News 22nd July 2014

Iran’s oil exports are at highest level in two years

Iran’s oil exports will remain near the highest level in two years as talks with six global powers over the Persian Gulf state’s nuclear program are extended for four more months, according to six analysts in a survey.

Sales of crude and condensates by Iran to six main buyers averaged 1.27 million barrels a day in the first six months of the year, according to data compiled by Bloomberg from customs statistics and International Energy Agency estimates. Shipments will stay near that level in the second half, according to the analysts Bloomberg surveyed on July 16 and 17.

“Iran’s going to want oil exports to keep edging up, and the U.S. has been willing to allow some wiggle room,” Robin Mills, an analyst at Manaar Energy Consulting and Project Management, said by phone from Dubai yesterday. “The extension is a sign they’ve made progress on nuclear talks and think they can reach a deal. The U.S. won’t let oil exports get in the way.”

Negotiators from the United States, Russia, China, Germany, France and the United Kingdom agreed with Iranian officials to continue talks at intervals until Nov. 24, U.S. Secretary of State John Kerry said in comments posted on the State Department website on July 18. The parties failed to reach yesterday’s deadline for a deal ensuring Iran’s nuclear program is peaceful in return for lifting sanctions. The constraints are hurting Iran’s economy.

The two sides didn’t specifically address crude-export levels when announcing the decision to extend the period for talks. Terms of the extension agreement are similar to those in the previous six-month period, Catherine Ashton, European Union foreign policy chief, and Wan Qun, the Chinese envoy to the talks, said Nov. 19.

The United States lets China, India, Japan, South Korea, Turkey and Taiwan take crude from Iran, so long as that country’s total sales stay at about 1.1 million barrels a day.

Bloomberg

South Korea June Iran oil import up; Jan-June import down

South Korea's imports of crude from Iran rose by 7 percent in June from a year ago but its oil shipments from the OPEC member in the first half of this year fell 11 percent year on year, or below last year's daily average, customs data showed on July 15.

South Korea imported 604,402 tonnes of Iranian crude oil last month, or 147,676 barrels per day (bpd), higher than 284,327 tonnes a month ago and 565,444 tonnes a year ago, the preliminary customs data showed, Reuters reported.

The country's Iran oil intake in January-June of this year, however, marked 3.1 million tonnes or 126,145 bpd, meaning 11 percent lower than 3.5 million tonnes or 141,839 bpd imported a year earlier, and also 6 percent less than last year's average of 134,000 bpd, according to the data and Reuters calculation.

Iranian oil imports by Asia's fourth-largest economy fluctuate monthly as one of its two refiners -- SK Energy and Hyundai Oilbank -- that import the oil usually buys the crude only every other month.

South Korea and other Asian buyers are supposed to hold their crude imports from the OPEC member at end-2013 levels - or between 1 million and 1.1 million bpd - under the terms of the Geneva accord between Iran and six major powers.

U.S. Secretary of State John Kerry said he held good and serious talks with his Iranian counterpart on July 14 as the two sides raced to narrow wide gaps on Tehran's nuclear program less than a week before a July 20 deadline to reach a deal.

The powers, also grouping Britain, China, France, Germany and Russia, want Tehran to significantly scale back its nuclear enrichment programme to make sure it cannot yield nuclear bombs. Iran's priority is to get sanctions that have severely damaged its oil-dependent economy lifted as soon as possible.

South Korea imported a total of 9.8 million tonnes of crude last month, or 2.4 million bpd, compared with 10.4 million tonnes in June of last year, the customs data showed.

Final data for June crude oil imports will be released by state-run Korea National Oil Corp later this month.

Gas condensate shares 44 percent of Iran's total oil export

By Dalga Khatinoglu

Iran's gas condensate exports reached 5,784 tons during first quarter of Iran's fiscal year, indicating a 2.4 times increase year to year.

The International Energy Agency's monthly reports indicates that Iran's crude oil and gas condensate exports together were 1.11, 1.36 and 1.08 million barrels per day during April, May, and June respectively.

Now, Iran's Custom Administration's monthly report covering a period from March 21 to June 22, says that Iran exported 5,784 tons or 522,425 barrels per day of gas condensate during the first quarter of Iran's fiscal year. The figure was about 217, 000 barrels per day during the same period last year.

According to the new Custom's report, published on July 14, Iran's gas condensate exports during the first months of fiscal year are 846 tons (229 kbbl per day), 4095 tons (1.11 million bbl per day) and 843 tons (229 kbbl per day) respectively.

In addition to the condensate export growth, Iran's liquid petroleum gas (LPG) export experienced a huge increase as well. The Middle Eastern country exported about 509,000 tons of liquefied propane and 320,000 tons of butane during first quarter of fiscal year.

Iran's LPG exported almost two-fold more in the first quarter compared to the same period last year.

Iran's petrochemical products export value increased from $2.646 to $3.076 billion during the mentioned period. The total non-oil exports of Iran (including gas condensate) reached $11.859 billion, indicating an above 20 percent increase, while the imports $12.386 billion with above 36 percent growth.

The huge increase in Iran's gas condensate occurred while Iran loaded the first condensate output of the 12th phase of South Pars gas field last week.

IRNA reported on July 13 that the Executive Director of Iran's Petropars Projects Seyyed Hadi Mirbagheri said, some 950, 000 barrels of the condensate produced at the Phase 12 was loaded to a tanker last week to be exported in upcoming days.

Iran inaugurated the biggest phase of the South Pars gas field, Phase 12 last fall, but the output level of natural gas from this phase doubled last week, reaching 25 million cubic meters per day. The Phase 12 is aimed to produce 80 mcmpd of gas and 120 kbbl per day of gas condensate after full commencement, which is scheduled by the end of 2014.

Dalga Khatinoglu is specialist on Iran's energy sector and Iran News Service head in Trend Agency

China's oil imports from Iran rise nearly 50 pct Jan-June

21 July 2014, 17:35 (GMT+05:00)

China's crude imports from Iran in the first half of the year were up nearly 50 percent, although shipments in June dropped nearly a third from May to the lowest level in four months.

China, Tehran's largest oil client, began stepping up purchases from the OPEC member after a preliminary nuclear deal in November of last year eased some sanctions on Iran. China has been making up the main portion of Asia's higher Iranian oil imports since then, Reuters reported on July 21.

Iran and six world powers have failed to negotiate a final resolution to a decade-old standoff over Tehran's atomic activities, but talks have been extended for another four months past the July 20 deadline.

Mostly owing to China's increases since the interim deal was agreed, Asian buyers are expected to import about 1.25 million to 1.3 million barrels per day (bpd) of Iranian oil in the first half of the year, industry and government sources have said.

China's June imports from Iran came in at 2.18 million tonnes, or 531,200 bpd, up 38 percent from a year ago and down 30 percent from May, customs data showed on Monday.

Imports from Iran for the first half of the year were 627,742 bpd, up 48 percent from 424,183 bpd over the same six months of last year, the data showed.

June's level eased back to a normal contract rate versus record and near-record shipments seen in April and May, as top state refiner Sinopec Corp may have slowed down loading from Iran, according to a source.

Sinopec had been planning to cut back its June shipments from Iran because of the high volumes of the previous two months, the trading source familiar with loading plans had earlier told Reuters.

China's imports from Iran spiked to a record in April and remained high in May. June's figures were at the lowest since February, on par with December-March daily imports and near pre-2012 levels, before tough Western sanctions were imposed.

Sinopec has been lifting more Iranian crude since last year partly because it is cheaper versus similar grades from Saudi Arabia, industry officials have told Reuters.

Sinopec's increased shipments helped lift overall imports from Iran and were a result of both the easing of sanctions and a push to cut purchase costs, the officials said.

Higher imports of condensate, a light crude oil from Iran's South Pars gas project, have also contributed to strong intake figures. China counts condensate as crude oil.

Despite the slow progress on a long-term deal to end the decade-old nuclear standoff, Iran has moved to eliminate its most sensitive stockpile of enriched uranium gas, in keeping with the interim agreement, according to an update by the U.N. nuclear watchdog obtained by Reuters.

Iran's overall crude oil exports dropped in June after a spike in May, yet sales were still above the 1 million bpd allowed by the November deal aimed at curbing Tehran's nuclear program, according to sources who track tanker movements.

Iran ranks No.3 among China's top suppliers, according to customs, with growth in the January-June period the fastest among China's top suppliers, outpacing that of Iraq, Oman, Angola, Russia and Saudi Arabia.

Reuters also reported that India targets imports of about 220,000 barrels per day (bpd) of oil from Iran in the current fiscal year to March 31, 2015.

The figure indicates an annual fall by 16.3 percent in 2013/14, with the middle eastern nation slipping to the seventh position among India's oil suppliers.

New Delhi could cut its overall imports from Iran to 180,000-185,000 bpd if sanctions are not lifted against Tehran, a senior oil ministry official had said in January.

Libya Revives Exports From Its Largest Oil Field

MOSCOW, July 21 (RIA Novosti) - Oil exports from the largest Libyan oil field Sharara starting again on Monday, July 21 is a sign of the country’s oil industry revival, Wall Street Journal reported Monday, quoting a spokesperson of the Libyan state company National Oil Corp (NOC).

According to a different source familiar with the situation, quoted by the Wall Street Journal, the first oil tanker will be delivered to the Spanish company Repsol, which is NOC’s partner in oil field development.

Total volume of oil production in Libya is now approximately 500,000 barrels per day, which is 100,000 barrels less than a five year maximum reached on July 16. According to the NOC representative, the decrease is related to the closure of the eastern port of Brega. Oil fields that shipped their products through Brega suspended their work.

Early July acting Libyan Prime Minister Abdullah Thani announced the end of the “oil crisis” in the country and said the authorities had regained control over the two ports.

In April, the Libyan government made an agreement with the rebels to unblock four oil terminals. Two of them, Zueitina and Hariga, came under government control shortly after.

Libya’s oil industry has been disrupted by clashes between various armed groups that disagree with the governmental policy, and has lost at least $14 billion over the past nine months due to port blockades.

Northwest European 50 ppm gasoil rises on prompt buying interest, lack of sellers

London (Platts)--21Jul2014/844 am EDT/1244 GMT

The Northwest European 50 ppm sulfur gasoil barge market has risen over the last several days following buying interest by several companies and noticeably absent sellers.

The FOB delivered Rotterdam 50 ppm barges closed at $12.25/mt above the front-month August 0.1% ICE futures contract on Friday, their highest in over three months.

German trader Gekol was seen bidding at $12/mt above August 0.1 % ICE gasoil futures for a physical 50 ppm sulfur gasoil barge basis ARA for July 23-27 loading dates on Friday in the Platts Market on Close assessment process without finding a seller.

The discount of the 50 ppm, a heating oil, to the 10 ppm ultra low sulfur diesel grade closed at $2/mt, its lowest in six weeks.

Typically, the spread between the two distillates in the summer can narrow as the heating oil specification requires more stringent cold properties for winter heating requirements compared to the summer diesel specification.

Specifically, the cloud point is limited to a maximum of 3 degrees Celsius with a cold filter plugging point of minus 12 C.

This compares to 5 C and minus 2 C respectively for summer specification German diesel road fuel spec traded in the ARA barge market.

Given their more stringent cold requirements, the 50 ppm gasoil barges have traded above the ULSD in the past.

The last time the heating oil traded above the 10 ppm was in mid-November following strong heating oil demand against a large supply of ULSD coming from the US capping diesel physical premiums in NWE.

"It's always the same. If Germans buy, it goes close to diesel premiums, when they don't it goes down to 0.1 % value," said one trader, adding that refineries would currently be most able to meet demand given the recent incentive for traders to store diesel in ARA.

In ARA, BP Rotterdam, Shell Pernis, Exxon Antwerp and Rotterdam as well as Gunvor IBR are the refineries currently geared to producing 50 ppm.

However, according to a second trader, refineries have little incentive to produce the heating fuel following the recent rise in the price of jet fuel.

Jet fuel, which is the least dense middle distillate product, has lower cold properties than the diesel and gasoil and is thus typically blended in the refinery stream with the driving and heating oil fuels to enhance their winter specifications.

With the Jet FOB Rotterdam barge differential hitting $80.50/mt last week, its highest since March last year, the trader said it made little economic sense to blend it with the gasoil and diesel streams with refineries focusing on 10 ppm production.

"You need to put in more jet to get 0 cloud on 50 ppm so with more expensive jet less incentive to make 50 ppm. With less incentive to make 50 ppm, more incentive to desulfurize to 10 ppm," said the trader.

--Charles Goldner, charles.goldner@platts.com

--Robert Friend, robert.friend@patts.com

--Edited by Jonathan Dart, jonathan.dart@platts.com

Oil futures settle higher on support from geopolitical tensions

New York (Platts)--21Jul2014/326 pm EDT/1926 GMT

Oil futures settled higher Monday, boosted by a rising geopolitical risk premium amid violence in Ukraine and Libya, where oil production has once again fallen.

NYMEX August crude settled $1.46 higher at $104.59/barrel; ICE September Brent settled 44 cents higher at $107.68/b.

In products, NYMEX August ULSD settled 1.36 cents higher at $2.8588/gal and August RBOB settled 3.11 cents higher at $2.8914/gal.

Ongoing violence in Ukraine and Libya were supportive developments, Tim Evans, analyst at Citi Futures Perspective said.

A confirmed decline in Libyan oil production has reinforced the idea that the anticipated recovery in the North African country may be inconsistent. Libyan oil production has fallen back to an estimated 450,000 b/d from about 540,000 b/d on Friday, an official with the state-owned National Oil Corp. said Monday (See story, 1726 GMT).

NYMEX August crude was also supported by apparent short-covering ahead of Tuesday's contract expiration and a recovery in gasoline market sentiment, Evans said.

"Expectations that US crude oil inventories will continue falling on strong refinery runs remains a more confident motivation for WTI buyers than the geopolitical threats to Brent-related supply," Evans said.

--Alison Ciaccio, alison.ciaccio@platts.com --Edited by Richard Rubin, richard.rubin@platts.com

Alaska gas producers file for DOE LNG export license

Anchorage (Platts)--21Jul2014/359 pm EDT/1959 GMT

The partners behind a proposed Alaska gas pipeline and LNG export project have submitted an application to the US Department of Energy for permission to export up to 20 million mt/year of LNG from the state.

The application covers a 30-year period and seeks approval to export both to countries that have existing free trade agreements with the US, and to non-free trade agreement countries, according to a statement released Monday.

"This is a significant milestone for the Alaska LNG project and demonstrates continued progress toward developing Alaska's resources," Steve Butt, senior project manager, said in the statement. "Filing of an export application is a critical step in commercializing North Slope natural gas."

Separately, Butt said in an interview that the project specifications of exporting 15 million-18 million mt/year have not changed, but that the consortium asked for permission to ship 20 million mt/year to leave a margin for growth.

The filing to the DOE, made Friday, follows the signing of a joint venture agreement among the parties on July 2 to fund $500 million in pre front-end engineering and design work for the project, which is now expected to cost a total of $45 billion-$65 billion. The pre-FEED study, which is expected to be completed in late 2015 or early 2016, would provide an updated cost estimate, Butt said. The project would include a liquefaction plant and terminal in the Nikiski area on the Kenai Peninsula, a gas treatment plant on the North Slope, a 42-inch-diameter, 800-mile pipeline, and various compression stations and take-off points for in-state gas delivery. The partners in the project are North Slope producers BP, ConocoPhillips and ExxonMobil, pipeline company TransCanada, and the state's Alaska Gasline Development Corp.

Larry Persily, federal Alaska natural gas project coordinator for the US Department of the Interior, said the project filing is for largest LNG export project made so far in a single filing.

Cheniere Energy is now proposing to expand its planned Sabine Pass liquefaction capacity in Louisiana and would be larger than the Alaska project if expanded but Cheniere will be filing a new application for its expansion, Persily said.

Persily also noted the Alaska LNG group asked DOE in its 212-page submission to handle its application in a separate process from the DOE's consideration of Lower 48 projects.

"The proposed project is unlike any lower 48 export project and should be processed differently," the companies' filing said. "Due to the unique factors facing this project, a conditional authorization will facilitate Alaska LNG Project LLC's ability to continue the ongoing substantial commercial and engineering activities and expenditures necessary to develop and construct the project."

Since 2010, amid the rise of North American shale gas production, Interior has been deluged with applications for LNG exports from Lower 48 sites, Persily said in a statement.

As of the middle of June, the Department of Energy had approved 36 applications for exports to free-trade countries, and seven of 33 applications for non-free-trade exports. The remaining 26 are pending. So far, of the seven approved projects, just one is under construction, Persily said.

In May, the department also proposed a new procedure for handling export applications for projects in the Lower 48 states. Rather than processing applications in the order in which they are filed, the department would deal first with those projects that have completed federal environmental reviews.

In its June 4 notice of the proposed change, DOE said it had not decided whether it would apply the policy to an Alaska LNG export application.

An exemption for Alaska from that policy would be important, Persily said, because if the Alaska project were required to complete its EIS and secure other major permits before receiving an export approval it could add to the cost and possibly complicate financing, he said.

Persily said the project sponsors are also expected to "pre-file" later in 2014 with the Federal Energy Regulatory Commission to begin that agency's multi-year oversight of the project.

FERC is responsible for siting, construction and operation of LNG plants and related facilities, and would take the lead in crafting an environmental impact statement on behalf of multiple federal agencies.

Pre-filing would include developing a work plan with FERC for filing the baseline "resource reports" that FERC uses as a foundation for the environmental review. The project developers already have started gathering information for many of those required reports.

In addition to the DOE approval required for all US gas exports, shipments of North Slope gas to somewhere other than Canada or Mexico, under a 1976 law, need a presidential finding that the exports "will not diminish the total quantity or quality nor increase the total price of energy available to the United States."

In 1988, President Ronald Reagan issued such a finding, without referring to any specific Alaska export project.

In its July 18 application to DOE, Alaska LNG said it believes the 1988 finding is still valid and applies to its project, Persily said in his statement.

--Tim Bradner, newsdesk@platts.com --Edited by Keiron Greenhalgh, keiron.greenhalgh@platts.com

Iran Seen Keeping Oil Sales Steady as Nuclear Talks Extended

By Anthony DiPaola Jul 21, 2014 2:54 PM GMT+0700

An oil tanker is seen off the port of Bandar Abbas, southern Iran.

“Iran’s going to want oil exports to keep edging up, and the U.S. has been willing to allow some wiggle room,” Robin Mills, an analyst at Manaar Energy Consulting & Project Management, said by phone from Dubai yesterday. “The extension is a sign they’ve made progress on nuclear talks and think they can reach a deal. The U.S. won’t let oil exports get in the way.”

Iran's Uranium Enrichment

Negotiators from the U.S., Russia, China, Germany, France and the U.K. agreed with Iranian officials to continue talks at intervals until Nov. 24, U.S. Secretary of State John Kerry said in comments posted on the State Department website on July 18. The parties failed to reach yesterday’s deadline for a deal ensuring Iran’s nuclear program is peaceful in return for lifting sanctions. The constraints are hurting Iran’s economy by depriving it of income from its main export.

OPEC Producer

The U.S. lets six buyers -- China, India, Japan, South Korea, Turkey and Taiwan -- take crude from Iran, so long as that country’s total sales stay at about 1.1 million barrels a day. The target doesn’t include sales of condensate, a light petroleum liquid often found with oil or gas.

Exports from the third-largest producer in the Organization of Petroleum Exporting Countries have plunged from about 2.5 million barrels a day prior to 2012 when the U.S. and EU tightened sanctions. Iran’s shipments of crude and condensate to its six main buyers averaged 1.17 million barrels a day in 2012 and 1.04 million in 2013, according to the data compiled by Bloomberg from importers’ customs statistics.

Maximizing Profit

Crude and condensate sales may rise in the second half to at least 1.4 million barrels a day and as much as 1.5 million as Iran tries to maximize profit, Abhishek Deshpande, a commodities analyst at investment bank Natixis SA in London, said by phone July 17.

Exports have risen this year as Iran sold crude from storage to China for that country’s strategic petroleum reserve, Richard Mallinson, an analyst at consultants Energy Aspects in London, said by phone July 17. He estimates that total shipments may decline to about 1.2 million barrels a day on average as less Iranian oil is available from storage.

All six analysts surveyed by Bloomberg said there will there will be little change to Iran’s exports compared with the first half of the year. Three predicted a slight decline or unchanged shipments, the same number as anticipate slight gains.

Brent crude traded at about $107 a barrel on average last week, after slipping from a nine-month high of $115.71 on June 19.

Iran says its nuclear program is intended for civilian energy and medical research. The U.S. and other world powers accuse Iran of seeking a capability to produce nuclear weapons.

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley

Speculators Cutting Bullish Oil Bets Miss Ukraine Rally

By Mark Shenk Jul 22, 2014 1:19 AM GMT+0700

July 21 (Bloomberg) -- On today’s “Insight & Action,” Bloomberg “Money Clip” Host Adam Johnson reports on market response to global crises. (Source: Bloomberg)

The downed jetliner in Ukraine and Israel’s Gaza offensive blindsided speculators who had cut bullish crude bets on the assumption that risks to supply were diminishing.

Crude futures rose after money managers slashed net-long positions in West Texas Intermediate, the U.S. benchmark grade, by 15 percent in the seven days ended July 15, the Commodity Futures Trading Commission said. It was the biggest drop in bullish wagers since March 2013.

“A lot of people were clearly caught off guard by events,” Amrita Sen, chief oil analyst for London-based Energy Aspects Ltd., a researcher, said by phone July 18.

Prices dropped below $100 on July 15 for the first time in two months as the conflict in Iraq spared the country’s main oil-producing region and rebels in Libya said they would reopen export terminals. Hedge funds had increased bets on rising prices to a record, while WTI climbed to a nine-month high in June after militants from a breakaway al-Qaeda group known as Islamic State captured the city of Mosul.

Crude declined 3.3 percent to $99.96 a barrel on the New York Mercantile Exchange in the period covered by the CFTC. WTI rebounded to $103.13 by July 18 and added 1.4 percent to $104.57 at 2:16 p.m. today.

‘Too Optimistic’

“The speculators built length to a record last month, but there was no real loss of oil so they started to exit,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone on July 18. “The events of the last several days show they might have been too optimistic.”

The Malaysian Airlines jet went down over eastern Ukraine, killing all 298 people aboard, July 17, just a day after the U.S. and the European Union imposed new sanctions on Russia, the world’s biggest energy exporter, over its support of separatists in eastern Ukraine. OAO Rosneft, Russia’s largest oil company, and natural gas producer OAO Novatek were among those covered by the penalties.

Israel began a ground operation in Gaza on July 17, also bolstering crude prices. Prime Minister Benjamin Netanyahu said July 18 that the objective of the ground incursion was to go after “terror tunnels” and restore peace. The Middle East accounted for 32 percent of global crude output last year, BP Plc data show.

Falling Supplies

Futures climbed 1.2 percent on July 16 after the Energy Information Administration said U.S. crude supplies dropped 7.53 million barrels to 375 million in the week ended July 11. Stockpiles at Cushing, Oklahoma, the delivery point for WTI traded in New York, fell by 650,000 barrels to 20.3 million, the least since November 2008. Refineries operated at 93.8 percent of capacity, the highest level since August 2005.

“We have strong refinery runs and a downtrend in supplies both nationwide and at Cushing, giving the market support, but if we look ahead, that’s going to shift,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone July 18. “We’re probably at our seasonal peak for refinery runs and as they go into maintenance, crude supplies are going to rebound.”

Refinery operating rates usually increase in late spring and have peaked in July during the past five years, EIA data show. Refiners schedule maintenance for September and October as they transition to winter from summer fuels.

Geopolitical Risk

“Unless there is a major intensification of geopolitical risk, it’s going to be hard to keep crude prices up here,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone July 18.

In other markets, bullish bets on gasoline fell 33 percent to 43,702 futures and options combined, the least since February. Futures declined 2.5 percent to $2.8986 a gallon on Nymex in the reporting period. They dropped 2.14 cents to $2.8603 on July 18, the lowest close since Feb. 28.

Regular gasoline at the pump, averaged nationwide, dropped 0.4 cent to $3.574 a gallon yesterday, the lowest since April 4, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.

Bullish wagers on U.S. ultra-low-sulfur diesel plunged 61 percent to 8,784, the lowest since January. The fuel decreased by 1.81 cents to $2.8555 a gallon in the report week. Diesel fell 1.4 cents to $2.8452 on July 18, the lowest settlement since Nov. 7.

Natural Gas

Net-long wagers on U.S. natural gas dropped 3.1 percent to 226,861, the lowest since December. 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.

Nymex natural gas dropped 2.5 percent to $4.097 per million British thermal units during the report week. It fell as much 3.1 percent today after settling July 18 at $3.951, the lowest close since November.

Net-longs for WTI slipped by 45,107 to 259,259 futures and options, the lowest level since the seven days ended Jan. 21. Long positions fell 10 percent 304,462, the least since January. Shorts climbed 38 percent, to 45,203, the highest level since January.

“The only thing you can be safe to predict is a lot of volatility,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion, said by phone July 18. “Investors are going to be closely following every headline and trading accordingly.”

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net; David Marino at dmarino4@bloomberg.net Charlotte Porter

Brent Bull Bets Slump Most Since January as Iraq Fears Ease

By Lananh Nguyen Jul 21, 2014 9:35 PM GMT+0700

Hedge funds and other money managers cut net bullish bets on Brent crude by the most since January as concerns eased that Iraq’s oil output will be disrupted by a militant uprising.

Speculative bets that prices will rise for Brent, in futures and options combined, outnumbered short positions by 151,981 in the week to July 15, according to data from the ICE Futures Europe exchange. The 25 percent slump was the biggest since the week to Jan. 7. Prices for the North Sea benchmark fell 2.7 percent to $106.02 a barrel in the period.

The Islamic State, an al-Qaeda breakaway group, last month took control of Mosul, the largest city in the country’s north, as well as other towns. While the price of crude rose immediately after the violence escalated, it then slumped again because fighting hasn’t spread to the south of the country, where most of Iraq’s oil is produced. Russian energy supplies haven’t been interrupted by tensions with Ukraine after a Malaysian Air flight was downed on July 17.

“Investors have realized that the risk on the back of the situation in Iraq is fairly limited,” Jens Naervig Pedersen, a commodities analyst at Danske Bank A/S, said by phone from Copenhagen today. “That’s why we’ve seen oil prices decline and investors cut net-long positions.”

Brent crude was little changed at $107.37 as of 3:02 p.m. in London today, lower than when Mosul was taken. Supplies from the northern Iraq haven’t been hindered either because those deposits are being protected by Kurds who control oilfields including Kirkuk, the nation’s fourth largest.

Oversupplied Market

“A lot of these bets were taken on the back of Iraq, and that so far hasn’t played out,” Torbjoern Kjus, a senior analyst at DNB ASA in Oslo, said by phone today. “The market has been quite oversupplied.”

Gasoline’s crack, a measure of refining profit, was at $9.63 a barrel today in Europe, according to data from London-based broker PVM Oil Associates Ltd. That’s down 28 percent from June 30.

Brent earlier this month moved into contango, a situation where futures for prompt delivery are cheaper than deferred contracts. The structure sometimes shows an immediate oversupply of oil.

“It was the extremely poor refining margins that should have been a warning signal,” Kjus said. “Suddenly we saw the market flip into contango because there wasn’t enough physical demand from refiners.”

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 Rachel Graham

Former Nigerian OPEC Secretary-General Lukman Dies at 75

By Dulue Mbachu Jul 21, 2014 9:56 PM GMT+0700

Former OPEC Secretary-General Rilwanu Lukman died in Vienna. He was 75.

Lukman steered the Organization of Petroleum Exporting Countries through the 1997-1998 Asian financial crisis, when crude fell to $10 a barrel. He presided over a record number of OPEC conferences and was the group’s secretary-general for six years until 2000. Lukman was Nigeria’s oil minister from 1986 to 1990 and again for a two-year stint from 2008.

Born in Zaria, northern Nigeria, on Aug. 26, 1938, Lukman trained as an engineer to work at tin mines in the country’s central plateau around the city of Jos. After several promotions, he had risen by 1979 to become chief executive officer of Nigerian Mining Corp. He achieved university degrees in both Nigeria and the U.K.

Lukman served four different Nigerian leaders either as minister or energy adviser during more than two decades until he left office in 2010. He was also named the West African nation’s mining and steel minister in 1984.

He put reforms in place to change the way Nigeria regulated and funded its oil and gas industry, overseeing the drafting of the first Petroleum Industry Bill sent to lawmakers in December 2008. The legislation remains stalled in parliament over differences between the government and energy companies including Royal Dutch Shell Plc (RDSA), Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX)

“Lukman’s professional longevity will be hard to match,” Rolake Akinkugbe, vice president and head of energy at Lagos-based FBN Capital Ltd., the investment banking arm of FBN Holdings Plc, said in an e-mailed response to questions. “He was one of the most influential consensus builders within OPEC in the past two decades. In person he cut a diminutive figure, but you never doubted his industry clout and insights.”

A statement from OPEC didn’t give a cause of death.

To contact the reporter on this story: Dulue Mbachu in Abuja at dmbachu@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley, John Deane

Halliburton Says Demand for North American Fracking Turn

By David Wethe Jul 22, 2014 3:27 AM GMT+0700

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Halliburton Co. (HAL), the world’s largest provider of hydraulic fracturing services, said demand for fracking in North America has turned a corner and it’s adding crews this year as the industry burns through excess capacity that has kept prices low.

“On our last call, some of you may have been skeptical when I said I was beginning to feel the turn in North America,” Chief Executive Officer David Lesar said on a second-quarter earnings conference call today. “Based on our performance during the quarter, I believe this feeling was dead on target. Today, we are not feeling the turn, we are in the turn, and I feel even more excited than I was last quarter.”

Services companies like Halliburton in past years flooded the market in response to a surge in demand for fracking, a process in which water, sand and chemicals are shot underground to free oil and natural gas in shale and other hard-rock formations. That flood may now be coming closer to equilibrium - - after two years of a falling prices, they are expected to increase 2 percent this year in the U.S. and another 4 percent in 2015, according to a May 16 report by PacWest Consulting Partners LLC.

The comments from Houston-based Halliburton come after Baker Hughes (BHI) Inc. said last week that while there was still 20 percent overcapacity in North American markets, the company is seeing more activity in onshore rigs, wells and horizontal drilling and the need for additional services.Growing Appetite

“Our customers’ appetite for new technologies which can boost oil production from shale is growing,” Chairman and CEO Martin Craighead said on his company’s July 17 earnings conference call.

Schlumberger Ltd. failed to impress investors by reporting a 6 percent climb in its North American revenue from the first quarter.

“We are quite confident that we can improve margins going forward from this point,” CEO Paal Kibsgaard told analysts on July 18.

The average number of drilling rigs active on land rose 5.6 percent in the U.S. to 1,781 in the quarter as producers seek to boost output from shale formations, according to Baker Hughes.

“You’re seeing tightening in overall frack capacity,” said Luke Lemoine, an analyst at Capital One Southcoast in New Orleans who rates Halliburton the equivalent of a buy and doesn’t own the stock. “People are going to like this.”

Added Equipment

Halliburton boosted its operating profit margin in North America to 18.2 percent from 17.5 percent a year earlier and increased revenue in the region by 14 percent. Lemoine was expecting margins in the region of 17.8 percent.

New fracking equipment, which is measured in horsepower, is expected to roll out in the fourth quarter and throughout 2015, Lesar said today, declining to specify how much would be added.

Halliburton expects third-quarter operating profit margins in the region to be near 20 percent, the company said today in a statement. Second-quarter earnings were 32 percent above the results from the same period last year. Sales climbed 10 percent to $8.1 billion.

The company boosted its capital spending forecast for the year to $3.3 billion from $3 billion because of the increase in fracking equipment, Chief Operating Officer Jeff Miller said today on the call.

Halliburton, which has gained 55 percent in the past year, rose 0.1 percent to close at $71 in New York, after touching a record high. Baker Hughes climbed 1.4 percent to $74.33 and Schlumberger increased 0.6 percent to $113.04.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Robin Saponar

Delta Deal to Bring U.S. Crude to Pennsylvania Refinery

By Dan Murtaugh Jul 22, 2014 12:46 AM GMT+0700

Delta Air Lines Inc. (DAL), the largest U.S. carrier by market value, is trying to cash in on the biggest oil boom in the nation’s history by bringing more domestic crude to its refinery near Philadelphia.

The Atlanta-based airline signed a five-year agreement with Addison, Texas-based midstream company Bridger LLC to supply the Trainer, Pennsylvania, refinery with 65,000 barrels of crude a day, more than a third of the plant’s capacity.

Delta is hoping that greater use of domestic crude will help it turn a profit at the refinery, which it bought from ConocoPhillips in 2012 in an attempt to control prices and supplies for its fleet. U.S. crude production has risen 55 percent since the start of 2010, making prices cheaper than in the rest of the world.

“We definitely believe domestic crude will be competitive versus foreign alternatives,” Graeme Burnett, Delta’s senior vice president for fuel optimization, said by phone July 18. “We want to push the levels of domestic crude as high as we can.”

Trainer is 100 miles (160 kilometers) from New York Harbor, the delivery point for gasoline and diesel futures on the New York Mercantile Exchange. Delta imported about 140,000 barrels of crude a day to feed the plant in April, mostly from Nigeria and Norway.

Brent crude, the European benchmark, was $4.70 a barrel more than West Texas Intermediate in Cushing, Oklahoma, at 1:25 p.m. New York time. Brent futures have settled above the U.S. benchmark every day since Aug. 17, 2010.

Jet Fuel

Conoco shut the refinery in 2011, citing poor economics. Delta lost $41 million operating the refinery in the first quarter and booked $107 million in fuel hedging gains. Delta uses the refinery’s jet fuel and trades the gasoline and other products for more.

The five-year length of the agreement shows Delta’s commitment to the plant despite the losses, said Robert Campbell, the New York-based head of oil products research at Energy Aspects Ltd., a London-based research firm.

“It’s certainly not a move you’d expect from people getting ready to walk away from an investment,” he said.

Bridger is acquiring 1,300 crude-by-rail cars and has a contract to load 80,000 barrels of crude a day from Enbridge Inc. (ENB)’s rail terminal in Eddystone, Pennsylvania, onto barges that can deliver crude to Trainer. Delta may build a pipeline connecting the Trainer refinery to the terminal, Burnett said.

Lower Price

Bridger will initially deliver Bakken crude from North Dakota to the refinery, Chief Executive Officer Julio Rios said in an interview at Bloomberg’s Houston bureau July 18. The sourcing may change over the length of the contract depending on economics and the refinery’s needs, he said.

So long as the U.S. restricts exports of crude oil, American producers will have to price their crude low enough to be competitive with imports, Campbell said.

“The price of domestic crude will have to adjust lower to make refining profitable,” he said.

To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Richard Stubbe, Charlotte Porter

Traders Use Trucks, Trains to Ease West Texas Oil Glut

By Dan Murtaugh Jul 22, 2014 12:28 AM GMT+0700

Traders are turning to trains and trucks to clear a glut of crude in West Texas that’s threatening to keep prices in the largest U.S. oil basin depressed for months.

West Texas Intermediate crude in Midland, Texas, has averaged $7.15-a-barrel less this year than the same grade in Cushing, Oklahoma, the delivery point for New York-traded oil futures. The gap was $9 today, and is on pace to be the largest annual discount in data compiled by Bloomberg dating to 1991. Crude loading has increased in recent months at Watco Companies LLC ’s 30,000 barrel-a-day terminal in Pecos, according to Allan Roach, a senior vice president.

The price gap has emerged as directional drilling and hydraulic fracturing have nearly doubled Permian production in the past five years, overwhelming pipeline capacity. The glut will continue until Plains All-America Pipeline LP completes an 80 mile-long line connecting Midland to Colorado City, where larger pipes ship crude out of the region. For now, the oil will have to be sold cheaply enough to allow buyers to ship it on trains to the Gulf and West Coasts, or truck it up to Cushing.

“The discounts could last longer than many in the market have anticipated given the significant production increases that are occurring in the Permian Basin,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Output in the Permian, the largest onshore oil field in the U.S., has jumped by 91 percent since August 2009 to 1.63 million barrels a day, Energy Information Administration data show.

Pipeline Capacity

Current pipeline capacity out of the region is 1.27 million barrels a day, according to Pioneer Natural Resources Ltd.’s July investor presentation. Magellan Midstream Partners LP (MMP) and Occidental Petroleum Corp. (OXY) are filling a new pipeline, BridgeTex, that will add 300,000 barrels a day of space.

BridgeTex starts in Colorado City, about 80 miles northeast of Midland. Right now there are two pipelines connecting the cities, Basin and Mesa, which can ship a combined 800,000 barrels a day. Basin extends to Cushing, carrying as much as 450,000 barrels a day, and Sunoco Logistics Partners LP (SXL)’s West Texas Gulf line can move 400,000 barrels a day to the Houston area.

That means BridgeTex can’t relieve the glut at Midland until Plains completes the 250,000-barrel-a-day Sunrise line. Construction began May 1, according to a filing with the Railroad Commission of Texas, and the company expects it to start operating in early 2015.

Critical Piece

“One of the big additions that we’re having to make, going east out of Midland, which is becoming a critical piece to feed a lot of that is basically going up to Colorado City,” Mark Gorman, executive vice president of Houston-based Plains, said on a June 5 conference call. “That corridor has completely fallen. It’s a critical corridor to feed some of the new pipeline expansions that’ll be coming on.”

Until the pipeline comes online, Midland prices will need to be discounted enough to support other forms of transportation, Rangeland Energy LLC’s vice president for business development, Pat McGannon, said July 16 at the American Business Conference’s Permian Basin Takeaway Capacity & Product Market Conference in Houston.

Midland prices need to be about $8.50 a barrel less than Light Louisiana Sweet in St. James, Louisiana, to make rail shipments economic, he said. The differential was $15.45 today.

West Texas Sour, a high-sulfur crude traded in Midland, needs to be about $10.50 a barrel less than Alaska North Slope crude to make it worth railing to California. It was $13 today.

When Midland prices are $6 or $7 below Cushing, it can be economic to truck crude from the Permian to the Oklahoma oil hub about 500 miles away, Brian Melton, vice president for pipeline marketing and business development for Blueknight Energy Partners LP (BKEP), said July 16 in Houston. Blueknight made shipments for producers late last year and this year, he said.

To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Stephen Cunningham

Bloody Gaza Battle Spurs Diplomatic Efforts to End Conflict

By Jonathan Ferziger and Saud Abu Ramadan Jul 21, 2014 7:23 PM GMT+0700

July 21 (Bloomberg) –- Bloomberg’s Elliott Gotkine reports on the bloodiest day of fighting in Gaza since Israel began its offensive as international leaders call for a cease-fire. He speaks to Caroline Hyde on Bloomberg Television’s “Countdown.” (Source: Bloomberg)

Diplomatic efforts to end two weeks of Gaza Strip violence intensified after dozens of Palestinians and 13 Israeli soldiers died in the conflict’s bloodiest single day.

The Palestinian toll mounted to 514 today as fire from fighter jets and tanks claimed dozens of lives across Gaza, including nine children and adults killed in an airstrike on a house, Gaza Health Ministry official Ashraf al-Qedra told reporters. Twenty Israelis, including two civilians, have also died since Israel escalated its campaign against Gaza militants following weeks of rocket fire at its communities.

Israeli Prime Minister Benjamin Netanyahu said the offensive in Hamas-controlled Gaza “will continue until it achieves its aim: restoring quiet to the citizens of Israel for an extended time,” according to an e-mail from his office. Defense Minister Moshe Ya’alon said more troops entered Gaza overnight and additional reserve soldiers may be called up, according to an e-mailed statement.

The bloodshed in Gaza is further destabilizing a region already mired in conflict from Iraq to Yemen. With death tolls mounting and Israel’s ground operations escalating, the need to find a formula to stanch the Gaza bloodshed grew more urgent.

Egypt’s Role

U.S. Secretary of State John Kerry is scheduled to arrive in Egypt today to prod truce efforts. United Nations Secretary-General Ban Ki-moon is already in the Mideast, conferring with regional leaders. Egypt, historically a mediator of Gaza-Israel truces, proposed a plan last week that Israel accepted and Hamas rejected.

Hamas said the proposal didn’t guarantee lifting Israel’s blockade on Gaza, imposed in 2007 after the group wrested control of the territory. Spokesman Fawzi Barhoum said yesterday that “when we rejected the Egyptian initiative we didn’t reject the Egyptian role.”

Sami Abu Zuhri, a Hamas spokesman in Gaza, said in an e-mailed statement that the diplomatic efforts to end the fighting were meant to rescue Israel. “The armed resistance won’t respond to the pressures and will dictate its conditions through our superiority in the field,” Abu Zuhri said.

‘Serious Concern’

The number of Gazans seeking shelter from the fighting with the UN Relief and Works Agency may soon be as high as about 100,000, the agency said in an e-mailed statement. Dubai began airlifting emergency supplies to the territory on Sunday, including 45,000 mattresses and 10,000 blankets, according to the statement.

Smoke rises from explosions caused by an Israeli missile strike in the Shijaiyah... Read More

Israel’s benchmark TA-25 (TA-25) index for stocks rose 0.5 percent at 3 p.m. in Tel Aviv. The shekel strengthened 0.2 percent to 3.4221 per dollar.

President Barack Obama, in a call with Netanyahu, “raised serious concern” about growing civilian and military casualties in Gaza, the White House said yesterday in an account of the conversastion provided to reporters.

Eighty-seven Palestinians were killed yesterday, including 60 who died in Israeli artillery and tank fire in the Shuja’iya neighborhood of Gaza City, according to Health Ministry officials.

‘Doomsday’

“It was like doomsday,” Hanadi al-Kabariti, 33, said by phone after she fled Shuja’iya. “There is nowhere to hide in Gaza. It’s dangerous wherever you go.”

The Israeli military lost 13 soldiers yesterday, more than it did in its entire three-week war in Gaza in 2009. Two of them were U.S. citizens, the State Department said.

Kerry will seek a return to a 2012 truce Egypt brokered, Obama told Netanyahu in their phone call, according to the White House. That accord held out the possibility of easing Israeli restrictions on the movement of people and goods in and out of Gaza.

Hamas has demanded an end to all restrictions in any future truce. The leader of Lebanon-based militant group Hezbollah, Hassan Nasrallah, weighed in on the conflict today for the first time, supporting Hamas’s “rightful demands to end the current battle,” according to an e-mailed account of his conversation with Hamas chief Khaled Mashaal.

Demilitarization Call

Israel has called for the demilitarization of Gaza and has claimed good progress in diminishing the militants’ rocket capabilities and crippling a network of tunnels they built to carry out cross-border raids.

Destroying those passages is Israel’s stated objective of the ground war it opened on July 17 after days of air strikes. Two militant squads infiltrated Israel today through two tunnels; one was hit by air and ground troops killed 10 gunmen from the second group, the army said.

“I hope people don’t turn on the government,” said Joshua Baskin, 37, a U.S. army veteran living in Israel. “I don’t want people to change their minds on the ground invasion because the army has to do its job to keep citizens safe.”

The “lion’s share” of the tunnels will be destroyed within two to three days, Ya’alon said yesterday at a news conference with Netanyahu in Tel Aviv. It was the first time such a timetable has been given.

Today, Ya’alon said additional troops were sent in overnight to locate additional passages. “We are prepared to continue our activities as long as necessary, and if needed, we will call up more reserve soldiers until we make Gaza quiet,” Ya’alon told parliament’s Defense and Foreign Affairs Committee, according to an e-mailed statement from the panel.

Israel has already authorized the mobilization of 65,000 reservists.

To contact the reporters on this story: Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net; Saud Abu Ramadan in Gaza City at sramadan@bloomberg.net

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net Amy Teibel, Mark Williams

Putin Says MH17 Crash Shouldn’t Be Used for Politics

By Volodymyr Verbyany, Ilya Arkhipov and Aliaksandr Kudrytski Jul 21, 2014 7:08 PM GMT+0700

July 21 (Bloomberg) -- Bloomberg’s Ryan Chilcote reports on mounting international pressure on Russian President Vladimir Putin over the downing of flight MH17 in Ukraine. He speaks on “Bloomberg Surveillance.”

President Vladimir Putin defied international anger over Russia’s alleged role in the shooting down of a Malaysian jetliner as the U.S. and Europe threaten further sanctions against his increasingly isolated country.

As leaders from London to Washington signaled Putin risks becoming a pariah, the Russian leader suggested they were playing politics. At the site of the crash in eastern Ukraine, armed pro-Russian rebels are preventing the departure of refrigerated train cars carrying corpses and body parts of crash victims, according to the government in Kiev.

“Nobody should and no one has the right to use this tragedy to achieve selfish political aims,” Putin said in a video posted on the Kremlin’s website after a series of phone calls yesterday with world leaders about the crash. “Such events should unite, not divide people.”

Russia’s relations with the rest of the world are deteriorating four months after his annexation of Ukraine’s Crimea region sparked Europe’s biggest geopolitical crisis since the end of the Cold War.

Putin will hold a regular weekly meeting of his Security Council tomorrow to discuss “matters related to ensuring the sovereignty and territorial integrity of the Russian Federation,” the Kremlin said in an e-mailed statement.

International Outrage

The Malaysia Air crash site at Grabovo, less than 60 miles from Russia, has become a focus of international outrage as armed rebels hover over the investigation, making reclamation of wreckage and corpses more difficult.

A total of 282 bodies have been found, the Ukrainian government said today. Ukraine’s state emergency service website said 251 bodies and 66 parts of human remains had been brought to refrigerated train wagons in Torez as of 7 a.m. local time. Rebels continue to prevent the departure of the train, Ukrainian Prime Minister Arseniy Yatsenyuk told reporters today in Kiev. The plane was shot down on July 17 killing all 298 passengers and crew.

“Our top priority for now remains the repatriation of the bodies,” Dutch Prime Minister Mark Rutte said during a briefing in parliament in The Hague today. “In the case that access remains insufficient in the coming days, all political, economic and financial measures are on the table for those that are directly or indirectly responsible for this.”

Dutch Experts

Peter van Vilet, leader of a Dutch forensic team sent to eastern Ukraine, told journalists in Donetsk that it’s not possible to “do the identification of victims” at the current site and that he wants the train with victims’ remains moved to another location.

Putin again blamed the downing of the plane on the Ukraine conflict and said that international investigators should have full access to the wreckage. Russia will “do everything it can” to seek a negotiated settlement of the Ukraine conflict, he said. The leader of the self-proclaimed Donetsk People’s Republic, Alexander Borodai, today repeated that his rebels didn’t shoot down the plane.

Russia’s Micex Index dropped 1.7 percent to 1,399.04 by 3:23 p.m. in Moscow, while the ruble was little changed against the dollar. OAO Gazprom, the nation’s biggest natural gas exporter, fell 2.3 percent, while OAO Lukoil, the nation’s second-biggest oil producer, dropped 2.3 percent.

Putin, already facing sanctions over Crimea and Russia’s role in backing the rebels in Ukraine, is confronting worldwide scorn over the crash as evidence mounts that Russia provided the missile used to down the jetliner.

More Sanctions

U.K. Prime Minister David Cameron said yesterday that he agreed with his French and German counterparts that Europe should be ready to impose further sanctions on Russia at a meeting of

European Union foreign ministers tomorrow in Brussels. Britain wants sanctions against the entire Russian defense industry, a U.K. official said.

German Foreign Minister Frank-Walter Steinmeier said in a Twitter posting that “this is perhaps the last opportunity for Russia to show that they are seriously interested in finding a solution.” Hans-Peter Bartels, who heads the German parliament’s Defense Committee, said “time is slowly running out for Putin” and that further economic sanctions aimed at Russia are likely unless there’s a clear shift in Kremlin policy.

“There’s a build-up of extraordinary circumstantial evidence,” U.S. Secretary of State John Kerry said yesterday on NBC’s “Meet the Press” program. “We picked up the imagery of this launch. We know the trajectory. We know where it came from. We know the timing.”

Putin’s Stance

Putin didn’t address the allegations in the video, saying “one can say with certainty that if the fighting hadn’t been resumed on June 28 in eastern Ukraine, this tragedy for sure wouldn’t have happened.”

Separatists had at least three Russian-made surface-to-air missile systems, known by their NATO designation SA-11 Gadfly, Ukraine state security official Vitaliy Nayda said on July 19. Three of the systems were transported back to Russia just hours after the plane was shot down, he said. Nayda displayed photos that he said showed them on the road to the Russian border.

The Gadfly, known locally as the Buk-M, is a radar-guided weapon that can locate a target at a range of 140 miles and reach altitudes as high as about 72,000 feet, according to the army-technology.com website.

Russian Training

Yatsenyuk told reporters today that Ukraine’s armed forces haven’t fired surface-to-air missiles, that the rocket used to down the plane came from Russia and that those who fired it had received training in Russia. He said the Netherlands and Ukraine’s international partners should lead the investigation into the crash.

The conflict in east Ukraine is raging on, even as the eyes of the world focus on the crash. There is fighting today in both Donetsk and Luhansk.

An intense fire-fight is taking place around the Donetsk airport and also in the western part of the city, according to a statement on the Donetsk Regional State Administration’s website. There’s also fighting in the suburb of Avdiyivka as well as in Dzerzhynsk, Starobeshiv and Yasynuvata districts, according to the statement.

To contact the reporters on this story: Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Aliaksandr Kudrytski in Donetsk, Ukraine at akudrytski@bloomberg.net

To contact the editors responsible for this story: John Fraher at jfraher@bloomberg.net; Balazs Penz at bpenz@bloomberg.net Leon Mangasarian, Paul Abelsky

China Boosts June Net Diesel Exports to Highest in Four Years

By Bloomberg News Jul 21, 2014 3:37 PM GMT+0700

China raised its net diesel exports to the highest level in four years as domestic demand trailed output growth amid a slowing economy.

Overseas sales of the fuel in the world’s largest energy consumer exceeded imports by about 440,200 metric tons in June, according to data e-mailed by the General Administration of Customs in Beijing today. That’s the highest since May 2010.

“China is expected to export 300,000 to 400,000 tons of diesel a month regularly as domestic production grows faster than demand,” Chen Li, an analyst with ICIS-C1 Energy, said by phone from Guangzhou. China’s diesel demand is estimated to grow 0.3 percent to 1 percent this year, while output will expand about 1 percent, the Shanghai-based consultant said last month.

The nation may export a record 3 million tons of the fuel this year, exceeding the previous high of 2.87 million tons in 2010, ICIS-C1 said. China Petroleum & Chemical Corp.’s Tianjin refinery got a new diesel export quota this year, according to ICIS-C1.

China’s imports of fuel oil, used as refinery feedstock and to power ships, fell 31 percent from a year ago to 1.4 million tons in June, the second-lowest this year. Purchases in May were 1.13 million, the lowest since at least 2003. Imports declined 32 percent to 9.8 million tons in the first half.

The nation’s pipeline natural gas imports rose to a record high for a second month in June as supplies from Myanmar continued to increase, today’s data show. Imports were at 2.1 million tons last month.

To contact Bloomberg News staff for this story: Jing Yang in Shanghai at jyang251@bloomberg.net

To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Mike Anderson

Iran Seen Keeping Oil Sales Steady as Nuclear Talks Extended

By Anthony DiPaola Jul 21, 2014 2:54 PM GMT+0700

An oil tanker is seen off the port of Bandar Abbas, southern Iran.

Iran's Uranium Enrichment

OPEC Producer

Maximizing Profit

Brent crude traded at about $107 a barrel on average last week, after slipping from a nine-month high of $115.71 on June 19.

Iran says its nuclear program is intended for civilian energy and medical research. The U.S. and other world powers accuse Iran of seeking a capability to produce nuclear weapons.

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley

Iran Wanting What Argentina Got Shows Nuclear Market Precedent

By Jonathan Tirone Jul 21, 2014 5:00 AM GMT+0700

War with an industrial power and nuclear technology developed under military rule doesn’t preclude a country from enriching uranium.

Just ask Argentina.

As world powers reached an impasse with Iran over the Persian Gulf country’s nuclear work, Argentina said it will become just the 11th nation to begin large-scale enrichment of the heavy metal used for industrial, medical and energy applications. It’s been producing enriched uranium on an experimental scale since the 1980s, the government said in a June 25 statement to the 48-nation Nuclear Suppliers Group meeting in Buenos Aires.

Rafael Mariano Grossi, Argentina’s International Atomic Energy Agency ambassador, said negotiators at loggerheads in Vienna should pay more attention to cases like his country, where scientists used nuclear research as a base to develop other technologies such as radar and satellites.

“In the mid-1980s, due to financial restrictions, the domestic nuclear program was paralyzed,” Grossi said in an interview from the Austrian capital, where he also chairs the Nuclear Suppliers Group that guards against unfettered access to atomic materials and technology. Key for the longevity of Argentina’s nuclear program was its ability to identify “products and expertise which were marketable,” he said.

Diplomats who haggled with Iran for 16 days in Vienna were hesitant to apply lessons from Argentina’s nuclear rehabilitation following its defeat by the U.K. in the 1982 Falkland War and subsequent transition to civilian rule. Nuclear dilemmas the globe is facing in Argentina and Iran are Sui Generis, or unique unto themselves, said a U.S. official at the Iran talks who asked not to be named.

Nuclear Lessons

“We’ve always been weak in learning the lessons from other nuclear cases,” the U.K.’s former ambassador to Iran, Richard Dalton, said in a telephone interview. Without a blueprint to go by, “dealing with Iran is very difficult.”

The Middle East nation says that international nuclear markets can’t be trusted to supply the fuel it needs. World powers point to Iran’s inconsistent history on issues of nuclear transparency to argue for higher verification standards before Iran can be trusted to wield the technology.

While touting promised access to more advanced nuclear technologies and the substantial economic benefits that a long-term accord would yield for Iran, the U.S. official said the Islamic Republic should under no condition be allowed to mount industrial-scale enrichment for at least a decade.

Rosatom Delivers

While Iran has mastered uranium-enrichment technology that can be used both to generate power and build weapons, it’s contractually bound until 2022 to buy high-precision fuel for its sole nuclear plant in Bushehr from Russia’s state-owned Rosatom Corp. Global nuclear vendors such as Rosatom, Areva SA (AREVA) and Toshiba Corp.’s Westinghouse Electric Corp. make money not only by selling reactors, but also by supplying the complex low-enriched-uranium fuel assemblies that power them.

After cracking the enrichment code in the 1980s, Argentina decided to forgo immediate expansion to industrial-scale enrichment, opting to concentrate resources on developing intellectual property around research reactors and fuel design, Grossi said.

“The strategy paid off and turned Argentina into a credible middle-size actor in the nuclear market with a clear niche and a growing capacity,” said Grossi, who also negotiated with the Islamic Republic as a former IAEA diplomat.

‘Generic Problem’

Argentina has sold, built and serviced reactors in Algeria, Australia, Egypt and Peru. Iran awarded Argentina a contract to modify its Tehran Research Reactor in 1987.

Frank von Hippel, a Princeton University physicist who has been advising U.S. nuclear policy makers for three decades, says negotiators risk missing another opportunity with Iran if they don’t start paying attention to historical precedents.

“Uranium enrichment is a generic problem, it’s not an Iranian problem,” von Hippel said in an interview. “It’s been recognized since 1946 as a dangerous technology. The Iran issue is more about national pride and not wanting to get gouged on prices by the Russians.”

When production begins at Argentine’s Pilcaniyeu enrichment facility, 60 kilometers (37 miles) outside Bariloche, it will use the gaseous diffusion enrichment technology that had been exclusively used to manufacture nuclear weapons when it was built.

Intelligence Failures

That shouldn’t necessarily worry the international community, according to William Miller, the U.S. diplomat appointed by President Jimmy Carter who was set to become America’s new ambassador to Iran before the 1979 Islamic Revolution intervened. Just as Argentina’s government transitioned from military to civilian rule, the nature of the Iranian regime has changed too, he said in an interview.

“Iran has developed from a revolutionary society into a stable democratic theocracy,” Miller said in an interview. “Today they’re the most stable country in the Middle East.”

The surprise revelation of Argentina’s enrichment program was one of history’s most “startling and dismaying failures of intelligence gathering,” according to a report published by the U.S. Department Energy. The threat of potential similar intelligence failures in Iran is driving concern among policy makers who want to prevent a secret Iranian breakout from its commitments and a race to nuclear weapons.

Amid the clamor around the Iranian nuclear program, world powers are learning how to regulate adversarial entry into the global enrichment-services market, said von Hippel, who was a science and technology adviser to President Bill Clinton.

“We shouldn’t let this kind of opportunity go to waste,” he said.

To contact the reporter on this story: Jonathan Tirone in Vienna at jtirone@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Karl Maier, Leon Mangasarian

Natural Gas Futures Slide to 7-Month Low on Mild Weather

By Christine Buurma Jul 22, 2014 2:37 AM GMT+0700

Natural gas futures slipped in New York to the lowest price in more than seven months as meteorologists predicted mild weather, which would curtail demand from power plants and help narrow a stockpile deficit.

Temperatures may be average or below normal in the eastern half of the U.S. through Aug. 4, according to Commodity Weather Group LLC. Injections of gas into storage have surpassed the five-year average for 13 consecutive weeks. Inventories were 26 percent below the five-year average in the week ended July 11, compared with 55 percent at the end of March.

“We’re seeing some cool weather on the East Coast in the 10-day forecasts,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We’ve had some pretty big storage numbers that have been leaning on prices.”

Natural gas for August delivery fell 10.2 cents, or 2.6 percent, to $3.849 per million Btu on the New York Mercantile Exchange, the lowest settlement since Nov. 26. Volume for all futures traded was 25 percent above the 100-day average at 3:03 p.m. Prices are down 9 percent this year.

Money managers’ net-long wagers on U.S. natural gas dropped 3.1 percent to 226,861 in the week ended July 15, the least since December, the Commodity Futures Trading Commission said in its July 18 Commitments of Traders report. 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.

Record Production

Marketed gas output may increase 4.1 percent this year to an all-time high of 73.08 billion cubic feet a day, according to the Energy Information Administration, the Energy Department’s statistical arm. Record production will bring stockpiles to 3.43 trillion cubic feet by the end of October, which would be the least for that time of year since 2008, the EIA said July 8 in its monthly Short-Term Energy Outlook.

Supply from the Marcellus shale formation in the Northeast will climb 1.6 percent to 15.482 billion cubic feet a day in August from a month earlier, the EIA said July 14 in its Drilling Productivity Report.

The high in Chicago on July 29 may be 73 degrees Fahrenheit (23 Celsius), 9 less than average, according to AccuWeather Inc. in State College, Pennsylvania. Atlanta temperatures may reach 82 degrees, 6 below normal.

Power plants account for 31 percent of gas consumption, EIA data show.

Cooler Weather

“Weather models are now indicating that it will be cooler than normal throughout for the rest of July and first half of August, a time when we usually see the largest amount of cooling demand,” Aaron Calder, an analyst at Gelber & Associates in Houston, said in a note to clients today. “The market is worried that the summer will never come.”

The Alaska LNG project filed an application with the Energy Department to export as much as 20 million metric tons annually of liquefied natural gas from the Kenai Peninsula, according to a press release today.

Project participants include TransCanada Corp., BP Plc, ConocoPhillips and ExxonMobil Corp. The preliminary engineering and design phase of the project, which will help determine whether the project will go forward, is scheduled for completion in 2016.

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Bill Banker, Charlotte Porter

Brazil's Petrobras Crude-Oil Output Rises 1.7% In June

By Rogerio Jelmayer

SAO PAULO--Brazilian state-run energy group Petroleo Brasileiro SA (PBR, PETR3.BR, PETR4.BR), or Petrobras, reported a slight increase in oil production for June, mainly due to the startup of an oil platform at Roncador field, in Campos Basis.

Petrobras over the weekend said it produced an average 2.008 million barrels of crude oil a day in Brazil during June, up 1.7% from May.

"The production growth was mainly due to the volume increase produced by platform P-62, which started up operation in May at Roncador field. A total of 22 wells, 14 of them oil and gas producers and eight water injectors, will be interconnected to this unit within the next few months," Petrobras said.

Output from the so-called presalt region, where offshore oil is trapped under thousands of feet of salt and rock beneath the seabed, rose 6.7% to 477,000 barrels a day.

Petrobras' domestic natural-gas production rose 1.5% in June from the previous month to 66.4 million cubic meters per day.

The company's total output of crude oil and natural gas rose 1.6% in March to 2.4 million barrels of oil equivalent per day.

Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com

China to loan $4-billion to Venezuela in exchange for oil

Deisy Buitrago/Reuters

Published Monday, Jul. 21 2014, 3:57 PM EDT

China will provide Venezuela with a new $4-billion credit line under an agreement signed on Monday, with the money to be repaid by oil shipments from OPEC member Venezuela.

The deal was inked during a 24-hour visit to Venezuela by Chinese President Xi Jinping, who is on a tour of Latin America.

The money will go into the Joint Chinese-Venezuela Fund, which focuses on infrastructure and economic development in the South American country.

President Nicolas Maduro said the Venezuelan government would also put $1-billion into the fund, though officials later said that amount was in fact $2-billion.

The government said this weekend the fund has about $40-billion in it, though it was not clear if that included the amounts covered by Monday’s agreement.

Officials said the credit would be repaid by shipments of about 100,000 barrels per day of crude oil and products.

No other terms were given.

Under the leadership of late socialist President Hugo Chavez, Venezuela vastly expanded its use of loan-for-oil agreements with China, which helped ease stretched state finances while also improving the cash flow of state oil company PDVSA.

President Maduro, who won election last year after Chavez died from cancer, has continued that policy.

“It’s a virtuous (financing) formula which does not create onerous debts,” Maduro said. “We’ve reached the point of no return in a deep relationship with China.”

PDVSA said Venezuela is now sending about 524,000 bpd to China, a figure expected to rise to 1 million bpd by 2016.

Bilateral trade between Venezuela and China has soared to $19.2-billion annually, compared with just $183-million in 1998, the year Chavez came to power, officials said.

Chinese entities participate in transport, housing, education, electricity, communication and vehicle-assembly projects in Venezuela.

“The Chinese economy continues along solid development lines and is in fine condition to keep growing,” said Jinping, who was flying on to Cuba later on Monday.

“China will be a co-operation partner for all countries of the world like Venezuela.”

Among 38 accords signed on Monday was also a memorandum of understanding for China’s EximBank to lend $1-billion to PDVSA, an agreement for mineral exploration, the purchase of 1,500 Chinese buses and the creation of a new cement factory.

Venezuelan opposition politicians say much of China’s loans in the last 15 years have been wasted amid corruption, inefficiency and lack of transparency in public funds.

“If we are the country with the world’s biggest oil reserves, why do we have to indebt ourselves with China?” asked one opposition leader, Henrique Capriles, via Twitter, demanding information and accountability on a series of China-funded projects.

Platts Pre-Report Survey of Analysts’ EIA/API Estimates Suggests 2.6 Million-Barrel Draw in U.S. Crude Oil Stocks

Prepared by James Bambino, Platts Oil Futures & Options Editor

New York - July 21, 2014

Platts Survey of Analysts

Crude oil stocks down 2.6 million barrels

Gasoline stocks up 1.2 million barrels

Distillates stocks up 1.8 million barrels

Refinery utilization, or run rate, or run rate, down 1 percentage point to 92.8% (EIA)

U.S. commercial crude oil stocks are expected to have fallen by 2.6 million barrels during the reporting week ended July 18, according to a Platts analysis and survey of oil analysts Monday.

The American Petroleum Institute (API) will release its weekly report at 4:30 p.m. EDT (2030 GMT) Tuesday and the U.S. Energy Information Administration (EIA) is scheduled to release its weekly data at 10:30 a.m. EDT (1430 GMT) Wednesday.

The projected decline is likely to come amid still-strong refinery runs, even though these too are expected to drop. U.S. refineries processed a record 16.63 million barrels per day (b/d) of crude oil in the week ended July 11, EIA data showed. This had refinery utilization rates running at 93.8% of capacity. Analysts expect run rates probably fell by about 1 percentage point, and Platts data largely confirms a decline is likely.

Motiva Enterprises the week ended July 18 cited an unspecified operational issue related to heavy rainfall at the company's 600,000 b/d Port Arthur, Texas, refinery, the largest in the U.S. The issue was reported to have begun in the afternoon Friday, and may have occurred too late in the week to be reflected in either the API or EIA data windows.

But ExxonMobil acknowledged a production impact -- albeit minimal -- at its 584,000 b/d Baytown refinery after a small hole was discovered in a pipe in one of the facility's catalytic light-ends units. And Valero the week ended July 18 shut a hydrocracker at its 290,000 b/d Port Arthur refinery. Flint Hills Resources also reported an issue with a hydrocracker the week ended July 18 at its 230,000 West Refinery in Corpus Christi.

In California, Chevron the week ended July 18 shut a fluid catalytic cracker at its 243,000 b/d Richmond refinery following a fire. And Phillips 66 suffered a power loss at its 41,600 b/d Santa Maria refinery in Arroyo Grande.

IMPORTS UNLIKELY TO RALLY

Crude oil stocks are unlikely to get much of a boost from higher imports, as refining margins along the U.S. Gulf Coast (USGC) continue to support North American grades. On a 60-day moving average, cracking margins for Louisiana Light Sweet crude oil are around $13.50 per barrel (/b), compared with just $3.50/b for Nigerian Brass River.

Platts margins reflect the difference between a crude oil's netback and its spot price. Netbacks are based on crude oil yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.

Likewise, USGC coking margins for Western Canadian Select crude oil are more than $14/b on a 60-day moving average. West Texas Sour coking margins are even better, coming in just below $16/b. Margins for Angolan Cabinda averaged just $4.89/b during the same period.

Worldscale (w)* tanker rates for Caribbean-USGC routes, basis 130,000 kilotons, have jumped since the start of July, indicating either a flurry of import activity, or a shortage of available tonnage. Platts-assessed Caribbean-USGC rates were at w122.5 Friday, up from just w82.5 on July 1.

Platts cFlow ship-tracking software shows at least four vessels arrived in the USGC from Mexico the week ended July 18. Comparatively strong coking margins for Mexican Maya tend to support this. On a 60-day moving average, Maya coking margins are around $9.50/b.

PRODUCT STOCKS EXPECTED TO BUILD

U.S. gasoline stocks are expected to have risen by 1.2 million barrels the week ended July 18 and distillate stocks are expected to have risen 1.8 million barrels, according to analysts.

With strong margins and steady runs, refined product production is unlikely to come off at this point in the summer season. U.S. gasoline production on a four-week moving average has been above 10 million b/d as far back as the week ended May 9, EIA data shows. Implied demand** for gasoline, however, has been struggling to keep up. Implied demand for gasoline on a four-week moving average for the week ended July 11 was just 8.99 million b/d.

Distillate production during a similar period was more than 5 million b/d, and exports are estimated to have been above 1 million b/d for the last four reporting weeks.

China cuts retail gasoline, diesel prices by under 3%

Singapore (Platts)--21Jul2014/716 am EDT/1116 GMT

China's National Development and Reform Commission has reduced domestic retail prices of gasoline and diesel by Yuan 245/mt ($39.47/mt) and Yuan 235/mt, respectively, effective midnight Tuesday.

This is the first fuel price adjustment since June 23, when they were raised by Yuan 165/mt for gasoline and Yuan 160/mt for diesel.

The benchmark retail price of gasoline in Beijing is now Yuan 9,695/mt, representing a 2.5% cut from previously, according to a circular issued by the commission.

The retail diesel price in the capital has also fallen by 2.6% to Yuan 8,940/mt.

The central government sets benchmark retail prices for both oil products for each region.

Under the oil product pricing mechanism, regulated prices are automatically adjusted every 10 working days in line with international crude price fluctuations, unless the resulting price change is less than Yuan 50/mt, roughly equivalent to $1/barrel. If this occurs, the adjustment is rolled over and included in the next price change.

The current system is intended to help refiners cut the losses incurred by the government's cap on oil product prices, which were exacerbated when the government previously reviewed prices every 22 days and at times, refused to adjust prices due to inflationary concerns.

--Song Yen Ling, yenling.song@platts.com

--Edited by Alisdair Bowles, alisdair.bowles@platts.com

Eni signs deal to boost exploration in Republic of Congo

Cape Town (Platts)--21Jul2014/1231 pm EDT/1631 GMT

Italy's Eni has signed a deal to explore for oil and gas in the Republic of Congo's coastal basin, boosting the company's portfolio in sub-Saharan Africa, it said in a statement Sunday.

At a signing ceremony in the capital Brazzaville, new Eni CEO Claudio Descalzi signed the deal with energy minister Andre Raphael Loemba covering deepwater acreage which extends from onshore Mayombe to the deep offshore.

Italian Prime Minister Matteo Renzi, on three-day tour of African countries, attended the signing ceremony.

Eni, which has been active in Congo since 1968, said in February it had discovered fields with estimated reserves of 1.2 billion barrels of oil and 30 billion cubic meters of gas in Congo's Marine VII offshore block.

Renzi, who became the first Italian head of government to visit Mozambique on Saturday at the start of the African tour, said the Italian major will invest Eur50 billion ($67 billion) on developing its gas discoveries. The company has made large gas discoveries off Mozambique's northern coast over the past three years and has teamed with US' Anadarko on plans to build an LNG plant in Cabo Delgado province.

The companies have yet to take a final investment decision on the planned two-train, 10 million mt/year plant, which Anadarko says will cost $15 billion. First exports are anticipated in 2018.

The group's equity production from Congo is currently around 120,000 b/d of oil. In sub-Saharan Africa, Eni produces around 450,000 b/d of oil equivalent in Angola, Ghana, Gabon, Mozambique, Nigeria, Democratic Republic of the Congo, Togo, Kenya and Liberia.

ENI MARKS RETURN TO ANGOLA DEEPWATER

Eni also said it was marking its return to Angola's deepwaters with the launch of a Floating, Production, Storage and Offloading vessel for its block 15/06 offshore development.

The company in a statement said the N'Goma FPSO is ready to set sail to the block after a naming ceremony was held Friday at the Angolan port of Ambolm. It will then commence mooring and hook-up operations.

Multiple oil discoveries have been made on block 15/06 including Mpungi, Cabaca Norte, Cabaca South East, Sangos, N'goma, Nzanza and Cinguvu. Eni expects first oil from the West Hub area of the block at the end of 2014, four years after striking commercial oil.

A second, similar development project is also being executed -- East Hub -- to exploit the reserves discovered in the northeastern area of the same block.

Eni has been present in Angola since 1980 with a net production of 87,000 boe/d in 2013.

--Jacinta Moran, jacinta.moran@platts.com --Alina Trabattoni, newsdesk@platts.com --Edited by Jason Lindquist, jason.lindquist@platts.com

Kenya looking for LPG investors as it plans to shore up usage

Nairobi (Platts)--21Jul2014/745 am EDT/1145 GMT

Kenya is looking for investors to construct LPG storage facilities and cylinder filling plants inland to supply the local market, a senior ministry of energy official said late Thursday.

The ministry estimates that the country's annual LPG usage will rise to 735,217 mt by 2035 if supply constraints are removed, with state-owned Kenya Pipeline Company (KPC) set to build a storage facility of 2,200 mt in Nairobi.

Energy Principle Secretary Jospeh Njoroge said LPG usage in Kenya is still low, at about 7%, with most consumption concentrated in urban areas as most people depend on firewood and charcoal for cooking.

"A study done by Petroleum Development Consultants (PDC) of Britain in 2013 proposed expansion inland of LPG storage facilities, with cylinder filling plants in Nairobi, Nakuru, Eldoret, Kisumu and Sagana," Njoroge said.

The government is encouraging investors to build several storage facilities in Nakuru, Eldoret, Kisumu and Sagana under public private partnership framework.

TAX PLANS

Kenya plans to increase the tax level on kerosene while removing all taxes currently levied on LPG to make the product more affordable, Njoroge said.

"By removing taxes on LPG, we can deviate use of kerosene and wood fuel for cooking to gas," said Njoroge.

He added that the ministry of energy estimates Kenyan Shilling 7 billion ($80 million) will be collected every year from taxes and duties on kerosene, while LPG is promoted as a clean environmentally friendly source of energy.

The ministry is holding discussions with other departments of the Kenyan government as well as the petroleum industry to find ways of reducing the cost of LPG, Njoroge added.

Analysts said the removal of taxes on gas, cookers and other accessories will lead to approximately 8 million new LPG consumers in three to four years.

A cylinder filled with 6 kg of LPG retails for about Shilling 1,400 ($159).

However, the commodity's current erratic supply often leads to retailers hiking LPG cost, meaning demand has stagnated due to inadequate storage facilities at port of Mombasa as well as inland.

"We have two import facilities for LPG, one at Shimanzi of about 1,400 mt and privately owned African Oil and Gas Ltd (AGOL) at Miritini with floating storage of approximately 14,000 mt," said Njoroge.

He said the country now depends on LPG imports from the Middle East after Kenya Petroleum Refineries Ltd (KPRL) shut down in September 2013. KPRL used to produce 30,000 mt of gas annually.

AGOL completed a $57 million bulk LPG import facility in Mombasa in November 2012, but the sea-based floating storage facility is expensive to use because of high maintenance costs.

The Petroleum Institute of East Africa (PIEA) said marketers had proposed a 16% value-added tax on LPG, with a 2% import duty on cylinders and gas cookers.

PIEA Chairman Polycarp Igathe said introduction of VAT on LPG in the budget in 2013 made acquisition of cylinders, cookers and accessories by most first time buyers more difficult.

Data compiled by PIEA shows Kenya consumed 14,803 mt of LPG between January and March this year. Usage of gas stood at 59,626 mt from January to December last compared with 63,823 mt in 2012.

--Kennedy Senelwa, newsdesk@platts.com

--Edited by James Leech, james.leech@platts.com

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News 22nd July 2014

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