Gulf Keystone Petroleum exported more than 836,000 barrels of crude from the Shaikan oil field in Iraqi Kurdistan during the first quarter and received its first payment for oil exports in May, the London-listed company said.
The payment for Shaikan crude exported by truck to Turkey amounted to $6.4 million, Gulf Keystone said in a presentation on its website. It did not specify whether it received the payment from the Kurdistan Regional Government or directly from buyers of the crude.
“Export deliveries by truck commenced in December 2013 and export sales in late January 2014. In Q1 2014, in excess of 836,000 barrels of oil have been tendered and sold at international prices. Uninterrupted flow of Shaikan crude oil export deliveries continues,” Gulf Keystone said.
The Bermuda-registered company, which operates the Shaikan heavy oil field with a 75% working interest, reiterated that gross output had reached a steady 16,000 b/d and it planned to ramp up to 20,000 b/d by the end of the second quarter, to 40,000 b/d by the end of 2014, and 66,000 b/d by early 2016.
The Phase 1 development plant for Shaikan calls for output to reach 100,000 b/d eventually. Gulf Keystone said attaining that capacity level would require the drilling of about 26 wells and construction of additional production facilities.
In the near term, the company will continue to rely on trucks to carry oil for export. Access to the Kurdistan oil export pipeline would be required for exporting volumes greater than 70,000 b/d, it said.
Gulf Keystone also said it anticipated reaching an agreement with the KRG Ministry of Natural Resources about construction of a 20 kilometer spur pipeline and associated blending facilities to connect Shaikan to the KRG’s recently built 300,000 b/d capacity Kurdistan oil export pipeline.
The company noted that crude exports through the pipeline started in January, despite objections from Iraq’s central government in Baghdad, with the oil currently being stored at the Mediterranean port of Ceyhan, Turkey.
The KRG has proposed marketing crude exports from the Kurdistan region through a Kurdistan Oil Marketing Organization, which the regional government would administer. Gulf Keystone said it expected KOMO to manage all tenders of Kurdish crude export volumes on the basis of competitive international pricing.
The central government in Baghdad opposes the semi-autonomous Kurdistan region’s export plan, claiming sole jurisdiction over crude production and exports from any part of the country. It also deems illegal the KRG’s production sharing contracts with international contractors.
July loadings of Ghana’s flagship crude oil grade Jubilee will fall to 2.85 million barrels, from 3.8 million barrels in June, according to a preliminary copy of the loading schedule seen by Platts Thursday.
Average loadings in July will drop to 91,935 b/d, from 126,666 b/d in June. The July Jubilee loading program consists of three cargoes of 950,000 barrels, compared with four in June. Anadarko Petroleum the July 8-9 cargo, Ghana National Petroleum Corporation the July 19-20, and Tullow Oil the July 29-30, according to the loading schedule.
Jubilee has been selling well in the past few months, with particularly good demand from refiners in South Africa and Taiwan, sources said. Ghana began commercial production at the Jubilee oil field, operated by Tullow Oil in 2010. Output, which has averaged around 110,000 b/d since the beginning of 2013, was expected to increase to 120,000 b/d by mid-2014 after work on the floating production storage and offloading unit is completed.
Tullow has a 49.95% operating interest in the Deepwater Tano license in which the Jubilee field is located. Its partners are Anadarko Petroleum (18%), Kosmos (18%), Ghana National Petroleum Corporation (10%), and Sabre Oil & Gas (4.05%).
NYMEX July crude settled 33 cents lower at $103.74/ barrel Thursday, pulling back from a four-week high on bearish US economic data.
July crude reached a four-week high of $104.29/b Wednesday after US Energy Information Administration data showed a more than 7 million-barrel draw in crude stocks last week. The contract traded in a tight $103.55-$104.22/b range Thursday.
ICE July Brent settled 19 cents lower at $110.36/b after the front-month contract pushed to an 11-week high of $111.04/b on stronger-than-expected Chinese data for May.
Preliminary PMI data from China showed a jump in the index to a five-month high of 49.7, but still below the 50 mark that divides expansion from contraction. Similarly, European PMI data had positive news for Germany, but not for France.
In products, NYMEX June ULSD settled 26 points lower at $2.9507/gal and June RBOB ended 1.16 cents higher at $3.0058/gal.
US initial claims for unemployment benefits rebounded, rising 28,000 to 326,000 for the May 17 reporting week. The previous week’s level was revised 1,000 higher to 298,000 from 297,000, the Department of Labor said.
US employment data was bearish, but futures settled only slightly in the negative as traders took a step back to consider what may come next with regard to the Ukrainian presidential election on Sunday, the latest battles in Libya, and whether US crude oil stocks will continue to drop, said Tim Evans, commodity analyst at Citi Futures Perspective.
Phil Flynn, senior analyst at Price Futures Group, said after a large price move on Wednesday, people were reluctant to drive NYMEX crude much higher. “The market has priced in a lot of geopolitical risk, but really to take prices much higher you will start to see, at some point, diminishing returns and the impact of demand destruction,” Flynn said.
US rail regulators are finding that most shippers are properly classifying Bakken crude cargoes in accordance with hazardous materials rules, the head of the Federal Railroad Administration said. Still, “there are pockets of concern,” FRA Administrator Joseph Szabo said in an interview set to air Sunday on “Platts Energy Week,” and the agency intends to continue its “Bakken Blitz” surprise inspection campaign to ensure crude-by-rail shipments are delivered safely.
“Obviously, any time you’re doing audits or inspections, you’re going to find things,” Szabo said. “This is just part of our comprehensive approach to making sure that we’re talking about the safe delivery of this product.”
The FRA and the Pipelines and Hazardous Materials Safety Administration launched the “Bakken Blitz” last summer, making unannounced inspections on crude shipments ascertain whether highly volatile shale oil is properly labeled on rail manifests and other required documents.
The agencies have said shippers were not always correctly identifying on manifests what kind of crude they were carrying, which could lead to highly volatile crude being shipped in containers not designed to safely store it or emergency responders following the wrong protocols when responding to a spill. The campaign has so far resulted in three fines totaling $93,000 issued to Hess,
Federal regulators are under increasing pressure to tighten safety rules covering crude-by-rail shipments of Bakken crude after several rail accidents in recent months, most notably last July’s derailment of a train in Lac-Megantic, Quebec, that caused an explosion killing 47 people. While the FRA and PHMSA have said the preliminary results of their testing of Bakken crude appears to indicate that it is far more volatile and explosive than other crudes typically shipped by rail, the oil industry has disputed those findings.
Canadian crude oil exports in the first quarter averaged 2.783 million b/d, 81,000 b/d, or 3%, above the first-quarter 2013, according to statistics released Thursday by the Canadian National Energy Board.
The much of the increase was due to a 67,000 b/d year on year rise in heavy crude exports to 1.809 million b/d, the NEB figures showed. Exports of light crude oil rose 14,000 b/d above the Q1 2013 level to 907,000 b/d.
That total, however, was below the 955,000 b/d exported in the fourth quarter last year. Light crude exports peaked at 1.03 million b/d in November.
Though annual and quarterly figures cannot be compared exactly, the 3% increase for the first quarter falls well short of annual growth rates seen over the past several years.
Exports rose 9.1%, 9.4%, and 11.6% year-over-year in 2011, 2012, and 2013, respectively. Overall, Canadian crude exports amount to nearly 250.66 million barrels through the first quarter, the NEB said.
By Dan Murtaugh May 23, 2014 5:00 AM GMT+0700
Gasoline futures advanced to a three-week high in New York as sales of homes in the U.S. rose for the first time in four months, signaling stronger economic growth and fuel demand.
Futures climbed 0.4 percent. Sales of previously owned homes climbed 1.3 percent in April, the National Association of Realtors reported today. Demand for gasoline over the past four weeks grew to 8.94 million barrels a day, the highest level since November and up 5.3 percent from a year earlier. Memorial Day, which falls this year on May 26, marks the unofficial start of the summer driving season.
“There’s more hope the economy is growing,” Carl Larry, president of Oil Outlooks & Opinions LLC in Houston, said in a telephone interview. “Demand is strong, and it’s not looking like it’s going to get any weaker going into the summer holiday.”
June-delivery gasoline rose 1.16 cents to settle at $3.0058 a gallon on the New York Mercantile Exchange. It’s the highest settlement since April 30.
Gasoline’s crack spread versus WTI widened 71 cents to $21.77 a barrel based on July contracts. The premium to Brent climbed 57 cents to $15.15.
The average U.S. pump price rose 0.7 cent to $3.649 a gallon, according to data from Heathrow, Florida-based AAA.
Ultra low sulfur diesel for June delivery fell 0.26 cent to $2.9507 a gallon. The fuel’s crack spread versus West Texas Intermediate crude widened 22 cents to $20.16 a barrel based on July contracts. The premium to Brent rose 8 cents to $13.54.
To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net
To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Richard Stubbe, Bill Banker
By Mark Shenk May 23, 2014 2:00 AM GMT+0700
U.S. gasoline production climbed to an all-time high in April as fuel exports surged, the American Petroleum Institute said in a monthly report.
Production of gasoline jumped 9.2 percent from a year earlier to a record 9.79 million barrels a day last month, the industry-funded group said today. Output of distillate fuel, a category that includes diesel and heating oil, rose 12 percent to 4.95 million, a record for the month.
“Demand is up for both gasoline and distillate, and refiners are meeting it,” John Felmy, chief economist at the API in Washington, said by phone.
Gasoline consumption jumped 2.7 percent to 9 million barrels a day. Demand for distillates increased 8.8 percent to 4.21 million, the most for April since 2007. Total deliveries of petroleum products, a measure of demand, advanced 2.3 percent to 19 million barrels a day.
Refineries processed 16.1 million barrels a day, a record for April. Production of gasoline, distillate, jet fuel and residual fuel exceeded domestic demand, leading to a gain in exports.
Horizontal drilling and hydraulic fracturing, or fracking, have unlocked supplies from shale formations in the central U.S., including the Bakken in North Dakota and the Eagle Ford in Texas. Most of the output from shale is light, sweet crude, or oil with low density and sulfur content, which yields a high proportion of diesel and gasoline.
Fuel exports rose 16 percent to 3.72 million barrels a day, a record for the month. The all-time high of 4.4 million came in December.
“I suspect that the influx of light, sweet crude from the Bakken and Eagle Ford, along with the gain in refinery input, is behind the rise in gasoline output,” Felmy said. “We’re lucky to be able to export the additional barrels, which helps the refinery sector.”
U.S. crude oil output increased 13 percent to 8.25 million barrels a day, the most for April since 1988. Output of natural gas liquids, a drilling by-product, climbed 9.2 percent to 2.7 million.
Jet fuel consumption dropped 0.5 percent to 1.41 million barrels a day, the second-lowest April level in 19 years. Demand for residual oil, used for commercial and industrial heating, electricity generation and ship propulsion, dropped 13 percent to 248,000 barrels a day.
Total oil and fuel imports rose 0.6 percent in April to 10.1 million barrels a day, the second-lowest total in 17 years.
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 Jim Efstathiou Jr. and Rebecca Penty May 22, 2014 10:37 PM GMT+0700
TransCanada Corp. (TRP) is considering ways to deliver Canadian crude oil by rail to the U.S. as customers of its proposed Keystone XL seek an alternative to the delayed pipeline, Chief Executive Officer Russ Girling said.
The pipeline company is exploring how to modify existing contracts with Keystone XL customers to allow for rail shipments as it awaits U.S. permits for the pipe, Girling said in an interview yesterday at Bloomberg headquarters in New York. A rail option, which may cost twice as much as sending the crude via Keystone, would be an inefficient way of transporting the oil, he said.
The trigger for pushing ahead with rail was the Obama administration’s April 18 announcement that it was delaying a decision on the $5.4 billion project because of a court battle in Nebraska, Girling said. A rail option would have much lower upfront costs than the pipeline -- the company would have to build some infrastructure and may have to buy some tank cars to fulfill customer needs, he said.
“It’s not a path that we had envisioned going down,” said Girling, who still expects to receive permission to build Keystone XL. “It requires modification of our current contractual relationships and that’s basically what our customers have asked us to look at -- what would it cost us to do this and what do we need to do to modify our contracts?”
Output Surge
Keystone XL would link Alberta production with U.S. Gulf Coast refineries, as output from the oil sands is forecast to surge 80 percent from 2012 to 2020, according to the Canadian Association of Petroleum Producers.
Anthony Swift, an international attorney at the Natural Resources Defense Council, said it’s not the first time TransCanada has raised the prospect of switching to rail.
“To be able to move 800,000 barrels a day of tar sands, it would require the largest offloading terminal in the world,” said Swift, whose group opposes the pipeline. “We have seen very little tar-sands oil moved to the Gulf Coast by rail. The few companies engaged in it have indicated that it’s not a particularly profitable business.”
Delivering crude by rail would cost about double the $7 to $8 a barrel shipping cost on Keystone, Girling said. Pipelines are a more efficient, cost-effective way to deliver crude oil, he added.
“This is a market inefficiency created by regulatory impediments,” Girling said. Shipping crude by rail “wouldn’t have been on our radar screen because it’s not logical.”
‘Stop Gap’
Rail “is the stop-gap measure” for Canadian crude oil, Dave Collyer, president of the Canadian Association of Petroleum Producers, told reporters yesterday in Calgary. “We’re still very optimistic that the case is sound for approval of Keystone.”
The pipeline’s path in Nebraska, one of three states the northern leg of Keystone would cross, was thrown into doubt in February when a state judge invalidated legislation that let the Republican governor approve the path. The judge said that only the state Public Service Commission had that power. The decision has been appealed to the Nebraska Supreme Court.
Girling said he’s seeking State Department clarity on whether the federal government will wait for the state court to rule before issuing the project’s required presidential permit.
Obama rejected an earlier proposal for Keystone XL in 2012, citing environmental concerns with its route in Nebraska.
Business Caution
In an interview today in Washington, Girling said delays of Keystone XL will prompt businesses to think twice about capital investments before obtaining regulatory approval.
“This is a very good example of why money is sitting on the sidelines,” he said. “We will never again find ourselves in a situation where we where we have two and a half billion dollars of capital exposed to a project with this kind of uncertainty.”
Oil-sands crude is making its way to the Gulf Coast without Keystone XL as producers spend more money transporting volumes by rail, Girling said. TransCanada also will be able to move crude to refineries by pipeline and barge as early as 2018 without Keystone XL, through its C$12 billion ($11 billion) Energy East line to Canada’s Atlantic Coast, he said.
Canadian crude exports by rail rose to 145,046 barrels a day in the fourth quarter, more than nine times the volume in the first three months of 2012, according to data from Canada’s National Energy Board regulator
Rising Exports
Exports of crude on trains out of Western Canada may rise to 500,000 barrels a day by the end of the year, according to a January estimate from Peters & Co., a Calgary-based investment bank.
The energy industry is drawing up plans for new crude-by-rail projects even as transportation regulators in the U.S. and Canada impose new rules to boost safety following a string of explosions, including a derailment last July in Quebec that killed 47 people.
Imperial Oil Ltd. (IMO) and Kinder Morgan Energy Partners LP (KMP) are planning a terminal in Alberta to load crude onto trains that may have the potential to eventually handle as much as 250,000 barrels a day, the companies said in December.
TransCanada called each of its customers to discuss the prospects for the project after the delay last month.
“Their question was, when does this end?” Girling asked. “We can’t answer that question.”
To contact the reporters on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net; Rebecca Penty in Calgary at rpenty@bloomberg.net
To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net; Susan Warren at susanwarren@bloomberg.net Steve Geimann
By Lananh Nguyen May 22, 2014 9:47 PM GMT+070
Surging imports from Russia and the U.S. mean the premium Europeans pay for diesel will stay down this summer after plunging to the lowest level for the time of year since 2003.
Barges of diesel traded at $9 a metric ton more than the June gasoil contract on the ICE Futures Europe exchange on May 19. That’s the lowest premium in more than three months and a drop of 66 percent from April 15, according to data compiled by Bloomberg. Gasoil’s crack spread, a measure of profit to be made from refining the fuel, declined 19 percent since mid-April to $11.71 a barrel on the ICE exchange today.
“Europe looks extremely well supplied,” Steve Sawyer, an analyst at FGE, a consultant, said by phone from London yesterday. “I would expect both Russian and U.S. refiners to be pushing their rates during the summer and looking to Europe to dispose of the product.”
Diesel premiums in Europe typically rise in May as traders buy supplies in anticipation of peak driving demand from tourists and truckers, said Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England. This year “there’s nothing which can support diesel,” with demand weak and supply increasing, he said.
While diesel barges recovered from their earlier low to trade at a premium of $11 a ton to June gasoil in the Amsterdam-Rotterdam-Antwerp oil hub on May 20, according to data compiled by Bloomberg. European diesel is typically priced relative to ICE gasoil futures. The outright price of the motor fuel was $924.50 a ton yesterday, above the five-year average for the time of year of $771.25 a ton, according to data compiled by Bloomberg.
Imports Surge
“Diesel prices have wallowed amid poor European demand and rising Russian supply, with few signs of either trend letting up,” analysts at Energy Aspects Ltd., a researcher in London, said in a report.
Europe’s imports of diesel and gasoil from countries of the former Soviet Union averaged about 629,000 barrels a day so far this year, up from 559,000 in 2013, FGE estimated. Shipments to Europe from the U.S. have risen to about 321,000 barrels a day in 2014, from 304,000 last year, with flows doubling in January and February compared with 2013, according to FGE.
The continent’s diesel surplus may prompt European refiners to respond by cutting production, analysts at researcher JBC Energy GmbH in Vienna, led by David Wech, said in an e-mailed note May 20.
“Pressure is coming from all fronts,” JBC said. Summer is “unlikely to provide much room to the upside.”
To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron
By Lynn Doan and Mark Shenk May 22, 2014 6:40 PM GMT+0700
West Texas Intermediate crude may rise above $110 a barrel if prices breach $105, said Kyle Cooper, director of commodities research at IAF Advisors in Houston.
WTI for July delivery rose $1.74, or 1.7 percent, to $104.07 a barrel yesterday on the New York Mercantile Exchange, the highest settlement in a month, after the U.S. Energy Information Administration reported imports dropped to a 17-year low last week and supplies of crude declined. The intraday high of $104.29 exceeded the 61.8 percent Fibonacci retracement level between the 52-week high and low.
“If we can break above $105 decisively, our next target will be the $110-$112 level reached last year,” Cooper said yesterday in a telephone interview. “If crude imports remain this low, then we are probably going to get some pretty decent crude draws again, and that’ll provide the fundamental basis for the market to move up.”
The price reached $105.22 on March 3, the 2014 intraday high, and $104.99 in April. The front-month contract peaked in 2013 at $112.24 a barrel on Aug. 28 as the U.S. and the U.K. advanced plans for strikes against Syria.
“If we don’t break above $105 after one or two tries, prices will move back,” Cooper said. “What would be extremely telling is if we come up to $105 and we’re hanging around that level until next week and then we have another big draw and then we’re still hanging out at $105. That’s bearish from a psychological standpoint.”
To contact the reporters on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net; 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 Andrew Willis May 22, 2014 11:38 PM GMT+0700
Colombia’s state-controlled Ecopetrol SA (ECOPETL) agreed to supply crude to a refinery scheduled to start operations in 2015, said the governor of the country’s top oil-producing province where the facility will be located.
The refinery will cost about $1.5 billion to build and have a refining capacity of 40,000 barrels of crude a day, supplying fuel to the region and diluent to Ecopetrol for the transportation of heavy crudes by pipeline, said Alan Jara, governor of Colombia’s central Meta province.
“We spoke with Ecopetrol,” Jara said in a telephone interview yesterday. “There is a letter of intent that guarantees the oil necessary to supply the refinery.”
Ecopetrol, Colombia’s largest oil company, will supply the refinery although volumes are yet to be defined, the company said in an e-mailed response to questions. Colombian President Juan Manuel Santos said May 6 that Colombia’s environmental agency ANLA awarded a license for the refinery project that will be overseen by La Empresa de Petroleos del Llano-Llanopetrol.
Llanopetrol is seeking a partner that will provide financing for the refinery and has received several offers so far, Jara said. The province of Meta owns the majority stake in Llanopetrol.
A decision on the partner will be made in the “coming days,” with construction of Colombia’s third refinery likely to start in the first quarter of 2015 and finish before year-end, he said.
Colombia has operating refineries in Cartagena and Barrancabermeja, both owned by Bogota-based Ecopetrol.
To contact the reporter on this story: Andrew Willis in Bogota at awillis21@bloomberg.net
To contact the editors responsible for this story: James Attwo
By Will Kennedy May 22, 2014 11:50 PM GMT+0700
What’s good for Russia isn’t necessarily good for the country’s largest company.
President Vladimir Putin hailed an “epochal event” yesterday after state-run natural gas exporter OAO Gazprom (GAZP) signed a $400 billion deal to supply fuel to China for 30 years. The agreement was a coup for Putin, who showed he can build ties with Asia’s leading economy at a time when the crisis in Ukraine is souring relations with the U.S. and Europe.
Whether it’s a boost for Gazprom is less clear. The gas-sales agreement probably doesn’t justify the expense of building a pipeline to China and developing giant fields in eastern Siberia, analysts from Renaissance Capital said. The project is likely to divert cash from dividends toward Gazprom’s already giant capital expenditure budget.
“Capex on the pipeline alone will be value destructive,” Ildar Davletshin, an analyst at Renaissance Capital in Moscow, said in a note for investors just after the deal was announced. “New capex will likely cause free cash flow to turn negative in the medium term, limiting Gazprom’s ability to increase dividends.”
The deal was struck after more than a decade of talks between China and Gazprom, Russia’s largest company with a current market value of 3.47 trillion rubles ($100 billion). Selling gas to China will boost tax revenue for Russia, where the government gets about 50 percent of its income from the oil and gas industry.
Pipeline Network
While the precise commercial terms of the contract Gazprom signed with China National Petroleum Corp. in Shanghai weren’t published, Oleg Maximov, an analyst at Sberbank CIB, said the outline provided by Gazprom suggested a price of $350 to $380 per 1,000 cubic meters.
That’s slightly less than the company gets from sales to the European Union, where a Soviet-era network of pipelines and fields in western Siberia developed over the past 40 years means costs are lower.
“Whether it is $350 or $380 is completely unimportant,” Maximov said in an e-mail. “The price implies a very sub-prime return for Gazprom.”
Gazprom spokesman Sergei Kupriyanov declined to comment on the price the company would get for gas or the agreement’s impact on profit. The Russian government owns 50 percent of Gazprom.
Some analysts were more optimistic that the China deal was positive for Gazprom, providing an opportunity to add to the company’s customers and increase sales, which amounted to $165 billion last year.
Photographer: Mark Ralston/AFP/Getty Images
Vladimir Putin, Russia's president, right, walks past Xi Jinping, China's president,... Read More
Capital Expenditure
“Signing the deal is a long-run positive for Gazprom, even though the exact pricing details have not been released,” analysts at Sanford C. Bernstein & Co. said. “It buys diversification.”
Gazprom capital expenditure totaled $43.9 billion last year, trailing only Brazil’s Petroleo Brasileiro SA (PETR3) and CNPC among the world’s biggest oil and gas companies, according to data compiled by Bloomberg. Developing the pipeline to China and the fields needed to supply it will cost $55 billion before the gas starts flowing in four to six years, Putin said yesterday.
How much of this burden Gazprom has to bear will depend on whether China makes advance payments for the gas to help finance construction costs, Russian investment bank VTB Capital said.
“Prepayment would be helpful,” VTB analysts said in a note yesterday. “China might provide Gazprom with prepayment of $25 billion.”
Muted Reaction
Gazprom shares, which rallied in the run-up to Putin’s China visit, dropped today. The stock fell 1.2 percent to close at 144.78 rubles in Moscow today.
Gazprom has a current indicated yield of almost 5 percent. It’s estimated by Bloomberg Dividend Forecasting to increase its payment to 8 rubles a share from 2014 profit from 7.2 rubles on last year’s earnings.
“In anticipation of rising capex, negative free cash flow, heavy borrowing and poor shareholder returns, we advise taking the chips off the table,” said Timur Salikhov, senior analyst at BCS Financial Group.
Gazprom Chief Executive Officer Alexey Miller signed the deal with Zhou Jiping, chairman of CNPC. The agreement is for 38 billion cubic meters of gas annually over 30 years, Miller said. While he declined to give a price, he said the total value would be about $400 billion.
To contact the reporter on this story: Will Kennedy in London at wkennedy3@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Stephen Cunningham, Carlos Caminada
By Robert Tuttle, Anna Shiryaevskaya and Isis Almeida May 22, 2014 10:14 PM GMT+0700
Green pipework carrying water emerges from the ground as a catalytic cracking gasoline... Read More
China’s deal to buy natural gas from Russia after a decade of talks risks making tanker shipments of the fuel less competitive as new projects target Asian markets.
The accord for supplies from eastern Siberia means liquefied natural gas export projects are less likely to be built as the additional Russian pipeline gas pressures prices, according to Societe Generale SA and Sanford C. Bernstein & Co. The agreement gives China greater leverage when negotiating LNG contracts, said Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd. in London, a consultant.
“It could potentially have an impact on the volume of LNG that China needs to import and impact on the level of the spot price for LNG in Asia,” David Ledesma, an independent consultant who has been working in the LNG sector for more than 20 years, said yesterday in an interview in Amsterdam.
China’s appetite for gas will double by 2018 as the world’s biggest energy user seeks to replace dirty coal-burning power plants, according to the International Energy Agency. LNG market tightness will start to disappear from 2015 with new supply, according to the Paris-based adviser to developed nations, after spot prices rose to a record in February.
Photographer: Alexander Zemlianichenko Jr./Bloomberg
Pipelines stand in front of electricity pylons near OAO Gazprom's Bovanenkovo deposit,... Read More
Spot LNG prices in northeast Asia fell to $13.50 a million British thermal units, their lowest since October 2012, in the week to May 19, according to World Gas Intelligence assessments of cargoes for delivery in four to eight weeks published yesterday. They reached $19.70 in February. U.S. natural gas futures on the New York Mercantile Exchange were trading at $4.374 per million Btu at 4:13 p.m. London time today.
Chinese Prices
China paid from $3.25 per million Btu for LNG from Australia last month to $19.97 for a shipment from Algeria in November, according to data compiled by Bloomberg. Its imports rose 27 percent last year to 18.6 million metric tons, overtaking Spain to become the biggest importer after Japan and South Korea, according to the International Group of LNG Importers, a lobby group in Paris.
Companies from Cheniere Energy Inc. in the U.S. to Woodside Petroleum Corp. in Australia plan to add LNG capacity from next year, mainly aimed at Asia, which uses 75 percent of the gas, which is chilled to minus 162 degrees Celsius (260 Fahrenheit) for shipment.
There has been 312 million tons of gas liquefaction capacity proposed and 94 million is under construction, according to data compiled by Bloomberg Industries. The plants from Australia to the U.S. would add to the existing 296 million tons of operational capacity.
Gazprom Prices
“Higher cost LNG projects will be less likely to be developed,” Neil Beveridge, an analyst at Bernstein in Hong Kong, said yesterday in an e-mailed report. “Likely beneficiaries are OAO Gazprom, Chinese gas distributors and related oilfield services companies.”
The agreement with Gazprom, Russia’s pipeline gas export monopoly, to provide 38 billion cubic meters of gas annually over 30 years via a yet-to-be-built pipeline increases the diversity of supplies available to China. The country currently imports gas via a pipeline from Turkmenistan as well as LNG.
Gazprom’s average price in Europe, its main market, was $380.50 per thousand cubic meters ($10.65 per million Btu) last year. The price in yesterday’s contract is about $350, Russian Economy Minister Alexei Ulyukayev said in a Bloomberg TV interview today. Gazprom Chief Executive Officer Alexey Miller didn’t disclose the price yesterday, saying the 30-year accord has a value of about $400 billion.
Qatar, the world’s biggest LNG producer, has been in negotiations with China National Offshore Oil Corp. and PetroChina Co. to supply 7 million tons a year. China has long-term contracts for 5 million tons of Qatari supply.
Qatar Talks
“China has been, quite successfully, playing off one side against another,” Zach Allen, president of Pan Eurasian Enterprises Inc., a Raleigh, North Carolina-based tracker of LNG cargoes, said by e-mail. “They are developing three avenues for gas to move into China: LNG, pipeline gas from Central Asia and pipeline gas from Russia.”
The accord with Russia will have a negligible impact on the LNG market, according to Tony Regan, a Singapore-based energy consultant at Tri-Zen International Inc.
“This deal results in a slight reduction in the rate of growth in LNG imports but nothing that is going to keep anyone awake at night in Doha,” he said by e-mail. “The deal could actually lead to a call for yet more LNG. With Russian supply now booked, it will give the planners comfort to keep building out the domestic gas market and then we are likely to see them calling for more supply -– more LNG, more piped gas from Central Asia.”
Tighter Supplies
Japan and South Korea, the world’s two largest buyers of contract LNG, will face tighter supplies by 2025, according to Gavin Thompson, head of Asia gas and power research at Wood Mackenzie Ltd. The Russia-China pipeline deal won’t give the Japanese or Korean buyers leverage in near-term LNG negotiations because they already have enough contracted supply through the start of the next decade, he said. For Gazprom, the deal heralds a “new Europe,” Wood Mackenzie said in a separate research note today.
The impact of the agreement on European supplies and prices will be limited because Gazprom will ship to China from fields in eastern Siberia, while Europe is mainly fed by projects in western Siberia and there isn’t a link between the two, according to analysts from Sund Energy AS, the Oxford Institute for Energy Studies, Capital Economics Ltd. and the Institute of Energy Studies of the Russian Academy of Sciences.
The pipeline to China will increase competition in Asia and may lower spot LNG prices, Capital Economics said today in an e-mailed report.
“The deal changes the level playing field,” said Thierry Bros, an analyst at Societe Generale in Paris. “China has now secured some new gas at a competitive price. This means that new LNG” will need to be competitive with that to go ahead.
To contact the reporters on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net; Anna Shiryaevskaya in London at ashiryaevska@bloomberg.net; 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 Weeks
By Lananh Nguyen May 22, 2014 9:47 PM GMT+0700
Surging imports from Russia and the U.S. mean the premium Europeans pay for diesel will stay down this summer after plunging to the lowest level for the time of year since 2003.
Barges of diesel traded at $9 a metric ton more than the June gasoil contract on the ICE Futures Europe exchange on May 19. That’s the lowest premium in more than three months and a drop of 66 percent from April 15, according to data compiled by Bloomberg. Gasoil’s crack spread, a measure of profit to be made from refining the fuel, declined 19 percent since mid-April to $11.71 a barrel on the ICE exchange today.
“Europe looks extremely well supplied,” Steve Sawyer, an analyst at FGE, a consultant, said by phone from London yesterday. “I would expect both Russian and U.S. refiners to be pushing their rates during the summer and looking to Europe to dispose of the product.”
Diesel premiums in Europe typically rise in May as traders buy supplies in anticipation of peak driving demand from tourists and truckers, said Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England. This year “there’s nothing which can support diesel,” with demand weak and supply increasing, he said.
While diesel barges recovered from their earlier low to trade at a premium of $11 a ton to June gasoil in the Amsterdam-Rotterdam-Antwerp oil hub on May 20, according to data compiled by Bloomberg. European diesel is typically priced relative to ICE gasoil futures. The outright price of the motor fuel was $924.50 a ton yesterday, above the five-year average for the time of year of $771.25 a ton, according to data compiled by Bloomberg.
Imports Surge
“Diesel prices have wallowed amid poor European demand and rising Russian supply, with few signs of either trend letting up,” analysts at Energy Aspects Ltd., a researcher in London, said in a report.
Europe’s imports of diesel and gasoil from countries of the former Soviet Union averaged about 629,000 barrels a day so far this year, up from 559,000 in 2013, FGE estimated. Shipments to Europe from the U.S. have risen to about 321,000 barrels a day in 2014, from 304,000 last year, with flows doubling in January and February compared with 2013, according to FGE.
The continent’s diesel surplus may prompt European refiners to respond by cutting production, analysts at researcher JBC Energy GmbH in Vienna, led by David Wech, said in an e-mailed note May 20.
“Pressure is coming from all fronts,” JBC said. Summer is “unlikely to provide much room to the upside.”
To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron
By Andrew Mayeda May 22, 2014 11:10 AM GMT+0700
The Canadian government is poised to take another step to boost support for pipelines as it prepares to rule on Enbridge Inc. (ENB)’s proposed Northern Gateway project.
Natural Resources Minister Greg Rickford plans to announce his department will set up a new branch office based in British Columbia to oversee discussions with aboriginal groups, two people briefed on the matter said yesterday. The announcement may take place as early as next week, said the people, who asked not to be identified because the information isn’t public.
The branch will be part of the Major Projects Management Office based in Ottawa that was created in 2007 to support regulatory reviews of resource developments.
Rickford’s announcement will address recommendations made in December by Douglas Eyford, a lawyer appointed by Harper to review aboriginal concerns about resource development. In his report, Eyford advised building on the Major Projects Management Office model to establish a “sustained presence of senior officials on the ground in British Columbia” to coordinate government engagement with aboriginals.
The federal government “is carefully reviewing Mr. Eyford’s report, and has committed to taking concrete action in response to his recommendations,” Rickford said in the text of a speech he gave in Vancouver last night. “I look forward to announcing our government’s response to Mr. Eyford’s response shortly.”
The government should implement the majority of the recommendations made by Eyford, rather than “cherry pick” from the report, said Art Sterritt, executive director of the Coastal First Nations, an alliance of British Columbia-based aboriginal groups that opposes Northern Gateway.
‘Meaningful Engagement’
“It has to be meaningful engagement,” Sterritt said in a telephone interview. “The federal government has the legal responsibility to do this.”
Canada’s Supreme Court has ruled that, under the nation’s constitution, the federal government has a duty to consult aboriginal groups on projects that might affect their rights.
Eyford urged the government to “take decisive steps to build trust with aboriginal Canadians, to foster their inclusion into the economy, and to advance the reconciliation of aboriginal people and non-aboriginal people in Canadian society.”
He recommended the government establish a “federal framework and timeframe” for consulting aboriginal groups on resource projects, as well as appoint at least one “senior official” to lead the discussions with aboriginals, industry and provincial officials.
June 17
Any measures the government announces in response to Eyford’s report would be designed to enhance engagement and collaboration with aboriginals, rather than boost support for any particular project or commodity, Chris McCluskey, a spokesman for Rickford, said in an e-mail yesterday.
Prime Minister Stephen Harper’s cabinet has until June 17 to rule on Northern Gateway, a proposed C$6.5 billion ($6 billion) pipeline that would carry crude from Alberta’s oil sands to the Pacific Coast. A regulatory panel recommended approving the project in December, subject to 209 conditions.
Crude producers say the route is needed to ease bottlenecks that are depressing the price of Canadian heavy oil. Aboriginal groups argue the project brings with it the risk of spills, with some saying the government hasn’t adequately consulted them.
Premier Christy Clark has said British Columbia will only back the pipeline if it satisfies five conditions, including the federal government addressing aboriginal concerns.
“Northern Gateway remains committed to re-engage and consult with First Nations and aboriginal communities and to build on progress already made,” Ivan Giesbrecht, a Vancouver-based Enbridge spokesman, said in an e-mail yesterday, adding the company’s priority is to work with existing and future aboriginal equity partners.
Last week, the government announced measures to prevent spills from pipelines and tankers carrying crude.
To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net
To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net Chris Fournier, Andrew Hobbs
by David Gordon
May 22, 2014, 10:49pm
Putin is looking to reorient towards an alliance with China
WHEN President Vladimir Putin voyaged to Beijing this week, it was with one thing in mind: strengthening Sino-Russian relations. The signing of a $400bn (£237bn) gas pipeline deal with Beijing formed the centrepiece of this effort. Russia’s aggression in Ukraine is pushing the US and Europe away, and Putin is looking to reorient towards an alliance with China. This will trigger the re-emergence of US-Russia-China triangular relations as a major dynamic in global politics and economics.
The China-US-USSR triad dominated the geopolitical landscape for the final decades of the Cold War. President Richard Nixon’s visit to China in 1972 allowed America to capitalise on extreme Sino-Soviet tension. But the fall of the Berlin Wall and the Tiananmen crisis in 1989 degraded the significance of the triangular relationship. Now, China’s rise as a major power and Russia’s geopolitical assertiveness mean the trilateral dynamics are assuming a new importance. With the US and Russia locked in conflict, Beijing is the new fulcrum, able to play one side off another.
Putin hopes that China will join Russia in an anti-Western alliance, but that is not where the new triangle is heading. China will not antagonise the West to the extent Russia desires, continuing to see the US as its partner in the “new model of great power relations”. Further, since Russia is the supplicant in the relationship, China will drive hard bargains.
In particular, China will not legitimate Putin’s revanchism. Referenda on national sovereignty are anathema to China – think of the implications for Tibet, Xinjiang, Hong Kong, and Taiwan. But China will maintain its benign neglect on these issues, abstaining on controversial UN votes and undermining Western sanctions.
Putin also wants to dramatically expand Russia’s role as an energy provider to Beijing. Moscow’s desire to expand energy exports intersects with Beijing’s search for greater energy security; thus the agreement this week. But although Russia secured some $25bn (£14.8bn) in prepayment to finance the pipeline – crucial in the face of Western sanctions -- China got the better end of the deal. Gazprom will supply it natural gas at significantly lower-than-market rates, saving Beijing tens of billions of dollars.
Just as the US was emboldened by closer relations with the third main power in the Cold War, so China will gain resolve from Russia’s pursuit of its affections. But the closer Russia-China relationship is unlikely to shift US policymakers’ calculations on Asia-Pacific issues. America will not weaken its commitments to treaty-bound allies like Japan in the face of increased Chinese confidence, and will continue to pursue its flagship regional trade deal – the Trans-Pacific Partnership. The US will also keep pressing China on its state-sponsored commercial espionage. But, while not a game changer for US policy, China will perceive new leverage coming from its partnership with Russia, making it more difficult for America to achieve its policy goals in Asia.
David Gordon is chairman and head of research at Eurasia Group, and a former director of policy planning at the US State Department.
Politics May. 23, 2014 - 06:49AM JST ( 10 )
SHANGHAI —
China should work more closely with Russia on security to counter Japan, a state-run Chinese newspaper said Thursday after Moscow and Beijing signed a huge natural gas deal.
Russian President Vladimir Putin paid a state visit to China this week, launching joint naval exercises and witnessing the signing of an agreement for Russia to supply the world’s second-biggest economy with natural gas in a deal valued at $400 billion.
The 30-year contract represents a turn to Beijing by Moscow at a moment when its geo-political assertiveness, particularly the takeover of Crimea, has been heavily criticized by the West, which accuses it of fomenting unrest in eastern Ukraine.
“The complicated political and security challenges still haunting the world demand that the two global heavyweights also work more closely together to safeguard the international order and world stability,” the China Daily newspaper said in an editorial.
“Cooperation between the two countries in this area is particularly necessary amid alarming attempts by Japanese Prime Minister Shinzo Abe to trample over World War II history and disrupt the post-war order,” it said.
Beijing and Tokyo—an ally of the United States—have a long-running feud over disputed islands in the East China Sea, and have frequently fallen out over differing interpretations of Japan’s military actions in China in the 1930s and 1940s.
Moscow and Beijing, both veto-wielding members of the United Nations Security Council, have often worked together to counter the United States on a range of issues.
They were at times close allies during the Cold War, when China and the then-Soviet Union were both Communist-ruled.
“Closer China-Russia cooperation is a requirement for achieving common development and promoting a fairer international system,” the China Daily said.
During his trip to China, Putin called for boosting bilateral trade to $100 billion by 2015, up from nearly $90 billion last year, through cooperation in the aviation, aerospace, manufacturing and energy sectors
(c) 2014 AFP
By MINING.com | Thu, 22 May 2014 21:33 | 0
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Pro-Russia separatists have seized four Ukrainian coal mines in the east of the conflict-torn country and demanded its workers to supply them with explosives, Hindustan Times reports.
The latest attack comes as the country prepares for a presidential election on Sunday that rebels have vowed to disrupt. It remains unclear how many protesters were involved or what happened to the miners.
Ukraine's coal industry, one of the main engines of the nation’s economy, began attracting headlines last week, after an influential business magnate and mine-owner turned on the pro-Russia separatist movement.
Rinat Akhmetov, Ukraine's richest man, on Monday criticized separatists for disrupting operations and pressed his employees to hold protests at their workplaces "until peace is established," the BBC reported.
The mining magnate ended months of neutrality to protect his companies' interests, which are concentrated in the industrial heartlands of east Ukraine. According to The New York Times, Akhmetov has been organizing his employees into patrols since Tuesday. He wanted them to take back the port city of Mariupol, being held by separatists.
Pro-Russian separatists took over government buildings in April and declared independence after a referendum May 11 that was condemned by Kiev and Western nations. Ukrainians complain their country is being divided against their will and that they're unable to publicly express their support for unified nation.
By Cecilia Jamasmie
By Ky Krauthamer | Thu, 22 May 2014 22:08 | 0
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Grins were on the faces of China National Petroleum executives this week as they celebrated a blockbuster 30-year deal for Russian gas. It was a good day for CNPC, the state-owned colossus at the center of China’s oil and gas webs and one of Eurasia’s biggest energy investors.
For some, however, those grins could soon turn to grimaces, because the deal comes against a backdrop of a series of high profile corruption investigations by the state, and CNPC has been caught in the dragnet. A former CNPC chairman is currently under investigation and a top executive of CNPC subsidiary PetroChina has just been arrested.
They are two of the biggest suspects in a spiraling drive against corruption that has become a hallmark of President Xi Jinping’s rule.
The crackdown on executives at some of China’s largest companies is yet more proof, if anyone needed it, that the Xi administration takes the latest anti-graft drive very seriously indeed.
But behind the arrests and investigations, some China watchers see signs of internal strife at the highest levels of the ruling Communist Party.
The list of energy execs under scrutiny by the national corruption fighting bureau, officially known by the Orwellian title, “Central Discipline Inspection Commission,” is getting longer every week. One of the biggest fish was netted in September, when officials announced that CNPC’s former chairman Jiang Jiemin was under investigation. Jiang also chaired CNPC’s PetroChina subsidiary (ranked 6th on the Fortune Global 500 list), before his March 2013 move to head the state-owned Assets Supervision and Administration Commission.
Wang Daofu, former PetroChina chief geologist, under investigation along with Ran Xinquan, former general manager at PetroChina subsidiary Changqing Oilfield Co.;
Sun Weidong, former deputy manager of PetroChina subsidiary Yumen Oilfield Co., under investigation;
Yang Guoling, assistant general manager and senior accountant at Yumen Oilfield Co., indicted for corruption;
Three top executives at CNPC supplier Sichuan Star Cable reportedly disappeared in July 2013 and another either fell or jumped to her death in September.
CNPC-linked companies are not the only energy and resources companies caught up in the crackdown.
The former chairman and another former executive of China Resources Holdings Co. (233rd on the Fortune 500 list), are under investigation, as are several top executives at various geology and fuel companies. Zhu Changlin, head of North China operations at the State Grid (7th on the Fortune list), is under investigation, along with several managers at regional power operators.
Jiang and several others of those named have been linked to Zhou Yongkang, one of China’s most powerful men until Xi’s advent, which has led some observers to suspect the net is tightening around Zhou, a former CNPC chairman and national security chief, who dropped out of sight last year.
The corruption probes into former CNPC deputy general manager Li Hualin and Ji Wenlin, a former regional vice-governor who reportedly cut deals with CNPC, “are among several believed to be part of an unprecedented probe into Zhou,” the South China Morning Post wrote earlier this year.
If – and this is a big if – Zhou is formally charged, he would be one of the most senior Communist Party higher-ups ever prosecuted since the Communists came to power in 1949.
In a related story, the South China Morning Post described how Zhou used the CNPC as a springboard to political power in the 1990s, which eventually saw him appointed to the supreme Politburo Standing Committee. There, he chaired the Political and Legal Affairs Committee (PLAC), which controlled police and security forces and the judiciary until some of its functions were transferred to the new State Security Committee, which was set up by the anti-corruption crusading Xi.
Zhou retired in 2012, but the activities that reportedly amassed billions for him and his family apparently came under scrutiny upon Xi’s accession to the presidency in 2013.
Apart from rumors, nothing has been heard of him for months, and his name is taboo in official media, as BBC China editor Carrie Gracie noted on her blog.
Some sources claim he is under house arrest. But no one knows for sure, and those that do aren’t talking.
By Ky Krauthamer of Oilprice.com
By Nick Cunningham | Thu, 22 May 2014 21:40 | 0
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Russia and China finalized a truly massive gas deal during Russian President Vladimir Putin’s visit to Shanghai this week, and while the agreement is a bilateral one, its effects will be felt as far away as Texas and Louisiana.
The financial details remain murky – Gazprom’s CEO Aleksei Miller called them a “commercial secret” – but the total value of the contract is estimated at $400 billion. Russia agreed to deliver 38 billion cubic meters (bcm) of natural gas to China each year beginning in 2018, the equivalent of one-quarter of China’s current annual consumption.
The deal spans 30 years and solidifies what has often been a tense relationship between Moscow and Beijing. Russian media is calling it the “gas deal of the century.”
Even if Russia had to make large concessions to China on the final price, the deal gives it access to one of the world’s largest energy markets and diversifies its customer base away from a Europe looking for other suppliers. China, meanwhile, has gained a secure supply of natural gas for decades.
But the geopolitical ramifications don’t stop there. A deal of such a monumental size will undoubtedly ripple through energy markets. For example, China has long been seen as a massive consumer of liquefied natural gas (LNG) – gas that is turned to liquid form and transported by super-chilled container ships. The deal with Russia could curb quite a bit of that projected demand; the 38 bcm that will flow to China via pipelines will supply a tenth of China’s annual gas consumption by 2020.
This could dampen the demand – and ultimately the price for – LNG from the United States. East Asia represents the most prized market for producers of LNG. That’s because it is home to the top three importers of LNG in the world: Japan, South Korea and China. Together, the three countries account for more than half of LNG demand worldwide. As a result, prices for LNG are as much as four to five times higher in Asia compared to what natural gas is sold for in the United States.
The Russia-China deal may change that.
If LNG prices in Asia come down from their recent highs, the most expensive LNG projects may no longer be profitable. That could force out several of the U.S. LNG projects waiting for U.S. Department of Energy approval. As of April, DOE had approved seven LNG terminals, but many more are waiting for permits.
LNG terminals in the United States will also not be the least expensive producers. The construction of several liquefaction facilities in Australia is way ahead of competitors in the U.S., and the country plans on nearly quadrupling its LNG capacity by 2017. More supplies and lower-than-expected demand from China could bring down prices over the next several years.
To be clear, there is still an opportunity for American LNG. China’s LNG appetite will still grow, and Japan – the world’s largest importer of LNG by far – is struggling to cut back on imported natural gas. The Japanese government suffered a big setback in its effort to restart its idle nuclear reactors when a court blocked the restart of a reactor near Tokyo, citing inadequate safety measures. The decision could ultimately spell greater delays for Prime Minister ShinzoAbe’s ambitious plans to bring back its nuclear fleet. Without a return to nuclear power, Japan will continue to rely on heightened imports of LNG.
Still, the natural gas deal between Russia and China, which had been at an impasse for a decade, could make the LNG market a bit less frothy than once thought. “All of a sudden, it’s going to be a very competitive gas market,” said Trevor Sikorski, a consultant with Energy Aspects Ltd., told Bloomberg News.
Big proponents of LNG exports within the industry and halls of Congress have called for a more liberal export regime, arguing that LNG exports could have the dual benefits of undermining Russia’s energy machine and boosting the U.S. economy.
That ship may have sailed with the so-called “gas deal of the century.”
By Nick Cunningham of Oilprice.com
By Tino Andresen May 23, 2014 5:01 AM GMT+0700
Europipe GmbH sees a good chance of winning the tenders expected this year to supply South Stream’s third and fourth offshore gas pipelines after it was awarded most of the first, Chief Executive Officer Michael Graef said.
The company, due to start deliveries today for the first line, is also interested in supplying onshore sections of the South Stream network in Slovenia, Hungary, Serbia and Bulgaria.
“We are on it,” Graef said in an interview on May 21 at the offices of the venture between Salzgitter Mannesmann GmbH, a unit of Salzgitter AG (SZG), and AG der Dillinger Huettenwerke. Those contracts are expected to be awarded this year, he said.
Europipe last month began output at its plant in Muelheim, Germany, to supply the 455,000 metric tons of pipe, or more than 600 kilometers (370 miles) of the 931-kilometer line, it already won. New orders for Europipe, beaten in the second tender by Japanese and Russian rivals, will counter weak European pipeline spending and help fill what it says is the world’s largest-capacity mill.
This year “won’t be a sunny year” for Europipe as the South Stream output will only contribute significantly in 2015, Graef said. Markets aren’t expected to “dramatically improve” elsewhere in Europe for another two to three years, he said.
The pipeline will ship as much as 63 billion cubic meters of gas a year through the Black Sea from 2017, about an eighth of European Union demand, bypassing routes through Ukraine.
To contact the reporter on this story: Tino Andresen in Dusseldorf at tandresen1@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Tony Barrett, Alex Devine
May 23, 2014 12:20 AM
By Henning Gloystein
Reuters
LONDON: The keenly priced gas deal signed this week between Russia and China will create a new price benchmark for global markets that puts cost pressure on other producers because consumers have a growing number of supply sources to choose from.
China and Russia signed a long-awaited $400 billion gas supply deal this week, providing energy-hungry China with a major source of fuel and opening up a new market for Moscow as it risks losing European customers over the Ukraine crisis.
Russia’s state-controlled Gazprom has so far declined to say at what price the deal was struck, but industry sources say it is between $350-$380 per thousand cubic meters.
That would be similar to what most European utilities pay under discounted long-term contracts signed in the last two years, and several sources said it is as low as Gazprom could have gone before making a loss.
Fitch Ratings said the deal “sets a new benchmark for what China is willing to pay for natural gas over longer term contracts.”
The deal opens up a huge new market for Gazprom, which so far generates around 80 percent of its revenues from Europe, where the demand is stagnating and the profits are falling.
“With European gas demand growth uncertain and the Ukraine crisis leading to calls for Europe to reduce its reliance on Russian gas, Gazprom now needs a ‘new Europe’ – enter China,” said Stephen O’Rourke of energy research and consultancy firm Wood Mackenzie.
A Russian government decision last year to end Gazprom’s sole right to export gas has also spurred it to lock in the deal with China, dropping its price closer to levels favored by Beijing.
For China, the price of the Russian deal is crucially below the cost of importing liquefied natural gas from Asia, a fuel on which it increasingly depends.
Increased gas imports will also help Beijing in its declared “war on pollution,” aimed at reducing its reliance on coal which contributes to the harmful smog shrouding its big cities.
The deal between the world’s biggest energy exporter and the top importer will have implications far beyond Russia and China, as it effectively creates a new price benchmark.
“With a pipeline deal of this scale, Russia has thrown down the gauntlet to LNG producers courting Chinese buyers,” said David Stokes of Timera Energy.
“Russian pipeline exports, which look to be competitively priced versus LNG, are set to have a material impact in eroding Chinese LNG demand. There is likely to be an important knock-on impact on the global LNG supply and demand balance, given the central role China plays in growth projections,” Stokes added.
China plans to build 15 new import terminals which, once completed, will catapult it from a relatively small LNG importer into the world’s biggest consumer after Japan.
The deal could cause trouble for other gas exporters, as it is likely to pull down LNG prices and put developers of new gas fields under pressure to cut costs or cancel some projects.
Several new producers are hoping to begin selling gas to Asia soon, including those in Australia, North America, East Africa and the East Mediterranean, but with Russia entering this market in around 2018 at a competitive price, some may struggle. “ China now has a powerful stick with which to beat down LNG prices,” said the energy analyst Thierry Bros of French bank Societe Generale.
“They can tell their LNG suppliers ‘either you bring your price below Russian piped costs or we will install a second line from Russia and cut you out,’” he added.
Beyond supplying China with gas via a pipeline, this week’s deal also opens up an opportunity for Gazprom to become a bigger player in the booming Asian LNG market, a sector it has so far not been involved in on a major scale.
Gazprom is planning to build up LNG export terminals on the Russian Pacific coast, on Sakhalin island and near Vladivostok, but so far lacks the infrastructure to supply these projects with the gas necessary to meet demand in Asia.
The pipeline to China would change this, positioning Gazprom close to the leading LNG buyers of Japan and South Korea as well as the rising market on China’s eastern coast, and putting it at a geographical advantage over exporters in Africa, Australia and North America.
In Africa, major gas finds off the coasts of Mozambique and Tanzania have triggered hopes that LNG exports will earn billions of dollars for the impoverished region, but analysts now say there may be too many sellers for too few buyers.
“There will be more gas than is needed, so those who get to the market first and cheapest will win,” said Ebbie Haan, the managing director of South Africa’s Sasol Petroleum International.
In the East Mediterranean, where Israel and Cyprus have discovered large offshore gas fields, Australia’s Woodside Petroleum this week pulled out of an agreement to take a stake worth up to $2.7 billion in Israel’s flagship Leviathan gas project.
Woodside is a specialist LNG developer, and the company was targeting sales in Asia with its involvement in Israel.
“After many months of negotiations it is time to acknowledge we will not get there under the current proposal,” Woodside CEO Peter Coleman said.
In North America, several LNG export terminals are also beginning to have trouble attracting buyers, and several Australian projects have also been downsized or delayed due to excessive cost.
Uncertainty over future pricing of LNG has led Asian consumers to hold off signing 20-year deals amid expectations that prices will soon enter a period of decline.
As a result, final investment decisions on new projects have come to a virtual standstill, while cost blowouts in Australia are further deterring investors from signing up.
* Commission spells out risks in energy security report
* Officials say Russian ownership should be closely watched
May 22 (Reuters) - Russia's strategy of buying up oil refineries in Europe could compromise the bloc's energy security, EU officials said in a draft report prepared for the region's leaders.
Europe's refining sector has been weakened by a combination of high oil prices, slack demand and poor profit margins, prompting many companies to sell off refining units, which Russia has been buying.
Russia's Lukoil, for instance, owns refining operations in Italy, the Netherlands and Romania. Gazprom through its oil arm Gazprom Neft also owns refineries.
In a report prepared ahead of a summit meeting of EU leaders in June, the European Commission is expected next week to make public its vision of how to improve energy security in response to the crisis in Ukraine, the transit route for roughly half the gas Russia exports to the European Union.
Among the many issues it says need to be closely monitored, it cites increased Russian ownership of EU refineries.
"Combined with the dependence on Russian crude oil, and the emerging influence of Russian players, the refinery industry is vulnerable to political interference," a draft seen by Reuters of the Commission's strategy on EU energy security says.
The EU relies on Russia for 27 percent of its gas consumption and about a third of its oil, the Commission, the EU executive, says.
Europe also receives imports of refined products from the United States, which the International Energy Agency says has overtaken Russia as the EU's leading supplier, although Russia seized back the top spot earlier this year when U.S. refineries were undergoing seasonal maintenance.
For the EU, the biggest gas supply threat is a price dispute between Kiev and Moscow that has led Moscow to warn it could cut supplies to Ukraine, with possible knock-on effects for the EU.
There is no immediate threat to oil supplies, as Russia lacks sufficient capacity to refine the oil it produces and relies therefore on EU refineries, the Commission says.
But Director General for Energy in the Commission Dominique Ristori said the Commission was assessing "all aspects" of energy security, including refining.
"Our main concern will be to increase the preparedness for the next winter," he said on the sidelines of a conference on the EU refining industry on Thursday.
The Commission is expected to call on member states to assess their vulnerability to any supply crisis and to build up inventories.
Longer term, the Commission is seeking to increase fuel efficiency and increase the use of electric vehicles and alternative fuels, such as biofuels. (Reporting by Barbara Lewis; editing by John O'Donnell and David Evans)
Thursday, 22 May 2014 09:53
Posted by Shoaib-ur-Rehman Siddiqui
imageBUENOS AIRES: ExxonMobil said Wednesday it has found a promising shale oil deposit in southern Argentina, on par with some of the best of its kind in the United States.
The US oil giant started work last year in Vaca Muerta, in Neuquen province, in the southern Patagonia region.
Vaca Muerta is a huge deposit that ranks Argentina second in the world for shale gas reserves and fourth for potential shale oil reserves.
The United States is the world leader in shale oil and shale gas reserves, and in related technology.
Testing of the nonconventional well, which would require fracking, showed potential for a flow of 770 barrels per day, the company said in a statement.
"It is a very important (potential) well, in terms of likely volume, on a par with the best (non-conventional) in the United States," said industry expert Eduardo Barreiro.
A judge earlier this month said President Cristina Kirchner could be investigated for abuse of authority in a major Chevron fracking deal.
Chevron and YPF also this month unveiled plans to spend another $1.6 billion to develop the Vaca Muerta shale formation for oil and gas projects.
Kirchner is keen to get Argentina from spending billions of dollars on energy imports every year to self-sufficiency. The country's energy import costs hit $9 billion last year alone.
The massive energy bill is a top economic concern, because Argentina is losing its hard currency reserves by buying imports.
State oil giant YPF has dug 184 wells and is on target to have 300 open by year's end.
Various new techniques for extracting oil and gas, notably "fracking" involving the injection of water and chemicals deep into rock to release reserves, have led to booming production in North America.
The cheap resource is causing upheaval on world markets in what the International Energy Agency describes as an energy revolution.
But critics point to studies that show fracking increases the risk of contaminating drinking water, warning of untold dangers to humans and livestock.
Copyright AFP (Agence France-Presse), 2014
Written by OilOnline Press — May 22nd, 2014 | 69 Views
LNG Canada announced that it has selected CFSW LNG Constructors as its main contractor for the proposed LNG export terminal in Kitimat, British Columbia. CFSW LNG Constructors is a partnership of Chiyoda, Foster Wheeler, SAIPEM and WorleyParsons.
The contract covers Front End Engineering and Design (FEED) as well as project execution services, subject to a Final Investment Decision by LNG Canada. CFSW LNG Constructors will begin FEED activities for the LNG Canada project on 1 June 2014.
Andy Calitz, CEO LNG Canada said, “We are pleased to be working with Chiyoda, Foster Wheeler, SAIPEM and WorleyParsons, a group of companies who together have extensive experience in the liquefied natural gas industry and Canada. While this is a great step forward, a decision to build the facility is still some time away.”
“We will continue to work with the B.C. and federal governments, First Nations communities in northwest B.C. and other stakeholders to develop a project that is economically viable and, if we take the decision to construct this project, it will be technically advanced, it will meet the high environmental standards expected of us, and it will create tremendous opportunity for the people of B.C. and Canada,” Calitz added.
CFSW LNG Constructors will lead the effort of hiring the general contractors who will organize and hire employees and businesses for the construction phase of the LNG Canada project.
The signing of the FEED contract is the first milestone for LNG Canada since the signing of the Joint Venture Agreement that created the operating entity LNG Canada Development Inc. on April 30 this year. While there is considerable work that still needs to be done prior to LNG Canada making a Final Investment Decision in a couple of years, the initial technical work has now been completed, land has been acquired, the Project Description has been submitted and the Environmental Assessment is currently underway.
LNG Canada is comprised of Shell Canada Energy (50%), an affiliate of Royal Dutch Shell plc, and affiliates of PetroChina (20%), Korea Gas Corporation (15%) and Mitsubishi Corporation (15%). This operating entity is incorporated and registered under the federal laws of Canada.
The proposed LNG Canada project includes the design, construction and operation of a gas liquefaction plant and facilities for the storage and export of liquefied natural gas (LNG), including marine facilities in Kitimat, British Columbia.
Associated PressBy SINAN SALAHEDDIN | Associated Press – 9 hours ago
BAGHDAD (AP) — Iraq's self-ruled northern Kurdish region on Thursday started exporting crude oil to the international market through the Turkish port of Ceyhan despite objections from the central government in Baghdad, Turkey's energy minister said.
The Iraqi government insists it has the sole right to develop and market the country's natural resources. Since the 2003 U.S.-led invasion, the Kurds and Arab-led central government in Baghdad have been at loggerheads over rights to develop resources.
Baghdad says only the central government may draw plans, award deals to developers and export crude on the international market, while the Kurds argue that the constitution allows their regional government to do so as well.
The Kurds have signed more than 50 deals with Western oil companies without Baghdad's consent. Since early January, they started pumping crude oil through a separate pipeline that goes to through Turkey, bypassing a Baghdad-controlled one.
"The shipment of northern Iraqi oil waiting at Ceyhan to international markets has started," Energy Minister Taner Yildiz told Turkey's state-run Anadolu Agency. "The loading of one million barrels of oil is continuing," Yoldiz added without naming the buyer.
Baghdad has warned that it will deprive the Kurds of their 17 percent share in the national budget if they go ahead with the exports without the government's approval and will sue the buyers. Officials in Baghdad were not immediately available to comment.
The latest development could add to the already souring relations between the Kurds and Baghdad at a time of starting negotiations to form a new government after the April 30 national elections. The country's Shiite Prime Minister, Nouri al-Maliki, emerged the biggest winner, securing 92 seats in the 328-member parliament.
Also Thursday, Iraq's Oil Ministry said crude exports averaged 2.51 million barrels a day in April, a nearly 6 percent increase from the previous month.
In a statement on its website, the ministry said April's revenues stood at $7.582 billion, based on an average price of $100.691 per barrel. March's oil exports averaged 2.37 million barrels a day, bringing that month's revenues to $7,507 billion.
The ministry said a major pipeline — not the Kurdish-pumped one but the one under Baghdad's control that is also north-bound — remains idle because of "terrorists attacks."
The pipeline also goes to Turkey's Mediterranean port of Ceyhan, pumping 300,000 to 400,000 barrels a day, but traverses Sunni-dominated areas in Iraq and has been a favorite target for militants.
Iraq holds the world's fourth largest oil reserves, some 143.1 billion barrels. Oil revenues make up nearly 95 percent of Iraq's budget.
Associated Press writer Suzan Fraser contributed to this report from Ankara, Turkey.
Follow Sinan Salaheddin on Twitter at https://twitter.com/sinansm
By Matthew Philips May 22, 2014
The U.S. used to be the world’s biggest consumer of African oil, importing about a quarter of the continent’s total exports. Now it’s barely taking any at all. Since 2010 the U.S. has cut the amount of oil it imports from African countries by 90 percent, from an average of roughly 2 million barrels per day to about 170,000.
The shale oil boom has boosted U.S. production from 5 million barrels a day in 2008 to more than 8 million. The Energy Information Administration predicts that by 2019 that number will rise to 9.6 million barrels per day. For what it’s worth, Saudi Arabia pumps about 9.5 million barrels of oil per day.
Almost all of that new U.S. oil is light, sweet crude—the same kind American refiners used to import from West Africa. Now, instead of shipping it across the Atlantic, U.S. refiners are piping and railing it across the country. That’s pushed African oil to Asia (China now gets a third of its oil from Africa) and helped keep the world oil markets stable and well supplied amid large amounts of chaos and outages.
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This is essentially the story of four major African oil producers that hardly sell to the U.S. anymore: Nigeria, Angola, Algeria, and Libya. Nigeria has seen its exports to the U.S. tumble the most, from more than a milion barrels a day in 2011 to about 38,000 as of February.
