Pre-salt fields
Forecast to 2020
Dated Brent crude oil fell $1.81/barrel to $101.725/b Tuesday, the lowest level in 13 months, with both futures and physical markets softening amid perceptions of good crude availability combined with only poor to moderate demand from European refineries.
The September Brent contract continued to fall Wednesday, slipping below $103/b to reach $102.87/b at 11:39 BST.
The IEA's monthly report Tuesday said the oil market was well supplied despite ongoing geopolitical tensions over conflicts in Iraq, Libya and Ukraine. The energy watchdog also cut its estimate of global oil demand this year and said OPEC was pumping at a five-month high.
"The IEA report ticked all the boxes for the bears -- weaker demand, high stockpiles and on top of that an increase in supply," IG Markets strategist Ryan Huang said in a note. "The only thing keeping prices supported are lingering concerns about Iraq."
Later Tuesday, the American Petroleum Institute added to bearish sentiment reporting that US commercial crude stocks rose 229,000 barrels to 364.18 million barrels for the reporting week ended August 8.
The continued steep contango structure in the market, good availability levels of several crude grades, and only moderate throughput rates at European refineries have left many traders and end-users looking to store crude during the current market lull, said traders.
"People are looking at storage economics, including storing on ships," said one trader Tuesday.
Iraq conflict: oil continues to flow, but exports hit
Richa Mishra / Amiti Sen
The ongoing political conflict in Iraq has not impacted oil supplies to India from West Asia, which remains a key supplier. In fact, Indian refiners do not see any immediate impact of the crisis on crude oil sourcing and pricing. However, merchandise exporters from India fear that the continued unrest in Iraq could lead to payment issues and a drop in shipments.
Refiners Indian Oil Corporation and Essar Oil are large purchasers of Iraqi oil. Geographical proximity and the type of crude required by the refineries are the main reasons for West Asia being a favoured buying point.
But the oil industry and the Government are also aware of the risks attached to being over-dependent on the region. Almost 80 per cent of India’s crude oil requirement is met through imports. In 2013-14, about 13 per cent of the 189.24 million tonnes of oil imports came from Iraq.
Of late, refiners have been diversifying their crude basket and are looking at Latin America and Africa. But more needs to be done, as immediate replacements may not be available.
However, the conflict has already taken a toll on exports, with shipments to Iraq dropping 34 per cent to $186.74 million in the first quarter of the fiscal. While items such as engineering products have been affected more, exporters fear that if the unrest continues longer it could disrupt shipments and payments could get stuck.
Oil companies say there are no supply constraints at present, as the unrest has not spread to the oil-producing regions of Iraq. Besides, the global market has already factored in the price implications. The fact that global crude prices have softened after breaching the $110/barrel mark is indicator enough, a private sector player said.
Engineering exports to Iraq plunged 54 per cent to $9.14 million in May 2014 from $20 million a year ago.
“The war in Iraq has clearly affected exports from our sector,” said Anupam Shah, Chairman of the Engineering Export Promotion Council.
According to the Federation of Indian Export Organisations, if tensions escalate and sanctions are imposed on Iraq, payments could also get affected.
OPEC member countries produced generous amounts of crude during July, causing a “glut” in the supply of oil, despite conflicts involving oil countries that have led to concerns of possible disruptions, the International Energy Agency (IEA) reports.
Houston (Platts)--13Aug2014/327 pm EDT/1927 GMT
Crude produced offshore Newfoundland and Labrador fell Wednesday to its lowest values in years as abundant supply for sweet waterborne grades pressured price differentials.
Hibernia was assessed at Dated Brent minus 80 cents/b, the lowest it has been since being assessed at Dated Brent minus 92 cents/b on January 21, 2006.
Prompt cargoes on the Canadian East Coast have fallen precipitously since June, with nearly 20 million barrels of West African crude still available for loading.
The cash market for Bonny Light (35 API and 0.15% sulfur) has fallen $1.89/b since June 2. During the same time span, Hibernia (35 API and 0.40% sulfur) has fallen $2.15/b.
The local market for the Canadian East Coast grades has remained steady, however, as the cracking netback margin for Hibernia on the US East Coast has increased $3.18/b since June 2.
Platts margins reflect the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.
Terra Nova was assessed at Dated Brent minus $1/b, to keep its spread with Hibernia, dropping to its lowest value since April 22, 2009, when it was assessed at Dated Brent minus $1.10/b.
White Rose was assessed at Dated Brent minus 20 cents/b, to move with its counterparts, its lowest assessment since being at the same level on October 29, 2010.
Washington (Platts)--13Aug2014/230 pm EDT/1830 GMT
A US Interior Department official wants the offshore drilling industry to develop a comprehensive public database to help improve safety and prevent spills in federal waters.
"Currently individual operators are collecting a lot of the data we need to properly assess risk, but that information isn't being shared," Brian Salerno, director of the Bureau of Safety and Environmental Enforcement, said in remarks prepared for an industry forum in Houston this week. "Everyone is working in their own silo, collecting and using information for their own operations."
But Salerno said offshore oil and gas operators, as well as regulators, lack "big picture data" and incidents, such as certain equipment failures, are not being shared with all operators. This lack of information-sharing is particularly needed as offshore drilling expands into new areas in the Arctic or potentially off the US East Coast.
"Wouldn't it be incredibly valuable to have more information for these operations in new frontier areas that carry great economic potential, but also carry great risk?" Salerno said in his remarks to the Ocean Energy Safety Institute forum.
Salerno acknowledged that there are obstacles to creating this database, such as sharing proprietary information and a lack of standard formatting, but stressed that he does not want regulators to mandate such a database.
"We don't want a regulatory solution and prefer that industry tackle this," he said.
BSEE plans to finalize several new offshore safety programs and standards this year, including a "near-miss" data collection program designed to give regulators access to information on accidents offshore operators previously would not have reported.
Under the system, which is modeled on a similar system to track near-miss incidents in the airline industry, offshore operators will voluntarily and anonymously report incidents that it otherwise would not be required to report.
In a recent interview, Salerno said a culture of safety has not been executed equally at all offshore oil and gas companies in the four years since BP's Macondo disaster and some Gulf of Mexico operators continue to do only the bare minimum to prevent a future drilling disaster.
Santiago (Platts)--13Aug2014/626 am EDT/1026 GMT
Chile will import 9 million barrels of crude oil, worth an estimated $900 million, from Angola in 2015, a threefold increase from this year, following a deal struck with the Angolan government and state Sonangol, Chile's energy ministry said Tuesday.
The increase will make Angola the largest supplier of oil to Chile outside of South America, said energy minister Maximo Pacheco in a statement. Pacheco is accompanying President Michelle Bachelet on a week-long tour of southern Africa, which has also included stops in South Africa and Mozambique.
"The important news is that Angola produces very good quality oil which Chile needs to refine in its refineries," Pacheco said. "We have agreed to increase purchases of oil from Angola significantly next year."
So far this year, Chile will receive three shipments of oil from Angola, worth an estimated $300 million; the third is due to arrive in September.
Pacheco said the deal formed part of the government's energy agenda to diversify and reduce the cost of Chile's energy supplies and would strengthen Chile's state refiner ENAP by allowing it to access a broader basket of crudes in equal conditions with its global competitors.
Canada’s WesternZagros suspends Kurdistan drilling, relocates staff
Canada’s WesternZagros Resources has temporarily suspended the final stage of re-drilling an exploration well on Iraqi Kurdistan’s Garmian license and is relocating staff, the company said Wednesday.
“WesternZagros Resources has implemented a number of precautionary measures on its Garmian Block in the Kurdistan Region of Iraq where our assets remain safe and secure,” the Canadian independent said in a statement.
“The measures include the temporary reduction of operations and relocation of non-essential personnel away from field locations and company regional offices. As a result, the final stage of the Company’s Sarqala-1 well workover has been suspended,” it said.
WesternZagros said the measures followed the recent curtailment of a number of third-party oil field services in the Kurdistan region and were aimed at ensuring the safety of employees, contractors and equipment.
North Sea weekly Brent loadings halve to 87,128 b/d
The UK’s Sullom Voe terminal loaded 80,271 mt, or 87,128 b/d, of Brent/Ninian Blend crude in the week of August 6-12, the Shetland Islands Council said Wednesday.
That compares with 163,988 mt, or 177,997 b/d, the previous week. The cargo count halved to one in the most recent week. Only the NS Creation loaded, picking up 80,271 mt of Brent/Ninian Blend for delivery to Le Havre on August 9.
There were no ship-to-ship transfers nor imports or exports to or from Schiehallion in the most recent week. Brent/Ninian Blend, Clair and Schiehallion all load from Sullom Voe.
Brent/Ninian Blend is one of the four North Sea crude grades that can set the Dated Brent benchmark. August loadings of Brent/Ninian Blend are due to be 4.8 million barrels.
The program for the following month was released late last week, with the loadings due to fall to 3 million barrels in September, when a six-day maintenance is scheduled to go ahead at the Sullom Voe terminal.
Pemex plans 10 JVs under Mexican energy reform: company director-general
Pemex plans to form 10 joint ventures with private companies as part of Mexico’s new energy reform, Emilio Lozoya, director-general of the state oil and natural gas monopoly, said Wednesday. The first announcements of the joint ventures are likely to be made in November, Lozoya said at a ceremony to disclose the Mexican oil and natural gas fields Pemex will retain under the energy reforms.
They would probably run for five-10 years each, with a total investment of $32 billion, he said. Pemex has earmarked 10 projects in four packages that include mature fields (three onshore and three offshore), extra-heavy crude, natural gas and deepwater fields, Lozoya said, according to a transcript of his remarks.
Since the nationalization of Mexico’s oil and gas industry in 1938, Pemex has not allowed to form upstream joint ventures.
Gazprom Neft, Russia’s fourth largest oil producer and the oil arm of gas group Gazprom, expects no short-term impact on its operations from the latest sanctions on Russia, which ban supplies of EU and US deepwater, Arctic and shale oil equipment and technologies, a company executive said Tuesday.
“We have acquired all the key equipment [beforehand] and expect no effect of the sanctions on our key projects in the short-term period,” the executive said during a second-quarter conference call. Gazprom is taking active steps to ensure it decreases dependence on foreign equipment, he said.
In the meanwhile, Gazprom Neft is looking for alternative suppliers of equipment and technology, another executive said during the call. The EU and the US in late July targeted Russia’s oil sector as part of new economic sanctions over the country’s involvement in the Ukraine crisis.
September exports of Kazakhstan’s CPC Blend crude oil grade are expected to fall 469,550 mt (3,662,490 barrels) from the final August loading program to 2.912 million mt, according to a preliminary loading program seen by Platts Tuesday.
In daily terms, loadings are set to drop 93,722 b/d, from 850,842 b/d in the final August program to 757,120 b/d in the preliminary September version. While September has one fewer loading date than August, there are also currently three free positions in the provisional September schedule, creating a “hole” between September 23 and 26.
A free position is a laycan within the program to which no crude oil has yet been assigned, resulting in a gap. Free positions may subsequently be replaced with a cargo. July’s final CPC Blend schedule was the largest since at least April 2012, according to Platts data, with August not far behind.
The loading schedules for CPC Blend have been getting increasingly long on average as pipeline capacity within the system has expanded in conjunction with the development of the Kashagan field in the Caspian Sea. Currently, there are three laycans where two cargoes are scheduled to load.
The gap in loading dates means that the provisional September schedule is already 321,300 mt shorter than the provisional August schedule, which had no such gap.
The CPC program is typically published in two stages — a provisional schedule released mid-way through the preceding month, and a final schedule released within the first week of the loading month.
There are currently 30 cargoes scheduled to load in September, comprising 23 Aframaxes and seven Suezmaxes. CPC Blend is a light grade produced in western Kazakhstan with an API gravity of around 43.5 and a sulfur content of around 0.55%.
The grade is exported via the 1,580 km (980 mile) CPC pipeline to its Black Sea export terminal near the Russian city of Novorossiisk.
By Adam Williams Aug 14, 2014
Petroleos Mexicanos, preparing for the end of its 76-year state oil monopoly, was granted rights to all the proved and probable oil reserves it sought for development as Mexico opens its doors to foreign competition.
Pemex, as the state-owned company is known, will maintain 83 percent of the country’s so-called 2p reserves and 21 percent of potential reserves, Energy Minister Pedro Joaquin Coldwell said today in Mexico City. Mexico’s investment in fields will be $50 billion between 2015 and 2018, he said in a presentation of Round Zero, as the non-competitive awarding of fields was called.
The opening of Mexico’s energy industry to private investment is considered to be on a scale with the North American Free Trade Agreement in terms of economic significance, Alberto Ramos, chief Latin America economist at Goldman Sachs, said in an Aug. 7 research note. The energy ministry will now prepare for the first round of open bidding on untapped Mexico fields, scheduled to be held in the first quarter of 2015, according to Coldwell.
“We see this as a positive result, as Pemex gets to keep fields that it knows, but more of the important prospective resources remain available for the private sector to invest,” CarlosCapistran, the chief Mexico economist at Bank of America Corp., said in a note to clients. “A positive small surprise with respect to our expectations.”
In March, Pemex asked to retain fields that hold Mexico’s 13.44 billion barrels of proven oil reserves and 83 percent of the 24.8 billion proved and probable reserves.
Seeking JVs
Pemex will hold production rights to the Cantarell and Ku Maloob Zaap fields, as well as the Lakach deepwater gas field and areas of the Perdido deepwater field where it has explored, Deputy Energy Minister Lourdes Melgar said at the same event.
The state company will seek two joint ventures in the Perdido area, as well as partnerships in Lakach and extra-heavy oil fields and mature fields, Chief Executive Officer Emilio Lozoya said today. Pemex’s priority is to seek joint ventures in the short term, he said.
The company is looking for partners in 10 projects where it lacks the technical and financial resources to develop fields on its own, Lozoya said. The plans for joint ventures will require investments of about $32.3 billion in the next five to 10 years, he said.
“These farm outs will increase investment in the oil industry by 16 percent,” he said. “The energy reform will start to provide results to activate the oil industry since the first day.”
Round One
Mexico’s Round One bidding on untapped fields and those not retained by Pemex begins immediately as preliminary terms will be released between November and January, with contracts to be awarded in May 2015, Juan Carlos Zepeda, president of CNH, said at the event. Foreign and local companies will be able to bid on 109 blocks available for exploration and 60 for extraction in the round, according to Melgar.
Mexico’s energy overhaul, enacted this week by President Enrique Pena Nieto, has been touted as the solution to falling oil output, which is headed toward a 10th straight year of decline. The reform breaks Pemex’s production monopoly and allows companies such as Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) to explore for oil in deep waters and onshore shale gas deposits.
Production Outlook
Mexico’s production is forecast to increase to 3 million barrels a day by 2018, up from 2.48 million through the first six months of the year, according to oil regulator CNH.
Pemex’s output probably will remain at a minimum of 2.5 million barrels a day for the next two decades with the fields it has been assigned, Melgar said.
The company cut its 2014 production forecast to the lowest level in at least 24 years, trimming estimates to 2.44 million barrels a day from 2.5 million, Gustavo Hernandez, Pemex’s head of exploration and production, said on July 25.
By Rakteem Katakey and Debjit Chakraborty Aug 14, 2014
Oil & Natural Gas Corp.’s (ONGC) first-quarter profit missed analyst estimates after India’s biggest explorer doubled costs for digging unsuccessful wells and sold crude at a steeper discount.
Net income rose 19 percent to 47.8 billion rupees ($782 million) in the three months ended June 30 from 40.2 billion rupees a year earlier, New Delhi-based ONGC said in a statement yesterday. That missed the 58.5 billion-rupee median estimate of 29 analysts surveyed by Bloomberg. Sales rose 13 percent to 218.1 billion rupees.
“Higher exploration write-offs took a bite out of ONGC’s profits,” said Dhaval Joshi, a Mumbai-based analyst at Emkay Global Financial Services Ltd. “Without this, the profits could have been closer to expectations.”
ONGC wrote down 38.3 billion rupees during the quarter for exploration costs, compared with 15.68 billion rupees a year earlier. It gave 132 billion rupees of discounts to refiners including Indian Oil Corp. (IOCL) in the quarter, compared with 126.2 billion rupees a year earlier, according to the statement.
The discount is required by the Indian government and takes away almost half of ONGC’s profit every quarter to partly compensate state-run refiners for selling fuels below cost. Finance Minister Arun Jaitley is preparing to sell shares in the company to help narrow the nation’s budget deficit to the lowest in eight years.
ONGC has gained 39 percent this year, compared with the 22 percent increase in the benchmark S&P BSE Sensex. (SENSEX) The shares fell 0.9 percent to 402 rupees in Mumbai yesterday. The earnings were released after the close of trading.
Realization per Barrel
The company hasn’t been able to increase oil and gas production from its Indian fields, some as much as 40 years old, making it dependent on crude prices and fluctuations in the rupee for profit.
Net realization from selling a barrel of oil, after discounts, increased to $47.15 from $40.33. Gross realization climbed to $109.48 a barrel from $103.06, the company said in the statement.
The rate of Brent crude, a benchmark for more than half the world’s oil, averaged 6.2 percent more in the quarter, compared with a year earlier.
By Daryna Krasnolutska Aug 14, 2014
SaveAug. 13 (Bloomberg) -- Bloomberg’s Ryan Chilcote reports on the questions surrounding the intent behind Russian President Vladimir Putin’s aid convoy that is quickly approaching Ukraine. He speaks on “Bloomberg Surveillance.”
Ukraine opened the door to a compromise over humanitarian aid arriving on hundreds of trucks from Russia, saying it could accept the supplies if the Red Cross distributed them in the nation’s war-torn eastern regions.
Ukraine also demanded that its own customs and border officers examine the shipments first near a checkpoint into the Luhansk region, where pro-Russian separatists have been battling government troops for months. Maria Zakharova, spokeswoman for Russia’s Foreign Ministry, didn’t answer a call to her mobile phone seeking comment outside of office hours in Moscow. There were conflicting reports on the location of the truck convoy.
“A decision was taken to accept aid for Luhansk to avoid a full-scale invasion from Russia,” Svyatoslav Tsegolko, a spokesman for President Petro Poroshenko, told reporters yesterday in Kiev. The Organization for Security and Cooperation in Europe would also be involved in checking the cargo that left Moscow Aug. 12, he said.
The dispute over the Russian convoy is stoking tensions in Ukraine and has prompted the U.S. and the European Union to warn the government in Moscow against using aid as a pretext for a military intervention. Russia says the supplies are needed to help citizens of Luhansk and Donetsk, where fighting has cut off water and power connections. Ukraine said yesterday that it will send its own aid to the two cities.
Convoy Halted?
The location of the convoy remained unclear. Russia’s state-run Rossiya 24 television said the trucks had stopped yesterday at a military base in the city of Voronezh, about 350 kilometers (220 miles) by road from Luhansk. The vehicles are moving through Russian territory, according to Dmitry Peskov, a spokesman for Russian President Vladimir Putin.
While Russia says the convoy is working under the auspices of the International Committee of the Red Cross, the Geneva-based organization said yesterday that it’s awaiting information on what’s being shipped. Viktor Shcherbanyuk, a spokesman for the Ukrainian Red Cross in Kiev, said there’s no agreement over the convoy with the ICRC.
The ruble, the most-volatile currency in emerging markets, strengthened 0.4 percent to 36.02 per dollar after losing 0.7 percent on Aug. 12. Ukraine’s hryvnia advanced 1.9 percent to 13.15 per dollar after reaching a record-low on Aug. 12 as central bank Governor Valeriya Gontareva told lawmakers that there was “a mood of panic” because of speculation a “full-scale war” may break out.
‘Cynical Aggressor’
Ukrainian Interior Minister Arsen Avakov had said earlier yesterday on his Facebook page that the Russian convoy wouldn’t be allowed to enter, calling it a provocation by a “cynical aggressor.” The government in Kiev blames the insurgency on Putin, who denies the allegation.
Russia said yesterday the aid supplies were agreed with its neighbor and that there was no ulterior motive for the shipments.
“There continue to be absurd claims that the humanitarian aid convoy for the civilian population in southeast Ukraine could be used as a pretext for a Russian ‘armed invasion’ into a neighboring state,” the Foreign Ministry said on its website.
The ICRC said it’s still lacking information on the “practical steps” needed for the aid delivery.
“We seriously need security guarantees, for example, and direct contact with all the parties -- this is not settled yet,” Laurent Corbaz, its head of operations for Europe, said in a video on the Red Cross website. “We need as well to know precisely what is inside the convoy, the size of this convoy, and the various material that is going to be handed over.”
Army’s Noose
The U.S. echoed those concerns, with deputy State Department spokeswoman Marie Harf saying yesterday that “we don’t know what’s in the trucks.”
OSCE spokeswoman Iryna Gudyma said she had no information on Ukraine’s proposal to check the Russian supplies at the border with Luhansk.
Meanwhile, fighting continued in Ukraine’s east, where government forces are tightening a noose around militant strongholds. The death toll from the fighting, which began after Russia annexed Ukraine’s Black Sea Crimean peninsula in March, has doubled in the last two weeks to more than 2,000, Agence France Presse reported yesterday, citing United Nations data.
The military has urged civilians to leave Donetsk and Luhansk as it seeks to complete an encirclement that would shut off routes to the Russian border and sever separatist supply lines. About half of the cities’ 1.5 million residents have fled, while most shops remain closed.
Putin, whose country is facing increasingly stiff economic sanctions over its role in the conflict, may meet Poroshenko this month, Kazakh President Nursultan Nazarbayev said yesterday on his website. Nazarbayev, who spoke with Putin by phone, said he may also take part in the meeting, along with Belarus President Aleksandr Lukashenko.
By Ladka Bauerova Aug 14, 2014
Vladimir Putin’s dream of a new pipeline to deliver Russian natural gas to the European Union without passing through Ukraine is fading amid escalating tit-for-tat economic sanctions.
The $46 billion South Stream project, spearheaded by OAO Gazprom, is on hold and will probably remain in limbo for years as Russia continues to foment armed conflict in eastern Ukraine and the EU retaliates with bans, Eurasia Group said.
That means the war-torn country will remain a key transit point for about half of Gazprom’s shipments to Europe, according to the New York-based risk research group. The EU previously had mixed positions on South Stream. With Russian troops massing near the Ukraine border, the bloc now has little choice but to stand united in opposition.
“There’s no way Europe is going to put South Stream negotiations back on the table now, given the larger geopolitical context of the Ukraine crisis,” Emily Stromquist, a Eurasia analyst in London, said in an interview. “That, combined with a number of regulatory disputes about the pipeline and gas deliveries will push back the timeline a number of years.”
The proposed 2,446-kilometer (1,520-mile) pipeline would run under the Black Sea and enter the EU in Bulgaria. That would end Gazprom’s dependence on the Ukrainian gas-transit system.
While the European Commission had previously voiced concerns that the project was violating the bloc’s open-access laws, some EU members, particularly in the south, had openly supported it. That’s shifting as Putin’s support for armed separatists in eastern Ukraine and retaliatory bans on European goods strengthens the 28-nation bloc’s resolve to halt the project.
Political Leverage
“Politically it’s very difficult for the Commission to support South Stream as this might be seen as depriving Ukraine of its leverage toward Russia,” Katja Yafimava, a senior analyst at Oxford Institute for Energy Studies, said in an interview. “But equally, it’s very difficult for the EC to block South Stream as long as it can’t ensure security of supply for its south east Europe members by other means.”
The commission declined to comment directly on the pipeline’s prospects, and said in an e-mail that all new energy infrastructure investments must adhere to the bloc’s laws.
Gas Disputes
Ukraine and Russia have a long history of disputes over gas prices and debt. In 2009, all Russian gas flows through Ukraine were halted for 13 days, leaving southeastern Europe without gas supplies. While Russia has diversified the routes it uses to get gas to the EU, Gazprom still shipped 89 billion cubic meters through Ukraine last year, about 55 percent of its total exports to Europe.
With an eventual capacity of 63 billion cubic meters a year, South Stream, remains a crucial part of Russia’s dream to eliminate Ukraine as a transport country.
Gazprom had initially expected to bring South Stream online by the end of 2015 with an initial annual capacity of 15.75 billion cubic meters. Gazprom officials could not be reached for comment.
Companies on both sides of the Black Sea are unhappy. Gazprom has spent about $3.1 billion on Russia’s domestic network to prepare for South Stream, and plans to invest at least another $18.4 billion.
European Partners
In Europe, Italy’s Saipem SpA (SPM) has signed a 2 billion-euro contract ($2.68-billion) to install the first subsea line. Electricite de France SA, Germany’s Wintershall AG and Italy’s Eni SpA (ENI) all own minority stakes in the offshore segment of the project and have billions of dollars at stake in future profits.
Gazprom owns 50 percent of the 930-kilometer undersea section, estimated to cost about 10 billion euros. The onshore sections in Europe, to be developed by Gazprom with local utilities, would cost about 6 billion euros, the Russian company estimates.
Saipem and EDF have said the project remains on schedule, and Wintershall anticipates no immediate impact on its business.
“We can’t say how the sanctions will ultimately affect the business climate, which could have a mid-to-long-term impact on our activities,” Wintershall spokeswoman Anna Bungarten said in an Aug. 6 e-mailed message.
‘Top Agenda’
Given the value of the South Stream project to Russia, the EU may use it to gain leverage in negotiations over deliveries of Russian gas to Ukraine, Eurasia’s Stromquist said.
“The project is on the very top of the agenda, both for President Putin and for Gazprom,” she said. “It’s an important political tool for Europe, particularly in terms of restarting the gas talks with Ukraine.”
Some nations, including Bulgaria, were betting on South Stream to dramatically improve the security of their supplies. They halted construction only under intense pressure from Brussels and the U.S.
The Bulgarian government acceded only after it turned out that the construction deal had been awarded to OAO Stroytransgaz, a Russian company controlled by Putin ally Gennady Timchenko, who is on the U.S. sanctions list.
“Those countries are highly dependent on the Ukrainian route,” Yafimava said. “Especially in the Balkans, they suffered very badly during the 2009 gas crisis. For them the concern isn’t dependence on Russian gas, it’s the insecure transit through Ukraine.”
By Lynn Doan, Grant Smith and Moming Zhou Aug 14, 2014
Aug. 12 (Bloomberg) –- Bloomberg’s Ryan Chilcote reports earnings for OMV, the Austrian company building part of the Southstream pipeline which will help transport oil and natural gas out of Russia without having to go through Ukraine. He speaks to Mark Barton, Manus Cranny and Caroline Hyde on “Countdown.” (Source: Bloomberg)
Fighting across Iraq, Libya, Ukraine and Gaza, and an accelerating economy, should mean higher oil prices. Yet crude is falling.
Six years ago, oil soared to a record $147 a barrel as tension mounted over Iran’s nuclear program and the world economy had just seen the strongest period of sustained growth since the 1970s. Now, West Texas Intermediate, the U.S. benchmark price, has traded below $100 for 10 days and Brent, the European equivalent, tumbled to a 13-month low.
What’s changed is the shale fracking boom. The U.S. is pumping the most oil in 27 years, adding more than 3 million barrels of daily supply since 2008. The International Energy Agency said yesterday that a supply glut is shielding the market from disruptions. Bank of America Corp., Citigroup Inc. and BNP Paribas SA concur.
Iraq’s Oil
“North America has pushed out an incredible amount of crude oil that it used to import,” Ed Morse, the head of commodities research at Citigroup, said in a phone interview from New York yesterday. “The world doesn’t need that much.”
The U.S. imported 7.17 million barrels a day of crude in May, a 26 percent drop from the same month in 2008, according to data compiled by the Energy Information Administration, the Energy Department’s statistical arm. Foreign deliveries will meet 22 percent of U.S. demand next year, the lowest level since 1970, the agency said yesterday.
U.S. Growth
U.S. gross domestic product will grow 3 percent in 2015, accelerating from 1.7 percent this year, according to the median forecast from 84 economists surveyed by Bloomberg. Job openings rose in June to the highest level in more than 13 years, firming up the labor market picture for the second half of the year, according to the U.S. government.
The nation’s output is forecast to climb to 9.28 million barrels a day next year, the highest level since 1972, the EIA said. The agency cut its 2014 price forecast for WTI to $100.45 a barrel yesterday from a July projection of $100.98.
Oil markets became more resilient to the threat of global supply disruptions because of “spare capacity” and softer global demand, Francisco Blanch, the head of commodities research at Bank of America in New York, said by phone yesterday. Saudi Arabia, the world’s largest crude exporter, has been very reactive to oil price moves resulting in markets that are the most stable since the early 1970s, the bank said in a report today.
“Growth in oil demand was far outpacing our ability to physically supply oil” in the first half of 2008, Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas in London, said by phone yesterday. “The price of oil needed to rise promptly to ration demand.”
Speculative Advance
The 2008 price rally was supported by investors pouring money into oil futures as they sought alternatives to stocks. Today, speculative interest in crude is shrinking, Tchilinguirian said. Net-long positions in both Brent and WTI fell to the lowest level in at least six months in the week ended Aug. 5, according to data compiled by the ICE Futures Europe exchange in London and the U.S. Commodity Futures Trading Commission.
“There was a bubble in the market in 2008,” with the view that the world was running out of oil and other commodities, Morse said. “Everything changed soon after 2009.”
Brent crude for September delivery rose $1.26 to end at $104.28 a barrel on the ICE exchange, after closing yesterday at the lowest since July 2013. WTI oil climbed 22 cents to $97.59 a barrel on the New York Mercantile Exchange.
Global Conflicts
Violence flared in Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, in early June as Sunni Islamist militants captured towns in the northwest and then pushed toward Baghdad. Clashes between political factions intensified last month in Libya, where oil exports have been choked by political protests.
Israel deployed forces in Gaza last month with the stated aims of quashing rocket fire and destroying dozens of infiltration tunnels. Tension between Russia and western governments has escalated over President Vladimir Putin’s backing of separatist rebels in eastern Ukraine.
Retail gasoline in the U.S. has dropped 22.3 cents a gallon since peaking in April at $3.696, data compiled by Heathrow, Florida-based AAA show. Prices are at a four-year seasonal low and capped the biggest July drop in six years as the nation’s refiners ran the most oil on record to take advantage of cheap domestic supplies.
Oil Demand
The recent decline in oil prices may prove to be just a phase as global demand is forecast to pick up in the second half of the year, Bhushan Bahree, senior director of global oil at IHS Energy, said by phone yesterday. Demand will rise 1.71 million barrels a day to 93.45 million in the third quarter and climb again to 94.04 million in the fourth, the Paris-based IEA said in a report yesterday.
“There are different moving parts when you go forward, and what we’re expecting now may not play out the same way,” Bahree said from Washington. “I would still think we are going to see more demand and there will be some support for prices.”
Global oil demand grew last quarter at the weakest pace since 2012, helping to calm world markets amid the conflicts, the IEA said in its report. The agency cut estimates for total growth in 2014 by 180,000 barrels a day.
OPEC Supplies
Supplies from the Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, rose to a five-month high of 30.44 million barrels a day in July as Libyan output recovered and Saudi Arabia increased production, the IEA said.
Industry oil inventories in developed nations swelled in June to their highest since September, the agency said. Stockpiles of crude and refined products in the Organization for Economic Cooperation and Development increased for a sixth month in June, by 13.8 million barrels to 2.67 billion, narrowing their deficit to their five-year average.
“Market participants are obviously fed up with events that are built up as geopolitical risks, but which never realize as material disruptions in supply,” Eugen Weinberg, the head of commodities research at Commerzbank AG in Frankfurt, said by e-mail yesterday. “At the same time the demand growth has been rather disappointing.”
Libyan Oil
Libya loaded the first oil cargo from the port of Ras Lanuf since it was closed by rebels a year ago. The tanker will soon leave port with 680,000 barrels of crude and head to Italy, Ibrahim Al-Awami, the oil ministry’s director of measurement, said by phone yesterday from Tripoli. State-run National Oil Corp. plans to double exports this month.
U.S. oil production is outpacing unplanned outages that cut into global supply, Adam Sieminski, the EIA’s administrator, said by phone from Washington. Global outages affected about 3.2 million barrels a day in July, up from 1.5 million at the end of 2011, he said. U.S. output has meanwhile risen 2.61 million barrels a day since the end of 2011.
“Production is continuing to grow, and in the meantime, global demand is slowing down a little bit and efficiency gains are beginning to have an impact,” Sieminski said. “It’s a very positive story for consumers.”
By Adam Williams and Carlos Manuel Rodriguez Aug 14, 2014
Petroleos Mexicanos, facing a 10th straight year of production declines, is including water in its oil output and may revise previously reported data, according to a company official briefed on the matter.
A record gap this year between reported output and what the state-owned company processes is partly explained by measuring systems at older fields that are unable to differentiate water-heavy oil from actual crude, the official said, asking not to be named as Pemex debates reducing figures for the past three years or more. Last month, the company cut its 2014 output forecast to 2.44 million barrels a day.
Pemex, which is preparing to form partnerships with private producers for the first time in seven decades, produced 2.48 million barrels a day through June, while its distribution system processed 2.32 million barrels a day, according to the National Hydrocarbons Commission. The commission didn’t give a reason for the 6.5 percent gap. In an e-mail, Pemex’s press department attributed the difference to evaporation, statistical variations and storage, without commenting on the inclusion of water.
Pemex was probably “setting goals they weren’t achieving and postponing the moment to correct the information,” Adrian Lajous, the oil company’s chief executive from 1994 through 1999, said in a phone interview from Mexico City.
Through June, the unaccounted oil averaged 162,000 barrels a day, according to data compiled by the industry regulator, known as CNH for its initials in Spanish. That’s up from 102,700 barrels a day last year and 68,600 in 2012, the data show. Over the first six months of this year, the gap was worth about $2.8 billion of oil, based on prices for the Mexican mix of crude for export.
Red Flag
Pemex’s inclusion of water in its output raises “red flags” for companies that may want to partner with the oil producer, according to Tim Samples, a law professor at the University of Georgia.
“I certainly wouldn’t rule out securities and exchange issues arising from such a discrepancy,” Samples said in a telephone interview. “When you’re talking about that much discrepancy, when there’s huge volume, you’re starting to get into the territory of potentially misleading investors.”
Gustavo Hernandez, Pemex’s head of exploration and production, said today that the company is working to reduce water output at its Cantarell field, which has been increasing as the field ages.
CNH has set goals for Pemex to improve its water measuring, according to a statement on its website.
The Energy Ministry and CNH didn’t respond to requests for comment made to their press departments by telephone and e-mail. The Finance Ministry declined to comment on the difference between Pemex’s production and distribution.
Oil Theft
Pemex production has also been diminished by oil theft, which it says more than quadrupled from 2009 to 2013. There were 2,167 incidents of pipeline theft reported in Mexico last year, resulting in a loss of about $792 million, equivalent to about 8 million barrels, based on the 2013 average oil prices.
Most of the pipeline thefts are for refined products, and only about 20,000 barrels a day are from light crude, newspaper El Financiero reported Aug. 4.
The Energy Ministry announced today that Pemex was granted rights to all the proved and probable oil reserves it sought for development. The company will maintain 83 percent of the country’s so-called 2p reserves and 21 percent of potential reserves, Energy Minister Pedro Joaquin Coldwell said during a presentation of non-competitive bidding known as round zero.
The peso was little changed at 13.1348 per U.S. dollar as of 2:15 p.m. in Mexico City.
Declining Output
The production-distribution gap appears to be factored into Pemex’s production for July, which fell to 2.39 million barrels a day, the lowest since October 1995, said Lajous, who’s now an industry consultant.
Mexico’s energy overhaul, enacted this week by President Enrique Pena Nieto, is forecast by the government to increase crude production to 3 million barrels a day by 2018, a goal that now appears “almost impossible,” according to Lajous.
Mexico became a major oil exporter after the 1971 discovery of Cantarell, one of the world’s biggest oilfields in the shallow waters of the Bay of Campeche. Cantarell’s output has declined almost 90 percent since it began production in 1979, and the field now produces more and more water, as does the Abkatun Pol Chuc field, according to Lajous.
“It is rumored that there are about 100,000 barrels of water mixed with the crude being sent to Pemex refining that is being sent back,” Marcelo Mereles, a former Pemex executive who’s now a partner at energy consulting firm EnergeA, said in an interview in Mexico City. “By the time it’s understood that part of the volume shipped is actually water, the production figures have already been made public by Pemex.”
By Moming Zhou Aug 13, 2014
U.S. crude inventories increased last week for the first time since June as refineries reduced operations and the end of the peak summer driving season approaches.
Stockpiles grew 1.4 million barrels in the week ended Aug. 8, rebounding from a five-month low, the Energy Information Administration reported today. Refineries reduced utilization rates for a third time, according to the Energy Department’s statistical arm.
Crude inventories may continue to pick up as plants prepare for seasonal maintenance and rising output from shale formations bolsters U.S. production. Fuel consumption reached the highest this year in the four weeks ended Aug. 8, EIA data showed. The peak driving season typically starts on Memorial Day, which came on May 26 this year, and runs through Labor Day on Sept. 1.
“We are going into the fall and the peak demand season is nearing an end,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Maintenance usually leads you to a crude inventory build, which will pressure crude prices.”
Crude inventories unexpectedly increased to 367 million barrels last week, the EIA said. Analysts surveyed by Bloomberg had expected a decline of 2.05 million barrels.
Supplies at Cushing, Oklahoma, the delivery point for WTI futures, increased for a second week, gaining 418,000 barrels to 18.4 million. CVR Energy Inc. shut the Coffeyville refinery in Kansas after a July 29 fire. The 115,000-barrel-a-day plant receives crude from Cushing.
Fracking Gains
U.S. domestic crude production reached a 27-year high in July as a combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies trapped in shale formations. Output will rise to 9.28 million barrels a day in 2015, the highest annual average since 1972, according to EIA forecasts.
Refineries used 16.2 million barrels a day of crude last week, down 179,000 from the previous period and the lowest level since June 20. The utilization rate dropped to 91.6 percent from 92.4 percent.
U.S. refineries typically schedule maintenance for September and October, when they move from maximizing gasoline output to producing winter fuels.
The four-week average oil consumption rose to 19.8 million barrels a day in the period ended Aug. 8, the highest since Dec. 20, EIA data showed.
By Todd White Aug 13, 2014
Spain’s government gave Repsol SA (REP) final authorization to begin exploring off the Canary Islands, capping the energy company’s 12-year quest for permission to tap what may be the nation’s biggest oil find.
The Industry Ministry approved the project in an Aug. 11 resolution published today in the Official Bulletin. The Madrid-based company won environmental clearance in May from the Popular Party-led government, which is reinvigorating domestic energy exploration that largely withered during past decades.
Should the drilling be successful, Repsol has estimated it will spend as much as 7.5 billion euros ($10 billion) to develop the site in waters near the Canary Islands of Fuerteventura and Lanzarote off Africa’s west coast.
The Spanish company was authorized to drill two or three wells. Its partners are Woodside Energy Ltd. of Australia and German power company RWE AG. (RWE)
Spain’s largest oil company was held up for more than a decade by environmental challenges and delays by successive governments. Repsol has said it expects to begin work before year-end. Geologists have estimated the area between the Canaries and Morocco may hold enough petroleum to supply about 10 percent of national demand at full production levels.
Repsol’s plans incited one of Spain’s more vigorous environmental opposition movements, lasting years and being fought to the level of the Supreme Court. Protests have swelled in the last year, with 150,000 to 200,000 people joining a June 7 demonstration alone, in every Canary island, according to a local press reports.
The project has been rejected by local governments and community groups in the islands, which count tourism as one of their most important industries and have said they fear a major oil spill that will drive away visitors.
Repsol shares were little changed in Madrid trading at 18.06 euros as of 5:02 p.m. local time. The benchmark IBEX 35 was 0.4 percent higher.
By Mark Shenk Aug 13, 2014
West Texas Intermediate oil declined after a government report showed that U.S. crude inventories unexpectedly increased.
Crude stockpiles rose 1.4 million barrels to 367 million in the week ended Aug. 8, according to the Energy Information Administration. A 2.05 million-barrel supply drop was projected by analysts surveyed by Bloomberg. Output gained while refinery utilization dropped. Kurdish forces fought to retake positions overrun by Islamic State fighters in northern Iraq as Prime Minister Nouri al-Maliki tried to cling to power in OPEC’s second-biggest oil producing country.
“This shows that there’s plenty of crude,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston. “The increase in U.S. oil production has displaced imports, which is keeping the world well-supplied. If not for the U.S. output gains we would have seen a spike because of all the geopolitical issues out there.”
WTI for September delivery fell 33 cents, or 0.3 percent, to $97.04 a barrel at 10:49 a.m. on the New York Mercantile Exchange. Futures traded at $97.18 before the release of the report at 10:30 a.m. in Washington. The volume of all futures traded was 9.7 percent above the 100-day average.
Brent for September settlement gained 8 cents to $103.10 a barrel on the London-based ICE Futures Europe exchange. Volumes were 38 percent higher than the 100-day average. The contract touched $102.37, the lowest intraday level since July 1, 2013. The European benchmark crude traded at a $6.06 premium to WTI, up from $5.65 yesterday.
Crude supplies at Cushing, Oklahoma, rose by 418,000 barrels to 18.4 million last week, data from the EIA, the Energy Department’s statistical arm, showed.
Price Forecast
The EIA cut its 2014 price forecast for WTI after the U.S. reached its highest monthly output in 27 years in July. Futures will average $100.45 this year versus the July projection of $100.98, the Energy Department’s statistical arm said yesterday in its monthly Short-Term Energy Outlook. Oil output was 8.5 million barrels a day in July, the most since April 1987.
Inventories of gasoline declined 1.16 million barrels to 212.7 million, the report showed. Supplies were projected to fall by 1.5 million barrels, according to the median of 10 analyst estimates in the Bloomberg survey. Gasoline demand dropped 0.4 percent to 9.02 million barrels a day in the past four weeks, the report showed.
U.S. refineries operated at 91.6 percent of their capacity last week, down 0.8 percentage point from Aug. 1, according to the EIA.
Gasoline for September delivery dropped 1.77 cents, or 0.7 percent, to $2.7168 a gallon on the Nymex.
Pump Prices
U.S. gasoline pump prices dropped 0.1 cent to $3.473 a gallon nationwide yesterday, the lowest since March 4, according to AAA, the largest U.S. motoring group.
Brent slid yesterday after the International Energy Agency said demand growth eased last quarter, while crude production in the Organization of Petroleum Exporting Countries increased. OPEC crude output increased by 300,000 barrels a day to 30.44 million in July, a five-month high, amid gains from Saudi Arabia, the IEA said in its monthly oil market report.
Aggregate financing in China was 273.1 billion yuan ($44 billion) in July, the central bank said today in Beijing, contrasting with a Bloomberg LP gauge that showed China loosened monetary conditions last quarter at the fastest pace in almost two years. Factory production rose 9 percent from a year earlier in July, compared with 9.2 percent in June, figures from the statistics bureau showed.
Air Strikes
Kurdish peshmerga troops, bolstered by U.S. air strikes, fought Islamic militants near the town of Sinjar, Iraq, according to Nineveh provincial council member Hisham al-Brefkani. The push came as France said it would supply the Kurds with weapons and the U.S., which is also carrying out air surveillance missions, deployed scores of military advisers.
President Barack Obama, who authorized limited air attacks against Islamic State after it made rapid gains last week, has tied expanded U.S. action to the formation of a more inclusive government capable of easing sectarian and ethnic divisions.
The conflict has spared supply from Iraq’s south, home to more than three-quarters of its crude output. The nation is OPEC’s second-largest producer, pumping 3 million barrels a day in July.
A crude tanker left Ras Lanuf port yesterday, Libya National Oil Co.’s spokesman, Mohamed Elharari, said. The vessel, carrying 680,000 barrels of oil, was bound for Italy, according to Ibrahim Al-Awami, the Oil Ministry’s director of measurement.
By Anna Hirtenstein Aug 13, 2014 9:08
Marc Kolber, a native of Long Island, has spent more than three years overseeing the construction of offices for foreign oil companies in Iraqi Kurdistan. Now he’s joining an exodus of expatriates from the capital, Erbil.
“The expat community in Erbil was thriving, it was a very welcoming and inclusive society,” Kolber said in a telephone interview as his employer made arrangements to evacuate staff. “But now about 80 percent of expats have left.”
The Kurdistan region of Iraq has attracted hundreds of foreigners in the past five years, enticed by a mixture of oil, security and growing prosperity. The autonomous region, largely free from the violence that’s plagued the rest of the country, has some of largest untapped oil fields in the world.
Islamic State fighters are battling Kurdish troops just 50 miles (80 kilometers) from Erbil, threatening the energy boom that’s brought a thriving international airport and modern office blocks to one of the world’s most ancient cities. Oil companies including Chevron Corp. (CVX) and Afren Plc (AFR) have evacuated expatriate staff and halted drilling operations.
Iraq’s Brittle Nationhood
“The future of Erbil and Kurdistan as a whole is in oil, if the oil companies leave, the region will have a difficult time,” Kolber said. “Everything was built with oil money. If that dries up, there will be next to nothing left.”
The Kurdish government is grappling with a humanitarian crisis as tens of thousands flee the violence near the region’s borders. The Islamist group seized villages and Iraq’s largest dam from the Peshmerga, Kurdistan’s military force.
Oil Investments
“Some local residents in Erbil worked themselves into a hysteria through rumors circulating on social media, causing mass panic,” said Danny Dougramachi, Erbil-based managing director of Federal Group, an Iraqi company with investments in oil and construction. “This spooked the expat community, some of whom requested their companies to get them out, and a domino effect followed with a mass evacuation.”
President Barack Obama’s military intervention -- including jet strikes against Islamic State forces and humanitarian drops of supplies to refugees -- has improved morale in Erbil, Dougramachi said.
“The minute Obama announced that he was considering air strikes last week, the mood changed, people were dancing in the streets and honking car horns, it was like a football victory,” he said. “Now the locals are not nervous anymore and the expats that are left are more relaxed.”
In Erbil, it’s possible to move freely, shop, eat in restaurants and mix with locals. The city has seen new shopping centers, hotels and restaurants built over the past five years.
Production Share
More than 20 international oil companies have come to Kurdistan since the U.S. invasion in 2003. In contrast to the federal government in Baghdad, Massoud Barzani’s regional administration offered explorers contracts that gave them a share of oil production.
First came small companies willing to take a gamble, then giants like Exxon Mobil Corp. (XOM) and Chevron followed.
This year, Barzani’s government completed an oil pipeline linking Kurdistan with Turkey, allowing them to export crude directly and bypass the oil ministry in Baghdad. Before this month’s violence, the Kurds forecast oil production would jump from 400,000 barrels a day this year to 1 million barrels a day in 2015.
Suspended Drilling
Those targets may now be under threat after explorers including Afren and Hess Corp. suspended drilling as fighting flared around the city of Mosul, near Kurdistan’s border with the rest of Iraq and less then an hour’s drive from Erbil.
“One of our rigs is in the Maqlub block on top of a mountain and you can actually see Mosul in the distance,” said Randy Arnold, president of drilling services at Viking Services Ltd., an oilfield services company. “Our guys there said they saw fire and smoke in the city. We first withdrew our people back to Erbil and then we chartered a flight to fly everyone out to Istanbul.”
Marc Kolber said Erbil’s future will be determined by maintaining direct links with the rest of the world.
“If people can’t fly in and out of the region, they’ll leave,” he said. “Most international oil companies have a stomach for a little bit of unrest, but as soon as they can’t come and go anymore, they’ll pack up.”
Deutsche Lufthansa AG canceled flights to Erbil from Frankfurt, saying in a statement that “the safety of passengers and crew remains the company’s highest priority.” Emirates also suspended flights yesterday and Etihad Airways halted its route on Aug. 7.
Regional services by Turkish Airlines, Royal Jordanian Airlines, Middle East Airline and Pegasus Airlines are still flying to Erbil on schedule.
By Mikael Holter Aug 13, 2014
Aker Solutions ASA (AKSO), the offshore engineering company controlled by billionaire Kjell Inge Roekke, could miss opportunities to expand into Russia’s Arctic region if Europe and the U.S. uphold sanctions on the country.
“If the political situation continues and the sanctions are long-term, they will mean lost market opportunities,” Chairman Oeyvind Eriksen said in Oslo yesterday. While the Fornebu, Norway-based company isn’t currently involved in any large projects in Russia, it’s “ready to consider” opportunities when the restrictions are lifted, he said.
Aker Solutions, which has experience of the Arctic through projects it’s worked on off Norway, is seeking to expand into new markets as the company splits to focus on its subsea and engineering businesses to cut costs and improve shareholder returns. The company’s owners, which include Roekke’s investment company Aker ASA (AKER) and the Norwegian state, approved the split at a meeting in Oslo yesterday.
“Russia is one of the world’s biggest oil and gas producers, with large resources not least in the Arctic region, which is part of the core competence of Aker Solutions,” said Eriksen. “I hope the political situation is clarified quickly, and not only for commercial reasons.”
Sanctions announced by the European Union and U.S. are targeting Russia’s energy, finance and defense industries as the conflict between pro-Russian separatists and Ukrainian government forces escalates and after a Malaysian Airline System Bhd (MAS) civilian jet was shot down in eastern Ukraine.
Profit Margins
While Norway isn’t a part of the EU, it will comply with the sanctions, the government said this week.
Sales from Norwegian oil-service companies to Russia amounted to less than 5 billion kroner ($810 million) in 2012, according to a government-commissioned report last year by industry consultant Rystad Energy AS. That represents less than 3 percent of their turnover outside Norway and less than 1 percent of the total.
Aker Solutions gained 0.5 percent to 92.15 kroner as of 12:02 p.m. in Oslo, while Aker fell 0.4 percent to 227 kroner.
The sanctions, which include a ban on the transfer of technology for deepwater and Arctic oil exploration and production, come just as Rosneft OAO (ROSN), Russia’s biggest oil company, prepares to drill about 40 exploration wells in its largely untapped Arctic waters. Those wells are being drilled with partners including Exxon Mobil Corp. and Norway’s Statoil ASA (STL), the biggest customer of Aker Solutions.
‘Small Bonanza’
“It’s potentially very serious” for Norwegian suppliers of services ranging from ice management to medical response and platform engineering that could miss out on exploration and other developments, said Haakon Skretting, regional director for Russia at industry group INTSOK, which promotes the Norwegian oil industry abroad. Exxon and Rosneft’s first well in the Kara Sea will cost $700 million.
“If they find a big oil field there this summer, it could be the start of a small bonanza, an adventure,” Skretting said in a phone interview. “The real concern here is that the Norwegian industry wouldn’t be able to take part in that.”
Seismic surveyors, which map the seabed in search of oil and gas deposits, may also miss business in Russia, Petroleum Geo-Services ASA spokesman Tore Langballe said in a phone interview. Lysaker, Norway-based PGS has “limited exposure” to Russia with activities in the country representing less than 5 percent of sales, he said.
Seismic Plans
“Large seismic programs are planned in Russia in the coming years,” he said. “This kind of sanctions will have implications for the industry, that in turn will have implications for us.”
While France’s Technip SA (TEC), which is involved in the Yamal liquefied natural gas project in Russia’s Arctic, has said sanctions will hurt profit margins, they probably won’t boost competition in the global oil-services market, Aker Solutions’ Eriksen said.
“The sanctions will impact companies that have built large organizations and production capacity in Russia,” he said. “Our competitors won’t realistically be able to employ that capacity to increase competition in other regions.”
By Gopal Ratnam and Angela Greiling Keane Aug 14, 2014
U.S. troops flew to a mountain in northern Iraq where they found fewer trapped civilians than expected, making it “far less likely” that the U.S. will conduct a rescue, U.S. Defense Secretary Chuck Hagel said.
A team of fewer than 20 U.S. personnel today conducted an assessment of the situation on Mount Sinjar, where officials had thought tens of thousands of people were stranded after fleeing Islamic State militants. Many of those who had been trapped in recent days escaped to safer areas, Hagel told reporters at Andrews Air Force base near Washington.
The civilians, members of the Yezidi religious minority, are in better condition than anticipated as a result of recent airdrops of food and water, Hagel said.
There are several thousand Yezidis remaining on the mountain, according to a military official, who spoke on condition of anonymity to expand on Hagel’s comments. That is less than a tenth of the number U.S. officials said they expected to find.
As a result of the assessment, “it is far less likely we would undertake any specific rescue mission we had been planning,” Hagel said.
By Rupert Rowling Aug 14, 2014
Air France-KLM, Europe’s biggest carrier, led cuts in fuel-cost hedging by the continent’s airlines in the third quarter as prices headed for the first annual decline in six years.
The airline reduced the value of the jet fuel it hedged by $338 million for the period, compared with a year earlier, data from the company show. Three of the five largest carriers tracked by Bloomberg cut their protection against price increases for this year, while two kept it the same.
Jet fuel prices, which haven’t fallen on a yearly basis since 2008, have slid 7.4 percent in 2014, data compiled by Bloomberg show. Hedging can diminish the benefit of falling prices for airlines that have covered a large proportion of their fuel needs in advance. Air France-KLM’s hedges locked in fuel contracts at higher costs before oil prices collapsed in the second half of 2008, costing the company 418 million euros ($600 million) in the third quarter of 2009.
“The jet fuel price is coming down and is likely to drop, so airlines are belatedly benefiting from this due to their hedging strategies put in place last year,” said Olli Rouhiainen, an analyst at Standard & Poor’s in London, who rates the companies’ debts. The decline boosts airlines’ profits because fuel represents their single biggest variable cost, he said by phone Aug. 8.
The price of jet fuel cargoes for delivery into northwest Europe fell to $948 a metric ton on Aug. 12 from $1,023.25 on the last day of 2013. It has closely tracked the price of Brent crude, the European benchmark, for which the front-month contract on the ICE Futures Europe exchange in London fell 7 percent to $103.02 a barrel over the same period.
‘Special Consideration’
Air France-KLM hedged 63 percent of its estimated $2.4 billion fuel bill for the third quarter, compared with 74 percent of its $2.5 billion consumption a year earlier, data from the company show. That was the biggest percentage decrease among the largest European carriers, and it was the only company to reduce hedging for all periods when it reported half-year earnings on July 25.
“Fuel accounts for a substantial portion of the Air France-KLM group’s fixed costs,” Maxime Patula, the airline’s spokesman, said by e-mail Aug. 4. While the company gives “special consideration” to managing its fuel-price risk, its strategy to hedge consumption over a rolling two-year period is in line with competitors, he said.
International Consolidated Airlines Group SA, which operates the carriers Iberia and British Airways, decreased hedges by 4 to 6 percentage points for the next three quarters, while increasing those for the second quarter of next year and for next 12 months, according to its second-quarter results presentation Aug. 1. The company declined to comment on its hedging.
Insurance Policy
EasyJet Plc (EZJ), the region’s second-largest discount airline, cut the percentage of fuel it has hedged for the third quarter and full year, while increasing coverage for next year, the airline said in its third-quarter results presentation July 24. The latest figures remain within established hedging policy, the company said.
Ryanair Holdings Plc (RYA), Europe’s biggest discount carrier, kept its coverage unchanged for this financial year at 90 percent, the company said in its first-quarter results July 28.
“We value the certainty, it’s an insurance policy on the business and we will continue to extend our hedging program,” Chief Financial Officer Howard Millar said in a telephone interview yesterday. “It would have to be an extraordinary, exceptional event for us to change our view on hedging.”
Deutsche Lufthansa AG, Europe’s second-largest carrier, left its hedging level for this year unchanged and slightly increased coverage for 2015, according to company’s first half 2014 results on July 31. Lufthansa couldn’t be reached for comment by phone and e-mail.
Price Drop
Airlines caught out by the sharp oil-price drop in 2008 altered their approaches, according to London-based consultant Energy Aspects Ltd. Ryanair lost 169 million euros in 2009 after its hedging policy left the company paying $124 a barrel for oil when prices were as low as $32. Air France-KLM cut the time span over which it hedged fuel to two years from four in 2009 after losing money.
“The financial crisis was the trigger for airlines to scale back the tenure of their hedges, with them now tending to hedge one year to a maximum of 18 months in advance,” Amrita Sen, chief oil market analyst at Energy Aspects, said by phone Aug. 6. “This has now become a structural change.”
With the majority of European carriers scaling back their protection against a rise in jet fuel, there remains a risk of them losing money if prices were to increase in the second half of this year, according to Commerzbank AG.
“Now would be a bad time to cut back on hedging when prices are at their lowest,” Carsten Fritsch, a commodity analyst at Frankfurt-based Commerzbank, said by phone Aug. 12. “We expect a small price increase as currently Brent prices are unsustainably low.”
Markets currently face “mounting geopolitical risks spanning an unusually large swath of the oil-producing world,” including armed conflict in Libya, Iraq and Ukraine, the International Energy Agency said in its monthly report Aug. 12.
By Gregory Viscusi, Khalid Al-Ansary and Mahmoud Habboush Aug 14, 2014 Aug. 13 (Bloomberg) -- Kurdish forces fought to retake positions overrun by Islamic State fighters in northern Iraq last week as Prime Minister Nouri al-Maliki tried to cling to power with his international backing crumbling. Phil Mattingly reports on U.S. aid to Iraq on “Bloomberg Surveillance.” (Source: Bloomberg)
Kurdish forces fought to retake positions overrun last week by Islamic State fighters in northern Iraq, as Prime Minister Nouri al-Maliki sought to cling to power even after losing the backing of key ally Iran.
Kurdish peshmerga troops, bolstered by U.S. airstrikes, fought the Sunni militants near the town of Sinjar, according to Nineveh provincial council member Hisham al-Brefkani. The push came as France said it would supply the Kurds with weapons, and the U.S. and Britain readied plans to rescue ethnic Yazidis trapped by the insurgents in the mountains of northern Iraq.
As his support crumbled, Maliki denounced as unconstitutional President Fouad Masoum’s naming of Haidar al-Abadi, a member of Maliki’s Shiite Dawa party, to replace him as premier. The political standoff between Masoum and Maliki following inconclusive April elections has exacerbated a power vacuum and hindered efforts to counter Islamic State insurgents who have seized large parts of Iraq since June.
Following airstrikes against Islamic State units, Kurdish forces are fighting to “retake all the bases the peshmerga lost or used to control,” Brefkani said by phone from Erbil, the capital of the Kurdish region. The Kurds’ objectives include the strategic Mosul dam, Iraq’s largest, he said.
Safe Place
Britain and the U.S. were focused on rescuing members of the Yazidi community who fled the Islamic State’s offensive.
Iraq’s Brittle Nationhood
“We need a plan to get these people off that mountain and get them to a place of safety,” U.K. Prime Minister David Cameron said in London after cutting short his holiday. “Detailed plans are now being put in place and are underway and Britain will play a role in delivering them.”
Britain is delivering ammunition to Kurdish forces, Cameron said, though he didn’t mention the source of the armaments.
U.S. advisers will report back with recommendations on breaking the siege of the Yazidis within days, Deputy National Security Adviser Ben Rhodes said today. U.S. planes have been dropping food and water to trapped members of the community almost every day, he said. State Department spokeswoman Marie Harf put the number still besieged at tens of thousands.
In Baghdad, Abadi moved ahead with efforts to form a new cabinet, calling for candidates for ministerial portfolios, he said on his Facebook page. The European Union, the Arab League, and countries including Egypt and Saudi Arabia have backed Abadi’s nomination, as has Iran, a one-time backer of Maliki and the region’s dominant Shiite power.
‘Step Aside’
Maliki’s Shiite-dominated government has for years alienated minority Sunnis, some of whom have backed the Islamic State insurgency. The prime minister remained defiant today even after officials in Tehran signaled they’d lost faith in him.
“This government will continue and will not be changed until a federal court decision is made,” Maliki said in a television address today. “Things are not that simple.”
Ali Shamkhani, secretary of Iran’s Supreme National Council, congratulated Abadi yesterday on his selection as the next prime minister, the Islamic Republic News Agency reported. Iranian Supreme Leader Ayatollah Ali Khamenei said today that with the selection of Abadi “knots will be untied” and a “government will be formed so it can get to work.”
“The only person that thinks Maliki should stay in power is Nouri al-Maliki,” Michael Stephens, deputy director of the Royal United Services Institute in Qatar, said in a phone interview. “The Iranians have withdrawn their support from him. The Americans have withdrawn their support from him. I’m not sure what he needs to get in order to understand that he really should probably step aside.”
Obama Order
The coalescing support around Abadi helped Iraq’s ISX General Index rise for a second day. It increased 3.6 percent in Baghdad, according to data on the stock exchange website.
President Barack Obama, who authorized limited air attacks against the Islamic State after they made rapid gains last week, has tied expanded U.S. action to the formation of a more inclusive government capable of easing sectarian and ethnic divisions. While the U.S. and Iran are nemeses on many fronts, they share a common enemy in the Islamic State.
The group started in 2003 as al-Qaeda in Iraq, led by Jordanian militant Abu Musab al-Zarqawi until he was killed in a U.S. air strike in Iraq in 2006. It later became known as the Islamic State in Iraq and in 2013 renamed itself Islamic State in Iraq and the Levant, or ISIL. In October 2013, al-Qaeda’s leader Ayman al-Zawahiri disavowed ISIL for its brutality and for not following orders.
French Arms
After earlier saying it would wait for the decision of its fellow EU members, France went ahead and supplied weapons directly to Kurdish forces, saying it had received “urgent requests.” The German Foreign Ministry said EU foreign ministers may meet on the crisis on Aug. 15.
The Kurds are “naturally going to want to retake the territory, reestablish their reputation as capable fighters and create some kind of deterrence against” the Islamic State, Daniel Benjamin, a former State Department counterterrorism coordinator who’s now director of the Dickey Center for International Understanding at Dartmouth College.
“They’re postured for demonstrating more autonomy and even independence. They have an interest in showing strength now,” Benjamin said in response to e-mailed questions.
By Mark Drajem Aug 14, 2014
The oil and gas industry is ignoring a requirement to get permits before using diesel in hydraulic fracturing, putting at risk drinking water supplies near wells, an environmental watchdog group reported.
The Environmental Integrity Project combed through data on an industry-backed website and found 351 wells since 2010 that were fracked with chemicals that match the Environmental Protection Agency’s definition of diesel. In 143 cases, the operator later erased the disclosure from the FracFocus site, the group said in the report released today.
The EPA requires companies using diesel to apply for a state or federal permit, and there’s no record that any did, according to the Washington-based environmental watchdog.
“Companies that inject diesel without permits should be fined for ignoring the law,” Mary Greene, the group’s managing attorney who wrote the report, said in a statement. “The public deserves more disclosure and transparency about the toxic chemicals used in hydraulic fracturing.”
According to Greene, disclosures were erased from FracFocus after the EPA in February issued a preliminary definition of which chemical compounds qualified as diesel.
In 2005, Congress exempted fracking, in which water, sand and chemicals are shot underground to free gas or oil trapped in rock formations, from the requirements of the Safe Drinking Water Act. Health advocates labeled the exemption the “Halliburton loophole,” referring to Halliburton Co. (HAL), the largest provider of fracking services, led by Richard Cheney before he was elected vice president in 2000.
Fracking Oversight
The law gave the EPA continued oversight of fracking if diesel is part of the injecterd mix, in large part because EPA said use of that fuel poses the greatest threat to drinking water. Diesel is typically used when the underground rock or clay has a tendency to absorb water and contains benzene and other carcinogenic compounds, according to a 2011 report by Democrats on the U.S. House Energy and Commerce Committee.
Companies have phased out the use of diesel, and now are doing the same for kerosene and fuel oil that are included in the EPA’s definition of diesel, said Lee Fuller, vice president of the Independent Petroleum Association of America, a group for drillers such as Chesapeake Energy Corp. (CHK) Drillers probably erased the diesel classification as they corrected data-entry mistakes, he said.
“They are going back and finding their original reports were incorrect,” Fuller said today in an interview.
The 351 wells identified by the group are among 77,659 included in the FracFocus database. “That’s a pretty small number out of 77,600,” Fuller said.
