By Lynn Doan Aug 19, 2014 5:01 AM GMT+0700
Spot gasoline in San Francisco at the highest premium to Los Angeles in two weeks has opened an arbitrage for fuel to flow north.
Spot California-blend gasoline in the San Francisco Bay area gained 1 cent a gallon versus the same fuel in Los Angeles to a premium of 8 cents, its highest since Aug. 4, data compiled by Bloomberg at 4:43 p.m. New York time show. The fuel has averaged a discount of 1.55 cents a gallon this year.
“Some problem in the Bay is causing the differential to run backward,” David Hackett, president of energy consulting company Stillwater Associates in Irvine, California, said by telephone today. “While products normally flow from north to south, there seem to be refinery problems in the Bay. The unusual arbitrage to bring product from Los Angeles to the Bay is open.”
The U.S.-flagged oil-products tanker Oregon Voyager left the Los Angeles area Aug. 15 and arrived off the coast of Richmond in Northern California today, data compiled by IHS Inc. (IHS) show. The beneficial owner of the tanker is Chevron Corp. (CVX), which uses vessels to balance supplies at its West Coast refineries including plants in Richmond and El Segundo, California, Hackett said.
While California-blend gasoline stockpiles climbed 208,000 barrels in the week ended Aug. 8 to 4.94 million, supplies of the fuel in Northern California are at the lowest level seasonally in at least five years, California Energy Commission data show. Southern California supplies are still within the five-year range for this time of year, the agency said Aug. 14.
West Coast
Gasoline in both Los Angeles and San Francisco gained today versus futures traded on the New York Mercantile Exchange, strengthening to premiums of 12 cents and 20 cents a gallon, respectively, data compiled by Bloomberg show.
Spot conventional gasoline at New York Harbor weakened 0.38 cent to a 2.5-cent discount versus futures. The same fuel on the Gulf Coast gained 1.5 cents to a 5.5-cent discount.
Gasoline in the U.S. Midcontinent, known as Group 3, weakened 1.5 cents to a 3.75 cents below futures, and the fuel in Chicago slid 1.75 cents to a 9-cent discount.
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 Stephen Cunningham
Hedge Funds Least Bullish on Brent Crude in Two Years
By Grant Smith Aug 19, 2014 2:14 AM GMT+0700
Hedge funds cut bullish bets on Brent crude to the lowest level in two years as recovering production in Libya and a diminished threat to Iraqi output compounded concerns that the global market is oversupplied.
Money managers reduced overall bets that Brent will advance to the lowest since July 2012, data from the London-based ICE Futures Europe exchange showed today. Production in Libya increased as it prepared to re-open its biggest oil port. Iraq’s most important dam was taken back from Islamist rebels, according to the Iraqi military, allaying concerns that oil fields further south could be disrupted. The price used by OPEC for assessing its crude sales slipped below $100 a barrel for the first time in 14 months.
Brent crude futures have signaled for the past six weeks that immediate supplies are exceeding demand, with the front-month contract trading at a discount, or contango, to later deliveries. This price structure erases the return traders could earn when successive monthly contracts are cheaper, undermining demand among financial investors, according to Saxo Bank A/S.
Dreaded Contango
“It’s oversupply,” Ole Sloth Hansen, an analyst at Saxo Bank in Copenhagen, said by e-mail. “The Atlantic basin has seen the return of the dreaded contango, which has created headwinds for passive, long-only investors as well as for hedge funds.”
Brent futures dropped 1.9 percent to $101.60 a barrel today, the lowest settlement since June 25, 2013.
Speculative bets that prices will rise, in futures and options combined, outnumbered wagers that prices will fall by 72,079 contracts in the week ended Aug. 12, the weekly Commitments of Traders report from the London-based exchange showed. That’s 26 percent less than the previous week, and reduces net-long positions to the least since July 10, 2012.
Short positions among money managers at 119,199 contracts are at their highest level since the start of ICE’s data, which extends back to 2011. This means prices are more prone to rebound sharply if demand recovers, because traders would need to close those positions by buying futures, Saxo’s Hansen said.
The International Energy Agency, a Paris-based adviser on energy policy to 29 developed nations, said on Aug. 12 that a supply “glut” is shielding prices against inflamed tensions in the Middle East and North Africa. Global demand growth sagged to its weakest in two years in the second quarter, the agency said.
OPEC Recovers
Production losses in OPEC nations have narrowed to the lowest level in 16 months, at 1.6 million barrels a day, Energy Aspects Ltd., a consultant based in London, said in a report today.
In Libya, daily output expanded to 540,000 barrels yesterday from 415,000 on Aug. 14 as the country prepares to ship from Es Sider for the first time in more than a year, said Mohamed Elharari, a spokesman for National Oil. Es Sider was one of two export terminals handed over to government control last month after being occupied by rebels seeking self-rule in the eastern regions.
Kurdish forces, also known as Peshmerga, and government anti-terrorism units “with joint air support, have taken over the Mosul Dam entirely,” Iraqi military spokesman Qassim Ata said on state-sponsored Iraqiya television. Abo Maan Al-Taie, a spokesman for Sunni tribes supporting the militants, said that fighting continued on the eastern side of the dam. Iraq is the second-biggest producer in the Organization of Petroleum Exporting Countries.
The average price of crude sold by OPEC dropped below $100 a barrel, a price level favored by the group, for the first time since June 26, 2013, data from the group showed. The OPEC basket is a weighted average of the main export grade from each of the group’s 12 members. Saudi Arabian Oil Minister Ali Al-Naimi has said that $100 a barrel is a suitable level for consumers and producers.
There is unlikely to be any immediate supply cut from Saudi Arabia or other OPEC members while prices remain above $90 a barrel, according to Bloomberg oil strategist Julian Lee. The observations he makes are his own.
By Rodrigo Orihuela Aug 19, 2014 2:26 AM GMT+0700
Petroleo Brasileiro SA (PETR4), Latin America’s largest publicly traded company, will start receiving bids for Argentine oilfields next month, according to a person with direct knowledge of the sale.
Petrobras Argentina SA, a unit of Brazil’s state-run oil producer, will take offers for fields in southern Argentina from Sept. 12, said the person, who asked not to be named because the process isn’t public. Prospective bidders will be able to access data on the assets this month, the person said.
The Argentina unit approved the sale of four fields last month with billionaire Eduardo Eurnekian’s Cia. General de Combustibles SA granted right of first refusal on two of them, a person familiar with the decision said at the time. Petrobras, which canceled an attempt to market Argentine assets last year, sold a stake in the Puesto Hernandez production area in Neuquen province to state-owned YPF SA in January. A month later, YPF agreed to buy assets from Apache Corp.
A press officer at Petrobras in Rio de Janeiro, who can’t be named under corporate policy, didn’t immediately provide a comment on the sale. Petrobras Argentina’s American Depositary Receipts rose 3.4 percent to $6.27 at 3:25 p.m. in New York, extending a gain this year to 13 percent. Trading in Buenos Aires was closed today for a public holiday.
The Petrobras assets that are going on sale in southern Argentina are worth about $300 million, Buenos Aires-based newspaper La Nacion reported on July 25, citing a person familiar with the transaction, who wasn’t identified.
Petrobras hired Bank of Nova Scotia to sell assets including a refinery, petrochemical plants and oil and gas fields, a person with knowledge of the decision told Bloomberg in March. Devinder Lamsar, a press officer at Scotia, didn’t immediately provide a comment when contacted by e-mail today.
Crude oil prices gained in Asia on Tuesday as investors saw value after recent declines and ahead of industry stocks data in the U.S. later today.
NYMEX crude prices gain in Asia in rebound trade, API data awaitedNYMEX crude prices up in Asia
On the New York Mercantile Exchange, West Texas Intermediate Crude Oil for delivery in October traded at $93.94 a barrel, up 0.20%, after hitting an overnight session low of $93.44 a barrel and a high of $95.09 a barrel.
On Monday, Brent oil on ICE Futures Europe fell 1.9% to $101.60 a barrel, the lowest price since June 25, 2013.
Weekly crude oil stocks data from the American Petroleum Institute is due later in the day. Last week, API said crude stocks rose 2 million barrels, while distillate stocks fell 2.6 million barrels and gasoline stocks rose 2.7 million barrels for the previous week.
On Wednesday, the more closely followed government data from the Department of Energy is expected to show crude oil inventories down 1.5 million barrels last week, distallate stocks off 175,000 barrels and gasoline stocks down 1.725 million barrels.
Overnight, oil prices took a dive on fears crude supply far outweighs demand, which offset upbeat U.S. housing data.
Ongoing concerns that the world is awash in crude battered oil prices on Monday, especially as tensions between Ukraine and Russia appeared to wane.
Russian and Ukraine foreign ministers held talks earlier and while no resolution to end the conflict emerged, the flow of humanitarian aid deliveries into Ukraine from Russia continued, which eased nerves in global markets.
Crude prices have spiked in recent sessions on fears the conflict will heat up and disrupt shipments out of Russia.
Upbeat U.S. data failed to seriously cushion's oil's slide on Monday.
The National Association of Home Builders/Wells Fargo Housing Market Index increased to 55.0 in August, a seven-month high, from 53.0 in July, beating estimates for a reading of 53.0.
A level above 50.0 indicates a favorable outlook on home sales and below indicates a negative outlook.
“As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market,” said NAHB Chairman Kevin Kelly.
Washington (Platts)--18Aug2014/215 pm EDT/1815 GMT
The US Energy Information Administration will release a new study next month on the costs of crude processing facilities, including splitters and stabilizers, EIA Administrator Adam Sieminski said Monday.
The study will be released as exports of processed condensates are expected to ramp up following recent rulings by the US Department of Commerce that gave legal backing for two Eagle Ford players to export condensate.
Commerce ruled that Pioneer Natural Resources and Enterprise Products Partners could export condensate without a license because the condensate was processed through a distillation tower. Because it was processed, this condensate was no longer crude oil and, in turn, not subject to US restrictions on crude exports, Commerce said.
The rulings, however, have raised questions over what exactly needs to occur for condensate to be deemed processed, and because the Commerce rulings are not public, several firms are unsure if their processing will fall within the agency's parameters.
The new EIA study will define splitters, stabilizers and other refining projects, and offer details on what is meant by processing. But the report is unlikely to offer much guidance on exports because Commerce and EIA are separate agencies with different regulations.
EIA next month also plans to release an analysis of the relationship between US and global crude oil production and gasoline prices, one of several studies the agency is preparing as it studies US crude export policy.
Sieminski told reporters Monday he hoped to have all of these studies done by the end of the year.
In addition, EIA will release in October its first long-term forecast for crude oil production based on API gravity, Sieminski said. The forecast, which will go out to 2021, will be followed by another report in January that will give more detailed estimates on regional crude production broken down by API gravity, he said.
Rio de Janeiro (Platts)--18Aug2014/123 pm EDT/1723 GMT
Brazilian state-run oil company Petrobras launched its latest production platform over the weekend, part of a massive buildup of its offshore production fleet over the past 18 months that is expected to boost output 7.5% in 2014.
The Cidade de Mangaratiba floating production, storage and offloading vessel, or FPSO, set sail Saturday from the Brasfels shipyard, Petrobras said Sunday. The FPSO will start producing from the Iracema Sul subsalt field in the BM-S-11 block, which also contains the Lula field, in the fourth quarter, Petrobras said.
The FPSO is the latest in a series of new production platforms that Petrobras has brought on stream since mid-2013. Petrobras took delivery of nine new production facilities last year, with an additional three new platforms expected to start production in the second half of 2014. The new production units are expected to lift crude oil production 7.5% to 2.075 million b/d in 2014, up from 1.931 million b/d in 2013.
The company's production had stagnated at about 2 million b/d over the past three years because of delays in building and installing new platforms, declining output at mature fields in the Campos Basin, and maintenance shutdowns to overhaul aging offshore production facilities. Weather conditions also hampered the installation of some new facilities earlier this year, causing market analysts and industry officials to question whether Petrobras would be able to meet its target.
Critics expect Petrobras to lift output a more modest 5% this year.
The Cidade de Mangaratiba, which was built and will be operated by Schahin and Modec, has installed production capacity of 150,000 b/d of crude oil and 8 million cubic meters/d of natural gas, Petrobras said. The FPSO's output will come from eight production wells and eight injection wells capable of injecting 240,000 b/d of water.
The FPSO contains 65% local content, part of Brazil's stringent requirements to utilize locally produced goods and services in the oil and natural gas industry, Petrobras said. Construction and integration of processing aboard the Cidade de Mangaratiba was carried out at four facilities in Rio de Janeiro state and one shipyard in Bahia state, the company said.
The Iracema Sul field sits in waters 2,200 meters deep about 240 kilometers off the coast of Rio de Janeiro state. The field is part of the subsalt cluster, where several billion-barrel oil fields were discovered in more than 2,000 meters of water and buried under an additional 5,000 meters of sand, rocks and a shifting layer of salt.
The nearby Lula field was the Western Hemisphere's largest discovery in more than 30 years when it was announced in 2007, topping Mexico's discovery of the Cantarell field in 1976.
Petrobras operates the BM-S-11 block with a 65% stake. BG owns 25%, while Portugal's Galp Energia owns the remaining 10%.
Dubai (Platts)--18Aug2014/815 am EDT/1215 GMT
Fuel supplies have continued without interruption in Iran's earthquake- hit Ilam province, oil ministry news service Shana reported Monday.
"Oil facilities and fuel supply stations in the area are all active and they had seen no damage. Fuel supply to earthquake-stricken parts is being carried out without problem," Ali Jafari, deputy head of the local oil products distribution company was quoted as saying.
"All oil and fuel facilities including tankers, single distributors and stations are on stand by and active to manage the supply without any problem," Jafari added.
A 6.1 magnitude earthquake struck the province of Ilam in western Iran early Monday, causing injuries and damage, Iranian state television said, but there were no immediate reports of fatalities.
The US Geological Survey reported the quake's epicenter was at a depth of 10 km (6.2 miles), approximately 36 km (22 miles) southeast of the city of Abdanan, near the border with Iraq.
London (Platts)--18Aug2014/728 am EDT/1128 GMT
Future North Sea oil and gas revenues could be as much as six times higher than the UK Office of Budget Responsibility has forecast due to a low estimate of future total production, a report from N-56 said Monday.
N-56, an apolitical business-led initiative which provides independent analysis of Scotland's current economic position, said in the report that oil and gas revenues from the North Sea could total GBP365 billion ($609 billion) by 2040, more than six times the amount forecast by the OBR of GBP57 billion, if a series of recommendations outlined in the report were implemented.
The report was prepared for N-56 by economics consultancy BiGGAR Economics and energy consultancy Tulloch Energy.
Commenting on the report, Graeme Blackett from BiGGAR Economics said "Since 1970 over GBP1 trillion in oil and gas revenues have been produced by the North Sea and at least as much value remains to be produced as already has been, presenting a tremendous opportunity for the sector and for Scotland?s public finances."
The recommendations outlined in the report, some of which were included in the Wood Review earlier this year, include "a more competitive tax regime" which may involve tax incentives to boost production and revitalize exploration, as well as investment to prolong the life of existing infrastructure.
The report also recommends that decision makers for oil and gas taxation and regulation to be moved from London to Aberdeen, regardless of whether Scotland is independent or not, and an oil fund to be established to ensure fiscal stability.
Scotland's First Minister Alex Sammond said in a statement "This substantial new report from a leading business organization blows another huge hole in the credibility of the OBR's oil forecasts."
However, a UK Treasury spokesman said in a statement that the forecasts in the report were "based on inflated oil and gas forecasts" and that "oil and gas revenues are volatile and will ultimately decline."
Caracas (Platts)--18Aug2014/212 pm EDT/1812 GMT
Venezuela's Perla offshore natural gas project -- which is owned by state-owned PDVSA, ENI of Italy and Repsol of Spain -- is now more than two-thirds complete, a PDVSA official said Monday.
The first phase of Perla, which aims to add 150,000 Mcf/d to Venezuela's gas delivery system, is now 69% finished, PDVSA Offshore Executive Director Angel Ramon Nunez said in a statement updating the project, which is located in the Gulf of Venezuela. Officials met Saturday in western Falcon state to review the project's progress.
At the beginning of July, Oil and Mining Minister Rafael Ramirez, who is also president of PDVSA, said the project was 63% complete.
The offshore project is developing the Perla block, which is said to contain reserves of as much as 16 Tcf of natural gas and 182 million barrels of condensates. The three partners aim to begin gas production at the site in December.
International Gas Report is a biweekly report that intelligently analyzes what is happening in the natural gas industry, improving your vision and sharpening your competitive edge. Through its unrivalled network of global correspondents, it covers the whole gas chain, from the well-head to the burner tip, in Asia, Europe, the Middle East, Africa and the Americas, including gas transport, regulation and the ever-present problems posed by shifting geopolitical concerns.
Phase one of the project -- a $1.476 billion investment -- is expected see by December production of 150,000 Mcf/d of gas and 3,660 b/d of condensates. By May 2015, production should increase to 400,000 Mcf/d and 8,580 b/d of condensates.
The total investment for Perla is projected to be $5.043 billion.
Phase two of the Perla project is 59% complete, Nunez said, 7% more than Ramirez estimated in July. Production for phase two will reach 800,000 Mcf/d of gas and 24,000 b/d of condensates by June 2017.
The Perla offshore field is located inside the Cardon IV block, which is 50 km west of the Paraguana Peninsula. It is part of the 29-block Rafael Urdaneta offshore project.
The blocks were awarded to 50:50 partners ENI and Repsol in 2005. PDVSA entered the venture in June by acquiring a 35% interest, with the stakes of ENI and Repsol now at 32.5% each.
Karachi (Platts)--18Aug2014/732 am EDT/1132 GMT
Pakistan has formed a panel comprising officials from the petroleum and natural gas, finance, and water and power ministries to come up with the volumes and price of LNG to be imported from Qatar, an oil ministry source said Monday.
The Economic Coordination Committee held a meeting on Friday where it asked the government to form the nine-member committee, the oil ministry official said.
The panel members would be the secretaries from the ministries of oil and natural resources, finance, water and power; the chairman of the Board of Investment; the managing directors of Pakistan State Oil, Sui Southern Gas, Sui Northern Gas and the Inter-State Gas company; and a legal consultant, the finance ministry said in a statement on Friday.
The government plans to import around 200,000 Mcf/day of LNG from Qatar, with the likelihood of increasing it to 400,000 Mcf/day later. According to local media reports, Qatar had offered to sell the LNG at $18/MMBtu, but Pakistan is seeking to reduce this to $15-16/MMBtu.
August 19, 2014 - 12:00:00 am
KUWAIT/BEIJING: Kuwait has concluded a new 10-year deal with a China’s Sinopec Corp to nearly double its supplies by offering to ship the oil and sell on a more competitive cost-and-freight basis, according to a KPC official and a trading source on Monday.
State-run Kuwait Petroleum Corp will export 300,000 barrels per day (bpd) of crude oil under the agreement, which would amount to 15 percent of Kuwaiti petroleum exports and estimated to be worth $120bn, said Nasser Al Mudaf, KPC’s head of international marketing said.
Mudaf said the contract replaces a previous one for between 160,000bpd 170,000bpd that had expired.
A senior trading source with direct knowledge of the contract said KPC managed to increase the supplies to Sinopec because it offered “a good deal”, under which KPC will use its own oil fleet and sell the oil on a cost-and-freight basis.
“It will be the first cost-and-freight term deal between KPC and China,” said the source, adding it would be more competitive than previous contract that Sinopec bought on a free-on-board basis and shipped the oil by itself.
“We look for the best markets which has stability and gives high return to KPC,” said Mudaf, the marketing chief.
The agreement with China’s Sinopec’s trading arm, Unipec, was reached “in accordance with international prices and under purely commercial terms,” Mudaf said, adding the quantity was subject to increase, but did not specify by how much.
As Kuwait does not have spare crude production capacity, the incremental supplies to Sinopec would be diverted from other markets such as Japan and Europe, where demand has been weakening, said the trade source, who declined to be named as he’s not authorised to talk to media.
An official signing ceremony will be held in Hong Kong in three days, both said.
State news agency KUNA, quoting government data, reported in July that Kuwait’s crude oil exports to China in the first half of this year stood at 3.87 million tonnes, equivalent to around 157,000 bpd.
Most of Kuwait’s exports go to Asia. The Gulf Arab state pumped 2.81 million bpd in July, according to a Reuters survey.
Reuters
ConocoPhillips and Royal Dutch Shell Plc are among global oil companies needing crude prices as high as $150 a barrel to turn a profit from Canada’s oil sands, the costliest petroleum projects in the world, according to a study.
The next most-expensive crude projects are in the deep waters off the coasts of Africa and Brazil, with each venture needing prices between $115 and $127 a barrel, said Carbon Tracker Initiative, a London-based think tank and environmental advocacy group, in a report today.
As the U.S. shale drilling boom floods the world’s biggest crude market with supply, explorers are at greater risk of a price collapse that would turn some investments into money losers. Energy explorers are willing to invest in high-cost oil- sands developments because once they are up and running, they produce crude for decades longer than other ventures such as deepwater wells, said David McColl, an analyst at Morningstar Inc. in Chicago.
“Where else can you get 10 to 30 years of predictable cash flow?” said McColl, who estimated new oil sands projects require $60 to $100 crude to make sense. “The returns may not be stellar compared to some other projects but they are steady.”
After four straight years of gains, Brent crude, the benchmark price for most of the world’s oil, declined 0.3% last year to an annual average of $108.70. Brent for September delivery slumped as low as $102.10, a 13-month low, on the London-based ICE Futures Europe exchange yesterday.
“In order to sustain shareholder returns, companies should focus on low-cost projects, deferring or cancelling projects with high break-even costs,” the report’s authors wrote. “Capital should be redeployed to share buybacks or increased dividends.”
Carbon Tracker said it derived its projects list and cost estimates from a database compiled by Rystad Energy AS, an Oslo- based oil-industry consulting firm.
ConocoPhillips, an investor in two of the three most- expensive projects on Carbon Tracker’s list, subscribes to the same Rystad database, said Daren Beaudo, a spokesman for the Houston-based oil producer. Carbon Tracker’s cost estimates are twice as high as they should be, based on ConocoPhillips’s analysis, he said.
“We don’t believe the estimates CTI are quoting are accurate or realistic,” Beaudo said in an e-mailed statement. “We believe there is great value to having oil sands in our portfolio.”
In May, Carbon Tracker released a report that said the oil industry was at risk of wasting $1.1 trillion of investors’ cash on expensive developments in the Arctic, oil sands and deep oceans. That figure represents the amount explorers may spend on oilfields that need crude prices of $95 a barrel or more, the group said three months ago.
Oil companies face growing pressure from shareholders to rein in costs after two decades of bigger spending have failed to boost production or profitability, said Steven Rees, who helps oversee $992 billion as global head of equity strategy at JPMorgan Chase Bank.
The projects most at-risk from lower prices are ConocoPhillips’s Foster Creek development and Shell’s Carmon Creek, oil-sands developments in Alberta that respectively need $159 and $157 a barrel oil to be profitable, Carbon Tracker said.
A joint ConocoPhillips and Total oil-sands project called Surmont requires $156 a barrel, while Exxon Mobil Corp.’s Aspen and Kearl developments in the same part of Canada need $147 and $134 crude, respectively, to make economic sense, the study found.
ConocoPhillips plans to spend $800 million a year on oil- sands projects over the next three years that will generate more than $1 billion in annual cash flow starting in 2017, Beaudo said. Those cash flows will increase over time and last for decades, providing funds for other types of oil developments, he said.
Shell, Europe’s biggest company by market value, relies on a per-barrel price range of $70 to $110 “for the purposes of longer-term project planning,” Sarah Bradley, a spokeswoman for the Hague-based corporation, said in a telephone interview. She didn’t directly address the study’s findings with regard to the oil sands.
An Exxon spokesman said he couldn’t immediately comment on the study’s findings. A request for comment from Total was not responded to immediately.
Other high-cost regions highlighted in the report included the Partitioned Nuetral Zone shared by Saudi Arabia and Kuwait, the Arctic and the Gulf of Mexico
Nick Cunningham |
Weak global oil demand is keeping a lid on prices, according to a new report from the International Energy Agency (IEA), and that’s bad news for companies carrying a lot of debt.
Oil demand for 2014 will be lower than previously expected, prompting the IEA to downgrade its forecast by 180,000 barrels per day (bpd) for the year. In the second quarter, global demand only increased at an annualized rate of 700,000 barrels per day, the slowest pace in over two years.
Flagging demand is helping to keep oil prices from spiking, which is fortunate, considering that violence in oil producing countries around the world is keeping a substantial portion of oil supplies offline. All told, around 4 percent of global oil supplies are offline because of conflict. But, according to the IEA, “Oil prices seem almost eerily calm in the face of mounting geopolitical risks spanning an unusually large swathe of the oil-producing world.”
Libya has been in a state of political crisis for over a year, which has kept most of its 1.6 million barrel-per-day capacity offline since the summer of 2013. Nigeria has experienced sabotage to key pipeline infrastructure, knocking some of its production offline. Iran has been under western sanctions since 2012, which have capped Iranian oil exports at 1 million bpd – about 1.5 million bpd lower than pre-2012. And Iraq, despite continuing crisis and chaos, has remarkably kept its output fairly steady.
The fact that prices have remained unusually stable over this period of global unrest is a result of weak global demand. Demand growth in the U.S. and Europe has been much softer than expected. OECD economies – a collection of 34 industrialized nations – saw oil demand shrink by more than 400,000 barrels per day in the second quarter.
But the real surprise is slow demand growth coming from China, where the economy is cooling. China has been the main driver in rising oil demand for years, so a slowing rate of consumption there could upend predictions about where global demand is going.
For oil companies, this is a troubling development. As oil becomes harder to find and more expensive to extract, oil drillers need prices to rise to continue to make a profit. The industry has steadily increased its spending over the last five years or so to fund drilling in more remote and expensive locations. As an example, The Wall Street Journal recently wrote about the lengths to which Anadarko is going to produce natural gas in Mozambique.
But the problem for the industry is that prices have stopped climbing even as costs continue to rise. At a Houston conference earlier this year, oil executives agonized over ballooning costs. “All of us are facing new realities and pressures,” John Watson, CEO of Chevron, said. “Labor and capital costs have doubled over the last decade.” He added that many companies don’t make money unless oil prices are in the triple digits.
Until recently, higher production costs could be tolerated because prices were climbing. But with demand flat, prices have hovered around $100 per barrel, and there is plenty of oil sloshing around. And that means higher debt across the industry. Unless oil prices rise significantly, there will likely be a shakeout. The most indebted firms will be forced out of the business, and others will have to cut back on drilling. At that point, supplies will tighten – forcing prices to resume their ascent upwards.
Of course, the fortunes of the oil industry could turn out much rosier than this scenario, if global demand starts to rise faster. And that is certainly possible: The IEA projected annual growth in oil consumption to increase to 1.3 million bpd in 2015 as the global economy expands. But considering the latest downgrade by the IEA, there’s no guarantee that will happen.
By Andy Tully | Mon, 18 August 2014 21:56 | 0
Oil prices fell on Aug. 18 as concern eased about oil supplies from North Africa and the Middle East.
Brent crude from the North Sea fell 78 cents per barrel to $102.75 for October delivery in Asian trading. At one point in the day, its price went as low as $102.35 a barrel. On Aug. 15, it traded $1.52 higher.
In New York trading, meanwhile, the price of U.S. crude was $96.71 per barrel for September delivery, a drop of 64 cents.
Oil prices did spike on Aug. 18 as tensions rose along Russia’s border with eastern Ukraine, a major conduit of Russian gas to Western Europe. But elsewhere on the energy map, the news was good.
“There was a scare on [Aug. 18], but investors realized over the weekend that geopolitical threats are becoming less serious,” Avtar Sandu, a senior commodities manager at Phillip Futures in Singapore, told Reuters. “We have a situation where inventories and supplies are rising. So with geopolitical risks seemingly easing, people don’t want to hold long positions.”
In oil-rich northern Iraq, Kurdish forces reportedly regained control of the country’s largest dam and U.S. air strikes helped drive back militants from the Islamic State. And Prime Minister Nouri al-Maliki, once adamant about keeping his office despite the election of a successor, has agreed to step aside, opening the possibility of a government more inclusive of Sunni Muslims as well as Shi’as.
Oil supplies in the seaports of southern Iraq have not been affected by the fighting in the north.
“The situation in Iraq is something that markets will continue to have front of mind,” Ric Spooner, a chief strategist at CMC Markets in Sydney, told Bloomberg News. “That said, the most likely outcome is Baghdad will hold and there won’t be incursions into the south, or events that will really disrupt oil supply.”
In Libya, oil production rose to as much as 540,000 barrels per day on Aug. 17 over the rate of about 400,000 barrels in the previous week as the port of Es Sider prepared to ship crude, according to Libya’s National Oil Corp. But production remains well below the 1.4 million barrels per day produced last year before the country was gripped by broad unrest.
There was even relatively good news from Ukraine, which has been struggling to quell an uprising by pro-Russian separatists Kiev says Moscow is supporting. On Aug. 16, Ukrainian soldiers raised their country’s flag over a police station in Luhansk, a city that for months had been controlled by the rebels.
Still, some rebels maintain control of other parts of the city, and there is concern that Moscow may intervene directly in the conflict. Russia has denied providing help to the rebels.
By Andy Tully of Oilprice.com
By Nick Cunningham | Mon, 18 August 2014
The confrontation between Ukraine and Russia has entered a potentially dangerous new phase that could increase the likelihood of a dispute over energy supplies.
On Aug. 15, Ukrainian authorities reported that they destroyed a convoy of armored vehicles that had pushed into Ukraine from Russia. The details were murky, but armored vehicles apparently entered Ukraine from Russian territory close to where a convoy of Russian aid trucks was located.
Tensions over Russia’s attempt to send aid to eastern Ukraine had been brewing for days, as Ukraine suspected it was a cover for a shipment of military supplies to pro-Russian rebels. Ukrainian officials said artillery was used to destroy Russian armored vehicles, forcing the standoff to a dangerous low point.
European diplomats tried to calm tensions, but the incursion indicates that the conflict is not going away anytime soon. And that’s going to affect the energy trade in Europe and Asia in several ways.
First, the prospect of an interruption of natural gas flows from Russia to Europe has just gone up; European foreign ministers have said they are prepared to take additional measures against Russia due to its ongoing support for rebels in eastern Ukraine and Ukraine approved a law on Aug. 14 that allows it to impose sanctions on Russia. Both moves could lead to supply disruptions.
Second, relations between Russia and Europe are so low that the South Stream pipeline is probably doomed in the near-to-medium term. Intended to bypass Ukraine – a key Russian objective – South Stream would connect Russian natural gas to Europe via the Black Sea, arriving on EU soil in Bulgaria. South Stream is an important strategic project for Russia, and for that reason, European officials will likely keep it on ice.
As a result, European support for South Stream’s competitor project, the Trans-Adriatic Pipeline (TAP), will likely receive a boost. The TAP project will bring natural gas from Azerbaijan to Italy, diminishing Russia’s role as an energy supplier to Europe. TAP recently signed up former British Prime Minister Tony Blair to advocate on behalf of the pipeline. The pipeline is still facing environmental opposition in Italy, but the more Russia meddles in Ukraine, the more likely European politicians are to try and make TAP a reality.
Another effect of the worsening tensions in Ukraine is Russia’s decision to shift its priorities towards the east. Russian oil exports to Asia have already accelerated as relations with Europe deteriorate. Russia now exports 1.3 million barrels per day – about one-third of its total exports – to Asia, the highest share ever recorded. At the same time, Russian is pairing back its oil exports to Europe, dropping from 3.72 million barrels per day in 2012 down to 3 million barrels per day in July 2014. This trend will continue.
That means Russia will need to lean more heavily on the Chinese market for its energy exports, which is not necessarily a good thing for Moscow. This past spring, Russia largely gave in to Chinese demands on the terms of a $400 billion natural gas agreement that could see 38 billion cubic meters of Russian natural gas flow to China. As Russia loses more and more friends, it risks becoming too dependent on China.
Finally, with Russia becoming an international pariah, oil companies operating in Russia will face increasing risks to their investments. This is bad news for ExxonMobil, BP, and Shell, but potentially good news for Chinese firms. Chinese banks and Chinese companies building offshore oil rigs, and other oil field service companies, could pick up the slack.
The next phase of conflict between Ukraine and Russia may be unclear, but one thing is already clear: European and Asian energy markets are in for a bumpy ride.
By Nick Cunningham of Oilprice.com
Yıldız: Seventh Kurdish oil cargo to leave Turkey
A seventh tanker of Iraqi Kurdish oil is being loaded at Turkey's Ceyhan port, »»
A seventh tanker of Iraqi Kurdish oil is being loaded at Turkey's Ceyhan port, the sole terminal opening to world markets for Kurdish crude, Turkish Energy Minister Taner Yıldız said on Monday.
Yıldız said on Monday 6.5 million barrels of Kurdish crude had been shipped to world markets via Ceyhan since exports began earlier this year.
Yıldız said crude flow on the Kirkuk-Ceyhan pipeline had been halted as of Monday due to maintenance work. Flows through the 120,000 barrel-per-day (bpd) pipeline began at the end of 2013 but the first cargo was not loaded until May.
The Kurdish Regional Government (KRG) in northern Iraq, whose peshmerga forces are being supported by US air strikes in their battle against the militants of the ‘Islamic State', has been in a long constitutional fight with Baghdad over independent oil sales. Some shipments have been held up under diplomatic and legal pressure from Baghdad, but an increasing number are now finding buyers. Iraq has the world's fourth-largest oil reserves and is targeting exports of 6 million bpd by 2017, which would see it overtake its neighbor and fellow OPEC member Iran.
Yıldız also said Iran had not made a tangible proposal for the sale of natural gas at a discounted price to Turkey, adding that Turkey would now await a decision from the international court of arbitration on pricing.
Turkey depends on imports for almost all of its natural gas needs and Tehran is its most expensive supplier. Turkey's state-owned Petroleum Pipeline Corporation (BOTAŞ) applied to an international court of arbitration in 2012 for a ruling on Iran's gas pricing. The case is still pending.
TODAY'S ZAMAN WITH REUTERS
PetroChina unit shuts 2 liquid gas plants
Source: Agencies | August 19, 2014, Tuesday | Print Edition
China’s biggest energy firm PetroChina is reviewing its multi-billion-dollar push to produce liquefied natural gas to fuel trucks and ships in place of diesel, shutting two loss-making gas liquefaction plants, sources said.
PetroChina unit Kunlun Energy Co closed the two major plants in the past month, wrongfooted by rising costs for gas and China’s slower growth rate that has cooled demand, two sources with direct knowledge of the situation said.
Seen just a year ago as a fast-growing profit engine, the firm is now reviewing investment in the niche business that chills gas into liquid form, sourcing the gas from small producing fields or from pipelines tapping large inland basins, they said.
LNG is increasingly seen as a potential transport fuel, and can nearly treble a vehicle’s driving range over rival compressed natural gas. Royal Dutch Shell last year agreed to run LNG fueling lanes at up to 100 major truck stops along United States interstate highways.
LNG is cleaner and nearly a third cheaper than diesel, China’s main transport fuel. Oil firms had an ambitious goal back in 2011 to replace 10 percent of automotive diesel consumption with gas by 2015, industry officials have said.
Led by the private sector, China has built dozens of small-scale onshore gas liquefaction facilities since 2001 to tap marginal gas fields located off the national pipeline grid, filling a supply gap as demand for LNG surged.
Kunlun, a relative latecomer, emerged as a leader of the business, having spent billions of dollars on a dozen LNG plants, mainly in the country’s west and north, and building over 600 gas refueling stations. It separately operates two multi-billion-dollar LNG import terminals on China’s east coast.
But since the second half of 2013, Kunlun has seen utilization rates at some of its plants fall below 50 percent, he said, amid a broad economic slowdown and as Beijing rolled out a gas price reform that pushed up prices of feed gas.
An anti-corruption probe of top PetroChina executives, including Kunlun’s former Chairman Li Hualin, added to uncertainty about the company’s business strategy, said a Kunlun executive.
By Andy Tully | Mon, 18 August 2014
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Oil prices fell on Aug. 18 as concern eased about oil supplies from North Africa and the Middle East.
Brent crude from the North Sea fell 78 cents per barrel to $102.75 for October delivery in Asian trading. At one point in the day, its price went as low as $102.35 a barrel. On Aug. 15, it traded $1.52 higher.
In New York trading, meanwhile, the price of U.S. crude was $96.71 per barrel for September delivery, a drop of 64 cents.
Oil prices did spike on Aug. 18 as tensions rose along Russia’s border with eastern Ukraine, a major conduit of Russian gas to Western Europe. But elsewhere on the energy map, the news was good.
“There was a scare on [Aug. 18], but investors realized over the weekend that geopolitical threats are becoming less serious,” Avtar Sandu, a senior commodities manager at Phillip Futures in Singapore, told Reuters. “We have a situation where inventories and supplies are rising. So with geopolitical risks seemingly easing, people don’t want to hold long positions.”
In oil-rich northern Iraq, Kurdish forces reportedly regained control of the country’s largest dam and U.S. air strikes helped drive back militants from the Islamic State. And Prime Minister Nouri al-Maliki, once adamant about keeping his office despite the election of a successor, has agreed to step aside, opening the possibility of a government more inclusive of Sunni Muslims as well as Shi’as.
Oil supplies in the seaports of southern Iraq have not been affected by the fighting in the north.
“The situation in Iraq is something that markets will continue to have front of mind,” Ric Spooner, a chief strategist at CMC Markets in Sydney, told Bloomberg News. “That said, the most likely outcome is Baghdad will hold and there won’t be incursions into the south, or events that will really disrupt oil supply.”
In Libya, oil production rose to as much as 540,000 barrels per day on Aug. 17 over the rate of about 400,000 barrels in the previous week as the port of Es Sider prepared to ship crude, according to Libya’s National Oil Corp. But production remains well below the 1.4 million barrels per day produced last year before the country was gripped by broad unrest.
There was even relatively good news from Ukraine, which has been struggling to quell an uprising by pro-Russian separatists Kiev says Moscow is supporting. On Aug. 16, Ukrainian soldiers raised their country’s flag over a police station in Luhansk, a city that for months had been controlled by the rebels.
Still, some rebels maintain control of other parts of the city, and there is concern that Moscow may intervene directly in the conflict. Russia has denied providing help to the rebels.
By Andy Tully of Oilprice.com
Published August 19th, 2014
Share on facebookFacebook Share on twitterTwitter Share on google_plusone_shareGoogle+ Share on linkedinLinkedin Share on pinterest_sharePinterest Share on deliciousDelicious Share on stumbleuponStumbleupon Share on diggDigg Share on redditReddit“This is urgent: ISIS is now selling its oil, but the Kurds are not allowed to sell their oil,” an unnamed Turkish official told the Financial Times.
“This is urgent: ISIS is now selling its oil, but the Kurds are not allowed to sell their oil,” an unnamed Turkish official told the Financial Times.
Turkey has requested that the United States remove barriers regarding the purchase of oil coming from Iraqi Kurdistan, according to a report in the Financial Times on Thursday.
“This is urgent: ISIS is now selling its oil, but the Kurds are not allowed to sell their oil,” an unnamed Turkish official told the Financial Times, claiming that the insurgent group formerly known as ISIS which now calls itself the "Islamic State" (IS) was selling oil to the Syrian government. There has also been speculation that smuggled oil from IS is making its way into Turkey and being sold at rates significantly under the market price.
US refiner Axeon declined to purchase a shipment of Kurdish oil due to the controversy surrounding the oil, according to the report.
While there is no official US ban on oil originating from anywhere in Iraq, the US has publicly stated that it does not approve of any oil sales conducted independently of the federal government.
After the Kurdistan Regional Government (KRG) built an independent pipeline skirting Baghdad, the government responded by freezing the KRG's 17 percent share of the national budget. The KRG subsequently began shipping its own oil through the new pipeline -- which connects to Turkey's Ceyhan pipeline -- saying that Baghdad had left it with no other choice.
Reports circulated saying that Israel purchased the first shipment of Kurdish oil that was funneled through Ceyhan; however, the KRG denied selling directly or indirectly to the Israelis.
[Cihan News Agency (CNA)] Copyright © 2014 Cihan News Agency. All right reserved.
August 19, 2014
ANKARA: Turkish Energy Minister Taner Yildiz said on Monday that 6.5 million barrels of Iraqi Kurdish crude oil had been shipped to world markets via Turkey’s Ceyhan port since exports began and that a seventh tanker was being loaded at the terminal.
Yildiz said crude flow on the Kirkuk-Ceyhan pipeline had been halted as of on Monday due to maintenance work. Flows through the 120,000 barrel-per-day (bpd) pipeline began at the end of 2013 but the first cargo was not loaded until May.
Some shipments have been held up under diplomatic and legal pressure from Baghdad, but an increasing number are now finding buyers. Iraq has the world’s fourth-largest oil reserves and is targeting exports of 6 million bpd by 2017, which would see it overtake its neighbour and fellow Opec member Iran.
Reuters
August 19, 2014
KUWAIT: Kuwait has concluded a deal with a China’s Sinopec trading arm to export 300,000 barrels per day (bpd) of crude oil over 10 years, the head of international marketing at state-owned Kuwait Petroleum Corporation (KPC) said on Monday.
Nasser al-Mudaf said the exports, which will amount to 15 per cent of Kuwait’s oil export output, start from on Monday and are estimated to be worth $120 billion.
Mudaf said the contract replaces a previous one for between 160,000 bpd 170,000 bpd that had expired.
“We look for the best markets which has stability and gives high return to KPC,” he said. The agreement with China’s Sinopec’s trading arm, Unipec, was reached “in accordance with international prices and under purely commercial terms,” Mudaf said, adding the quantity was subject to increase, but did not specify by how much.
Reuters
August 19, 2014
GARABOGAZ: Japan’s Mitsubishi Corp. and Turkey’s Gap Insaat on Monday laid the foundation of a $1.3 billion plant to produce carbamide in Turkmenistan, which plans to gain added value by using its natural gas to produce the fertiliser for export.
Turkmenistan holds the world’s fourth-largest reserves of natural gas. Its economy has grown by more than 10 per cent a year in recent years, owing largely to rising gas exports to China via a pipeline built in late 2009. But the government of the Central Asian country has also invested billions of dollars in projects to develop other sources of exports. Under this programme, the new plant will process natural gas to produce annually 1.1 million tonnes of the fertiliser carbamide, which is also known as urea, for a global market.
“The plant is entirely designed for exports. Carbamide delivered from here will be loaded onto ships and then sent to overseas nations,” Turkmen President Kurbanguly Berdymukhamedov said at a lavish ground-breaking ceremony in a desert area some 800 km (500 miles) west of the capital Ashgabat.
The plant, which will employ 1,000 workers, will be built near the Garabogaz Bay in the Caspian Sea. The fertiliser will be shipped mainly to markets in Europe and the Far East, local government officials have said. The $1.3 billion cost of the project will be 85 percent financed by a loan from Japan Bank for International Cooperation and the rest by the Turkmen government.
Also under the diversification plan, Berdymukhamedov in June concluded two large-scale agreements with South Korea’s LG International Corp 001120.KS and Hyundai Engineering to build two plants worth a total of $4 billion to process gas into other products.
Reuters
MOSCOW Mon Aug 18, 2014
Aug 18 (Reuters) - Russian Urals crude weakened for an eight straight trading day on Monday due to weak European refining demand, falling well below $100 a barrel for the first time in a year in a move to increase the pain for Russian state finances amid Western sanctions.
Russia has balanced its budget at $114 a barrel this year as President Vladimir Putin is ramping up social military spending amid a conflict in Ukraine, which sent relations between Moscow and the West to their worst since the end of the Cold War.
Sanctions are expected to slow new Russian oil projects, compounding a decline in output in the last months from the world's largest producer.
Global oil prices have been falling despite the conflict in Ukraine and violence in Iraq due to poor demand from the weak global economy and booming U.S. oil supplies.
"The geopolitical premium has fallen close to zero," said analysts from Nordea bank.
Analysts said declining oil prices would heavily weigh on the Russian stock market and the rouble, which is already trading near its all-time lows. Russia's $2 trillion economy depends on energy-related taxes for half its budget revenues.
On Monday, Urals crude in the Baltic traded at below $98 a barrel, its lowest since May 2013, the last time Urals traded under $100 per barrel for a prolonged period of time.
In the Mediterranean crude market, where oil supplies are slightly than in the Baltic, Urals was trading at below $99 a barrel.
The pressure on Urals will likely increase as preliminary September loading dates showed healthy supply levels
In more bearish news, oil firm Surgut tendered to sell four early September cargoes in the Baltic and Rosneft also tendered to sell 0.3 million tonnes from the Baltic and 0.22 million tonnes from the Mediterranean.
Results are due later this week.
In the Platts window, Total bought a 80,000-tonne Urals cargo from Vitol in the Mediterranean at dated Brent minus 70 cents a barrel, some 35 cents weaker than previous price estimates, traders said.
BP offered a larger Suezmax at dated Brent minus $1.00 per barrel, some 45 cents weaker than previous price estimates but found no buyers.
Lukoil sold a cargo of CPC Blend to Eni at dated Brent minus 75 cents, some 20 cents weaker than previous price estimates, traders said.
In the paper market, Urals was expected to weaken in September to dated Brent minus $1.15 a barrel while in the Baltic it was expected to stay at the current levels of dated Brent minus $2. (Reporting by Dmitry Zhdannikov and Gleb Gorodyankin; Editing by William Hardy)
By OGJ editors
China more than tripled natural gas production since 2003, producing 3.8 tcf in 2012, and the government is targeting production to reach about 5.5 tcf/year of gas by the end of 2015, according to a recent analysis from the US Energy Information Administration.
China is attempting to use more natural gas to reduce air pollution and carbon dioxide emissions, which are largely caused by coal and oil usage for energy. Underpinned by large investments in domestic gas production and infrastructure, along with growing imports, the Chinese government anticipates increasing its gas share of total energy consumption to around 8% by yearend 2015 and to 10% by 2020. In 2012, natural gas accounted for only 4.9% of China’s total energy consumption.
“Most of the anticipated production growth is from large onshore fields in the western and north-central regions of China as well as from the offshore deepwater regions in the South China Sea,” EIA said. “China’s natural gas consumption has outstripped domestic supply since 2007, triggering rising imports of both LNG and pipeline gas. China’s natural gas consumption rose at an average annual rate of 17% from 2003 through 2013, reaching nearly 5.7 tcf in 2013.”
In 2013, China imported nearly 1.8 tcf of LNG and pipeline gas to fill the growing gap between supply and demand. Imported gas met 32% of China’s demand in 2013, up from 2% in 2006.
“China is swiftly developing its LNG import capacity in the urban coastal areas and currently has 10 major regasification terminals with an annual capacity of 1.7 tcf,” EIA said. In 2012, China rose to become the third-largest LNG importer in the world, after Japan and South Korea, and in 2013, the country imported 870 bcf of LNG. Estimates for the first half of 2014 show LNG imports growing at faster levels than in previous years.
Natural gas pipeline infrastructure that links production areas in the western and northern regions to demand centers along the coast are also being planned and developed. The new infrastructure will accommodate greater imports from neighboring countries. By 2013, gas supplies from Turkmenistan, Uzbekistan, and Kazakhstan reached 974 bcf. A recently finalized gas agreement with Russia allows China to purchase and transport gas from eastern Russia through a proposed pipeline. The deal, valued at roughly $400 billion, will supply China with as much as 1.3 tcf/year of gas starting in 2018.
Meanwhile, according to EIA estimates, China holds the largest reserves of technically recoverable shale gas in the world, although investors face a variety of challenges from geological, technical and water resource, regulatory hurdles, transportation constraints, and competition with other fuels. “China’s potential wealth of shale gas, coalbed methane, and coal-to-gas resources has spurred the government to invest and partner with foreign companies that have technical expertise to unlock these reserves,” EIA said.
Oil refiners hit a slippery slope in second quarter
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Korean refiners suffered a painful second quarter due to a reduced refining margin and a strong Korean won as they pushed to reduce marketing costs to survive.
Among the top four Korean refiners, Hyundai Oilbank was the only company that made an operating profit in its second quarter. The rest fell into the red compared to a year ago.
“The basic profit of refiners is affected by the refining margin, the spread of paraxylene [PX] and lubricant base oil,” said Hana Daetoo Securities researcher Lee Han-eol in his report. “It is inevitable that their second-quarter performance would be worse because of the currency rate change and the crude oil price change.”
The performance of Hyundai Oilbank, which avoided operating loss, wasn’t impressive. The affiliate of Hyundai Heavy Industries said last week that it had an operating profit of 39.4 billion won ($38 million) in the second quarter, down 33 percent from a year ago and a 61.9 percent decline from the first quarter.
But the nation’s smallest refiner fared better than others.
No. 1 refiner SK Innovation, the holding company that manages SK Group’s oil and petrochemical businesses, said last month it had an operating loss of 50.3 billion won in the second quarter. That number is 445.3 billion won less than in the same period last year, and a 276 billion won drop from the first quarter. Its second-quarter revenue slipped 2.1 percent year-on-year to 16.4 trillion won.
Korea’s second-largest refiner GS Caltex said last week that it made an operating loss of 71 billion won in the second quarter, while revenue dropped 11.8 percent year-on-year to 10.2 trillion won. The affiliate of GS Group had 93.8 billion won of operating profit in the second quarter.
S-Oil recorded an operating loss of 54.9 billion won in the second quarter. A year ago, the nation’s third-largest refiner made an operating profit of 99.9 billion won and 46.9 billion won in the first quarter.
“Their poor performance is due to heavy losses in the refining business, which was marred by a weakened refining margin and seasonal maintenance,” said Shinhan Investment & Securities researcher Lee Eung-ju in a report. “The slump in the petrochemical business with the drop of the PX margin also didn’t help.”
According to Lee, the refining margin in the second quarter was $7.3 per barrel, down $1 from the previous quarter, while the spread between PX and naphtha declined $38 quarter-to-quarter to $288.
In refining, the top three oil companies had a combined operating loss of 541.7 billion won. For petrochemicals, none of the four companies recorded a loss, but their profits shrank.
SK Innovation said that its petrochemical affiliate SK Global Chemical had an operating profit of 51 billion won in the second quarter, down 77.2 percent down from a year ago.
GS Caltex reported that its operating profit in the petrochemical business slipped 78.4 percent year-on-year to 37.8 billion won, while S-Oil said that it had 26 billion won of operating profit, down 76.2 percent from a year ago.
What kept these three companies alive was their lubricant business last quarter. Industry insiders said that demand for lubricants has been increasing since 2009, because it is used in other machinery besides automobile engines.
SK Innovation said that its affiliate SK Lubricants posted an operating profit of 79.4 billion won in the second quarter, a 179.1 percent surge year-on-year. Its operating profit ratio was 10.2 percent.
GS Caltex reported 63.4 billion won of operating profit for its lubricant business from April to June, up 23 percent from year ago, while S-Oil had 72.5 billion won, a 46 percent increase from a year earlier. Their operating profit margin was 13.3 percent and 14.2 percent, respectively.
To offset heavy losses, refiners are reducing their marketing costs. They stopped using top celebrities in television ads and some companies even reduced customer service benefits.
According to the industry, SK Energy reduced benefits in May for its OK Cashbag - an SK Group customer loyalty program that gives points for purchasing products. Previously, customers who had an OK Cashbag membership card or a credit card with the OK Cashbag logo could earn five membership points per liter, but now their points will be set at 0.1 percent of the actual fuel cost, which reduces the benefits by 60 percent.
GS Caltex will also change its bonus mileage system next month. Previously, it gave five membership points per liter, but it will be reduced to two points per liter.
Industry insiders say the companies can rebound in the second half as the refining margin in crude oil and PX will improve.
BY JOO KYUNG-DON [kjoo@joongang.co.kr]Copyright by JoongAng Ilbo
BAKU Mon Aug 18, 2014
Aug 18 (Reuters) - Azerbaijan's oil exports fell 1.5 percent year-on-year in the first seven months of 2014 due to a decline in oil production at its main fields, where BP has a major interest, a source at the State Customs Committee said.
The source said Azerbaijan exported 19.941 million tonnes of oil, down from 20.229 million in the same seven months last year.
Falling output at the main Azeri, Chirag and Guneshli (ACG)oilfields has raised concerns in Baku.
BP and its partner, Azeri state energy firm SOCAR, have tried to calm those fears by saying last year that production had stabilised. Total oil output grew last year for the first time since 2011.
Azerbaijan's oil and condensate output fell 2.8 percent in January-July 2014, a source at the State Statistics Committee said last week, driven by declines at fields operated by BP.
Exports of oil via Russia through the Baku-Novorossiisk pipeline amounted to 593,848 tonnes in the seven months, down from 993,170 tonnes.
Exports through the Baku-Supsa pipeline via Georgia rose to 2.442 million tonnes from 2.261 million tonnes, while exports through Baku-Tbilisi-Ceyhan via Georgia and Turkey were 16.361 million tonnes, down from 16.432 million.
Oil exports shipped by a rail via Georgia rose to 542,521 tonnes from 542,342 tonnes.
BP said earlier this year that ACG oil production in 2014 might be slightly lower than in 2013 as the company planned maintenance work at the Central Azeri and West Azeri platforms, halting operations for a couple of weeks.
It did not say when the work would start.
Output from ACG fell to an average of 656,000 barrels per day (bpd) in the first half of 2014 from 672,000 bpd in the same period last year, although production in the first half was still higher than the average of 645,800 bpd produced in the first three months of the year, BP-Azerbaijan said in a statement last week. (Reporting by Nailia Bagirova; Writing by Margarita Antidze; editing by Jane Baird)
Source: Tehran Times
Thirteen European and Asian companies have announced they are ready to invest in Iranian gas projects, according to National Iranian Gas Company official Asghar Soheilipour.
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Four British and French companies, three Japanese companies, two South Korean companies, and four Chinese companies, as well as four Iranian companies, are prepared to invest a total of $15 billion in Iranian gas projects, the ISNA news agency quoted Soheilipour as saying on Sunday.
The companies are active in the production of pipelines, the construction of refineries, and the establishment of pressure boosting stations, he added.
Iran has the world's biggest reserves of natural gas, with an estimated 1.193 quadrillion cubic feet of gas reserves, and the world's fourth-biggest reserves of oil, with 157 billion barrels, according to the BP Statistical Review of World Energy, which was published in June 2014.
One of the striking developments in Iran in recent months has been the large external capital inflows, mostly in the form of foreign direct investment, thanks largely to its initial progress in macroeconomic stabilization, improved investment regime, and progress in nuclear negotiations with the 5+1 group (Russia, China, the United States, France, Britain, and Germany).
Rosneft, Statoil start exploration drilling in Norway’s sector of Barents Sea
Norway’s Statoil and Russia’s Rosneft have started joint exploration operations at the Pingvin License PL713 prospect in the Norwegian section of the Barents Sea, the Russian company said Monday.
The news comes just days after the Norwegian government Friday introduced sanctions against Russia over its role in the Ukrainian crisis that limit supplies of some products to the Russian petroleum sector. The companies expect to analyze the drilling results at the end of the year, Rosneft said in a statement.
The first exploration well Pingvin-1 will be drilled by the Transocean Spitsbergen rig. The water depth is 422 meters, and the drilling target vertical depth is 1,516 meters. Statoil is operator while North Energy and Edison International are also partners in the project.
Rosneft is participating in the project via its subsidiary, RN Nordic Oil. It owns a 20% stake in the License PL713, which comprises four blocks 7219/2, 3 and 7319/11, 12. The partners received the licenses in June 2013 following the results of the 22nd Licensing Round conducted by the Norwegian Ministry of Petroleum.
“The start of this exploration operations marks an important milestone in developing the cooperation between Rosneft and Statoil,” Rosneft said in the statement. “The companies plan to implement their experience of exploration and development of hydrocarbon fields in regions with harsh climate.” Rosneft and Statoil agreed on joint offshore exploration in May 2012.
The cooperation deal included four offshore licences in Russia and projects in Norway’s sector of the Barents Sea and the North Sea. The drilling started as pressure is mounting against Russia over its role in Ukraine’s crisis and Norway last Friday adopted its own sanctions against Russia.
Alongside the US and EU’s bans, the Norwegian government has prohibited “export of products to be used for deepwater oil exploration and production, Arctic oil exploration and production, or in shale oil projects in Russia,” according to a statement by Norway’s foreign ministry Friday.
The ministry said that “prior authorization is also required for the provision of financing or other technical assistance related to these categories of goods,” adding that authorization “can and will normally be given for the export of products if this is to honor obligations under contracts agreed prior to the entry into force of the new regulations.” Other bans include asset freeze and travel restrictions for some individuals and entities, trade of arms and defense-related products.
Italy’s Eni starts drilling exploration well offshore Libya: NOC
Italy’s Eni on Monday started drilling an exploration well in a new area offshore Libya, the country’s state-owned NOC said in a statement. The B1-16/4 well, in contract area D, is located 92 km north of Tripoli and 44 km south of the producing offshore Bouri field, NOC said. “The final depth of this well is expected to be 11,000 ft and the expected duration to complete the drilling of this well is about three months from the date of the start of drilling operations,” NOC said. The well commitment was part of a renewed upstream contract agreed by Eni and NOC in January 2008. France’s Total started drilling an exploration well offshore Libya earlier this year, while BP has postponed drilling its first offshore well until 2015.
Liberia kicks off first road show of new bid round in London
The Liberian national oil company NOCAL offered four offshore blocks at a road show in London on Monday, the first of three as part of a new licensing round as the country struggles with an Ebola virus which is crippling its economy.
The round offers four undrilled blocks known as LB-16, LB-17, L-6 and LB-7, which were relinquished by other companies. Road shows will also be held in Lagos and Houston with bids due in by October 31, 2014. “Liberia is facing a terrible health crisis as we speak, making it all the more important that we secure the long-term growth of our country,” NOCAL chief operating officer Althea Sherman said.
The country’s hydrocarbon potential has attracted investment from Chevron in 2010 and ExxonMobil in 2013. It has 17 available blocks in the outer continental shelf in water depths between 2,500 meters and 4,000 meters. Thirteen of the blocks are considered ultra-deep water in depths of 4,500 meters. “We have attracted some of the world’s best companies to date, and we hope that this transparent, competitive round can attract more. It will also enable us to develop these vacated blocks while we complete our reforms of the sector and before any new acreage is made available,” Sherman said.
Anadarko and its partners relinquished block LB-16 and LB-17 in 2012 and 2013 while NOCAL terminated efforts to reach an agreement with TongTai Petroleum for blocks LB-6 and LB-7.
Since 2004, six wells with several showing signs of hydrocarbons but they were not commercially viable. Liberia’s petroleum bill has been in development since 2013, is expected to be enacted in late 2014 or early 2015.
Since the outbreak of Ebola in February, Liberia has recorded the highest casualty figures — 413 deaths — among other West African countries affected by the disease. The deadly outbreak had forced Canadian Overseas Petroleum, ExxonMobil’s partner in block LB-13, to delay drilling of an exploration well off Liberia.
Hungary’s MOL admits to buying 80,000 mt cargo of Kurdish crude
Hungary’s MOL said Monday it had bought a cargo of Iraqi Kurdish crude, becoming in the process one of the few companies to openly admit to buying oil from the semi-autonomous region of Iraq.
Kurdistan has been exporting crude from the Turkish port of Ceyhan since May this year and from the smaller ports of Mersin and Dortyol since 2013, but buyers of the crude have mostly sought to remain under the radar as the federal Iraqi government views the sales as illegal. Other refiners that have said they have bought Kurdish crude include Austria’s OMV and LyondellBasell.
MOL said it imported a cargo of 80,000 mt (580,000 barrels) into the Croatian port of Omisalj at the weekend. “As part of our efforts to diversify our crude supply and test various grades of crude in our refineries, MOL purchased from the Kurdistan Regional Government (KRG) at market prices 80,000 mt of crude oil, which arrived at Croatia’s Omisalj sea port,” MOL’s Corporate Affairs Senior Vice President Szabolcs Ferencz said.
“MOL, being among the first oil companies to enter the Kurdistan region of Iraq in 2007, greatly values its excellent relationship with the KRG and we are pleased that our excellent cooperation was further enhanced through the above transaction,” Ferencz said.
The KRG last week approved the field development plan for the MOL-operated Akri-Bijeel block. The plan relates to MOL’s two commercial discovery areas so far at Akri-Bijeel — the Bijell and the Bakrman areas.
MOL has said it intends to increase production from the block to a minimum of 50,000 b/d by 2017-2018. Earlier Monday, Turkish energy minister Taner Yildiz said a total of 6.5 million barrels of crude piped from Kurdistan to Ceyhan had now been exported to the international market. Kurdistan has pumped 7.8 million barrels in total to Ceyhan since Erbil began sending crude via pipeline to the Turkish port at the start of this year, Yildiz was quoted as saying by the Anatolia news agency at a press conference. This suggests a further 1.3 million barrels is currently sitting in storage at Ceyhan. “Turkey has made shipments of 6.5 million barrels,” Yildiz was quoted as saying. “Seven tankers have loaded and set sail,” he said.
Sanctions against Russian oil sector begin to bite
Sanctions imposed by the US and the EU against Russia, although not designed to target current oil output, are already having a material impact on companies operating in the country and could trigger a downward trend in production as soon as next year after five years of steady output growth.
The sanctions, which ban the transfer of certain oil sector technology to Russia and limit access to the US funds, are already affecting investor sentiment at both national and international level, and may force companies to slow some projects.
Oil services giant Schlumberger last week became the first foreign company to signal a financial hit from the sanctions, saying the measures were placing “some restrictions on the engagement of certain people and equipment in our Russian operations which in the short term will have an impact on operational efficiency and costs in Russia.”
Russian oil giant Rosneft said earlier some of its projects could be delayed due to earlier US sanctions that limited its access to US funds. And Gazprom Neft said sanctions could force it to seek out alternative technology, both from domestic sources or from Asia and the Middle East, although reiterating that it does not expect any short-term impact on its operations as it has acquired “all the key equipment” beforehand.
One major risk is that the sanctions and their impact on sentiment could affect drilling operations at conventional fields, causing an acceleration of Russian decline rates at mature fields, an area in which foreign oil service companies are widely represented.
Mature regions like West Siberia and Volga-Urals still account for nearly 90% of Russian oil production and the decline rates in those regions, even with increased development drilling, are estimated at 1-1.5%/year and could accelerate, analysts at the Bank of America Merrill Lynch said in a recent study.
In recent years, Russian companies have started using a wide range of enhanced oil recovery techniques, such as horizontal drilling with multiple hydrofracking, to boost output, allowing them to slow down decline rates at old fields.
