The Kurdistan Regional Government said Friday it has taken over control of the Kirkuk and Bai Hassan oil fields in northern Iraq in an attempt to thwart “politically motivated sabotage” by Iraqi authorities at the massive Kirkuk field.
In a statement, the KRG said it learned on Thursday that officials Baghdad had given orders to cease their cooperation with the KRG and render a new pipeline linking the Iraqi and Kurdish domes of the Kirkuk oil field inoperable.
“The nearby Bai Hassan field and the other fields located in Makhmour district are now safely under KRG management. The KRG expects production at these fields to continue normally,” it said.
Production from the fields would now be used “primarily” to alleviate domestic fuel shortages, the KRG said. “This will ease the burden on ordinary citizens caused by the failure of the federal authorities to protect the country’s vital oil infrastructure in the region,” it said.
Kirkuk, Bai Hassan and other northern fields, with some 500,000 b/d of capacity, are managed by the NOC but have been shut in because of the violence that has swept across a large swathe of northern Iraq. “This morning’s events have shown that the KRG is determined to protect and defend Iraq’s oil infrastructure whenever it is threatened by acts of terrorism or, as in this case, politically motivated sabotage,” the KRG said.
The semi-autonomous region also said it plans to claim its constitutional share of oil revenues from the fields it now controls to compensate for the “illegal withholding” of the KRG’s 17% share of the federal budget by Baghdad.
The Avana domes of Kirkuk fields have been unable to export since March because the main Iraq-Turkey pipeline has been damaged by terrorist attacks. The main Iraq pipeline lies mostly within territory recently surrendered by the federal government to ISIS.
North Sea sweet crude grade Ekofisk sank to a seven-year low Thursday, assessed down $0.305/b at Dated Brent minus $0.27/b. It was last lower in January 2007, according to Platts data.
“Ekofisk is clearly struggling to do much better than Dated flat, even for non-prompt dates,” said one trader Thursday, adding that the contango structure might help barrels clear. “It feels like this much oil is around, which has been a shock to us, people will be incentivized to store.”
The steepening contango can be seen in Contracts-for-Difference (CFDs), where front-week/second week structure was assessed at minus $0.55/b Thursday, its deepest since October 2013. Looking over a broader time structure, Dated Brent versus second-month (currently September) Cash BFOE was assessed at minus $2.205/b Thursday, its lowest since May 2010.
Many sweet crude grade differentials have come off dramatically over the last month, competing with a glut of July-loading West African cargoes, and in the face of poor European refining margins.
Brent/Ninian Blend was assessed down $0.405/b at minus $0.38/b Thursday, its lowest since March 2010. DUC is reportedly on offer at Dated Brent plus $1.10/b, but with the grade typically trading up to a $0.30/b premium to Ekofisk earlier this year, some traders expect value to be below this offer level and at multi-year lows.
The lower differentials, and steepening contango in Dated Brent, have been a boon for refiners with Brent-related feedstock costs. “The margins are better than last week for sure,” said one European refiner Thursday. “[But] it’s not clear yet if it’s something that will keep, or will continue to get better.”
The South Korean government has renewed efforts to encourage refiners to diversify their crude import sources away from the Middle East following political uncertainties in the region.
In its latest effort, Seoul has offered to fully compensate refiners for the difference in their transportation costs incurred for importing crude from regions other than the Middle East, an official with the Ministry of Trade, Industry and Energy said Friday.
South Korea has been partially subsidizing refiners’ crude transportation costs for non-Middle East crude imports since 2004. It raised this coverage in 2011, but this did not lead to any significant diversification of supply sources (see table below).
The new measure will take effect on September 19, the official said, adding that the government could look to add more incentives but nothing has been decided on that yet. South Korea relies on imports to meet all of its crude oil demand of around 2.5 million b/d.
Over 80% of its supplies come from the Middle East and most of this is transported through the piracy-plagued Straits of Malacca. “With the benefits, refiners would be tempted to import crude from non-Middle East countries,” the ministry official said.
South Korea’s refiners currently pay a tariff of Won 1,600 ($1.60) per 100 liters of imported crude oil, but get the same amount of rebate on their oil product exports. “Importers of non-Middle East crude can continue to enjoy the tax refund as well,” the official said. “This means that refiners importing crude from regions other than the Middle East could enjoy double benefits — subsidies for transportation costs and tax rebates.”
Refiners said they were encouraged by the new measures aimed at encouraging diversification of supply sources, but also pointed out that this would not be easy to achieve.
GS Caltex, South Korea’s largest importer of Iraqi crude, said it would look at alternate sources. “We will try to diversify crude supply sources to South America and Africa so as to reduce dependence on Iraq and the Middle East,” a GS Caltex official said.
GS Caltex imports 4 million-6 million barrels of crude oil a month from Iraq, which accounts for 20%-25% its imports.
The International Energy Agency sees less need for OPEC crude on the global market in 2015 than this year as non-OPEC supply is expected to meet the bulk of rising demand, it said Friday.
In its latest monthly oil report, the IEA said the call on OPEC for next year was for an average of 29.8 million b/d, 100,000 b/d lower than the IEA’s estimate for this year. “For full year 2015, the ‘call’ was pegged at 29.8 million b/d, with increased non-OPEC supplies forecast to meet the lion’s share of higher demand,” it said.
The July edition was the IEA’s first monthly report to make forecasts for 2015, and it said it saw global demand up 1.4 million b/d at 94.1 million b/d “as macroeconomic conditions improve.”
“As in recent years, the greatest upside is envisaged from non-OECD economies, which alone are forecast to rise by approximately 1.5 million b/d in 2015, thus more than offsetting a modest curtailment in OECD demand, driven by efficiency gains,” it said.
Non-OPEC supply in 2015 is forecast to average 57.5 million b/d, an increase of 1.2 million b/d, in line with 2013 and 2014 growth levels, the IEA said. “The US and Canada remain the mainstays for growth, but sources are expected to be more diverse than in 2014,” it said.
The IEA said this was an upward revision of 150,000 b/d from its medium-term outlook and reflected higher anticipated production of tight oil in Texas, particularly at Eagle Ford.
For the second half of 2014, the IEA said it also reduced the call on OPEC by 350,000 b/d to 30.6 million b/d “in line with a downward revision to demand and an upward adjustment to non-OPEC supply numbers.”
But, it said, OPEC would still have to raise production by more than 500,000 b/d from June levels in order to balance the market.
OPEC supplies were virtually unchanged in June, down an average of 40,000 b/d, at 30.03 million b/d as lower Iraqi production offset gains in Saudi Arabia, Iran, Nigeria and Angola.
The estimate of global oil demand for 2Q 2014 has been revised downwards by 135,000 b/d, to 91.9 million b/d, on the back of weaker-than-expected recent delivery data. China, Germany, Italy and Iraq led the revisions.
Profit margins for refining crude in Europe have soared on the weakening cost of Brent-related crude prices, as a glut of supply pressures the entire North Sea complex, said traders. The cracking margin for medium-sour UK grade Forties within the Amsterdam-Rotterdam-Antwerp hub jumped $0.94/b to $3.51/b Thursday, Platts data showed.
That was up from minus $0.79/b June 17. Slow Asian buying of the July West African programs resulted in a higher than usual volume having to find homes in Europe, said traders. Against a backdrop of low run rates in Europe, this caused differentials to sink across the entire sweet crude complex in the North Sea, with Ekofisk hitting a seven- year low, and all BFOE grades (Brent, Forties, Oseberg, Ekofisk) pricing at a discount to Dated Brent for the first time.
“Very weak is all one can say,” said one crude trader Friday. “Sellers are having a hard time. But margins improve with the weak Dated [Brent], so interest will pop up.” The flat price has come off sharply this week on reduced fears of a supply disruption in Iraq, and expectations of increased exports from Libya in the near term.
Dated Brent hit a three-month low of $105.30/b Friday, its lowest since April 7, when it was $104.99/b. “Oil has been assaulted by weakening demand and rising supply. Iraq’s exports are actually higher than when the ISIS crisis began and Libya is intent on flooding Europe and Asian markets with light sweet oil,” said Price Futures Group senior market analyst Phil Flynn.
By Okon Bassey
The Group Managing Director of Nigerian National Petroleum Corporation (NNPC), Mr. Andrew Yakubu, yesterday disclosed that Nigeria was working to accumulate 40 billion barrels of crude oil reserves and produce four million barrels per day.
Yakubu, who spoke at the ongoing media workshop for energy editors and correspondents in Uyo, the Akwa Ibom State capital, said: “Ahead of this, there is an aggressive exploration campaign in offshore, onshore and the inland basins of Chad, Anambra, Benue, Bida and Sokoto Dahomey.”
“We are also carrying out infield developments which have resulted in increased reserve and with the intensified approach, including the expedited action on new projects like Egina, the reserve and production targets is realizable.”
Yakubu said over 1,000 square kilometres of seismic data had been acquired in the Chad Basin in spite of the security situation in Borno State.
Yakubu said revamping of the corporation’s critical downstream facilities such as the refineries, depots, pipelines and jetties had remained the focus of the management.
He added that over 500,000 barrels of oil per day were potentially at risk due to incessant vandalism of four main crude export pipelines in the country.
History will be made today in Dutse, the Jigawa State capital, as Governor Sule Lamido will be on hand to welcome the first commercial flight to the state, through the state-owned international airport.
The airport was built within on year at the cost of over N11billion.
THISDAY learnt that Overland Airlines would make the first flight to the local airport later in the day because of the closure of the Nnamdi Azikiwe International Airport, Abuja at the weekend.
Speaking with THISDAY on telephone yesterday in Abuja, the Chief Executive Officer of the main contractor who handled the construction of the airport, El-Mansur Atelier, Mr. Tunde Oyekola, said the understanding and financial commitment of Lamido contributed immensely to the timely delivery of the project.
He said other state governments should emulate Lamido’s example in project implementation.
While inspecting works at the airport in January, the immediate Minister of Aviation, Ms. Stella Oduah, expressed satisfaction at the quality and standard of work, which was almost at completion stage.
She noted that the opening of the airport would make the state agro-processing hub, adding that the aerotropolis project of the government was to create jobs for Nigerians.
The supervising Minister, Mr. Samuel Ortom, did not respond to enquiries on whether, the federal government would be represented at the occasion.
By Andy Tully | Sun, 13 July 2014 00:00 | 1
According to BP, drivers whose vehicles rely on burning oil have a little more than a half-century to find alternate sources of energy. Or walk.
BP’s annual report on proved global oil reserves says that as of the end of 2013, Earth has nearly 1.688 trillion barrels of crude, which will last 53.3 years at current rates of extraction. This figure is 1.1 percent higher than that of the previous year. In fact, during the past 10 years proven reserves have risen by 27 percent, or more than 350 billion barrels.
The increased amount of oil in the report include 900 million barrels detected in Russia and 800 million barrels in Venezuela. OPEC nations continue to lead the world by having a large majority of the planet’s reserves, or 71.9 percent.
As for the United States, which lately has been ramping up oil extraction through horizontal drilling and hydraulic fracturing, or fracking, BP says its proven oil reserves are 44.2 billion barrels, 26 percent higher than in BP’s previous report. This is more than reported most recently by the U.S. Energy Information Administration, which had raised its own estimate by 15 percent to 33.4 billion barrels.
That means shale-oil extraction enterprises in the United States have more to offer than many first believed. The sources include the Bakken formation spanning Canadian and U.S. territory in the West, the Eagle Ford formation in East Texas and the super-rich Permian Basin in West Texas, which alon holds 75 billion barrels of recoverable fossil fuels.
And though Eagle Ford and Bakken seem to hold far less oil, EOG Resources, which has been working Eagle Ford, has increased its estimates of the site’s reserves. The Motley Fool reports that its latest estimate of recoverable fuel is 3.2 billion barrels, more than the nearly 1 billion barrels expected in 2010.
Nevertheless, BP is cautious in defining oil reserves. At the top of an introductory web page on the subject, the company states baldly: “Nobody knows or can know how much oil exists under the earth's surface or how much it will be possible to produce in the future.”
And while the amount of proven oil reserves, and their extraction, are rising each year, so is concern about how their recovery. Not only do new extraction methods use huge amounts of energy to get even more energy, particularly from shale, they also use chemicals and metals that many fear poison nearby soil and groundwater, and generate huge amounts of toxic wastewater.
Such methods are helping the United States, for example, to achieve energy independence. But that won’t apply to China, a huge customer for fossil fuels. BP says Asia-Pacific oil reserves will last only 14 years at current rates. That means China will have to keep importing oil, putting further strain on global reserves.
By Andy Tully of Oilprice.com
By Travis Hoium | More Articles
July 13, 2014 | Comments (0)
Few news items can rile markets more than conflict erupting in oil-supplying countries. Libya had markets on edge last year, affecting both oil and stocks. When Russia's military merely approached Crimea in Ukraine earlier this year, markets got nervous. When conflict erupted in northern Iraq last month, oil prices spiked and stock markets took notice as well.
This week, Iraq was in focus again, but this time because a drop in production there had less of an impact on the world's oil supply than previously feared. Oil fell, the Dow Jones Industrial Average (DJINDICES: ^DJI ) stayed near its highs, and ExxonMobil (NYSE: XOM ) and Chevron (NYSE: CVX ) both fell.
The truth is that over the long term, supply concerns often blow over and short-term movements are often unjustified. So just how concerned should we be with these potential conflicts?
The world's leading exporters
To understand how conflict could affect oil and therefore the economy, it's important to understand where the world's oil comes from. In 2012, the most recent date for which we have data from the Energy Information Administration, Saudi Arabia was the world's No. 1 producer, followed by the U.S. and Russia. Together, these three countries produced 37% of the 89.4 million barrels per day consumed globally.
Of the countries that have seen recent military or political conflicts either at home or in their region, few are big enough to make a big dent in global supply. Saudi Arabia is clearly the largest exporter of oil, followed by Russia, but places such as Iraq, Iran, and Libya are fairly small by comparison.
| Country | Net Exports in 2012 (Thousand Barrels Per Day) |
| | 8,865 |
| | 7,201 |
| | 2,595 |
| | 2,235 |
| | 1,808 |
| | 1,712 |
| | 1,313 |
To put these numbers into further context, since 2005 the U.S. has reduced oil consumption by 2,022 thousand barrels per day, increased production by 4,835 thousand barrels per day, and reduced net imports by 6,857 thousand barrels per day. So while conflicts that emerge in Iraq, Iran, or any other oil-exporting country may have an impact on the global energy market, they're not going to bring the economy to its knees.
The impact on markets
For companies, the impact may be greater. ExxonMobil has operations in nearly every oil-producing country, and a $500 billion joint venture with Russia's Rosneft was part of a political battle earlier this year. The company also has production sharing contracts that cover more than 848,000 acres of the Kurdistan region of Iraq, precisely where conflict is the worst today.
Chevron's dealings in Northern Iraq have also been contentious. The company signed oil contracts with the Kurdistan regional government that give it access to 490 square miles in two separate blocks. But Baghdad says the deals were illegal and barred the company from dealings with the central government.
While the impact on the Dow Jones Industrial Average as a whole may be small, these conflicts can affect earnings of companies as big as ExxonMobil and Chevron. Just keep in mind the scale of the potential impact when these countries hit the headlines. The impact is often not as big as the media makes it appear.
July 12, (Reuters) - - Pumping of oil from one of Colombia's most important pipelines, the Bicentenario, was paralyzed after an attack by leftist rebels, its operator said on Saturday.
The attack took place on Friday near the municipality of Fortul, in Arauca province, on the border with Venezuela. There were no injuries.
The pipeline, jointly run by a group led by state oil company Ecopetrol and Pacific Rubiales, has capacity to transport 110,000 barrels a day along its 230 kilometers (144 miles) from oil fields in Colombia's eastern plains to the Cano Limon-Covenas pipeline.
The company did not provide an estimate for restarting operations. The pipeline crosses areas where there is a strong presence of the two main rebel groups, the Revolutionary Armed Forces of Colombia, or FARC, and the National Liberation Army, or ELN.
Neither the company nor military sources said which armed group was behind the attack.
Colombia is the fourth-largest producer of oil in Latin America, but its output has been reduced by heavy attacks in recent months by the insurgent groups. There were 259 attacks on oil installations in 2013, the highest number in a decade.
Even though the FARC is engaged in peace talks with the government, attacks have continued against economic and military targets.
President Juan Manuel Santos, who was this month reelected to a second term, is also seeking peace talks with the ELN.
(Reporting by Luis Jaime Acosta; writing by Helen Murphy; Editing by Dan Grebler)
© Thomson Reuters 2014 All rights reserved.
By Feras Bosalum
(Reuters) - Protesters have shut down the eastern Libyan oil port Brega, state firm National Oil Corp (NOC) said on Saturday, days after the government celebrated the reopening of major ports following almost a year of blockage.
NOC spokesman Mohamed El Harari said the state-run Sirte Oil Co would have to shut down its production of 43,000 barrels per day (bpd) if the protest by state oil guards continued, without being more specific about timeframe.
Harari said he did not know what the demands of the guards were. He said Brega port used to export oil but recently had been mostly used to supply the western Zawiya refinery.
Last week the government managed to negotiate an end to a protest blocking the 340,000-bpd El Sharara field in the southwest. A rebel group also agreed to restart the eastern Ras Lanuf and Es Sider ports they had seized almost a year ago.
The protesters at Brega are members of the petroleum facilities guards (PFG), a force made up mainly of former militia fighters who helped oust Muammar Gaddafi in 2011.
The government in Tripoli has tried to co-opt the militias by integrating them into state forces such as the oil guards, but has been unable to control them with its fledgling army, which is still in training.
Members of the PFG often seize oil facilities they are supposed to protect to press the central government to meet political and financial demands, part of growing turmoil in the North African country.
Libya used to produce 1.4 million bpd until July 2012, when a wave of protests started. Its current output is 350,000 bpd, following the restart of the El Sharara field, NOC said on Thursday.
Disputes over Libya's oil resources have been among the many triggers for conflict between rival brigades of former rebels and allied political factions since the 2011 civil war ended four decades of Gaddafi rule.
Since then, Libya's government and outgoing parliament have struggled to rein in militias and impose order, not just in the oil sector. It is unclear whether parliamentary elections last month will finally bring greater stability and security.
On Thursday, the United Nations said it had evacuated dozens of foreign staff from its mission in Libya, prompted by a deteriorating security situation.
The U.S. State Department on Saturday expressed worry about the situation in Libya and urged that the new parliament be seated as soon as possible.
"The United States is deeply concerned by the ongoing violence in Libya and dangerous posturing that could lead to widespread conflict there," spokeswoman Jen Psaki said in a statement, without referring to specific actions.
"Libya's future will not be secured through force of arms but only through a political accord and national dialogue that allow the state to ensure security and rule of law throughout the country," she said. (Reporting by Feras Bosalum; Additional reporting by Missy Ryan in Washington; Writing by Ulf Laessing; Editing by Louise Heavens, Pravin Char and Clarence Fernandez)
By Maher Chmaytelli Jul 13, 2014 9:56 PM GMT+0700
Libya’s eastern rebels say they are committed to an agreement to re-open the North African nation’s largest oil port, Es Sider, dissociating themselves from a protest that shut a smaller crude export terminal.
“This incident, in the port of Brega, has no impact on the agreement with the government to open Es Sider and Ras Lanuf,” said Ali al-Hasy, a spokesman for the self-declared Executive Office for the Barqa region. “We stand by the agreement with the government. Es Sider and Ras Lanuf will stay open.”
Es Sider and Ras Lanuf, Libya’s third-largest oil port, have a combined daily loading capacity of 560,000 barrels. Brega, which was reported yesterday to have been shut by guards seeking better pay, can export 60,000 barrels a day, according to the Oil Ministry.
The Executive Office for Barqa seeks self-rule for the eastern region also known as Cyrenaica. It took control of four oil ports about a year ago, handing back two of them to the government in April and the remaining two this month.
Although located in eastern Libya, Brega was not among the four ports that fell under the rebel group’s control, and it continued to supply a refinery controlled by the government in the nation’s western region.
The July 3 agreement under which Barqa rebels agreed to surrender Es Sider and Ras Lanuf helped push Brent crude prices lower. The benchmark grade for more than half of the world’s oil closed at $106.66 a barrel on July 11, its lowest in three months.
Africa’s Largest
“The Executive Office for the Barqa region doesn’t command the guards in Brega, they acted on their own,” said al-Hasy. “We are nevertheless mediating with them to re-open the port. This may happen in the coming hours, God willing.”
The holder of Africa’s largest oil reserves, Libya’s output has dwindled in the past year to make it the smallest producer in the Organization of Petroleum Exporting Countries. The government is struggling to restore its authority over armed groups that took part in the 2011 rebellion that ended Muammar Qaddafi’s 42-year rule.
The country’s daily production rose to 470,000 barrels today from 350,000 barrels on July 10, as Repsol SA (REP) boosted output from the Sharara field, Mohamed Elharari, a spokesman for state-run National Oil Corp., said by phone. The shutdown at Brega could reduce output by 40,000 barrels a day, he said.
Sharara, the largest field in western Libya, resumed production last week after a four-month halt as protesters allowed a pipeline carrying its crude to re-open.
The Executive Office for Barqa relinquished the ports in return for a government promise to pay the salaries of Petroleum Facilities Guard members who defected to join the rebels, and as a goodwill gesture after last month’s parliamentary elections. The group hopes that members of the new national legislature will support its demand for an oil-revenue-sharing agreement for the Barqa region to help compensate for the neglect the area experienced under Qaddafi.
To contact the reporter on this story: Maher Chmaytelli in Dubai at mchmaytelli@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley, Dale Crofts
Whiting to Acquire Kodiak for $3.8 Billion to Lead Bakken
By Joe Carroll and Matthew Monks Jul 14, 2014 4:11 AM GMT+0700
Whiting Petroleum Corp. (WLL) agreed to buy Kodiak Oil & Gas Corp. (KOG) for about $3.8 billion in an all-stock deal that will create the dominant crude producer in the Bakken shale of the U.S. Great Plains.
Kodiak stockholders will receive 0.177 of share in Whiting for each share they own, which is the equivalent of $13.90 based on the acquirer’s July 11 price, the Denver-based companies said today in a statement. Including $2.2 billion in debt, the total transaction is valued at about $6 billion.
When the deal is complete, Whiting shareholders will own about 71 percent of the combined company, which will be led by Whiting’s senior managers. Together, the two companies produced the equivalent of more than 107,000 barrels of daily oil output from the Bakken formation in the first quarter. That exceeded the region’s current top producer, billionaire Harold Hamm’s Continental Resources Inc., by almost 10 percent.
The combination will give Whiting drilling rights across 855,000 net acres,surpassing Exxon Mobil Corp. as the second-biggest leaseholder in the area, according to data compiled by Bloomberg. Whiting is buying a company that more than doubled production last year while Whiting’s own output growth slowed as costs to bring new wells online surged.
A worker for Kodiak Oil & Gas Corp. walks along a catwalk at the top of crude oil... Read More
‘Right Time’
“This is the right deal, at the right time,” James Volker, Whiting’s chairman and chief executive officer, said in a telephone interview today. “It massively enhances the scale of the two companies combined.”
The Bakken region of North Dakota and Montana has been a hotbed of U.S. oil exploration after innovations in sideways drilling and hydraulic fracturing, or fracking, enabled access to previously impenetrable rock layers.
In North Dakota, home to some of the richest and most prolific sections of the Bakken, daily crude output surpassed 1 million barrels in April for the first time in history, making the state a bigger oil supplier than OPEC members Ecuador or Qatar. In the U.S., Texas is the only state that pumps more crude than North Dakota, according to the Energy Department.
The per-share price represents about a 5.1 percent premium to Kodiak’s volume-weighted average over the past 60 days, the companies said. Kodiak fell 2.3 percent to $14.23 on July 11, while Whiting declined 1.8 percent to $78.54.
Enterprise Value
An enterprise value for Kodiak of $6 billion is about 8.8 times earnings before interest, taxes, depreciation and amortization last year. That compares with a median of 11.6 times Ebitda for U.S. oil and exploration deals since 2009 valued at more than $1 billion, according to data compiled by Bloomberg.
Whiting and Kodiak executives have known each other for years, but began to evaluate a deal in recent months, Kodiak Chairman and Chief Executive Officer Lynn Peterson said in an interview today. “We both reside here in Denver, our offices are across the street.”
To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net; Matthew Monks in New York at mmonks1@bloomberg.net
To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Elizabeth Wollman
By Khalid Al-Ansary and Grant Smith Jul 12, 2014 4:00 AM GMT+0700
Kurdish Iraqi Peshmerga forces deploy their troops and armored vehicles on the outskirts of Kirkuk, Iraq.
Iraq’s semi-autonomous Kurds increased their control over oil resources in the north of the country after deploying armed forces to the Kirkuk and Bai Hassan oilfields.
Kurdish Peshmerga forces took control of the two sites at the country’s fourth-biggest oil field today and ordered workers from Iraq’s state-run North Oil Co. to leave, the Oil Ministry said in an e-mailed statement. The Kurdistan Regional Government said in response that it acted to prevent the central government damaging an oil export pipeline. The Oil Ministry in Baghdad denied the claim.
“Given the political context, the Kurds are solidifying their control,” Richard Mallinson, an analyst at consultants Energy Aspects Ltd., said by e-mail from London. “The Kurds have signaled their intentions to start moving Kirkuk oil through their pipeline network,” and this is another step toward making their ambitions a reality, he said.
Iraq’s minority Kurds, who historically have resisted control by Arab-dominated governments in Baghdad, are charting a course to independently develop oil reserves the KRG calculates at 45 billion barrels -- equivalent to almost a third of Iraq’s total deposits according to BP Plc data. Kurdish armed forces moved last month outside their region in northern Iraq and occupied the long-disputed territory around Kirkuk after the Iraqi army fled from Islamist militants.
Later today, a suicide bomber struck a checkpoint at the southern entrance to Kirkuk city, killing 13 people, Iraqi news agency al-Mada reported, citing the local health department.
National Unity
The Oil Ministry demanded that the Kurds “withdraw immediately from these oilfields,” according to the e-mailed statement. The move is unconstitutional and “a threat to national unity,” it said.
The KRG said it acted to prevent damage to an oil pipeline built to allow the export of crude from fields in the Kirkuk area through the Kurdish region, according to an e-mailed statement.
“Kirkuk Oil Protection Forces moved to secure the oil fields of Bai Hassan and the Makhmour area, after learning of orders by officials in the federal Ministry of Oil in Baghdad to sabotage the recent mutually agreed pipeline,” according to the KRG statement. North Oil Co. staff had been instructed to dismantle or render inoperable valves on the pipeline, it said.
“This talks is ridiculous and we totally deny it,” Asim Jihad, spokesman for the Oil Ministry in Baghdad, said by phone.
The KRG’s accusations are false and North Oil Co. staff were only taking action to protect equipment at the oilfields, Abdul Ilah Qassim, adviser to Deputy Prime Minister Hussain Al-Shahristani, said by phone.
Lost Patience
“The Kurds have lost patience with any political process and are taking matters into their own hands on the ground,” said Julian Lee, an oil strategist who writes for Bloomberg First Word. The observations he makes are his own. “The Kurds’ allies in the U.S. and Turkey may be fine with tacitly supporting the export of crude from fields indisputably on Kurdish territory, but facilitating the export of oil from fields outside Kurdistan may be a step too far.”
Tensions between the Kurds and authorities in Baghdad have flared since the KRG began to export locally produced crude via a pipeline to Turkey without the central government’s approval. The Kurdish region increased output by more than 50 percent to 360,000 barrels a day last month as ships loaded crude delivered through the Turkish pipeline, the International Energy Agency said today.
New Pipeline
While Kurdish forces have occupied the area around Kirkuk since last month, oilfield facilities had remained in the hands of North Oil Co., Energy Aspects’ Mallinson said. The KRG had previously said its troops would guard the Kirkuk oil hub until a referendum on regional independence could be held.
The new pipeline through the Kurdish region was built to allow the export of crude from the Makhmour, Avana and Kirkuk oilfields after the main Iraq-Turkey oil link was shut down by sabotage in March, the KRG said. The Avana and Makhmour fields produce about 110,000 barrels of oil a day, which will be used primarily to fill the shortage of refined oil products on the domestic market, it said.
As much as 325,000 barrels a day of oil production from fields in the Kirkuk area could be exported through the new pipeline, KRG Natural Resources Minister Ashti Hawrami said in London on June 17.
To contact the reporters on this story: Khalid Al-Ansary in Baghdad at kalansary@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron, Ben Holland
By Naureen S. Malik Jul 14, 2014 6:01 AM GMT+0700
Twelve weeks of above-average gains in U.S. natural gas supply are easing concern over winter fuel shortages and spurring speculators to cut their bets on rising prices.
Hedge funds reduced net-long positions by 8.1 percent in the week ended July 8, the U.S. Commodity Futures Trading Commission said. Bullish wagers have fallen 43 percent from February and gas dropped last week to a six-month low, wiping out an advance of as much as 53 percent after frigid weather pushed consumption to a record.
Stockpiles more than doubled from an 11-year low in March as mild weather curbed power-plant demand and output expanded for the ninth straight year. Storage rose more than 100 billion cubic feet for eight weeks in a row, the longest streak of triple-digit increases in government data going back 20 years.
“It looks like the market is going to be in balance heading into the winter,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone July 11. “The combination of modest summer weather and robust drilling has let people believe that inventory will grow to normal levels.”
Natural gas fell 25.1 cents, or 5.6 percent, to $4.204 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. Prices settled at $4.146 on July 11, capping a fourth weekly decline.
More Supply
Gas storage rose 93 billion cubic feet to 2.022 trillion in the week ended July 4, a gain bigger than the five-year average for the 12th straight week, according to Energy Information Administration data.
A cold front will push across the central and eastern states from July 16 through July 20, according to Commodity Weather Group LLC of Bethesda, Maryland. A drop in demand in the South will more than offset gains from a heat wave in the West, the forecaster said.
The high temperature in Dallas July 17 will be 78 degrees Fahrenheit (26 Celsius), 18 below normal, according to AccuWeather Inc. in State College, Pennsylvania. Washington’s reading will be 5 lower than average at 84.
“The updated weather forecasts not only show an impressive cold intrusion lingering over much of the country but the timing occurs when the potential for cooling demand is typically at a high point,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a July 11 note to clients.
More Production
Gas production will help raise inventories to 3.431 trillion cubic feet by the end of October, which would be the lowest level before the peak heating-demand season since 2008, according to an EIA July 8 report.
Output will rise 4.1 percent to 73.08 billion cubic feet a day from 2013 level as new wells come online at shale deposits such as the Marcellus in the Northeast, the EIA forecasts.
“Summer is going to be over soon and storage numbers have come in pretty strong for many weeks,” Donnie Sharp, natural gas supply coordinator for Huntsville Utilities in Huntsville, Alabama, said by phone on July 11. “There may be an opportunity for a bit lower prices.”
In other markets, easing supply concern from Iraq to Libya forced speculators to reduce bullish oil bets for a third week.
Money managers cut net-long positions in benchmark West Texas Intermediate futures by 7.8 percent to 304,366 futures and options combined in the week ended July 8, CFTC data show.
WTI Slide
WTI futures slid 1.8 percent to $103.40 a barrel on the New York Mercantile Exchange in the period covered by the report. The contract settled at $100.83 on July 11.
Net-long positions in gasoline fell by 2.7 percent to 65,190, the CFTC report showed. Futures fell 6.4 percent to $2.9729 a gallon on the Nymex in the week covered by the report and settled at $2.9085 on July 11.
Gasoline at U.S. pumps, averaged nationwide, slipped 0.8 cent to $3.631 a gallon on July 10, according to data from Heathrow, Florida-based AAA, the nation’s largest motoring group. Retail prices are down 1.8 percent from a 13-month high on April 26.
Money managers’ bets on ultra-low sulfur diesel dropped by 41 percent to 22,634, the CFTC report show. Futures slid 3.5 percent to $2.8736 a gallon in the week covered by the report and closed at $2.8609 on July 11.
Net-long positions on four U.S. natural gas contracts held by money managers declined by 20,642 futures equivalents to 234,190, the least since Dec. 3.
Gas Contracts
The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
Long positions fell by 1.9 percent, while bearish bets gained 4 percent to 272,510, the most since Dec. 10.
“The temperate weather combined with increased production are weighing on prices,” Peter Buchanan, senior economist at CIBC World Markets Inc. in Toronto, said in a July 11 telephone interview. “The weather hasn’t been quite as hot so far this summer and that is helping to restrain demand.”
To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net
To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net; David Marino at dmarino4@bloomberg.net Bill Banker
By Dan Murtaugh and Barbara Powell Jul 14, 2014 1:20 AM GMT+0700
Gasoline prices are cooling just as summer heats up, dropping for the first time in 10 weeks.
The average for regular gasoline at U.S. pumps fell 3.99 cents in the three weeks ended July 11 to $3.6699 a gallon, according to Lundberg Survey Inc. The survey is based on information obtained at about 2,500 filling stations by the Camarillo, California-based company.
The average, which is 7.91 cents below a year earlier, may fall another four cents to six cents in the next several days, Trilby Lundberg, president of Lundberg Survey, said in a telephone interview today.
“The wholesale price cuts are continuing now as refiners pass along the lower prices they’re paying for crude oil,” Lundberg said. “If we can assume that crude oil prices don’t shoot right back up, we may see further declines at the pump.”
The highest price for gasoline in the lower 48 states among the markets surveyed was in San Francisco, at $4.12 a gallon, Lundberg said. The lowest price was in Tulsa, Oklahoma, where customers paid an average $3.35 a gallon. Regular gasoline averaged $3.92 a gallon on Long Island, New York, and $4.09 in Los Angeles.
West Texas intermediate crude fell $6.43, or 6 percent, to $100.83 a barrel on the New York Mercantile Exchange in the three weeks to July 11.
“The price decline came because of crude oil prices, which are reacting to the news that Libya eked out a production rise and Iraq output hasn’t been decimated by the fighting there,” Lundberg said.
Libya Production
WTI capped its third weekly drop in a row as Libya reopened two oil-export terminals and Kurdish forces took over two oil fields in Iraq.
Libya was producing 350,000 barrels a day yesterday, more than double the output of a month ago, according to Mohamed Elharari, a spokesman at National Oil Corp.
Shipments from Iraq’s southern region should recover this month to about 2.6 million barrels a day, compared with 2.42 million in June, barring technical problems, the International Energy Agency said July 11.
Crude inventories in the U.S. fell for the second straight week, dropping 2.37 million barrels to 382.6 million in the seven days ended July 4, according to the Energy Information Administration, the Energy Department’s statistical arm.
Gasoline futures on the Nymex slipped 21.92 cents, or 7 percent, to $2.9085 a gallon in the three weeks ended July 11 as supplies increased and demand slipped.
Gasoline stockpiles increased 579,000 barrels to 214.3 million for the week ended July 4, EIA data show. Supplies in the central Atlantic region, which includes New York, the delivery point for Nymex gasoline futures, climbed 1.14 million barrels to 30.5 million, a four-week high. Demand over the four weeks was 9.04 million barrels a day, 0.4 percent below a year earlier, EIA data show.
To contact the reporter on this story: Barbara Powell in Houston at bpowell4@bloomberg.net
To contact the editors responsible for this story: Margot Habiby at mhabiby@bloomberg.net Steven Crabill, Bruce Rule
By Rebecca Penty Jul 13, 2014 2:30 AM GMT+0700
PetroChina Co. (857) is committed to completing its C$1.32 billion ($1.23 billion) purchase of the stake it doesn’t own in the Dover oil-sands project in Canada soon, according to the Beijing-based company’s parent.
PetroChina, China’s biggest oil and natural gas producer, is working with Calgary-based Athabasca Oil Corp. (ATH) to close the purchase of Athabasca’s 40 percent stake in Dover, Chen Shudong, the incoming director for China National Petroleum Corp.’s Canadian unit, said in an e-mail. The two energy producers formed a joint venture in 2010 to develop Dover.
Athabasca shares have suffered as the company awaits the payment, which it’s earmarking to fund other drilling. The stock fell 2 percent yesterday to the lowest level since January, the seventh straight day of losses. Athabasca exercised a put option on April 17 tied to the Dover joint venture agreement, forcing PetroChina to acquire the rest of the project.
“The teams from both parties are working very hard since then,” Chen said in the e-mail, predicting it may not take long to complete the deal. “No party means to delay or change against the JV agreement.”
To contact the reporter on this story: Rebecca Penty in Calgary at rpenty@bloomberg.net
To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Stephen West, Sylvia Wier
By Mark Shenk Jul 12, 2014 2:16 AM GMT+0700
New U.S. pipelines and a revival in Libyan supply are increasing the likelihood that oil prices will slump through year-end after climbing in the first six months.
Wall Street analysts tracked by Bloomberg predict West Texas Intermediate oil will average $100 a barrel in the fourth quarter, down 5.1 percent from June 30, while Brent drops 4.8 percent to $107. Violence in Iraq sent Brent to $115.71 in June, its highest level since September, on concern supplies would be disrupted.
Brent is poised to decline in part on increased output in Libya as key export terminals were reopened. In the U.S., traders are focused on supplies at Cushing, Oklahoma, the delivery point for the WTI futures contract. Tallgrass Energy Partners LP plans to complete the conversion of the Pony Express pipeline to carry crude to Cushing from Wyoming. Enbridge Inc.’s Flanagan South will connect to the hub from Illinois.
“Cushing is an island of scarcity in a sea of plenty,” Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London, said by phone on July 2. “In the third quarter we’re looking at two new pipelines, the Flanagan and Pony Express, that will supply Cushing. There will then be a new equilibrium.”
Prices Gained
WTI rose 7.1 percent in the first six months of 2014 on the New York Mercantile Exchange as Cushing supplies tumbled to a five-year low, with new lines carrying oil to the Gulf Coast. The U.S. grade fell $4.21 to $102.29 during the nine days ended July 9, the longest stretch of declines since 2009. It slipped 2 percent to $100.83 today, the lowest close since May 12.
Brent, the benchmark for more than half the world’s oil, gained 1.4 percent on the London-based ICE Futures Europe exchange. The North Sea oil decreased 1.8 percent to $106.66 a barrel today, the lowest settlement since April 7.
Brent was headed for a drop in the first half until the widening conflict in Iraq raised concern of a supply disruption. Prices fell after an Islamic insurgents’ advance stopped short of southern Iraq, home to most of the country’s crude output.
The spread between the contracts narrowed to as little as $3.59 in April from $14.95 on Jan. 13, before the opening of the southern leg of the TransCanada Corp.’s Keystone XL. Stockpiles have slipped 50 percent since the pipeline began moving barrels from Cushing to Texas on Jan. 22, Energy Information Administration data show. The spread closed at $5.83 today.
“We’re looking for a change in the balances with the opening of the Pony Express and Flanagan South pipelines,” Francisco Blanch, head of commodities research at Bank of America Corp. in New York, said by phone on July 7.
Supply Drop
Cushing supplies began falling two years ago when the direction of the Seaway pipeline was reversed to move oil away from the hub. Enbridge and Enterprise Products Partners LP said July 3 that they completed a 512-mile (833-kilometer) loop that’s expected to boost Seaway’s capacity to 850,000 barrels a day from 400,000.
The additional supply coming out of Cushing is about half that of the new lines going in. Pony Express will open with throughput of 230,000 barrels a day and Flanagan South will be able to move 600,000, the lines’ owners said.
Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone on July 2 that there were a lot of geopolitical issues affecting markets in the first half, but that the biggest factor was the opening of the southern portion of TransCanada’s Keystone XL pipeline because it resulted in a decline in Cushing stocks.
U.S. Production
U.S. crude output rose to 8.514 million barrels a day in the week ended July 4, the most since October 1986, EIA figures show. Annual output is forecast to reach 9.28 million barrels a day in 2015, the highest since 1972.
“If not for the massive increase in U.S. production, we would be paying a significant premium to what we’re seeing today,” Adam Wise, who helps run a $6 billion oil and gas bond portfolio as a managing director at John Hancock in Boston, said July 2 by phone.
Global consumption is forecast to climb 1.2 percent to 91.62 million barrels a day this year, the EIA says.
“There will be a moderate rise in demand but supply will be enough to cover that,” Hans van Cleef, an energy economist at ABN Amro Bank NV, said by phone from Amsterdam on July 4.
Crude climbed in June after violence flared in Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries.
“Iraq has been the big surprise,” Amrita Sen, chief oil economist for Energy Aspects Ltd. in London, said by phone on July 2. “The second quarter was very strong.”
Libyan Supply
Iraq concerns increased amid a drop in Libyan supply. Libya pumped 300,000 barrels a day in June, down 73 percent from a year earlier, according to a Bloomberg survey of oil companies, producers and analysts. Output has risen to 350,000 barrels a day, National Oil Corp. spokesman Mohamed Elharari said by phone yesterday.
Libya, holder of Africa’s biggest reserves, has 7.5 million barrels of oil stored at the ports of Es Sider and Ras Lanuf, which were reopened this month, Oil Ministry Measurement Director Ibrahim Al-Awami said by phone on July 7.
“Risk premiums linked to Libya and Iraq in particular will continue to dictate where Brent prices are,” Abhishek Deshpande, a crude markets analyst at Natixis SA in London, said by e-mail on July 8.
Iran is another possible source of increased crude as diplomats meeting in Vienna seek a permanent accord over the country’s nuclear work. If an agreement is reached, sanctions limiting Iranian exports could be eased.
Saudi Arabia has also added to supply, boosting output by 230,000 barrels a day to 9.9 million, the highest since September, when it pumped 10 million, the most in monthly data going back to 1989.
“The U.S. and Saudi Arabia have almost exclusively made up for the declines in Libyan and Iraqi output,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said July 2 by phone. “If the other shoe were to drop, there’s nobody to make up for the loss.”
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Dan Stets
By Lynn Doan Jul 12, 2014 1:54 AM GMT+0700
Rigs targeting oil in the U.S. hit a record for the fifth straight week as companies ramped up drilling in shale formations across the South.
Oil rigs increased by one to 1,563, the most since Baker Hughes Inc. (BHI) separated its oil and gas counts in 1987, the company’s website showed. They rose the most in the Granite Wash shale formation of Texas and Oklahoma and the Eagle Ford in South Texas. The gas count was unchanged at 311, the Houston-based field services company said.
Total rigs in the U.S. have jumped by 118 this year, driven by a surge in horizontal drilling that’s drawing record volumes of oil out of shale formations across the middle of the country. The boom has raised domestic crude production to the highest level in more than a quarter-century.
“We’re in the development phase in most of these areas, where they know where the oil is, they’ve optimized ways to produce and are now just developing them at a major pace,” James Williams, president of energy consulting firm WTRG Economics in London, Arkansas, said by telephone.
U.S. oil production climbed 72,000 barrels a day in the week ended July 4 to 8.51 million, the highest level since 1986, EIA data show. Oil supplies slipped 2.37 million barrels to 382.6 million.
West Texas Intermediate crude for August delivery fell $2.10, or 2 percent, to settle at $100.83 a barrel on the New York Mercantile Exchange. Prices have risen 2.4 percent since the beginning of the year.
Both the Granite Wash and the Eagle Ford added five rigs this week, rising to 218 and 75, respectively. The Permian Basin of Texas and New Mexico, the largest onshore oil play in the U.S., gained three to 563. The gas-rich Barnett shale in Texas lost two to 24.
U.S. gas stockpiles rose 93 billion cubic feet last week to 2.022 trillion, EIA data show. Supplies were 24.4 percent below year-earlier inventories.
Natural gas for August delivery rose 2.6 cents, or 0.6 percent, to $4.146 per million British thermal units on the Nymex, up 15 percent in the past year.
To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Richard Stubbe, Stephen Cunningham
By Dan Murtaugh Jul 12, 2014 1:37 AM GMT+0700
Oil-field trucks rumble down a beat-up county road in DeWitt County, Texas, in the... Read More
The road to U.S. energy security is often unpaved.
In southern Texas and North Dakota, where shale drilling has propelled U.S. oil production to the highest level in 28 years, thousands of 18-wheel trucks are rumbling to wells on roads designed decades ago for farmers to bring crops to markets. Road closures have slowed output, with diverted traffic increasing accidents, as Texas seeks $1 billion to maintain roads in the oil belt.
With the U.S. projected to be energy self-sufficient by 2030, according to BP Plc (BP/), crumbling highways may threaten billions of dollars of investment in the oil patch. Because more wells are being drilled using hydraulic fracturing, there’s greater need for truckloads of water, sand and chemicals, as well as steel structures used in the process in fields often miles from major roads.
“If you drive a cattle truck one or two times a year, you’re not affecting that road very much, but the first day you drive a 175,000-pound substructure of a drilling rig up that road you begin to destroy it,” Daryl Fowler, the county judge in DeWitt, Texas, said by phone May 20. “You’re looking at $2 billion of capital investment in our county alone that will be thwarted or curtailed completely if the road system is abandoned and they can’t get their product to market.”
DeWitt County is in southeast Texas, about halfway between San Antonio and the Gulf of Mexico, and in the heart of the Eagle Ford shale formation. About 87,000 barrels of oil a day were extracted within its borders last year, more than in 39 states and all but five other counties in Texas.
Stuck Trucks
Rosetta Resources Inc. (ROSE) was trucking oil from a well on the western edge of the county in January 2012, when a severe rainstorm hit. A half-mile stretch of road from the gate to the state highway was impassable.
“Trucks full of liquid product got stuck and the company had to use bulldozers to pull loaded 18-wheelers in and out of there,” Fowler said.
A Rosetta spokeswoman didn’t return a phone call or e-mail for comment. Fowler said the company donated materials and the county was able to repair the road and get the company operating again.
Drillers acknowledge the added challenge of operating on south Texas roads, especially in the rain, said Haley Curry, a spokeswoman for South Texas Energy & Economic Roundtable, which represents the 11 largest operators in the Eagle Ford, one of the fastest-growing oil fields in the world.
“If it rains, everything slows down, no matter what industry you’re in,” Curry said by phone from San Antonio July 9. “It’s just part of doing business.”
Spring Thaw
In North Dakota, nice weather may cause the biggest road problems. As the freezing winter thaws into spring, soil softens beneath roads and the state highway department restricts truck loads. The limits typically last from March through May or June, and for the past five years they’ve stayed on some highways in the Bakken area year-round.
Road issues, bad weather and exhausted wells have hampered crude production growth in North Dakota. Oil output from the state’s portion of the Bakken shale grew 24,000 barrels a day between December and April after growing 166,000 barrels a day from June through November last year.
One reason for the slowdown is that output from shale wells falls by 60 percent to 70 percent in the first year, according to Austin, Texas-based Drillinginfo Inc., a steeper decline than for traditional wells. Companies need to finish new wells constantly to keep production growing.
Shale Fracking
Drillers make horizontal bores along the shale and then completion teams inject a high-pressure mixture of water, chemicals and sand to create micro-fissures in the rock through which gas and oil can seep. The process means more truck trips are required than for a traditional vertical well, Curry said.
The increase in traffic has been accompanied by an increase in accidents. In La Salle County, Texas’s No. 2 oil-producer, car wrecks more than doubled to 232 last year compared with 2003, and fatalities rose to nine from two, according to state highway department data.
“Everybody is concerned about the number of fatalities,” La Salle County Judge Joel Rodriguez Jr. said by phone.
The trucks also come with jobs, 46,289 of them in the Eagle Ford, according to a University of Texas at San Antonio study conducted last year, and 24,012 in North Dakota, according to the North Dakota Petroleum Council. Officials in both states say they’re not trying to stop the boom, just to find ways to fix the roads and minimize the negative side effects.
Road Budgets
North Dakota’s Department of Transportation has increased its road construction budget to $800 million a year from $250 million in 2007, Jamie Olson, a Bismarck-based spokeswoman said by phone July 3.
The Texas Department of Transportation is hoping that residents will pass a November constitutional amendment that would allow a $1.4 billion portion of oil and gas tax revenue that currently goes to a rainy day fund to be slotted for highway work instead.
“We know that $1 billion will be needed to maintain roadways in all energy producing areas of our state, including South Texas,” Nick Wade, spokesman for the department, said by e-mail July 9. “That’s in addition to the $1 billion needed for regular road maintenance, and the estimated $3 billion for new construction to address congestion,” he said.
Texas Action
The Texas legislature passed bills last year allotting $225 million to the state highway department and another $225 million to counties to repair roads damaged by oil-field trucks.
It was the first time the state has ever given county governments money for road projects, Fowler said. The money doesn’t get counties very far, though. DeWitt expects to get $4.9 million, compared to an engineering estimate of $432 million to fortify the 315 miles of roads it maintains. La Salle County has sued the state, alleging that most affected counties aren’t getting a large enough share.
“School buses run up and down these streets -- ambulances, fire trucks, emergency vehicles,” Lonnie Hunt, Austin-based spokesman for the Texas Association of Counties, said by phone July 8. “The roads are there for everybody to use.”
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; David Marino at dmarino4@bloomberg.net Philip Revzin, Charlotte Porter
By Eduard Gismatullin Jul 11, 2014 10:46 PM GMT+0700
Premier Oil Plc (PMO)’s newly appointed Chief Executive Officer Tony Durrant has three immediate priorities to consolidate a share-price gain of more than 20 percent since he took the job this year.
He plans to bring onstream the $1.4 billion Solan field located west of Shetland before the end of the year, find a partner to share a $5 billion investment to develop the Sea Lion project off the Falklands, and exceed an oil-production target.
Durrant, who was promoted to the top job at the London-based explorer on June 25 after being chief financial officer for about nine years, also aims to double cash flow within five years to about $2 billion a year.
“We have to continue to tick the boxes on the things we’ve been doing, continue to restore credibility, keep the production up, beat the guidance,” the CEO said in his first interview since taking the job. “I’ve banned the use of the words strategy review, because it’s a distraction for the vast majority of people in the organization and does create a certain amount of speculation.”
Premier yesterday said oil and gas production rose 10 percent in the first half of the year, driven by the fields in the North Sea. The shares have risen more than 20 percent since the departure of the previous CEO Simon Lockett on Feb. 4, and Durrant wants to keep investors happy by beating output guidance of as much as 63,000 barrels of oil equivalent a day for this year.
Premier shares fell 0.4 percent to 324.5 pence in London.
Skills, Geographies
Premier needs “to start to think about new investment, new opportunities,” Durrant said. “We’ve got our list of opportunities -- they are things within the core skills, they are things within core geographies. It’s not shuttering stuff.”
The explorer may reduce its stake by as much as half to 30 percent in the Sea Lion discovery, with at least 293 million barrels of recoverable oil off the Falkland Islands. It plans to conduct the “detailed engineering” project design before securing a partner in the venture, the CEO said.
“It’s a too-big project for Premier to take on its own,” Durrant said. “We don’t want to become a pure Falklands company in five years’ time.”
Rockhopper Exploration Plc (RKH), Premier’s partner in the project, today said Amec Plc was awarded a contract for the front-end engineering and design of a platform for the Sea Lion field.
Asset Sale
Premier will also continue asset sales, including a possible disposal of its stake in the Chinguetti field in Mauritania, to reach the $300 million target. It has already sold about $200 million “of non-core” assets in Norway, Indonesia and the North Sea, Durrant said.
“Premier is in a very healthy shape,” he said. “We are incredibly well financed.”
The company dropped an extraction target of 100,000 barrels of oil equivalent a day. Nevertheless, the start of new fields such as Solan, Sea Lion and Catcher will allow the producer to reach this output rate, Durrant said.
“We stopped talking about production targets a while back, but not because we are not going to get there, but because cash flow growth is probably more important to investors,” the CEO said.
To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Alex Devine
By Grant Smith Jul 11, 2014 5:21 PM GMT+0700
Global oil demand will rise at the fastest pace in five years in 2015 as China leads gains in emerging economies, the International Energy Agency said.
World oil consumption will increase next year by 1.4 million barrels a day, the agency said in its first monthly report to assess 2015. The rate of growth will be the fastest since 2010. It’s also higher than a projected increase of 1.2 million a day in supplies from outside the Organization of Petroleum Exporting Countries, the agency said.
Demand growth will be led by China and other countries outside the 34-member Organization of Economic Cooperation and Development. While oil has retreated in the past month as threats to supplies in Libya and Iraq abate, prices will stay supported near historically high levels as risks in the region “remain extraordinarily high,” the agency said.
“The global economy is still expected to gain momentum in 2015,” said the Paris-based IEA, which advises most OECD nations on energy policy. “The oil outlook for 2015, unveiled here in detail for the first time, also does not suggest any letup in market conditions.”
Brent crude futures slipped 2.3 percent this year as Libya aims to restore supplies curbed by political protests, concerns fade that Iraq’s output will be reduced by an Islamist insurgency, and production in the U.S. nears its highest in three decades. Global gross domestic product will expand by 3.9 percent next year, up from 3.6 percent in 2014, according to the International Monetary Fund.
World Demand
World oil demand will climb 1.5 percent to a record 94.1 million barrels a day in 2015, as growth in emerging economies compensates for a contraction in developed nations, the IEA said. Many developing economies “are entering a stage of development where rising household incomes and expanding industrial activity typically fuel relatively fast oil consumption growth,” according to the report.
Chinese demand will increase by 440,000 barrels a day in 2015, or 4.2 percent, to 10.87 million a day, as government support keeps economic growth above 7 percent, the agency predicted.
OPEC Call
The need for OPEC’s crude will decline to an average of 29.8 million barrels a day in 2015, or 100,000 a day less than this year, as the group produces more natural gas liquids. The IEA forecasts the amount of crude needed from the organization, rather than the level it will provide. OPEC’s output of NGLs will increase by 300,000 barrels a day next year to 6.7 million a day.
Non-OPEC producers, led by the U.S., will bolster production by 1.2 million barrels a day, or 2.1 percent, to 57.5 million a day next year.
The agency lowered global demand estimates for this year, by 130,000 barrels a day, amid signs the pace of economic recovery slackened in the second quarter. Consumption will increase by 1.2 million barrels a day this year to average 92.7 million a day.
Global markets are currently going through a “a soft patch” at a time when demand typically climbs, because of subdued purchases in Europe, China and developed nations in Asia, according to the agency.
Inventory Gain
Inventories of crude and refined oil products in developed nations rose by more than normal in May, by 44.2 million barrels to 2.64 billion. As a result, the deficit compared with the five-year seasonal average narrowed to 69.6 million barrels from 106.1 million.
Output from OPEC’s 12 members slipped by 40,000 barrels a day last month to 30.03 million a day because of losses in Iraq, the IEA said. Production in Iraq, the group’s second-biggest member, fell to 3.17 million barrels a day from 3.42 million a day following the halt of the Kirkuk oilfield as Islamist militants captured towns in the country’s northwest.
Saudi Arabia, the group’s biggest member and de facto leader, “barely hiked production in June,” a sign that “crude markets are already well-supplied,” according to the report. The kingdom’s output rose 70,000 barrels a day to 9.78 million a day last month.
Demand for the organization’s supplies in the second half of this year is estimated at 30.6 million barrels a day, about 600,000 a day more than OPEC pumped in June.
Brent futures for August settlement slipped 40 cents to $108.27 a barrel on the London-based ICE Futures Europe exchange as of 10:53 a.m. local time.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron, Rachel Graham
By Lananh Nguyen Jul 11, 2014 3:00 PM GMT+0700
Iraq should boost southern crude exports this month even after an armed insurgency disrupted the nation’s northern oil operations, according to the International Energy Agency.
Shipments from Iraq’s southern region should recover this month to about 2.6 million barrels a day, compared with 2.42 million in June, barring technical problems, the Paris-based IEA said today. The increase will come from oil in storage tanks at Fao and added capacity from the West
Qurna 2 and Majnoon fields. Production from the northern Kurdistan region surged last month even as the conflict escalated, the IEA said.
“Iraq’s southern oil fields have so far remained untouched by the violence sweeping through the north and west,” the IEA said in its monthly oil market report. “The risk remains that militants will target the region’s vital infrastructure and cause a substantial or lengthy disruption.”
Iraqi crude production fell to 3.17 million barrels a day in June after fighting shut its biggest refinery at Baiji and reduced output from the northern Kirkuk field. That’s a decline of about 260,000 barrels a day from the previous month and compares with an average 3.3 million in the first half.
Output from the Kurdistan region increased to 360,000 barrels a day last month, an increase of 130,000 barrels a day, as ships loaded crude delivered through a pipeline to Turkey controlled by the Kurdistan Regional Government. The region is in a dispute with Iraq’s central government over land and oil rights.
Asia would be “most vulnerable” if militants strike the country’s southern oil network, which pumps almost all of Iraq’s crude exports and generates most of Baghdad’s revenue. About 60 percent of Basrah Light crude shipments go to Asia, with China and India the biggest buyers, the IEA said.
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, Rachel Graham
By Jonathan Tirone and Sangwon Yoon Jul 13, 2014 9:10 PM GMT+0700
Foreign ministers who arrived today in Vienna may be forced to break their self-imposed July 20 deadline for a long-term solution over the Iranian nuclear conflict, officials on both sides of the dispute said.
Twelve days into negotiations between world powers and Iran, significant gaps remain over the Persian Gulf nation’s uranium-enrichment capacity. U.S. Secretary of State John Kerry arrived in the Austrian capital earlier today and will be joined later by his counterparts from France, Germany and the U.K.
“We are trying to find solutions to narrow the differences,” Iranian Deputy Foreign Minister Abbas Araghchi told state-run Isna news agency in Vienna. “Given this context it’s possible that negotiations will be extended by a few days or weeks.”
Uranium enrichment, the industrial process that separates fissile material for nuclear power and bombs, is at the heart of the Iranian nuclear dispute. The Islamic Republic, home to the world’s fourth-largest oil reserves, wants future rights to expand enrichment. The U.S. and its allies seek a cut in Iran’s current capacity and caps on production going forward.
“Reaching a political agreement and hammering out all its technical details is no longer possible before the July 20 deadline,” Istanbul-based International Crisis Group analyst Ali Vaez said in an e-mailed reply to questions. “Talks will have to go into overtime.”
Kerry told reporters before meeting with European Union foreign policy chief Catherine Ashton that there are “still very significant gaps, so we need to see if we can make some progress.”
Interim Accord
The U.S. Secretary will hold talks with top diplomats from France, the U.K. and Germany -- Laurent Fabius, William Hague and Frank-Walter Steinmeier -- later today, according to a U.S. official, who asked not to be named following diplomatic rules. Iran’s Foreign Minister Mohammad Javad Zarif will also meet Kerry later, according to Isna.
“It is unlikely that there will be a quick breakthrough today,” Hague told reporters in Vienna. Diplomats will try to narrow differences showing “positions are still far apart,” Fabius said to journalists.
The Western group of ministers isn’t convening to negotiate an extension of the November interim accord signed in Geneva, according to another U.S. official close to the talks. Ministers will take stock of the process and see whether it’s possible to reconcile differences, according to the person, who also asked not to be named.
The interim accord capped some Iranian nuclear activities in exchange for limited sanctions relief. Iran has said it would resume some of its suspended nuclear activities if a deal cannot be reached. Congress has threatened to impose harsher sanctions on Iran if tangible progress toward a deal isn’t seen.
“Nearly 60 to 70 percent of the drafted agreement is ready,” Araghchi said yesterday. “Enrichment and key points are not ready as disagreements are deep.”
To contact the reporters on this story: Jonathan Tirone in Vienna at jtirone@bloomberg.net; Sangwon Yoon in Vienna at syoon32@bloomberg.net
To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Bruce Stanley, Marco Bertacche
By Naureen S. Malik Jul 14, 2014 6:01 AM GMT+0700
Twelve weeks of above-average gains in U.S. natural gas supply are easing concern over winter fuel shortages and spurring speculators to cut their bets on rising prices.
Hedge funds reduced net-long positions by 8.1 percent in the week ended July 8, the U.S. Commodity Futures Trading Commission said. Bullish wagers have fallen 43 percent from February and gas dropped last week to a six-month low, wiping out an advance of as much as 53 percent after frigid weather pushed consumption to a record.
Stockpiles more than doubled from an 11-year low in March as mild weather curbed power-plant demand and output expanded for the ninth straight year. Storage rose more than 100 billion cubic feet for eight weeks in a row, the longest streak of triple-digit increases in government data going back 20 years.
“It looks like the market is going to be in balance heading into the winter,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone July 11. “The combination of modest summer weather and robust drilling has let people believe that inventory will grow to normal levels.”
Natural gas fell 25.1 cents, or 5.6 percent, to $4.204 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. Prices settled at $4.146 on July 11, capping a fourth weekly decline.
More Supply
Gas storage rose 93 billion cubic feet to 2.022 trillion in the week ended July 4, a gain bigger than the five-year average for the 12th straight week, according to Energy Information Administration data.
A cold front will push across the central and eastern states from July 16 through July 20, according to Commodity Weather Group LLC of Bethesda, Maryland. A drop in demand in the South will more than offset gains from a heat wave in the West, the forecaster said.
The high temperature in Dallas July 17 will be 78 degrees Fahrenheit (26 Celsius), 18 below normal, according to AccuWeather Inc. in State College, Pennsylvania. Washington’s reading will be 5 lower than average at 84.
“The updated weather forecasts not only show an impressive cold intrusion lingering over much of the country but the timing occurs when the potential for cooling demand is typically at a high point,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a July 11 note to clients.
More Production
Gas production will help raise inventories to 3.431 trillion cubic feet by the end of October, which would be the lowest level before the peak heating-demand season since 2008, according to an EIA July 8 report.
Output will rise 4.1 percent to 73.08 billion cubic feet a day from 2013 level as new wells come online at shale deposits such as the Marcellus in the Northeast, the EIA forecasts.
“Summer is going to be over soon and storage numbers have come in pretty strong for many weeks,” Donnie Sharp, natural gas supply coordinator for Huntsville Utilities in Huntsville, Alabama, said by phone on July 11. “There may be an opportunity for a bit lower prices.”
In other markets, easing supply concern from Iraq to Libya forced speculators to reduce bullish oil bets for a third week.
Money managers cut net-long positions in benchmark West Texas Intermediate futures by 7.8 percent to 304,366 futures and options combined in the week ended July 8, CFTC data show.
WTI Slide
WTI futures slid 1.8 percent to $103.40 a barrel on the New York Mercantile Exchange in the period covered by the report. The contract settled at $100.83 on July 11.
Net-long positions in gasoline fell by 2.7 percent to 65,190, the CFTC report showed. Futures fell 6.4 percent to $2.9729 a gallon on the Nymex in the week covered by the report and settled at $2.9085 on July 11.
Gasoline at U.S. pumps, averaged nationwide, slipped 0.8 cent to $3.631 a gallon on July 10, according to data from Heathrow, Florida-based AAA, the nation’s largest motoring group. Retail prices are down 1.8 percent from a 13-month high on April 26.
Money managers’ bets on ultra-low sulfur diesel dropped by 41 percent to 22,634, the CFTC report show. Futures slid 3.5 percent to $2.8736 a gallon in the week covered by the report and closed at $2.8609 on July 11.
Net-long positions on four U.S. natural gas contracts held by money managers declined by 20,642 futures equivalents to 234,190, the least since Dec. 3.
Gas Contracts
The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
Long positions fell by 1.9 percent, while bearish bets gained 4 percent to 272,510, the most since Dec. 10.
“The temperate weather combined with increased production are weighing on prices,” Peter Buchanan, senior economist at CIBC World Markets Inc. in Toronto, said in a July 11 telephone interview. “The weather hasn’t been quite as hot so far this summer and that is helping to restrain demand.”
To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net
To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net; David Marino at dmarino4@bloomberg.net Bill Banker
By Tsuyoshi Inajima and Yuji Okada Jul 14, 2014 7:45 AM GMT+0700
Idemitsu Kosan Co. (5019), Japan’s third-biggest refiner, is looking to lease fuel-storage tanks in Singapore as it expands its trading business in Asia’s oil hub.
The Tokyo-based refiner plans to use the storage to blend and supply gasoline to Australia and other countries in the region, Kiyoshi Homma, the general manager of the integrated supply and trading department, said in an interview on July 10. Traders and refiners lease or own facilities in Singapore to import, mix and trade products including diesel, jet fuel and ship bunker. The city-state has about 70 million barrels of commercial storage capacity, according to Alex Yap, a Singapore-based analyst at FGE, an energy consultant.
Japan’s exports of oil products rose 21 percent in the year ended March 31 as refiners seek new markets amid declining consumption at home. Gasoline demand will fall 2 percent a year on average through fiscal 2018 because of a shrinking population and improved energy efficiency, according to the Ministry of Economy, Trade and Economy.
“Japan’s demand for gasoline is expected to considerably drop in coming years,” Homma said. “There will be more oil products overflowing from the U.S. and Middle East into Asia, the world’s stomach for oil, where supplies can be always absorbed.”
Idemitsu acquired Freedom Energy Holdings, an Australian petroleum products distributor, in December 2012. The company, based in Brisbane, Queensland, sells diesel and gasoline wholesale and operates about 40 retail stations in the country, Idemitsu said at that time.
Oil Flow
Idemitsu and its partners including Kuwait Petroleum International Ltd. are also developing a $9 billion refinery project in Vietnam. The Nghi Son plant in Thanh Hoa province, with a capacity of 200,000 barrels a day, is scheduled to start commercial operations in 2017.
These supply and distribution assets will help maximize profits by bringing products from countries where prices are the lowest to where they are higher, Homma said.
Idemitsu is also interested in sourcing feedstock from the U.S., where production has increased. New technologies including horizontal drilling and hydraulic fracturing have unlocked reserves trapped in shale deposits.
“Global oil flow is rapidly changing” as the U.S. ships overseas larger amounts of oil products amid the shale boom, Homma said. There are signs that the nation’s four-decade ban on crude and unrefined feedstock exports is easing.
Pioneer Natural Resources Ltd. and Enterprise Products Partners LP (EPD) said last month that the Commerce Department approved their plans to export some ultra-light crude, known as condensate, after it undergoes a stabilizing process that includes a distillation tower. The U.S. could export as much as 300,000 a day of condensate by year-end, Citigroup Inc. said in a report on June 25.
Idemitsu has been approached by a company selling the feedstock sourced from the U.S., Homma said, declining to provide further details.
“We do have an interest in condensate from the U.S,” Homma said. With producers taking major profits “we wouldn’t be able to buy it cheap,” Homma said.
To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Ramsey Al-Rikabi, Yee Kai Pin
By Bloomberg News Jul 13, 2014 11:00 PM GMT+0700
China is mandating that at least 30 percent of new government vehicles be powered by alternative energy by 2016 in the government’s latest salvo to combat pollution and reduce energy dependence.
At least 15 percent of new vehicles will use new energy this year in areas such as Beijing and the Pearl River Delta in Guangdong province, the government said in a statement posted on the website of the National Government Offices Administration department yesterday. New energy is a term used for electric cars, plug-in hybrids and fuel-cell vehicles.
China’s leaders led by Premier Li Keqiang are intensifying a “war” on pollution after smog levels hit hazardous levels in the nation’s capital last winter. The government has identified electric vehicles as a strategic industry to help it gain global leadership, reduce energy dependence and cut emissions as it pledges to remove polluting cars from the road that have contributed to worsening air pollution.
BYD Co. (1211), the electric automaker partially owned by Warren Buffett’s Berkshire Hathaway Inc., climbed 1.4 percent at the close of Hong Kong trading on July 11. The shares have gained 64 percent over the past year, compared with a 9.2 percent gain for the Hang Seng Index.
China has pledged to offer subsidies for new-energy vehicles that cost below 180,000 yuan ($29,000) and also wants local governments to build more facilities for the use of new energy vehicles, according to yesterday’s statement.
Government organizations and public institutions will be required to add parking spaces reserved for alternative-energy vehicles and ensure the ratio of charging facilities to the vehicles is equal, according to the plan.
Last week, China announced the waiver of a 10 percent purchase tax for alternative-energy vehicles, excluding them from the levy beginning Sept. 1 to the end of 2017, the central government said in a statement posted on its website on July 9.
To contact Bloomberg News staff for this story: Alexandra Ho in Shanghai at aho113@bloomberg.net
To contact the editors responsible for this story: Allen Wan at awan3@bloomberg.net Jing Jin
European pollution permit prices are poised to rise as lawmakers work on a proposal to permanently cut a record supply in their system.
Carbon allowances will climb 28 percent to 7.50 euros ($10.21) a metric ton by December after jumping 18 percent in the first six months of the year, according to the median of 11 estimates compiled by Bloomberg. UBS AG in Zurich says prices will rise 71 percent, while Paris-based Societe Generale SA expects gains of about 11 percent. They slumped to as low as 2.46 euros in 2013.
Rule-makers are debating whether to remove about 60 percent of the 2.1 billion tons of spare permits in the $54 billion market and put them in a reserve. A key challenge is agreeing on the levels of supply at which allowances would be withdrawn from the market and then returned for use by power stations, factories and airlines as the economy expands.
Carbon Markets 2.0
“They’ve shot an arrow in the right direction,” Henry Derwent, chief executive officer at Climate Strategies in London, who also worked as an adviser to former U.K. Prime Minister Tony Blair, said by phone July 9. “There needs to be more modeling and simulation to make sure it’s headed for a bull’s-eye.”
Each allowance gives the owner the right to emit a ton of carbon dioxide. The surplus adds up to more than a year’s worth of European pollution, according to European Union data.
Carbon Gains
All of the traders and analysts responding in this month’s survey said carbon prices would rise through December because of efforts to trim the surplus. EU carbon allowances for December rose 0.9 percent to 5.75 euros a ton on the ICE Futures Europe exchange in London today.
The EU’s emissions trading system allocates for free or by auction allowances to more than 13,000 factories and utilities which must surrender enough permits to match their discharges of carbon dioxide or pay fines.
The credits slumped to a record low last year after too many were handed out in response to requests by industry groups and as the financial crisis slowed manufacturing.
Under the European Commission’s reserve plan, the supply sold at auction would be cut by 12 percent annually until the accumulated surplus falls below 833 million tons, according to the draft law. If the excess supply drops below 400 million tons, the EU will return 100 million tons of allowances to the market each year.
Trigger Points
It’s those trigger points that the commission needs to spend more time modeling, says Derwent. Take too many allowances out, prices may rise too far and hurt the economy. Take too few out, the market fails to discourage coal burning.
“It’s quite a good tool to use against this oversupply,” Janne Ploeen Mortensen, a carbon sales trader at Danske Commodities in Aarhus, Denmark, said July 8 by phone. The bloc can more easily control volumes sold at almost-daily carbon-permit auctions than win political support for tighter emission limits, she said.
The plan, proposed Jan. 22, would be the bloc’s second effort to curb the oversupply. After three years of debate, lawmakers agreed Jan. 8 on a temporary fix, known as backloading, which removes 900 million permits from the market through 2016 and returns them in 2019 and 2020.
Emissions Output
Allowances traded as high as 7.41 euros in March before those initial withdrawals began, only to plunge to 3.71 euros a month later on speculation the bloc’s output of greenhouse gases for 2013 was lower than expected. Emissions from manufacturers and generators covered by the market fell about 3 percent compared with expectations for a 3.8 percent drop in a survey of analysts at the time.
In the five years through 2012, greenhouse-gas output from the EU’s power industry dropped 14%, or 186 million tons, according to CDC Climat, the climate-research unit of French state-owned bank Caisse des Depots et Consignations. Most of the decline was probably due to the region’s economic downturn, the Paris-based lender said in the December report.
EU governments and the European Parliament probably won’t finish work on the reserve proposal before the end of the year, though they may do so by July 2015, Jos Delbeke, director general for climate at the commission, said last month.
The reserve wouldn’t start until 2021. The timing has caused disagreement, with Germany pushing for a 2017 start, while Poland and Greece are among those against an earlier introduction.
Germany is seeking a fast beginning to prevent the 900 million backloaded allowances from returning to the market, Environment Minister Barbara Hendricks said June 12.
Poland, whose coal plants generate about 84 percent of the nation’s electricity, said an early start would break a deal struck by EU nations in 2008 for 2020 limits.
Climate Trust
“This is not the way you build trust before important decisions on climate and energy toward 2030,” Marcin Korolec, Poland’s climate negotiator, said July 3 by e-mail. “Early start of the market stability reserve is impossible.”
France has suggested the triggers be tightened, speeding injections into the reserve and boosting the pace of withdrawals. That could increase prices faster, while preventing them from rising as much in later years, according London-based Bloomberg New Energy Finance.
Carbon prices will continue to show “huge volatility” while details are ironed out, said Nick Eagle, a trader at Clean Energy Group Ltd. in London.
“The market stability reserve is going to be so difficult to put in place, it may not happen before 2021,” Eagle said July 2 by phone. In the survey, the range of forecasts for the end of the year was from 5.93 euros to 10 euros.
Early Start
Without any reserve, carbon prices may fall to 3 euros in 2019 to 2020 because return of the backloaded permits, equivalent to about half a year’s supply, will add to the glut, New Energy Finance said last month in a report.
Permits may surge to 54 euros by 2026 if the reserve starts in 2018, according to New Energy.
“I doubt any government wants a carbon price at 50 euros at the moment, but above 10 euros the market starts to matter again,” Patrick Hummel, a utilities analyst for UBS, said by phone from London on July 2. “By year end, it will be more visible if there’s political support for the reserve.”
To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net; Ewa Krukowska in Brussels at ekrukowska@bloomberg.net
To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net; Lars Paulsson at lpaulsson@bloomberg.net Andrew Reierson
