By Grant Smith May 13, 2014 5:50 PM GMT+0700 0 Comments Email Print
The global oil market will remain “fairly balanced” in 2014 as supply disruptions including delays at the Kashagan field in Kazakhstan prevent the build-up of a surplus, according to OPEC.
The Organization of Petroleum Exporting Countries, responsible for 40 percent of the world’s oil supply, estimates it will need to provide an average of 29.8 million barrels a day this year, about 100,000 a day more than the group projected last month. OPEC raised the estimate because of lower output from natural gas liquids, the group’s Vienna-based research department said in its monthly market report today.
Growth in non-OPEC production will be capped at 1.38 million barrels a day this year amid declining output in the North Sea and a gas leak at Kashagan, it said.
“Unexpected outages such as at the Kashaghan field, which has pushed back production to 2016, are likely to limit further growth in non-OPEC supply,” the group said. “Along with the ongoing increase in non-OPEC supply, current OPEC production will contribute to fully meet expected demand, resulting in a fairly balanced market this year.”
Brent crude futures have been little changed this year, trading near $109 a barrel in London today, as prolonged disruption to Libyan supplies and concerns that the Ukraine crisis may crimp Russian oil exports is countered by signs of slowing economic growth in emerging economies such as China. Production from Kazakhstan’s $48 billion Kashagan development, the world’s largest discovery in 40 years, has been halted by a gas leak.
April Production
Output from OPEC’s 12 members increased by 130,800 barrels a day in April to 29.59 million a day, driven by a recovery in Iraqi supplies, OPEC said, citing secondary sources. Iraq’s production climbed by 102,100 barrels a day to 3.3 million. Saudi Arabia, the group’s biggest member and de facto leader, boosted supplies by 22,500 barrels a day in April to 9.58 million.
Supplies from Libya, which has been paralyzed by strikes at export terminals and political demonstrations at oilfields, remained little changed last month at 238,000 barrels a day.
Total output is about 400,000 barrels a day below the group’s formal target of 30 million. The organization will meet to review this figure at its next meeting in Vienna on June 11. OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
The call-on-OPEC is estimated at 30.7 million barrels a day in the third quarter, when summer demand for driving fuels is at its highest, requiring the group to raise output by about 1.1 million barrels a day from current levels, the report indicated.
OPEC kept its forecast for global oil demand in 2014 unchanged. World consumption will advance by 1.1 million barrels a day, or 1.3 percent, to average 91.15 million a day, according to the report.
The International Energy Agency, the Paris-based adviser to oil-consuming nations, will release its monthly report with forecasts of supply and demand on May 15.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley, Lars Paulsson
By Adam Williams May 13, 2014 11:01 AM GMT+0700 4 Comments Email Print
http://www.bloomberg.com/image/iO7lOJpF2.JQ.jpg
When Mexican President Enrique Pena Nieto arrived at the March 18 rally, he was greeted like a rock star. Hundreds of local residents and employees of Petroleos Mexicanos had gathered in the eastern state of Veracruz for the annual celebration of the 1938 expropriation of foreign oil wells and the founding of Pemex. The workers, all dressed in white shirts and guayaberas bearing the Pemex logo, leaned over waist-high barriers to try to touch the photogenic president. They cheered and sang, breaking frequently into a chant normally reserved for the national soccer team, Bloomberg Markets will report in its June issue.
An outsider would never have guessed that, just three months earlier, Pena Nieto, 47, had signed into law a constitutional amendment that Pemex, its powerful union and its political backers had fought against for decades. The amendment opens up Mexican oil and gas fields to foreign and private investment for the first time in 76 years.
Inviting Foreigners to Boost Drilling Hits a Nerve
After signing the constitutional change into law on Dec. 20, Pena Nieto told his countrymen that it would be a boon. “We’ve decided to overcome the myths and taboos to take a great leap into the future,” he said. “A new history begins for our country.”
This story appears in the June 2014 issue of Bloomberg Markets.
Yet at the March rally, he amplified the cheers by assuring the Pemex workers that none of their 153,000 colleagues would lose their jobs.
Petrostate
Pemex has always functioned as an arm of the state. It’s the biggest Mexican company and the country’s biggest taxpayer. In the final quarter of 2013, Pemex paid 50 percent of its revenue -- $16 billion -- in taxes to the federal government, which uses the state-owned company to fund a third of its budget.
Pemex posted a loss of $5.8 billion for the quarter, bringing its total loss for 2013 to $13 billion. The loss for the first quarter of 2014 was $2.74 billion.
Congress approved a broad tax overhaul last year designed to increase collection of personal income and consumption taxes to begin to wean the government off Pemex revenues. Yet Pemex Chief Financial Officer Mario Beauregard says company taxes will not be cut this year. And it will likely be years before enough new tax revenue from foreign oil drilling comes in to replace the lost tax levies from Pemex.
Edgar Rangel, commissioner of Mexico’s National Hydrocarbons Commission, which oversees and regulates oil exploration, predicts that the opening of the country’s energy industry will bring in up to $30 billion of foreign investment annually and create as many as 2 million jobs.
The law’s approval prompted Moody’s Investors Service in February to raise Mexico’s credit rating one level to A3 from Baa1, saying it will help add about 1 percentage point to the country’s annual gross domestic product growth by 2018.
For Pemex, the constitutional change will mean it gets much-needed help in increasing its oil production, which has declined for nine consecutive years and, as of the end of March, reached its lowest monthly level since 1995.
For foreign oil giants such as Chevron Corp. (CVX), Exxon Mobil Corp. (XOM) and Royal Dutch Shell Plc (RDSA), it means they’ll get access to untapped oil reserves that Pemex says could total 113 billion barrels, including 26.6 billion in the deep waters of the Gulf of Mexico. At current prices, the reserves are worth $11 trillion. The government says foreign investment together with the revamping of Pemex’s aging infrastructure will drive up production to 4 million barrels a day by 2025 from 2.47 million at the end of March.
‘Shale Frenzy’
Pemex Chief Executive Officer Emilio Lozoya says Mexico also boasts 13 trillion cubic meters (460 trillion cubic feet) of unexploited shale gas in the rock formations beneath its soil, worth an estimated $2.2 trillion. Kent Moors, executive chair of research firm Global Energy Symposium, says five major fields identified so far could produce a “shale frenzy” among private companies.
The foreign incursion into the oil and gas fields will begin later this year, after the Mexican Congress passes secondary legislation, introduced in early May. The measure calls for foreign drillers to use Mexican suppliers for 25 percent of equipment and services by 2025. It proposes that the tax Pemex pays to the government be reduced over 10 years. The bill also relieves the Finance Ministry of its duty to approve the company’s budget. The sale of gasoline, now a Pemex monopoly, would gradually open to competition.
‘All the Cake’
Lourdes Melgar, Mexico’s deputy energy minister, says Pemex likely lacks the financial and technical resources to operate all of its existing fields efficiently, much less expand into new ones. Nevertheless, the company has told the government it wants to maintain control of most of its current operations, with any private companies joining it as junior partners.
“Pemex wants to eat all the cake, but it can’t,” Melgar said at a press conference in March. “I think there will be gray areas where we will have to ask Pemex for more information and, at some point, tell them, ‘This one won’t work or you can’t have these two things.’”
Mexico’s near-term goal is to raise production 20 percent, to more than 3 million barrels a day, by 2018. Delays in passage of the implementing legislation and the awarding of contracts makes that unlikely, says Maria Jose Hernandez, a Washington-based associate at global risk consulting firm Eurasia Group.
“Initial increases in oil production volumes could be seen in 2016, but at very small levels,” Hernandez says.
Government Decouple
Pena Nieto’s plan is for Pemex to cease to be, in effect, a government department and function like a for-profit company. To further that goal, the government plans to allocate $28 billion to Pemex for oil exploration and production in 2014.
As part of the overhaul, the National Union of Mexican Oil Workers will relinquish its five seats on the Pemex board. The board will be trimmed to 10 members from 15 and will include five government officials selected by the president and five independent members, according to Pemex board member Fluvio Ruiz.
The models for a new Pemex, CEO Lozoya says, are Petroleo Brasileiro SA (PETR4), the Brazilian oil major that opened to foreign competition in 1997; Norway’s Statoil ASA (STL); and Colombia’s Ecopetrol SA (ECOPETL), which has seen production almost double since state control was limited in 2003.
“When you are the last one to the party, you can learn from other people’s mistakes,” says Juan Carlos Gay, a partner at Bain & Co. in London who has studied Mexico’s oil industry. “One thing that Pemex and the Mexican government should leverage is the way to use joint ventures in a smart way, which includes bringing in and developing the expertise and capabilities of other companies.”
1938 Seizure
Pemex was born in a surge of nationalist sentiment during the presidency of Lazaro Cardenas (1934 to 1940). On March 18, 1938, Cardenas nationalized the country’s oil fields and seized the assets of Royal Dutch Shell and Standard Oil Co., at the time major suppliers of oil to the U.S. The government monopoly on petroleum production was later enshrined in the constitution.
The Pena Nieto government’s proposal to repeal that provision sent thousands of protesters into the streets of Mexico City last year. The legislation passed only after promises by the government and company executives that Pemex workers wouldn’t lose their jobs and that the move would boost Mexico’s slowing economy, which expanded 1.1 percent in 2013, far below forecasts.
The rapid fall in Pemex oil production helped drive the decision. Mexico became a major oil exporter after the 1971 discovery of one of the world’s biggest oil fields in the shallow waters of the Bay of Campeche. The field was named Cantarell after fisherman Rudesindo Cantarell, who alerted Pemex when he saw oil in the water.
Falling Production
Cantarell’s output has fallen almost 90 percent since it began production in 1979. That would have been a catastrophe for the government had the price of oil not increased to more than $100 a barrel during the past decade.
The failure of Pemex and its government overseers to invest in the latest drilling and exploration technology is partly to blame for the decline. Pemex could have earned an average of 48 percent in additional revenue each year from 2001 to 2009 if it operated more efficiently, according to a 2011 study of Mexico’s oil industry by the University of Oxford and the James A. Baker III Institute for Public Policy at Rice University in Houston.
A critical issue for the future of Pemex is manpower. The company is overstaffed with unskilled workers whose jobs are guaranteed for life and understaffed with engineers and other skilled laborers, says Marcelo Mereles, a former Pemex director who’s now a partner at EnergeA, an energy consulting firm in Mexico City.
‘Cultural Handicap’
“Pemex continues to have a very big cultural handicap,” Mereles says. “The government has converted Pemex into a very bureaucratic company that operates like a government office and not like an international oil company.”
Pemex’s ability to compete with foreign companies will also be hampered by deficiencies in Mexico’s educational system.
“We’ve all heard the excellent news about Mexico’s great potential in the energy sector, but the question is, who’s going to do it?” Rangel of the hydrocarbons commission said in a March 12 speech. “We have very few universities committed to oil production, petrochemicals, chemical engineering or physics. And we produce very few engineers. Many of the engineers we produce in those fields work anywhere else but Mexico.”
Raising Pay
That’s because until now a petroleum engineer’s main potential employer in Mexico was Pemex, and he could earn more money abroad. The legislation implementing the constitutional change will give Pemex “the capacity to compensate our workers with industry salaries,” Lozoya says.
Whoever does the drilling, one area of greatest potential for Mexico is its shale deposits. Victor Herrera, managing director for Latin America at Standard & Poor’s, says that the petroleum embedded in shale is the “low-hanging fruit” of Mexico’s energy overhaul, and new exploration could come as soon as the second half of this year.
“We could see a lot of investment coming very quickly from Texas,” Herrera says.
That’s because one so-far underexplored shale formation lies in northern Mexico across the border from Texas’s prolific Eagle Ford field. Oil output at Eagle Ford rose to 1.2 million barrels a day last year from about 50,000 in 2007, according to data compiled by Bloomberg New Energy Finance.
Fracturing Shale
The Mexican portion of the underground formation holds an estimated 3 billion barrels of oil and 4.2 trillion cubic meters of natural gas, according to Pemex. Company officials say it will need outside help to exploit any gas finds.
Another area where Mexico needs outside expertise is deep-water drilling. Pemex has only four deepwater platforms in the gulf, compared with 53 on the U.S. side, according to Houston-based oil services company Baker Hughes Inc. (BHI) Foreign companies will partner with Pemex and will likely be permitted to drill independently in Mexico’s deep waters, Lozoya says.
“The energy reform is the most important economic change in Mexico in the last 50 years,” President Pena Nieto told the Pemex employees on March 18.
The question is how quickly Pemex itself can benefit from it.
To contact the reporter on this story: Adam Williams in Mexico City at awilliams111@bloomberg.net
To contact the editors responsible for this story: Michael Serrill at mserrill@bloomberg.net James Att
By Nicole Friedman
NEW YORK--U.S. oil prices rose Tuesday after Secretary of Energy Ernest Moniz said the nation is considering lifting its ban on most crude-oil exports, which would open up new markets for the growing supplies of U.S. oil.
Light, sweet crude for June delivery rose as much as 0.8% in the four hours after Moniz's comments, during a normally quiet time for trading on the New York Mercantile Exchange. Futures recently traded up 60 cents, or 0.6%, at $101.19 a barrel.
Brent crude on ICE Futures Europe rose 24 cents, or 0.2%, to $108.65 a barrel.
U.S. oil production has boomed in recent years as hydraulic fracturing and horizontal drilling techniques enabled energy producers to access supplies previously trapped in shale-oil fields. Domestic inventories of crude oil are near all-time highs, according to U.S. Energy Information Administration weekly data going back to 1982.
Most of the oil produced in the U.S. is light and sweet, meaning it has a low sulfur content and low density. However, many U.S. refineries have geared their production toward processing heavy oil from Latin America and Canada.
"The issue of crude oil exports is under consideration," Mr. Moniz said at a media briefing Tuesday after a two-day energy conference in Seoul. "A driver for this consideration is that the nature of the oil we're producing may not be well matched to our current refinery capacity." He said a study of the subject, including multiple agencies, is currently taking place.
Moniz's comments follow similar remarks made last week by John Podesta, adviser to President Barack Obama, as reported by the Financial Times.
"It definitely, I think, put some life into the market" Tuesday morning, said Carl Larry, analyst at Oil Outlooks & Opinions in Houston. "Especially with high crude stocks here in America and demand not growing as quickly as some would think ... sending out oil is not a bad idea."
Any discussions over potential exports will likely be drawn-out and politically fraught.
Rising U.S. production has kept benchmark domestic prices well below international oil prices in recent years. Many industries have benefited from lower oil prices, and won't be eager to compete with foreign buyers.
While most imports of light, sweet oil to the U.S. have halted amid rising domestic production, the U.S. is still importing heavier grades of oil from other countries.
The U.S. remains the No. 1 net importer of crude oil, according to the EIA. Citigroup analysts said Tuesday that Chinese is poised to surpass the U.S. as top importer by the end of the second quarter.
The U.S. does allow minimal exports of crude oil, including "re-exports" of oil that has been imported into the U.S., though producers require special permits to re-export.
More than 50 re-export licenses have been granted, Barclays said in a report released last week, and the bank expects more to be granted in the future. The re-exports of Canadian oil offer a "viable emergency release valve" that could keep U.S. Gulf Coast oil supplies from overcapacity, the bank said.
Earlier this month, the EIA proposed gathering state-level production information for 19 states and the Gulf of Mexico. The new data would track the quality of the oil produced, which some analysts said could inform the export debate by revealing how the oil being drilled around the country matches up with the nation's refining capacity. The EIA will collect public comments on the proposed change until July 7.
Front-month June reformulated gasoline blendstock, or RBOB, recently rose 0.55 cent, or 0.2%, to $2.9201 a gallon. June diesel rose 1.38 cents, or 0.5%, to $2.9323 a gallon.
--In-Soo Nam and Sarah Kent contributed to this report
Write to Nicole Friedman at nicole.friedman@wsj.com
KHOBAR, Saudi Arabia Tue May 13, 2014 9:57am EDT
May 13 (Reuters) - Saudi Basic Industries Corp (SABIC) expects its planned oil-to-chemicals plant to start operations by the end of 2020, it said on Tuesday.
SABIC, one of the world's largest petrochemical groups, said it expects to use around 10 million tonnes of crude oil annually as feedstock for the plant. That is equivalent to 200,000 barrels per day, or an average-sized oil refinery.
Development of the Saudi petrochemical sector is part of Riyadh's strategy for diversifying the economy away from heavy dependence on crude export revenues.
In its first public announcement on the project, SABIC did not say where the complex would be located, how much it would pay for the oil or if the crude would be subsidised. It did not specify which type of the crude it would use either.
In a statement to the stock exchange, SABIC said it was in the final stages of preliminary studies for the industrial complex in Saudi Arabia which will help provide around 100,000 direct and indirect jobs for Saudis.
Oil Minister Ali al-Naimi said in March the kingdom would build its first plant able to turn crude oil directly into chemicals without having to refine it first.
He said the plant would be located in Yanbu, Saudi Arabia's second-largest industrial hub on the West coast.
It is not clear if the development of such a project is linked to finding alternative liquid feedstock to help meet a shortage of gas supplies, which SABIC blamed last month for limiting its expansion plans within Saudi Arabia.
Chemical companies usually process gas or refined oil products into petrochemicals, such as ethylene and propylene, that are then used to make plastics and other products. Using oil as a feedstock is also more expensive than cracking gas.
ExxonMobil started up the world's first plant that processes crude oil into chemicals in Singapore last year.
State-run oil giant Saudi Aramco has been researching ways to make ethylene and propylene directly from oil for years to grow its petrochemicals business. (Reporting by Reem Shamseddine; Editing by Mark Potter)
The Chinese government is adopting a broad range of policies, including improvements of fuel efficiency and the promotion of alternative-fuel vehicles (AFVs), to curb the country’s escalating oil demand and oil imports, according to an analysis of the US Energy Information Administration.
Driven by unprecedented motorization since the 1990s, consumption of gasoline in China has risen from 900,000 b/d in 2003 to more than 2 million b/d in 2013. Rising oil demand is increasing the country’s reliance on oil imports. Since 2009, China has been importing more than half of its petroleum needs.
In response to growing oil usage and imports, the Chinese government released in 2012 the Energy Saving and New Energy Vehicle Plan for 2012 to 2020. Under the plan, average passenger car fuel economy is targeted to increase to 34 mpg by 2015 and 47 mpg by 2020.
In its 12th and current 5-Year Plan, the Chinese government also launched a strategy to promote new energy vehicles (NEV, vehicles that are partially or fully powered by electricity) and to support its national automobile industry to mass-produce NEVs.
“The government plans to invest an estimated $15 billion in [AFVs] during the next 10 years. The national target for cumulative production and sales of electric and plug-in hybrid vehicles is 500,000 units by 2015. The NEV target for 2020, originally set at 5 million vehicles, was recently scaled back to 1 million vehicles,” EIA said.
The Chinese government has offered many financial incentives to meet NEV penetration targets. They include some $4 billion allocated for energy-saving products, primarily NEV and household appliances. In 2012 the Chinese Ministry of Finance announced it would provide annual subsidies up to 2 billion yuan to support NEV manufacturing. In September 2013, the government announced additional subsidies that will support the growth of NEV ownership through 2015.
Subsidies from the central government are often matched by local subsidies. “For example, in Beijing, the central government subsidy of 60,000 yuan is matched by a subsidy of equal amount from the city of Beijing. The Shenzhen government offers one of the highest subsidies for electric vehicles in the country—120,000 yuan/passenger vehicle—reducing the price of such vehicles by more than half,” EIA said.
In addition to financial incentives, some cities offer other incentives, including free license plates for NEVs and exemptions from vehicle license plate quota systems.
“Shanghai (where a license plate can cost as much or more than an entry-level domestically manufactured car) offered free license plates for 20,000 electric vehicles purchased before the end of 2013. Guangzhou offers 12,000 free plates allocated by lottery, and Beijing offers electric vehicles an exemption from the vehicle license lottery, which prospective owners of gasoline-fueled automobiles are required to enter,” EIA said.
However, despite many incentives, electric vehicles sales to date have been minimal. NEV sales account for less than 1% of total vehicle sales in China, which in 2013 remained the world’s largest vehicle sales market for the fifth consecutive year. According to China Daily, as of March 2013 an estimated 39,800 electric vehicles were on the road, about 80% of which are used for public transport.
According to the analysis of EIA, some of the reasons behind low sales of NEVs to date are high vehicle costs despite government subsidies, inadequate charging infrastructure, limited driving range compared with conventional internal combustion engine vehicles, lack of a national industry standard for charging connectors, consumer education and acceptance of the new technology, and vehicle safety issues, among others
By Isis Almeida May 14, 2014 6:00 AM GMT+0700 0 Comments Email Print
European natural gas traders are betting Russia’s economy can’t afford to lose more than $100 billion if the crisis in Ukraine escalates, reducing the odds of a long-lasting supply cut to the former Soviet nation.
Gas futures in the U.K., Europe’s biggest market, declined 19 percent since Russia invaded Crimea in February and tumbled last week to the lowest since 2010. An escalation of the conflict with Ukraine could cost Russia $115 billion on average in 2015, or more than 3 percent of its gross domestic product, according to IHS Inc.
Expanding sanctions from the U.S. and European Union threaten Russia’s economy, which the International Monetary Fund says is entering a recession. The world’s biggest energy exporter is struggling to raise investments to stimulate growth as ties with the U.S. and the EU deteriorate, sparking capital flight and a selloff of ruble assets.
“The Russian economy is already suffering from the current developments,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said yesterday by e-mail. “At this stage, most people do not think that energy will become embroiled in the conflict as it raises the bar several notches in terms of risk. On that basis the reaction has been minimal.”
U.K. gas fell to 44.7 pence a therm ($7.53 a million British thermal units) on May 7 on the ICE Futures Europe exchange in London, the lowest for a front-month contract since Sept. 28, 2010. The mildest winter in seven years left inventories more than half full, damping demand for injections before the winter heating season. The contract closed at 45.75 pence yesterday.
Historical Volatility
The 60-day historical volatility, a measure of price swings, dropped yesterday even as OAO Gazprom billed Ukraine for 114 million cubic meters of gas a day in June, or about $1.66 billion, assuming a price of $485 a thousand cubic meters charged since April. Ukraine’s pipelines carry about 15 percent of Europe’s gas needs. Supplies will stop on June 3 unless Gazprom receives some payment by June 2, according to Sergei Kupriyanov, a spokesman for Gazprom. Previous disputes between the two nations disrupted flows to Europe in 2006 and 2009.
“We have seen this scenario played out a few times over recent years, threats and counter threats, always getting to a resolution,” Stuart Jones, head of the European gas desk at London-based brokerage Tradition Financial Services Ltd., said yesterday by e-mail. “This time may be different with the military and high level political involvement in the area. I believe the fundamental market bias remains bearish.”
90 Days
Europe can cope with a Ukrainian supply disruption for 90 days provided there are “reasonably high” inventories, cooperation between member states and normal flows of Russian gas through routes other than Ukraine, consultant Poeyry Oyj said in an e-mailed report last week. Storage units in the EU were 54.5 percent full as of yesterday, the highest level since at least 2007, according to Gas Infrastructure Europe, a lobby group in Brussels.
“The European gas market is currently in a comfortable position, with ample stocks and little heating-related demand,” said Lysu Paez-Cortez, an analyst at Natixis SA in Paris. “We can’t forget that the Nord Stream pipeline can now alleviate part of any gas supply disruption linked to a Ukrainian cut, unlike in 2009,” she said, referring to a direct link under the Baltic Sea from Russia to Germany that opened in 2011.
Russia’s economy could weaken further on tougher sanctions, falling investor confidence and a deteriorating political scenario, IHS said. The conflict could also cut European economic growth by 0.15 percent, it said yesterday by e-mail.
Capital Outflow
Russian capital outflow was $50.6 billion in the first quarter alone, compared with $63 billion last year. The IMF cut the country’s economic forecast for the second time in less than a month on April 30, predicting full-year growth will slow to 0.2 percent from 1.3 percent last year and citing geopolitical risks and the need for tighter monetary policy.
European gas prices will probably keep falling over the next month or two barring any real disruptions to supplies, Milan Hedstrom, a Vienna-based self-employed gas trader who has been buying and selling commodities for 10 years, said yesterday by e-mail. Any disruption will be “short-lived,” he said.
Europe can cope with disruptions for “several weeks” and supply cuts are unlikely to be long-lasting, Hansen said.
Russia’s state-controlled Gazprom is preparing a supply contract with China to be signed when President Vladimir Putin visits the Asian nation next week, Deputy Energy Minister Anatoly Yanovsky said May 12.
“It’s a lose-lose situation if Russia cuts gas supplies to Ukraine,” Paez-Cortez said. “Even if Russia is about to sign a long-waited gas contract with China, in the short term it has no interest in cutting its supplies to Europe.”
To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net
To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Rob Verdonck, Dan Stets
By Daniel J. Graeber | May 13, 2014 at 9:16 AM | 1 Comment
http://cdn.ph.upi.com/sv/b/upi/UPI7911399985762/2014/1/be20f5d03ce3d501f62858ee6472cbd3/Cairo-BP-to-invest-big-in-Egypt.jpg
CAIRO, May 13 (UPI) --British energy company BP aims to invest about $1.5 billion in the Egyptian oil and gas sector, the Egyptian government said.
State-run media in Egypt said Monday representatives from BP met Prime Minister Ibrahim Mahlab and Oil Minister Sherif Ismal in Cairo to discuss work in the Egyptian energy sector. The government said the delegation welcomed Egyptian efforts to overcome "obstacles facing companies working on the Egyptian market."
BP's counterpart, BG Group, expressed concern about its future operations in Egypt, citing continued diversions of natural gas to the domestic market. No cargoes of liquefied natural gas left Egypt during the first quarter of 2014 and the company said it produced 66,000 barrels of oil equivalent per day in Egypt, down 35 percent from fourth quarter 2013.
The Egyptian government said BP is investing $1.5 billion in the oil and gas sector during the second half of the year. There was no public statement from BP about the Egyptian government's statement.
Egypt expects to draw in international investors to an auction for nearly two dozen exploration licenses set for July.
BAKU -- The last time Azerbaijan found itself at the center of geopolitics in a major way was when Nazi Germany was hoping to take over the important oil wells in this country. The fact that Germany was unable to grab the Azerbaijani oil wells was not for lack of trying on Adolf Hitler's part. Part of the reason for the Battle of Stalingrad was to secure the Baku oil fields.
Azerbaijan, at the time part of the Soviet Union, suffered tremendously because of the Second World War, known in the former Soviet space as the Great Patriotic War. It lost 210,000 soldiers and 90,000 civilians out of a total population of just over three million people, almost 10 percent of its population.
The memory of this tragedy is never too far from the minds of people in this region, who still recall the years of war, partial occupation and years of subjugation that followed, as the Cold War settled in and they found themselves on the wrong side of the Iron Curtain.
Today Azerbaijan is in the forefront of global politics once again, albeit in a much more favorable position. The recent turmoil in Ukraine has repercussions far beyond its borders.
Europeans need Russia's gas, or failing that, they need to replace it. And the solution needs to be found sooner rather than later.
In the immediate future, the only two countries able to provide the amount of gas needed to replace Russian supplies are Turkmenistan and, to a lesser degree, Azerbaijan.
But Turkmenistan’s gas would need to pass through the Caspian Sea, via the Trans-Caspian pipeline, through Azerbaijan and onto Georgia, Turkey and only then to its final destinations.
This can only happen if Azerbaijan is willing to risk displeasing Moscow, and if Russia doesn’t overreact if Baku does.
Azerbaijan today holds particularly strategic importance to the Western alliance. Its oil and gas reserves are squarely at the center of the region’s politics and policies.
It might be worth reminding policymakers in the United States that the Russian border is only about 100 miles from Baku.
Relations between Washington and Baku are cordial but could be better; Washington wants to see more evidence of democratic progress, like civil rights and rule of law.
But after years of living under communist rule, democracy in this part of the world must be spoon-fed and advanced one baby step at a time, while a solid base is built on which to build democratic institutions. Rushing headfirst into a politically unknown future frightens many here, with good cause.
Considering the neighborhood it finds itself in, the risk of destabilization in Azerbaijan is a fear the leadership would rather not have to contend with. Iran to one side, to the other Armenia – with which Azerbaijan is, for all intents and purposes, in a state of war -- and then there is Russia, Armenia’s close ally.
The former Soviet countries of Central Asia, with their mélange of ethnicities, nationalities, religions and political leanings, are potentially explosive minefields, and one must tread very carefully.
Even so, while Russian is still widely spoken in Azerbaijan, and Russian culture is still very much alive, it is not difficult to see that people’s hearts lean very much towards the West and America.
Anyone in doubt of how much influence the United States has in this part of the world should simply look at the recent Eurovision Song Contest: Contestants from Armenia, Azerbaijan, Belarus, Hungary, Romania, Slovenia, Ukraine, and even Russia, all chose to sing in English, instead of their native languages.
By. Claude Salhani of Oilprice.com
By Andy Tully | Tue, 13 May 2014 20:43 | 0
Gazprom has said that Ukraine needs to double the amount of its stored natural gas to have enough for the coming winter.
Vitaly Markelov, the deputy chief executive officer of the Russian gas monopoly, told reporters at a May 13 news conference that Ukraine now has about 9 billion cubic meters in storage. “To pass through autumn and winter periods normally,” he said, “we estimate that [Ukraine] needs [a total of] around 18.5 bcm (billion cubic meters).”
The Russian government’s majority-owned Gazprom has threatened to cut off Ukraine’s gas supply and refuses to negotiate with Kiev about the price of gas, unless Ukraine pays for the gas it received in April. That payment is past due, and as a result, Gazprom says Ukraine must pay in advance for any gas it needs, effective June 1.
In 2009, Ukraine contracted to buy a fixed amount of gas from Gazprom at a price of $485 per 1,000 cubic meters, the highest price for gas paid by any European customer. Last year, Gazprom reduced the price to $268.50 per 1,000 cubic meters after Viktor Yanukovich, who was then Ukraine’s president, rejected closer ties with the European Union.
But Yanukovich was ousted in February, and Gazprom restored the older, higher price.
Gazprom CEO Alexei Miller says the company would notify Ukraine soon that if it does not pay the April bill by June 2, it will receive no more gas from Russia, starting the very next day. He made the comment May 12 during a meeting with Russian Prime Minister Dmitri Medvedev.
Medvedev agreed, saying, “It’s time to stop coddling [the Ukrainians], notify them tomorrow and move to pre-payments.”
The problem could affect more than Ukraine in the coming winter. Disagreements between Russia and Ukraine have led to cuts in gas supplies to all of Europe in the past 10 years. About half the gas that Russia imports to Europe goes through Ukraine. A Gazprom official said May 13 that gas is continuing to flow to Europe through Ukraine.
Meantime, the European Union is imposing more sanctions on Russian companies and individuals in response to Russia’s March decision to annex Ukraine’s Crimean Peninsula. The new sanctions include denial of visas to 13 people and a freeze on their assets in EU banks. The new penalties also freeze the assets of two companies in Crimea.
Europe has been reluctant to impose stronger sanctions on Russia. But France's European affairs minister, Harlem Desir, said more sanctions might be imposed if Russia is found to be interfering with the presidential elections in Ukraine, scheduled for May 25.
So far, the EU has put 61 people on its sanctions list.
Russia countered that such sanctions wouldn’t help end the dispute with Ukraine, but in fact may make matters worse. The Foreign Ministry in Moscow issued a statement saying that the recent votes favoring self-rule in two predominantly Russian-speaking Ukrainian regions should awaken Kiev to “the depth of the crisis” in Ukraine.
The statement didn’t explicitly support independence Luhansk and Donetsk, but said the referendums in these regions demonstrate that the government in Kiev should open talks with dissidents there.
"Moscow hopes ... the EU and United States will use their influence on the current leadership in Kiev so that issues of state structure and respect for the rights of regions are discussed soon -- in any case before the election scheduled for May 25," the statement said.
By Andy Tully of Oilprice.com
By Daniel J. Graeber | Tue, 13 May 2014 21:57 | 0
U.S. crude oil imports are down 23 percent since production from tight oil plays started to increase in 2008. While some industry officials and observers wonder if the U.S. should position itself as an energy superpower, the debate may be influenced in large part by domestic refiners.
"The issue of crude oil exports is under consideration," U.S. Energy Secretary Ernest Moniz said from a two-day energy summit in South Korea.
U.S. oil exports are restricted by legislation enacted in response to an oil embargo from Arab members of the Organization of Petroleum Exporting Countries (OPEC) in the 1970s.
OPEC, in its May market report, said total U.S. crude oil imports dropped from an average 10.08 million barrels per day in January 2008 to 7.76 million bpd in December, 2013. That decline is in part a response to the increase in crude oil production from shale reserve areas in the United States. Of the six most prolific shale basins in the United States, only the Haynesville play is expected to hold its production level steady; the other five should see an increase.
The U.S. Energy Information Administration (EIA) said the Eagle Ford basin in southern Texas and the Permian basin, which straddles the Texas border with New Mexico, should post a combined 48,000 bpd production increase in June. Next month, the Bakken play, which sits on the border between North Dakota and Montana, should see production increase by 22,000 bpd to reach 1.07 million bpd, EIA said.
Six shale basins -- Permian, Eagle Ford, Bakken, Niobrara, Haynesville and Marcellus -- accounted for almost 90 percent of oil production growth since 2011. OPEC, in its market report, said North American oil production has increased five years in a row and U.S. oil production is now at its highest rate since 1972.
With oil output accelerating, strong cases have been made for and against reversing the ban.
In April, Erik Milito, director of upstream operations for the American Petroleum Institute, said oil exports would make the United States a "global energy superpower." But Leo Gerard, president of the United Steelworks lobby, said the previous month that lifting the ban would harm domestic refiners who may be forced to pay higher prices for domestic oil.
Right now, U.S. refiners who utilize regional crude enjoy a lower price than for oil sourced from overseas markets. Since January, when TransCanada's Marketlink pipeline came online, the gap between the price for West Texas Intermediate, the U.S. benchmark, and Brent, the overseas benchmark, has narrowed, however, and that discount in price is now lower.
U.S. oil production is on pace to increase, though the forecast for WTI is uncertain. As of May 13, it was holding steady about $100 per barrel. Moniz, the U.S. energy secretary, said several agencies are studying what role U.S. oil should play on the international stage. For now, however, it may be more of a downstream concern.
"A driver for this consideration is that the nature of the oil we're producing may not be well matched to our current refinery capacity," he said.
So while global influence is always a concern for Washington, issues closer to home may be the deciding factor for policymaking in the shale era.
By Daniel J. Graeber of Oilprice.com
By Kingsley Ighomwenghian, DEPUTY EDITOR (With agency report)
The 12-member Organisation of Petroleum Exporting Countries (OPEC) will on June 11 meet in Vienna, Austria, to review its total production output, which currently 400,000 barrels a day fall below formal target of 30 million.
A report by Bloomberg on Tuesday said the cartel’s output rose 130,800 barrels daily in April to 29.59 million, driven by a recovery in Iraqi supplies, quoting OPEC as citing secondary sources.
Iraq’s production climbed by 102,100 barrels a day to 3.3 million.
Saudi Arabia, the group’s biggest member and de facto leader, boosted supplies by 22,500 barrels a day in April to 9.58 million.
Supplies from Libya, which has been paralysed by strikes at export terminals and political demonstrations at oilfields, remained little changed last month at 238,000 barrels a day.
The June 11 meeting by OPEC’s members – Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela – is coming ahead of tomorrow’s release of the monthly report by the International Energy Agency (IEA).
The IEA is the Paris-based agency that advises oil-consuming nations on forecast of supply and demand.
The call-on-OPEC is estimated at 30.7 million barrels a day in the third quarter, when summer demand for driving fuels is at its highest, requiring the group to raise output by about 1.1 million barrels a day from current levels, the report indicated.
World consumption will advance by 1.1 million barrels a day, or 1.3 per cent, to average 91.15 million a day, according to the report.
In Nigeria, according to official data from the Central Bank of Nigeria (CBN) in its February Economic Report, released recently, oil production continued on the decline, falling to 1.86 million barrels per day in February (including condensates).
According to investment banking group, FBN Capital, in its daily report on May 8, “the level of production quoted for February is more than 500,000 b/d below the assumption in the 2014 budget”.
“The damage to the fiscal outturn and the naira exchange-rate is cushioned in part by the firm international oil price and the portfolio inflows respectively.”
At the June 11 meeting, expectations are that Nigeria would continue for an officially approved increase in production quota from the current 2.5 to three million barrels per day from OPEC, initiated under the Olusegun Obasanjo administration.
The push is coming despite the continued delay in the passage of the Petroleum Industry Bill (PIB), which has stifled fresh investments in the country’s oil and gas sector. International oil companies which are the major operators in the industry are withholding new investments until certain grey areas of the fiscal regime contained in the bill are resolved.
As a result, exploration activities have been stalled, with just maintenance being carried out by the oil companies.
Daily Independent on Monday reported Minister of Petroleum Resources, Deziani Alison-Madueke, as assuring on Friday during a panel discussion at the just concluded World Economic Forum for Africa (WEFA) that the Federal Government could consider the possibility of passing the PIB in phases to unlock potentials of the energy sector.
Alison-Madueke identified major problems of the bill as currently prepared as the fiscal regime issues, adding that “the non-passage of the bill is preventing the industry from being accountable and prone to corruption.”
She agreed that its passage would “tear apart” rent seekers and fraudulent entities in the value chain, thereby ensuring that efficient entities are created, and new state oil company emerges.
By Amy Harder and In-Soo Nam
Top Obama administration officials are considering relaxing federal laws banning crude-oil exports, a move that would upend decades-old policy, cause a political stir in Washington and sway the global oil market.
U.S. Energy Secretary Ernest Moniz said Tuesday that some of the fast-growing supply of domestically produced oil isn't suitable for refining locally, which could warrant re-examining a nearly 40-year-old law that bans exports of most crude.
"The nature of the oil we're producing may not be well-matched to our current refinery capacity," Mr. Moniz said Tuesday after an energy conference in Seoul. The administration is studying the issue, though government officials declined to comment on its scope or timing.
The statements, paired with similar comments by senior Obama counselor John Podesta last week, mark a notable policy shift inside the administration over the past six months.
At an energy conference in December sponsored by Platts, Mr. Moniz responded only broadly to a question about relaxing or lifting the oil-export ban: "There are a lot of issues in the energy space that deserve some new analysis and examination in the context of what is now an energy world that is no longer like the 1970s."
Benchmark U.S. oil prices climbed in the hours after Mr. Moniz's comments and settled up 1.1% Tuesday at $101.70 a barrel on the New York Mercantile Exchange, the highest settlement price since April 24.
U.S. oil production has soared in recent years thanks to the use of hydraulic-fracturing technology, which has unlocked the country's oil- and shale-gas reserves. According to the International Energy Agency, the U.S. will become the world's largest oil producer by about 2020.
But a suite of laws that Congress passed in the 1970s prohibits most crude exports. That has caused some distortions in global and domestic energy markets and damped the price of oil in the U.S. compared with the rest of the world. With all that new crude, domestic bottlenecks have formed in places like North Dakota, transportation hubs like Cushing, Okla., and, most recently, along the Gulf Coast, site of much of the nation's refining capacity.
"We're taking an active look at what the production looks like, particularly in the Eagle Ford in Texas, and whether the current refinery capacity in the U.S. can absorb the capacity increase to refine the product that's being produced," Mr. Podesta told a crowd at the Columbia University's Center on Global Energy Policy on Friday.
The idea of exporting crude has long been contentious in Washington, largely based on the perception that exporting oil would cause domestic gasoline prices to soar. But some oil-producing companies seeking to make bigger profits abroad and a few lawmakers are pushing for change.
"The comments from Podesta and Moniz are encouraging," said Robert Dillon, spokesman for Sen. Lisa Murkowski (R., Alaska), who has loudly called for lifting the oil-export ban. "It's an acknowledgment that they have recognized the potential and are evaluating it. That's certainly a big improvement and moves the needle from what we saw six months ago."
Many domestic industries, including refineries, have benefited from lower oil prices and aren't eager to compete with foreign buyers. Exports of refined oil products like diesel and gasoline don't face any federal restrictions and have increased nearly 60% since 2008. In recent years, many U.S. refineries have geared their production toward processing heavy oil from Latin America and Canada. Now, they are struggling to keep up with the flow of light, sweet shale oil, which requires different production processes, from places like North Dakota and Texas.
"It's clear that action needs to be taken to address crude exports from a policy perspective," said Heather Zichal, who stepped down last October as President Barack Obama's top energy and climate adviser. "But the administration is going to need to build some strategic alliances to tackle the political challenges that also come with this issue."
Some U.S. lawmakers, particularly Democrats, have expressed concern about what oil exports could do to domestic energy prices. "Strife in Ukraine and the Middle East show the continued importance of reducing our reliance on unstable regions for oil," said Sen. Edward Markey (D., Mass.). "It was Congress that put this ban in place, and it should be Congress that decides whether it should ever be changed."
Similar worry has in recent years also clouded the debate over natural-gas exports. Gas-intensive companies, like chemical makers, have said exporting America's now-plentiful gas could jack up domestic prices. Despite that worry, which is shared by some Democratic members of Congress, the Obama administration has moved ahead to approve unilaterally seven large-scale gas-export plans.
Some observers think the administration has avenues to change policy on the oil-export ban without input from Congress.
"I believe the president has a lot of authority here," said Daniel Yergin, vice chairman of global consulting firm IHS, which is releasing a report in the coming weeks on this topic. "A more efficient market will deliver better results because otherwise you have this discount that reflects a big distortion in the market that is turning into a gridlock."
Sarah Kent and Nicole Friedman contributed to this article.
Write to Amy Harder at amy.harder@wsj.com and In-Soo Nam at In-Soo.Nam@wsj.com
