after oil-product shipments were stopped to nearby areas and its storage tanks were full, according to Iraq’s Oil Ministry.
Brent crude rose to a new nine-month high. The international benchmark advanced to as much as $114.80 a barrel as of 8:53 a.m. in London, the highest since Sept. 9. It was last at a nine-month high on June 13.
Companies including Chevron Corp., Total SA, Marathon Oil Corp., Crescent Petroleum and Abu Dhabi National Energy Co., which are drilling in the Kurdish 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. announced yesterday successful testing and a ramp-up in drilling activity in the Kurdish region.
War Risk
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The success of ISIL, a Sunni Muslim al-Qaeda breakaway group, threatens to re-ignite a sectarian civil war in the country. It also risks escalating into a 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.
BP’s Dudley said the violence was “terrible” and would have “far-reaching, wide-ranging implications” for the region, although it isn’t likely to spread all the way to the country’s southern oil fields.
Iraqi forces killed a Saudi fighter during ISIL’s “failed attack” on the Baiji refinery yesterday, state-sponsored Iraqiya television reported. 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 Sharon Lindores
By Alexis Xydias and Inyoung Hwang Jun 19, 2014 6:00 AM GMT+0700
Traders are paying the most in three years to bet that oil prices will climb, convinced that the threat of a civil war in Iraq will disrupt supplies from OPEC’s second-largest producer.
Bullish options giving the right to buy the U.S. Oil Fund LP (USO) are the most expensive since March 2011 relative to contracts protecting against a slump in the exchange-traded fund, according to data compiled by Bloomberg. The ETF tracking West Texas Intermediate crude has rallied 3.7 percent since June 6, reaching a nine-month high this week.
Oil prices have shot up since the Levant and an al-Qaeda offshoot calling itself the Islamic State raided north Iraq, threatening to re-ignite a sectarian war in the country. Investors are watching whether the conflict spreads to the south, estimated to be home to three-quarters of the nation’s crude output.
“We have penciled in slightly higher oil prices in the second half of the year,” Stewart Richardson, who helps oversee about $100 million as chief investment officer at RMG Wealth Management LLP in London, said by phone. “This is the potential breakup of a sovereign nation and one of the biggest oil producers. This situation could not go away for some time, and we could potentially have higher oil prices for a long time.”
Bullish Options
Bullish options volume surged last week as the oil ETF jumped the most since December. More than 94,000 calls giving the right to buy the fund changed hands on June 12, the most since August and double puts, data compiled by Bloomberg show.
Contracts betting on a 10 percent rally in the ETF, known by its ticker symbol USO, cost 4.4 points more than puts to sell, according to one-month implied-volatility data compiled by Bloomberg. The price difference rose to 4.8 points on June 13, the highest since March 2011.
“I do think the market often overreacts, but it’s always trying to front run any big problems,” Randy Frederick, managing director of trading and derivatives at Charles Schwab Corp., said by telephone from Austin, Texas. His firm oversees $2.3 trillion. “Iraq will probably continue to cause volatility in the oil markets and related products such as USO.”
The Chicago Board Options Exchange Crude Oil Volatility Index, tracking 30-day options on the USO, surged 19 percent to 17.28 since its record low on June 6 as the Iraqi army fought with the rebels and the U.S. considered a request for air support. The CBOE Volatility Index, or VIX (VIX), a measure of expected swings in the Standard & Poor’s 500 Index, slid 1.1 percent to 10.61 since June 6.
‘Priced In’
The oil volatility gauge fell 11 percent on June 17 as concern about a disruption in oil supplies eased. Iraq’s oil exports from its southern terminals on the Persian Gulf are poised to surge, a preliminary loading plan obtained by Bloomberg News showed. The nation’s oil output hasn’t been hurt by the violence, the International Energy Agency said that day.
The price of oil already reflects the potential impact from the conflict in Iraq, according to Tristan Abet, a strategist at Louis Capital Markets LP.
“A bad outcome is priced in regarding the Middle East situation,” Abet said in e-mailed comments from Paris. “Such exogenous shocks do not persist. We would not bet on a further increase of oil prices.”
Right Calls
The options market has correctly predicted oil-price moves in the past, Jim Strugger, a derivatives strategist at MKM Partners LLC in Stamford, Connecticut, said.
The last time the implied volatility spread between calls and puts hit a high was in August. The oil ETF reached its highest level since May 2012 the following month. The difference in options costs rose to another high in February 2012, days before the fund climbed to its most expensive price in nine months. In April 2011, the USO touched a two-year high after the relationship between calls and puts hit another high.
“It has coincided with a move higher in the underlying,” Strugger said by phone, referring to such bullish options trading on the oil ETF. “What it shows is that the market usually gets it right.”
To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Inyoung Hwang in London at ihwang7@bloomberg.net
To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net Srinivasan Sivabalan
By Kyoungwha Kim Jun 19, 2014 5:00 AM GMT+0700
Surging oil prices are taking a toll on currencies of India and Indonesia as the energy-importing nations face wider trade deficits and bigger fuel-subsidy bills.
The CHART OF THE DAY tracks weekly performances of India’s rupee and Indonesia’s rupiah starting from June 2013. The lower panel shows West Texas Intermediate crude prices trading near a nine-month high on concern that escalating violence in Iraq will disrupt supplies from the second-largest producer in the Organization of Petroleum Exporting Countries.
“The rupee and the rupiah are the currencies most prominently at risk due to the oil deficits,” said Sacha Tihanyi, a Scotiabank strategist in Hong Kong. “Because of subsidies, demand is not responsive to higher prices so it can increase the external deficits. The rupee is likely to be an underperformer on oil price increases as it holds the potential to stress both the trade account and the budget.”
The currencies are Asia’s worst performers this month. The rupiah slumped 2.7 percent in June to 11,997 per dollar yesterday, while the rupee slid 2.2 percent to 60.4025, prices from local banks compiled by Bloomberg show. India’s currency has reversed a 2.1 percent gain in May, the best in the region, that was powered by a surge in investor confidence following the nation’s clearest election verdict in three decades.
Morgan Stanley counts rupee and rupiah among the “fragile five,” a term coined by the bank in 2013 to describe emerging-market currencies that are vulnerable because of their trade deficits. Currencies of Turkey, South Africa and Brazil are the others. India’s trade shortfall reached a 10-month high of $11.2 billion in May, official data show, while Indonesia’s imports exceeded exports by $1.96 billion in April, the widest gap since July 2013.
WTI for July delivery, the U.S. benchmark, closed at a nine-month high of $106.91 a barrel on June 13, while Brent in London, used to price more than half of the world’s crude oil, settled at $113.41 the same day. Brent prices could rise to $120 to $125 a barrel if Iraqi supplies are disrupted, Societe Generale SA said in a June 16 report.
To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Amit Prakash, Anil Varma
Ethanol Tumbles as Report Shows Output at Record High
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
By Kambiz Foroohar and Ladane Nasseri Jun 19, 2014 4:00 AM GMT+0700
June 19 (Bloomberg) -- The U.S. is distancing itself from Iraqi Prime Minister Nouri al-Maliki, pressing for a political change that could help blunt a Sunni insurgency as President Barack Obama weighs possible air strikes against the extremists. Phil Mattingly reports on Bloomberg Television’s “Bloomberg Surveillance.” (Source: Bloomberg)
Iran, already deeply mired in Syria’s civil war, now finds itself center stage in a fight against Sunni militants threatening to topple its most important regional partner in Iraq.
Iran is pledging to defend Shiite shrines in Iraq and help Prime Minister Nouri al-Maliki defeat an al-Qaeda breakaway group that has routed his northern army. More than 130 members of Iran’s Revolutionary Guards entered Iraq’s eastern Diyala province, which borders the Islamic republic, the BBC reported last week.
The conflict will test Iran’s ability to prop up its two closest Arab allies to preserve the political influence built in the region over the past decade. The collapse of Maliki’s government, without a pro-Iranian alternative ready to take over, would cut Iran’s leverage in its power struggle with regional Sunni powers such as Saudi Arabia and in its efforts to overhaul ties with the U.S.
“The fragility of the situation in Iraq may bring a security challenge to the Iranian border and make Iran more vulnerable,” said Mahjoob Zweiri, a professor of Middle East politics who focuses on Iran at Qatar University in Doha. “There may be ramifications for which Iran is not ready.”
Iraq’s government was dominated by minority Sunnis until the U.S. invasion of 2003, which toppled Saddam Hussein and eventually installed Maliki’s Shiite-led government.
Syria’s War
ISIL has rallied disaffected Iraqi Sunnis against the Maliki government, amid widening sectarian rifts. The militants, which are also fighting in Syria against President Bashar al-Assad and other rebel groups, crushed the Iraqi army last week to capture Mosul, the country’s biggest northern city and engaged with government forces in the city of Baquba, about 55 kilometers (34 miles) north of Baghdad.
Iranian President Hassan Rouhani said his country is ready to help the Iraqi government and vowed to fight ISIL gunmen if they approach the Iranian border. There are signs that his nation is already doing so: Iran’s Nasim news agency published what it said were pictures of a funeral this week for an Iranian “volunteer fighter” killed by ISIL guerrillas.
Meet al-Qaeda's Heirs Fighting to Reshape the Arab World
Qassem Soleimani, the head of the Revolutionary Guards’ external Qods Force, was in Baghdad last week where he was seen visiting checkpoints on the capital’s outskirts, according to Hayder al-Khoei, an associate fellow at London-based research center Chatham House.
‘Punishing Actors’
Soleimani retains close ties with all Iraq’s Shiite leaders, said Ramzy Mardini, a Jordan-based non-resident fellow at the Atlantic Council research group.
“When Soleimani demands a particular action to be taken, it’s difficult for Shiite parties to ignore those demands,” Mardini said by phone last week. Iran “has ways of punishing actors should they choose not to comply,” he said.
Soleimani’s force has been active in Syria, training Assad’s army as well as engaging in some of the fighting, according to videos posted on social media sites. Hezbollah, the Iranian-backed Lebanese militant group, is also fighting alongside Assad forces.
The Islamic republic will find it difficult to provide enough support to turn the tide of the battle on two fronts, said Afshon Ostovar, a Iran expert at CNA Corp., based in Arlington, Virginia.
“With its support for Assad and Maliki, Iran has created a Frankenstein,” he said. “Iran does not have the manpower to solve the crisis in Iraq. As we see in Syria, they have helped Assad hold territory, but not regain much.”
Iran Backyard
The seizure of key northern Iraqi cities by ISIL last week comes after three years of growing discontent among Sunnis. For Iran’s leaders, it also represents a shock to their assumptions that the neighboring country was stabilizing under Shiite rule, said Zweiri of Qatar University.
In the Iranian view, “Iraq is the backyard of Iran,” he said. “They assumed that what had been done since 2003 was enough to secure this backyard.” In the light of the Sunni insurgency, “it doesn’t seem to be the case.”
As it alarms Iraq’s neighbors, the advance of ISIL fighters closer to Baghdad has softened some old rivalries.
Secretary of State John Kerry said in an interview with Yahoo! News the U.S. was “open to discussions if there is something constructive that can be contributed by Iran.” U.S. and Iranian officials spoke briefly on Iraq on the sidelines of talks in Vienna on Iran’s nuclear program, according to a U.S. State Department official who commented on condition of anonymity.
U.K. Foreign Secretary William Hague said on June 17 that Britain will reopen its embassy in Tehran, closed after a raid by extremists in 2011, in a sign that the advance of the Sunni militants in Iraq is encouraging diplomacy with Iran.
‘Immediate Threat’
The overlap of interests in Iraq won’t be enough to persuade some Iranians that the U.S. isn’t still their real enemy. The Revolutionary Guards-affiliated Javan newspaper carried articles blaming the American military, as well as Arab clerics, for being behind ISIL.
Ultimately, Iran’s involvement in Iraq can be with or without the U.S., said Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai.
“Iran sees its security threatened by the tidal wave of Sunni extremists moving ever closer to the border,” he said. “If the Iraqi government were to crumble Iran would take it as a direct and immediate threat.”
To contact the reporters on this story: Kambiz Foroohar in New York at kforoohar@bloomberg.net; Ladane Nasseri in Dubai at lnasseri@bloomberg.net
To contact the editors responsible for this story: nsn at asalha@bloomberg.net Mark Williams, Ben Holland
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
By International Business Times | Commodities News | Jun 19, 2014 02:44PM GMT | Add a Comment
By Maria Gallucci - The state of Alaska is joining forces with Canadian pipeline builder TransCanada Corporation (NYSE:TRP) on a more than $65 billion natural gas project, the first such partnership for any U.S. state.
Alaska, TransCanada Partner on Natural Gas 'Mega-Project'Alaska, TransCanada Partner on Natural Gas 'Mega-Project'
Gov. Sean Parnell announced earlier this week that the state and TransCanada—the company behind the proposed Keystone XL pipeline—had agreed to work together on the proposed Alaska gas pipeline and liquefied natural gas (LNG) export project, the Associated Press reported. The Alaska Gasline Development Corp, BP (NYSE:BP), Exxon Mobil (NYSE:XOM) and ConocoPhillips (NYSE:COP), are also partners in the venture.
The project would pipe gas over 800 miles from Alaska’s North Slope to the coastlines of its south-central region, where the gas would be chilled into LNG and exported. Although initially intended to serve North American markets, the project will now primarily ship LNG to the Pacific Rim.
Alaska’s legislature in April approved a plan allowing the state to negotiate a partnership with TransCanada and the three oil and gas companies, who told officials in 2012 that the venture would represent a mega-project of “unprecedented scale and challenge,” AP reported at the time. The state would retain 25 percent ownership of the LNG plant.
The next step is for all the parties to sign a joint-venture agreement that spells out the responsibilities and cost-sharing, which will accelerate work on preliminary engineering and design, AP noted.
© REUTERS/Lucas Jackson. A mooring station for oil tankers in Valdez, Alaska.
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Initial estimates put the project at between $45 billion and $65 billion, but those estimates will be further refined in the next phase, Platts reported in April. If all goes as planned, the LNG pipeline and export project would start operating in 2024.
By International Business Times | Commodities News | Jun 19, 2014 02:34PM GMT | Add a Comment
By Maria Gallucci - Sunni rebels are still in control of Iraq’s Baiji oil refinery, a day after beating back the government troops defending the facility.
Sunni Rebels Keep Hold Of Critical Iraq RefinerySunni Rebels Keep Hold Of Critical Iraq Refinery
Clashes between the Islamic State of Iraq and Syria (ISIS) and Iraq’s counterterrorism units, were expected to ramp up Thursday following a day of assaults that heavily damaged a major gas line and two large fuel tanks, the Wall Street Journal reported.
The refinery in Baiji, located 130 miles north of the capital Baghdad, is the largest in Iraq and is the main fuel source for domestic consumption. The Sunni takeover has prompted fears of major supply shortages in Iraq and across the region, which in turn has triggered a spike in global oil prices.
ISIS forced the refinery to shut down and cut electricity earlier this week, and on Wednesday the militants took over three-fourths of the refinery, though which parts the rebels are controlling is disputed.
An official inside the refinery told media yesterday that the production units, administration building and four watch towers were all under ISIS control. An engineer at the plant told the WSJ that while gunmen are controlling some areas, Iraqi security forces are still manning the administrative office and production department.
An Iraqi military spokesman, Gen. Qassim Attam, has denied that insurgents overtook the refinery at all and said Wednesday that it remained under full government control, WSJ said.
Brent crude, an oil price benchmark, has risen past $114 a barrel—a nine-month high—as investors increasingly worry about exports from Iraq, Reuters reported.
© Reuters. Iraq’s largest oil refinery, Baiji
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Iraqi officials have said that major oilfields in the southern parts of Iraq are still safe from the armed insurgency. But oil companies have started pulling foreign staff out of the country amid fears that violence could engulf the entire nation.
HOUSTON, June 19
06/19/2014
By OGJ editors
US crude oil production in May increased 14.7% from May 2013 to 8.3 million b/d—the highest level for the month since 1987—according to a report from the American Petroleum Institute.
Total US petroleum deliveries, a measure of demand, meanwhile, increased 1.9% from last May to average 18.9 million b/d, the highest May deliveries in 6 years.
The report comes on the heels of BP PLC’s 63rd annual Statistical Review of World Energy in which the firm said the US recorded the largest increment to global oil consumption in 2013, while recording the largest increase in the world and the largest annual increment in the country’s history for a second consecutive year (OGJ Online, June 16, 2014).
“Last month saw a continuation of recent trends, with strong demand and even stronger production resulting in falling import levels,” said John Felmy, API chief economist.
Total imports averaged just less than 9.6 million b/d during the month, falling 4.5% from the prior year. Crude oil imports fell 1.9% over the same period to 7.6 million b/d. Both figures represent the lowest May levels in 19 years, the report said.
Refineries, fuels
US imports of refined products declined 13.2% from last year to the lowest imports level in 18 years at 2 million b/d.
At 16.1 million b/d, US refinery gross inputs were up 2.4% from last May to the highest level for the month since 2005. Exports of refined products were up 10.9% from the prior year to average 3.8 million b/d, the highest on record for the month.
The refinery capacity utilization rate averaged 89.7% in May. API’s latest refinery operable capacity was 17.934 million b/d.
Crude oil stocks ended at 382.9 million bbl, down 2.4% from the prior year. Stocks of motor gasoline were down 3.6% from last year to 213.7 million bbl in May. Distillate, jet fuel, and other oils stocks were all down from year ago levels.
Gasoline demand gained 3.6% from May 2013 to average 9.3 million b/d, the highest level for the month since 2007. Demand increased for jet fuel 0.6% and for distillate 5.2% from the prior year to average 1.4 million b/d and just below 4 million b/d, respectively.
Residual fuel deliveries fell 13.5% over the same period to an all-time record low of 186,000 b/d, and demand for other oils fell 1.1% over last year’s levels.
Gasoline production rose to a new all-time high of 10.3 million b/d—the first time ever above 10 million b/d—on an increase of 10.9% over May 2013 output. Production of distillate fuel reached the highest output level ever recorded for the month of May. The 5% increase from the prior year lifted distillate production to just more than 5 million b/d.
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At 2.5 million barrels per day, Nigeria is Africa's largest oil producer
ndia has taken over from the US as the largest importer of Nigerian oil, the West African state's national oil company has said.
The US has "drastically reduced" its demand for Nigeria's crude oil in recent months, the Nigerian National Oil Corporation said.
The country is currently buying about 250,000 barrels a day.
India now buys considerably more - about 30% of the country's 2.5 million barrels of production.
US demand for imported oil has fallen sharply because of increasing domestic shale gas and oil production - so much so that the International Energy Agency and oil giant BP both forecast that the country will be largely energy independent by 2035.
