News 7th November 2014

Green Party blasts new Senate leadership

LONDON, Nov. 6 (UPI) -- A U.S. Green Party gubernatorial candidate said Thursday voters pushed the country in the wrong direction, though oil voices said it's time to seize the moment.

Midterm elections in the United States put members of the Republican Party in control of the Senate, tipping the balance of power on Capitol Hill away from the White House. Pushing pro-energy legislation, including sanctioning the Keystone XL oil pipeline, tops the agenda for the new class of lawmakers.

Howie Hawkins, who ran for governor of New York under the Green Party banner, wrote in the Thursday edition of The Guardian, a British newspaper, the voting public put the United States on the wrong path.

Hawkins said the advent of the shale era in the United States is reminiscent of the "drill, baby, drill" slogan embraced by former vice presidential candidate Sarah Palin.

The results from Tuesday's midterm, he writes, "feels like a complete victory for Palinite politics."

In response to the Senate takeover, U.S. Rep. Fred Upton, R-Mich., chairman of the House Energy and Commerce Committee, said the new Congress could embrace a "broad new energy vision called the Architecture of Abundance, which includes plans to build a modern new energy infrastructure and increase energy efficiency."

Lawmakers like Upton say more oil and gas drilling will further stimulate the U.S. economy, while approving a permit for the Keystone XL pipeline will enhance energy security in North America.

President Barack Obama said the approval process for Keystone XL would have to wait for a Nebraska court decision on whether the governor there has the authority to approve the pipeline's route. Keystone XL is more for Canadian oil, the president argued, adding the pipeline is "one small aspect" of advances in the North American energy sector.

Before the midterm, critics argued a new Senate leadership enamored with the success of the shale oil and gas boom would put the country out of step with reports stating fossil fuels are to blame for climate change.

Executive Director of the Sierra Club Michael Brune said voices for climate action were silenced by Republican victories.

"A Congress elected by corporate polluters may think it can force a polluter agenda on this country. But, public support is solidly behind action to tackle the climate crisis," he said in a statement. "There is a growing movement of climate and clean energy voters that will be standing up to polluters and their political allies every step of the way."

Shale license extended in Ukraine

LONDON, Nov. 6 (UPI) -- The Ukrainian government extended the terms for a shale exploration license by five years, JKX Oil and Gas announced Thursday.

JKX, which has headquarters in London, said its exploration permit for the Zaplavskoye license was extended through December 2019. The reserve basin surrounds four other areas where the company is working to extract reserves locked in shale.

Ukraine is one of the Eastern European countries rich in shale natural gas. JKX said its production in Ukraine for 2013 averaged 9,731 barrels of oil equivalent per day, an 18 percent increase from the previous year.

By the government's estimates, there may be enough natural gas in shale reserve areas to meet the country's needs without imports.

Ukraine, with the help of European negotiators, brokered an interim deal with Russia to secure a discount on gas prices and reliable supplies through the winter in exchange for commitments to repay the billions of dollars in debt owed to Russian gas supplier Gazprom.

Ukraine has said it was trying to lessen its dependence on Russia by working with its neighbors to reverse the direction of natural gas supply lines and by exploiting domestic shale reserves.

In August, JKX said it was reviewing carefully emergency budget legislation that could put new tax burdens on energy companies.

"Scheduling of further exploration drilling is dependent on the lifting of emergency production tax increases and exchange controls," Chief Executive Officer Paul Davies said in a statement.

Report: Energy firms must be more open about payments to governments

BERLIN, Nov. 6 (UPI) -- A Thursday report from Transparency International finds oil and gas companies aren't held to European and U.S. measures as closely as they should be.

The advocacy group said oil and gas companies aren't ready to meet European rules that go into force in July that require those in the industry to report payments made to the governments where they operate.

In the United States, the group said legal challenges filed by oil lobby groups against sections of the Dodd-Frank Act mean oil and gas companies are getting a free ride on transparency.

Sections of the Dodd-Frank Act require those in the extractive industry to disclose payments they've made to the governments that host their exploratory campaigns.

The American Petroleum Institute, which represents the business interests of the energy industry, asked the U.S. Securities and Exchange Commission to review the disclosure requirements last year.

"We need more transparency from multinational companies, whose power in the world economy closely rivals the biggest countries," Transparency International Chairman Jose Ugaz said in a statement. "With greater economic power comes greater responsibility."

The group surveyed 24 companies that would fall under both European and U.S. legislation and found 19 of them fell well short of the reporting expectations. Only four -- Australian giant BHP Billiton, Norwegian major Statoil and Indian companies ONGC and Reliance – followed the rules to a degree deemed satisfactory by Transparency International.

Italian energy company Eni was among the companies ranked favorably by Transparency International.

"Eni supports the Extractive Industries Transparency Initiative, an international initiative involving governments, business and civil society to promote transparency and good governance of the revenues from the extractive industries," it said in a statement touting its track record.

North Sea vitality top concern for London

LONDON, Nov. 6 (UPI) -- Moving forward with a plan to breathe new life into North Sea oil and natural gas fields is an "urgent task" for the government, London said Thursday.

British Energy Secretary Ed Davey issued a statement to lawmakers saying his country is fortunate to have a diverse base of oil and natural gas supplies.

Davey in September said the United Kingdom is already feeling the worst impacts of climate change. A move closer to a low-carbon economy could be advanced by resources like offshore wind, but oil and gas will still play a major role in the national economy, he said.

Oil production from the North Sea has been in decline since the late 1990s. Government data show a decline of 7 percent from last year to 618,985 barrels per day in July, the last full month for which data are available.

The government in February said it was moving forward with recommendations from retired businessman Ian Wood, who led a panel tasked with finding ways to breathe new life into North Sea reserve basins.

"The implementation of the Wood Review I commissioned last year, to maximize economic recovery from the North Sea, remains an urgent task," Davey said.

Wood's panel found there may be an additional 4 billion barrels of oil equivalent available for recovery in the North Sea.

By focusing on a regional strategy, rather than specific fields, and funneling more investments into the North Sea, the government said it could secure $330 billion during the next two decades by embracing Wood's recommendations.

"The Wood review made recommendations that will refresh the management of the U.K. Continental Shelf in a profound way that will benefit both the U.K. economy as well as the myriad businesses involved in the recovery of oil and gas offshore," Davey said in a statement.

IEA: Asia missing out on LNG opportunities

TOKYO, Nov. 6 (UPI) -- Asia needs market reforms to capitalize on the "golden opportunity" represented by liquefied natural gas, the International Energy Agency said Thursday.

The IEA issued a report saying natural gas prices in Asia may be as much as four times as high as in other markets. Asian demand for gas, meanwhile, is expected to grow by as much as 8 trillion cubic feet, while 5.3 trillion cubic feet of new supplies of liquefied natural gas come on stream by 2020.

"The advent of new LNG supplies represents a golden opportunity for Asia, but first the region's governments must address the rigid and illiquid markets that undermine affordability and accessibility for consumers," IEA Executive Director Maria van der Hoeven said in a statement from Tokyo.

Asian energy demand has drawn interest from some of the world's largest natural gas producing nations. In September, Alexander Medvedev, deputy chairman of Russian energy company Gazprom, said Asia "is the most attractive" market for companies like his.

By 2030, Gazprom said it expects the Asia-Pacific region will account for 25 percent of the total consumption of natural gas.

A country like Thailand, meanwhile, may exhaust its own reserve base within nine years, analysis from consultant group Wood Mackenzie found.

Peter Coleman, chief executive of Woodside Energy Ltd., which controls regional LNG projects that could supply Asia, said market dynamics were inhibiting the long-term prospects for new gas developments.

The LNG industry is facing rising costs, he said, and low oil prices only add to the uncertainty moving forward.

"A prolonged oil price slump will impact returns on existing LNG projects as well as threaten future

projects," he said at a regional gas conference.

The IEA's report said LNG infrastructure is capital- and energy-intensive, but runs the risk of losing its market share to everything from carbon-intensive coal to low-carbon electricity sources.

"For gas to be a sustainable contributor to energy security in the region, Asia must look to reforms," van der Hoeven said.

IEA: Asia missing out on LNG opportunities

TOKYO, Nov. 6 (UPI) -- Asia needs market reforms to capitalize on the "golden opportunity" represented by liquefied natural gas, the International Energy Agency said Thursday.

By 2030, Gazprom said it expects the Asia-Pacific region will account for 25 percent of the total consumption of natural gas.

A country like Thailand, meanwhile, may exhaust its own reserve base within nine years, analysis from consultant group Wood Mackenzie found.

The LNG industry is facing rising costs, he said, and low oil prices only add to the uncertainty moving forward.

"A prolonged oil price slump will impact returns on existing LNG projects as well as threaten future

projects," he said at a regional gas conference.

The IEA's report said LNG infrastructure is capital- and energy-intensive, but runs the risk of losing its market share to everything from carbon-intensive coal to low-carbon electricity sources.

"For gas to be a sustainable contributor to energy security in the region, Asia must look to reforms," van der Hoeven said.

Libya, low oil prices, pull reins for OMV

VIENNA, Nov. 6 (UPI) -- A slowdown in Libyan output, coupled with declining oil prices, means it's time to review the pace of investments, the head Austria's OMV said Thursday.

The oil and gas company said it would focus more on exploration and production moving forward, while streamlining some of its refinery operations. The decline in oil prices, in addition to less-than-ideal production growth from Libya, gave Chief Executive Officer Gerhard Roiss something to consider.

"In order to reflect a more challenging operating environment, especially the softness in the oil price together with the unpredictability of our Libyan production, which is adversely impacting the Group's cash flow, we have decided to review the pace of our investment program for the next two to three years," he said in a statement.

Crude oil prices have shed about 20 percent of their value since June as supply and demand scenarios shift in response to gains in North American oil production and slowed economic recovery.

Other major oil and gas companies have said they were committed to the long-term strategies despite recent market movements.

Libyan oil production of around 800,000 barrels per day is about 45 percent above midsummer levels and close to two-thirds its optimal rate.

Security issues present stability challenges for the Libyan oil sector. On Thursday, militants closed operations at the Sharara oil field in the western Libyan desert. It has the capacity to produce 350,000 bpd and Thursday's incident is at least the second time bandits have shut in the field this year.

OMV said the Libyan security situation remains "very difficult to predict." Production for the first nine months of the year was around 9,000 barrels of oil equivalent per day.

Elsewhere, OMV said its Norwegian operations was boosting by production from the Gudrun field, which should produce as much as 184 million barrels of oil and gas equivalent over its lifespan.

"We will continue to deliver on our commitment to profitable growth," Roiss said.

Libya Plans for Biggest Oil Field to Resume Output Soon

Libya will resume pumping crude “soon” at Sharara, its biggest oil field, after an attack that halted output, reducing the North African nation’s production by almost a third, an official said.

Sharara was shut as a precaution after gunmen stormed the on-site production compound, Mansur Abdallah, director of oil movement at the Zawiya refinery and oil port, said in a telephone interview. “The armed group left after stealing the cars, and production should resume soon,” he said.

The oil field is 720 kilometers (450 miles) south of Zawiya, and the two sites are connected by a pipeline. While it has a similar capacity to the Waha field in central Libya, Sharara is the nation’s largest producer, with an output of 290,000 barrels a day before the latest shutdown, Abdallah said.

Libya, which is trying to restore output after more than a year of political unrest and violence, produced 850,000 barrels a day last month, according to Bloomberg estimates. The country pumped 1.6 million barrels a day before the 2011 ouster of former leader Muammar Qaddafi.

Output has recovered after dropping to as little as 215,000 barrels a day in April. Warring factions pledged to keep oil flowing, and the state-run National Oil Corp. refrained from taking sides amid political disputes. The country is split between an Islamist-led administration that took control of Tripoli, the capital, a few months ago, and an internationally-recognized government in eastern Libya.

Brent crude rebounded from $82.35 a barrel to a high of $83.27 in about one hour of trading from 8:30 a.m. London time, after news that the Sharara field would soon resume output. The benchmark grade was trading at $82.23 a barrel on the London-based ICE Futures Europe exchange at 1:42 p.m.

OPEC’s Weak Links Feeling Pain That Shale Producers Seek

Here’s why the U.S. shale upstarts just might win a confrontation with Saudi Arabia as oil sinks: While the Arab nation is as flush with cash as ever, the finances of some fellow OPEC members are deteriorating quickly.

Venezuela, for example, has burned through billions of dollars to stave off default, leaving its foreign reserves near a decade-low. In Nigeria, officials are struggling to stem a selloff in the currency that has left it at a record low.

Those financial strains have Venezuela calling for action to prevent further price declines while a Libyan representative said the 12-member Organization of Petroleum Exporting Countries should cut its oil output target. When executives at American shale companies talk about having more staying power in a price war than some of the Saudis’ partners, these countries, along with Ecuador and Iran, are the key weak links.

“Saudi Arabia and the oil-rich Gulf monarchies can afford to take the long-term remedy as they have enough cash reserves,” Theodore Karasik, senior adviser at Risk Insurance Management, said by phone from Dubai yesterday. “Libya and Venezuela, on the other hand, need a quick intervention by OPEC.”

Brent crude, the international benchmark, plunged 28 percent since June to $82.34 a barrel today as the shale boom lifted U.S. production to the highest in at least 31 years and global demand slowed. At this price only Kuwait, Qatar and the United Arab Emirates will earn enough to balance their budgets, while Iran, Iraq and Algeria need at least $100, the International Monetary Fund said in a November 2013 report.

Shale Producers

Shale oil drillers will be hurt by the fall in crude prices before members of OPEC because their costs are higher, said the group’s secretary-general, Abdalla El-Badri. As much as 50 percent of tight oil output will be “out of the market” at current prices, he said at a conference in London Oct. 29.

Executives at several large U.S. shale producers, including Chesapeake Energy Corp. (CHK) and EOG Resources Inc. (EOG) vowed to maintain, and even raise, production as they reported earnings this week. They say their success in bringing down costs means they make money even if prices slump further.

The average price of OPEC’s main export grades fell below $80 a barrel for the first time in four years on Nov. 4, the group said by e-mail. The group will decide on future production quotas when it meets in Vienna on Nov. 27.

OPEC members’ fiscal break-even levels, the price at which their budgets are balanced, are more important for determining members’ production policies than the cost at which they can pump oil, according to analysts at Commerzbank AG and IHS Inc.

Venezuelan Discomfort

“OPEC members are countries, not companies, so they don’t look at the profitability of wells, they look at their revenue for a fiscal or current account standpoint,” Jamie Webster, a Washington DC-based analyst at IHS, said by e-mail. “Crude production costs are a secondary matter.”

Venezuela, which gets 96 percent of its dollar earnings from oil, loses $700 million a year for each $1-a-barrel price drop, according to state-run oil company Petroleos de Venezuela SA. The country is almost certain to default on its foreign-currency bonds, Harvard University economists Carmen Reinhart and Kenneth Rogoff said last month.

The government’s benchmark bonds due 2027 were trading yesterday at 62 cents on the dollar, down from as high as 89 cents back in July.

Venezuela’s Information Ministry didn’t respond to an e-mailed request for comment on Nov. 4. President Nicolas Maduro has repeatedly said Venezuela won’t default.

“We are taking actions internationally to defend the oil market and price on behalf of all Venezuelans,” Maduro said on state television Oct. 31. Foreign Minister Rafael Ramirez was in Ecuador last week to prepare a joint proposal for OPEC action, Maduro said.

Ecuador’s Deficit

Venezuelan officials are already uncomfortable and “they really run into trouble” if prices fall closer to $80 a barrel for a sustained period, Risa Grais-Targow, a Eurasia Group analyst, said Oct. 17 by phone from Washington. The country needs $162 a barrel to balance its budget, according to Deutsche Bank AG.

Venezuela is not in any “immediate” risk of default, Sebastian Briozzo, director of sovereign ratings at Standard & Poor’s, said in an interview on Oct. 14 in New York. S&P lowered the country’s credit rating to CCC+ on Sept. 16.

The fall in oil prices is “very serious” for Ecuador’s economy, said David Rees, an emerging-market economist at Capital Economics in London. Finance Ministry forecasts show prices of $80 to $84 a barrel would leave the government with a “huge” deficit of 5 to 6 percent of gross domestic product in 2015, Rees said.

Ecuador is working with Venezuela and other OPEC members to “improve” oil prices, Finance Minister Fausto Herrera told reporters in Quito on Nov. 4.

Nigerian Reserves

Nigeria’s foreign-exchange reserves dropped for 16 consecutive days, sinking to $38.3 billion on Nov. 3, a three-month low, according to the central bank. The country needs a Brent price of $126 to balance its budget, Deutsche Bank said.

Iraq, the second-largest producer in OPEC, was still recovering from three decades of war and sanctions when the Islamic State seized a swath of its northern territory in June. While 3.3 million barrels of daily oil production in the country’s south hasn’t been affected, the violence has shut down a 350,000-barrel export pipeline in the north and halted the country’s largest refinery.

The government scrapped the 2014 budget because of political disputes and concerns over a deficit stemming from falling oil prices, Masoud Haidar Rostam, a lawmaker from the Iraqi parliament’s financial committee, said by phone on Nov. 3. The 2015 budget “will most probably be based on an average oil price of $65 to $70 per barrel to avoid a deficit,” he said.

Libya Strife

Libya remains torn between Islamists that took control of the capital Tripoli this summer and an internationally recognized cabinet that fled to the country’s east. The country’s largest oil field, Sharara, was halted yesterday after an attack from an armed group, Mansur Abdallah, director of oil movement at the Zawiya refinery and oil port, said by phone today.

While oil production almost quadrupled since April to 850,000 barrels a day last month, output this year was still less than a third of the level before the 2011 overthrow of Muammar Qaddafi.

Libya’s OPEC governor, Samir Kamal, said by e-mail on Oct. 25 that the group should cut its daily output target to 29.5 million barrels from 30 million to support prices.

Iran’s revenue from crude sales, already curbed by U.S. and European sanctions, dropped 30 percent because of the recent price decline, President Hassan Rouhani said Oct. 29. Iran’s $400 billion economy shrank more than 7 percent over the past two years, according to the IMF. The country pumped 2.77 million barrels a day in October, down 23 percent since the start of 2012, according to data compiled by Bloomberg.

$745 Billion

Saudi Arabia, the world’s largest oil exporter, has $745 billion of reserve assets, data from the country’s monetary agency show. In a sign it’s prepared to accept lower prices in favor of defending market share, it cut differentials for supplies to U.S. customers this week, a month after discounting shipments to Asia by the most in almost six years.

The Saudis can cover spending plans with Brent at $84 a barrel, according to the IMF. The country could “weather even an extended downturn” below its break-even price, U.S. ambassador to the kingdom, Joseph Westphal, told the National Council on U.S.-Arab Relations conference in Washington on Oct. 29. The country has the largest foreign reserves after China and Japan, according to data compiled by Bloomberg.

Kuwaiti Price

To win the showdown with U.S. shale, the Saudis are trying to bring OPEC’s weaker members in line, according to Seth Kleinman, head of European energy research at Citigroup Inc. in London. Saudi Oil

Minister Ali Al-Naimi is attending a climate conference in Venezuela where he met with the country’s OPEC representative, Rafael Ramirez.

The price of oil is a “concern for everyone,” Ramirez told reporters after the meeting with Al-Naimi. The two men “spoke more than anything about climate change,” he said. Al-Naimi is due to attend a natural gas forum in Acapulco, Mexico, on Nov. 11-12.

The trip is reminiscent of the 1990s, when Saudi Arabia’s competition with Venezuela and Mexico for shipments to the U.S. Gulf Coast drove down prices, according to Mike Wittner, head of oil market research at Societe Generale SA in New York.

Kuwait’s plans won’t be affected as long as the price is above $75, Oil Minister Ali Al-Omair said Oct. 27, according to the state-run KUNA news agency. There’s “no room” for OPEC to reduce exports to achieve higher prices, he said Oct. 13. Qatar needn’t worry because it’s still the lowest-cost producer in the world, Qatar Petroleum International Chief Executive Officer Nasser al-Jaidah told reporters in Doha on Nov. 3.

“OPEC is lining up between the haves and the have-nots,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, said by phone Nov. 4. “Iran, Venezuela, Nigeria and Ecuador are really going to be struggling very mightily at these prices.”

That’s who the shale producers are counting on.

Qatar Shifts Export Strategy as U.S. Light Oil Competes

Qatar plans to cut exports of condensate and process more of the light oil into naphtha and other higher-value products that it can market in Asia, where the boom in U.S. shale output is adding competition for sales.

Qatar’s Ras Laffan refinery will double its capacity for processing condensate by 150,000 barrels a day by the end of 2016, officials at state-run oil-marketer Tasweeq said at a conference in the capital Doha this week. The plant also targets a 42 percent boost in naphtha output, they said. The U.S. is exporting similar products to Asia and vying with Middle Eastern suppliers for sales, said Jeff Brown, president of Singapore-based consultant FACTS Global Energy.

Oil slid into a bear market last month as the U.S. and Russia increased production and prices dropped more than 20 percent from their peak for the year in June. The U.S., which prohibits most crude exports, allowed foreign sales of condensate for the first time this year. U.S. exports of the light oil could rise to 1 million barrels a day this decade, Lucian Pugliaresi, president of the Washington, D.C.-based Energy Policy Research Foundation, said at the conference.

“The Middle East has a serious, long-term competitor in North America, led by the U.S.,” Al Troner, president of Houston-based Asia Pacific Energy Consulting, said at the same event. “There will be pressure on prices for some time. Buyers will have a choice.”

Barzan Field

The U.S. export push isn’t deterring Qatar. The Persian Gulf state’s Barzan natural gas field will begin producing in the first quarter of next year, contributing about 50,000 barrels a day of condensate, Saad Al-Kuwari, Tasweeq’s chief executive officer, told reporters at the conference. Condensates are often produced alongside gas.

Qatar, which exports about 500,000 barrels a day of condensate, will reduce shipments to about 350,000 barrels daily as it uses more of the oil at home, said Ibrahim Al-Sulaiti, Tasweeq’s marketing director for field condensates. Additional condensate from Barzan will offset part of the decline, he said.

The nation will process some condensate into naphtha, raising its exports of this product by 3 million metric tons a year once the Ras Laffan refinery starts operating, said Adel Abdula Al-Rumaihi, Tasweeq’s marketing director for refined products and naphtha. Qatar now ships 7 million tons of naphtha annually, he said. Ras Laffan is also set to produce low-sulfur diesel.

Other Middle Eastern countries, including Saudi Arabia and the United Arab Emirates, are also expanding refineries to meet domestic demand and boost exports. With new 400,000 barrel-a-day refineries starting in Saudi Arabia and the U.A.E. emirate of Abu Dhabi, “2015 looks to be a difficult year for naphtha,” Colin Shelley, a consultant at FGE, said at the conference. The added supply will depress naphtha prices and profits next year, he said.

Al-Kuwari, Tasweeq’s CEO, noted an ever-increasing supply of U.S. shale oil. “We need to see how this will impact the supply picture,” he said.

OPEC Head Tells Oil Market to Stop Panicking About Prices

By Maher Chmaytelli and Grant Smith Nov 7, 2014 2:01 AM GMT+0800

Oil will rebound by the second half of next year as supply and demand don’t justify the recent collapse and prices are now low enough to threaten investment in production, OPEC’s Secretary-General said.

While a report today from the Organization of Petroleum Exporting Countries cut forecasts for crude it will need to provide for most of the next two decades because of the shale-energy boom in the U.S., Secretary-General Abdalla El-Badri said the group isn’t “panicking” amid this year’s plunge.

“We’re concerned but not panicking,” El-Badri said at a press conference in Vienna today. “The price will rebound by the second half of next year. This situation of low prices cannot continue because if it continues, most of the investments will be stopped.”

Brent futures have tumbled 28 percent since mid-June, a move El-Badri said was excessive given that supply and demand levels are “reasonable.”

Ali al-Naimi, oil minister of Saudi Arabia, OPEC’s biggest member, is attending a conference on climate change in Venezuela and met with the country’s foreign minister, Rafael Ramirez. Ramirez told reporters they mostly discussed climate change yesterday.

Al-Naimi’s trip had been planned a about a year in advance and there’s nothing “peculiar” about the visit, El-Badri said. Oil prices have reacted to the “symbolism” of the trip as Saudi Arabia and Venezuela coordinated output cuts in the 1980s, according to Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.

The Saudi minister is due to attend another event in Mexico next week. OPEC hasn’t invited producing countries from outside the group to it attend its ministerial meeting on Nov. 27, El-Badri said.

OPEC Cuts Most Demand Forecasts for Its Crude on U.S. Boom

Nov. 6 (Bloomberg) -- On “Before The Bell,” Bloomberg’s Betty Liu, Max Abelson and Olivia Sterns run down the top stories of the day. They speak on “In The Loop.”

OPEC, supplier of 40 percent of the world’s oil, cut forecasts for the amount of crude it will need to supply for most of the next two decades as the shale-energy boom in the U.S. lessens dependency on the group.

Demand for crude from the Organization of Petroleum Exporting Countries may fall to a 14-year low of 28.2 million barrels a day in 2017, according to the group’s annual World Oil Outlook. That’s 600,000 a day less than last year’s report and 800,000 below the amount required this year. OPEC lowered every forecast for its crude through 2035 except next year, which will be higher than previously predicted. Still, Secretary-General Abdalla El-Badri predicted prices will rebound next year.

The group’s members face mounting competition in the U.S., where technological breakthroughs -- hydraulic fracturing and horizontal drilling -- have caused a surge in domestic production. Oil prices slumped into a bear market last month amid speculation OPEC won’t do enough to tackle a glut when it meets on Nov. 27 to discuss output.

“It does not necessarily mean that OPEC is seeing its influence wane,” Harry Tchilinguirian, head of commodity markets at BNP Paribas SA, said by e-mail. “OPEC will still retain a sufficiently large share of the market to influence it with the additional barrel it either puts on or subtracts.”

Forecast Reduction

The biggest reduction in OPEC’s long-term forecasts for its crude from last year’s report was for 2030. Buyers will need 33 million barrels a day that year, down from the 34.8 million that it estimated a year ago.

OPEC raised its forecast for combined supplies from the U.S. and Canada for each year in its “medium-term” outlook from 2013 to 2018. It boosted the 2018 estimate by 2.2 million barrels a day to 19.1 million, and introduced a 2019 prediction of 19.4 million barrels a day.

The two countries’ supplies from “tight crude” -- defined as “oil produced from low-permeability formations after having been hydraulically fractured” -- will reach 4.4 million barrels a day in 2019, from 3.4 million this year, according to the report.

Shale drillers will be hurt by the recent decline in prices before members of OPEC because their costs are higher, with about 50 percent of shale supply likely to be curbed unless oil recovers, El-Badri said in London on Oct. 29. Oil’s slump doesn’t present the organization with a “critical situation,” he said.Global Consumption

The organization increased estimates for global oil demand in 2015, by 700,000 barrels a day to 92.3 million a day, predicting that consumers outside the most advanced nations will use more oil than highly developed economies next year for the first time.

OPEC boosted its 2018 global demand view by 600,000 barrels to 95 million a day and introduced a demand forecast for 2019 of 96 million barrels a day. Growth will average 1 million barrels a day from 2013 to 2019, compared with the average of 900,000 for 2012 to 2018 published in last year’s report.

Oil prices slipped today as Libya prepared to restart its biggest oil field following an attack by gunmen. Libya should resume pumping “soon” at the Sharara field, Mansur Abdallah, director of oil movement at the Zawiya oil refinery and oil port, said in a telephone interview. The recent oil price collapse is a “concern for everyone,” Venezuela’s Foreign Minister Rafael Ramirez said as he met Saudi Arabia’s Oil Minister Ali Al-Naimi yesterday.

Upstream Investment

OPEC members may need to invest more than $40 billion a year on finding and developing new oil supplies for the rest of this decade, and $60 billion a year in the longer-term, it said.

The oil industry as a whole will have to spend $7.3 trillion on upstream projects in the period from 2014 to 2040. Most of this spent outside OPEC, at a rate in the medium term of $300 billion a year. Additional expenditure on transportation, storage and refining means that the global oil industry will need to invest $10 trillion to 2040, according to the report.

The report assumes that OPEC’s gauge of oil prices, a “basket” composed of grades from each member, will remain at $110 a barrel in nominal terms for the rest of the decade, rising to $124 a barrel in 2025 and $177 a barrel in 2040.

That basket was at $78.11 yesterday. It averaged $100.86 in the third quarter and $101.51 so far this year.

“We are concerned but not panicking,” OPEC’sEl-Badri said at a press conference to launch the report in Vienna today. “This situation of low price cannot continue because, because if it continues, most of the investment will be stopped” in higher-cost regions.

Repsol Profit Climbs 41% After Brazil Leads Gains in Output

Repsol SA (REP), Spain’s largest energy company, posted a 41 percent increase in third-quarter profit after production was boosted by projects from Brazil to Russia.

Adjusted net income rose to 415 million euros ($519 million) from 295 million euros a year earlier, the Madrid-based company said today in a statement. That beat the 408.8 million-euro average estimate of 16 analysts surveyed by Bloomberg.

Repsol’s output climbed 6.4 percent to 366,000 barrels of oil equivalent a day in the quarter, the biggest gain among the seven largest publicly listed European oil producers. Production gains in Brazil, the U.S., Bolivia, Peru and Russia offset a decline in Libya, the company said.

The company, which in the past five months announced oil discoveries in Russia, Brazil, Angola and the U.S. Gulf of Mexico, plans to buy producing assets to bolster earnings. Repsol has about $10 billion available for acquisitions after receiving compensation in May from Argentina for the 2012 expropriation of YPF SA.

Repsol shares rose 0.5 percent to 17.47 euros at 9:50 a.m. in Madrid trading.

Earnings before interest, taxes, depreciation and amortization were little changed at 1.05 billion euros, the company said. Repsol’s third-quarter refining margin rose to $3.9 per barrel from $2.6 a year earlier.

Russian Wells

Repsol had three successful wells in Russia in the quarter, with two failures in Liberia and another in Libya, the company said.

Chief Executive Officer Josu Imaz presided over his first full quarter in charge after shifting from the company’s downstream division to take over from Antonio Brufau in May. Profit at the downstream unit jumped 77 percent to 190 million euros in the quarter.

“Downstream earnings increased significantly, actually much stronger than expected,” Peter Oppitzhauser, head of oil research at Kepler Cheuvreux, said in a note to clients.

Average third-quarter Brent crude prices fell about 6 percent from a year earlier. The benchmark declined to the lowest in four years on Nov. 4.

Oil Price a Concern Says Venezuela as Al-Naimi Visits

The price of oil is a “concern for everyone,” Venezuela’s representative to OPEC said after a meeting with Saudi Arabia’s oil minister yesterday.

Rafael Ramirez, who is also Venezuela’s foreign minister, told reporters at a climate-change conference on Margarita Island that Saudi Arabia’s participation at the event was part of a meeting between friends. The Middle East nation is the biggest producer in the Organization Of Petroleum Exporting Countries, a 12-member group responsible for about 40 percent of the world’s oil supply.

Brent crude has collapsed to the lowest level in more than four years amid speculation that global supply is outpacing demand. OPEC’s leading producers are responding by cutting prices, resisting calls to reduce supply as they compete with the highest U.S. output in three decades.

Ramirez greeted Saudi Arabia’s Ali Al-Naimi as he arrived at the event before they began a private meeting, stopping briefly for a photo opportunity. The Saudi minister is due to attend a gas forum in Acapulco, Mexico, on Nov. 11-12.

“We spoke more than anything about climate change,” Ramirez told reporters, describing the meeting as “excellent.”

Brent for December settlement closed at $82.82 a barrel on the London-based ICE Futures Europe exchange on Nov. 4, the lowest level since October 2010. It traded at $83.07 at 1:02 p.m. Singapore time today. The benchmark grade for half the world’s oil is down more than 20 percent from its June peak, meeting a common definition of a bear market.

Shale Showdown

The U.S. is poised to leapfrog Saudi Arabia and Russia as the world’s largest oil producer amid a shale boom. Output increased to 8.972 million barrels a day through Oct. 31, the Energy Information Administration reported yesterday.

Al-Naimi’s trip is reminiscent of the 1990s, when Saudi Arabia’s competition with Venezuela and Mexico to supply the U.S. Gulf Coast drove down prices, according to Mike Wittner, the head of oil market research at Societe Generale SA in New York. To win the showdown against shale producers, the Saudis are trying to bring OPEC’s smaller members in line before the group’s Nov. 27 meeting in Vienna, said Seth Kleinman, the head of European energy research at Citigroup Inc. in London.

Alternatively, Al-Naimi may be seeking to collect pledges to cut production, Wittner said. OPEC pumped 30.974 million barrels a day last month, the most since August 2013, data compiled by Bloomberg show. That exceeded its collective target of 30 million, which was set in January 2012.

Saudi Prices

Saudi Arabian Oil Co., the state-owned producer, reduced its premium for next month’s sales of Arab Light crude to the Gulf Coast by 45 cents a barrel to the lowest this year, according to a company statement on Nov. 3. Shipments of its biggest crude stream will cost more compared with November for customers in Asia and Europe.

Venezuela’s call last month for an emergency OPEC meeting went unheeded. The country is preparing a proposal to halt the price declines, President Nicolas Maduro said Oct. 31 on state television. Ecuador, which supplies the least in OPEC, is collaborating on a way to increase prices at this month’s gathering, Finance Minister Fausto Herrera said Nov. 4 in Quito.

A strategy of defending prices by acting alone backfired for the Saudis in the past. In the 1980s, the kingdom cut output by almost two-thirds as new supply from areas such as the North Sea created a glut, leading to years of budget deficits.

Canadian Natural to Boost 2015 Output as Prices Decline

Canadian Natural Resources Ltd. (CNQ) plans to boost oil and natural gas production next year by 11 percent, surpassing analysts’ estimates, as it increases spending in the face of declining prices.

Canada’s largest producer of heavy oil has budgeted C$8.6 billion ($7.5 billion) for capital expenditures in 2015, a 4.6 percent increase from current spending, excluding acquisitions. Canadian Natural can “weather volatility in commodity prices,” the Calgary-based company said in a statement today.

Output is forecast to rise to the equivalent of about 892,500 barrels of oil a day, above the 859,135-barrel average of 10 analysts’ estimates compiled by Bloomberg. Canadian Natural estimates U.S. crude prices, which have fallen 27 percent since a June high on fears of slowing global demand and rising supplies, will average $81 a barrel. Canadian heavy oil will average 18 percent less than the U.S. benchmark, the company forecast.

“Even in a weak oil pricing environment, CNQ expects to generate material free cash flow in 2015 -- a number we expect to grow substantially over the next five years,” Justin Bouchard, an analyst at Desjardins Securities Inc. in Calgary, wrote in a note today, referring to the company’s ticker symbol.

The company today reported adjusted third-quarter earnings that exceeded estimates by 14 Canadian cents a share. Canadian Natural climbed 3.8 percent to C$39.70 at the close in Toronto.

‘Flexible’ Capital

“Our capital programs are flexible, allowing us to pro-actively respond to market conditions and enabling us to allocate capital to those projects which generate the highest returns,” Chief Financial Officer Corey Bieber said in a statement today.

Production has expanded since Canadian Natural bought assets from Devon Energy Corp. this year. It’s also rising from the Kirby oil-sands project and from the Primrose East project after Alberta regulators gave permission to resume steam injections following a bitumen leak last year in the area. Regulators also approved development at Primrose South and the company applied for permission to carry out additional work at Primrose East.

Quarterly production rose to the equivalent of 797,000 barrels a day from 702,938 for the same period a year earlier. The increase came even as it had a 25-day halt in output from the Horizon project to accommodate work to expand production.

Royalty Spin

Net income dropped to C$1.04 billion, or 94 cents a share, from C$1.17 billion, or C$1.07, a year earlier, as added oil-sands output couldn’t make up for a decline in prices. Canadian Natural has 24 buy and two sell recommendations from analysts.

Canadian Natural said it may delay a decision on what it intends to do with so-called royalty lands, which generate funds from payments by other companies drilling on the properties, until early next year.

Encana Corp., another Calgary-based energy producer, spun off its royalty lands for C$1.46 billion in May to form PrairieSky Royalty Ltd., in Canada’s largest IPO in 14 years. Encana later sold its entire stake in the company for C$2.6 billion.

Canadian Natural May Defer Grouse Project on Weak Prices

Canadian Natural Resources Ltd. (CNQ), the nation’s largest producer of heavy crude, said development of its Grouse oil-sands project is at risk of being deferred next year if prices continue to fall.

Canadian Natural may delay new projects in northern Alberta, like Grouse, and trim spending if U.S. oil prices approach $70 a barrel, President Steve Laut said today in a phone interview.

“If we had low pricing, we may decide some time in 2015, we could defer Grouse,” Laut said, adding the company’s C$8.6 billion ($7.5 billion) capital spending plan for next year is subject to change. “We have C$2 billion of capital flexibility and we’re very nimble so we can react very quickly.”

Canadian Natural, based in Calgary, plans to lift oil and gas output 11 percent next year to the equivalent of 892,500 barrels of crude a day with expansions in the face of falling oil prices, the company said today as it reported third-quarter earnings. Benchmark U.S. crude prices have dropped 27 percent since a June high and settled today at $77.91 a barrel on fears of slowing global demand and rising supplies.

The company’s Grouse project would produce about 50,000 barrels of bitumen a day using drilling and steam injection starting in 2018 or 2019, according to its website.

Horizon Expansions

Canadian Natural plans to continue expansion phases 2 and 3 at its Horizon oil-sands mine and upgrader to boost production of synthetic crude oil to 250,000 barrels a day in the coming years, Laut said. It’s unlikely the company would consider committing to a fourth expansion phase at the northern Alberta project during a sustained period of weak prices, he said.

The company today reported adjusted third-quarter earnings that exceeded estimates by 14 Canadian cents a share. Net income dropped to C$1.04 billion, or 94 cents a share, from C$1.17 billion, or C$1.07, a year earlier, as added oil-sands output was offset by price declines.

Canadian Natural climbed 3.9 percent to C$39.74 at the close in Toronto.

Crude prices likely at bottom of slide: Continental CEO

Houston (Platts)--6Nov2014/341 pm EST/2041 GMT

Crude oil prices are likely at the bottom of their recent slide, Continental Resources CEO Harold Hamm said Thursday on an earnings call, adding that prices will probably return to the mid-$80s to low $90s/b in the near term.

While he did not specify an expected time frame for recovery, Hamm said he believes the oil price drop will be "short lived" based on global supply and demand fundamentals which "[haven't] changed in the last three months."

"What we're dealing with is [an oil] renaissance that will be very long lasting in the US," Hamm said.

Hamm also said a temporary drop in prices may cause the US "overall [to] be well served ... even though we're probably not looking at it that way."

For example, a period of lower oil prices may improve efficiencies and lower well costs, and could also keep US producers at a measured pace of crude oil growth and prevent a longer-term oversupply, he said.

The sudden crude oil price drop in recent weeks prompted Continental to monetize its oil hedges for the rest of 2014 and also 2015 and 2016, capturing $433 million in proceeds from the action, the company said late Wednesday in releasing its third-quarter financial report. The company also said it would reduce estimated 2015 capex to $4.6 billion, down from an earlier projected $5.2 billion.

Benchmark crude futures are the lowest they have been in years. NYMEX December crude settled 77 cents lower Thursday at $77.91/b, continuing to hover at levels not seen since mid-2012. Likewise ICE December Brent settled 9 cents lower at $82.86/b, still around lows not seen since late 2010.

On Thursday, OPEC Secretary General Abdalla el-Badri said he believed oil prices would see a recovery by the second half of next year, although he was unable to say by how by much (See story, 1613 GMT).

50-RIG PROGRAM TO CONTINUE IN 2015; CAPEX BUDGET BASED ON $80/B

Continental expects to maintain its current 50-rig program in 2015 while prioritizing opportunities according to return rates and production, Hamm said.

For example, the Springer formation in Oklahoma, a new discovery, has spurred more company activity there. Continental President Jack Stark during the Thursday call said he had never seen a resource play that has shown such promising results so early in its development.

Continental CFO John Hart said the company's 2015 capital budget is based on $80/b crude oil and that he would not expect this to change for awhile.

"We want to see the recovery," Hart said during the call. "If we see a good recovery in six to nine months, we'll look at it [revising the budget], but for the near-term $4.6 billion is where we'll stay."

As for whether the company might re-hedge its oil production if prices recover, both Hart and Hamm suggested that this could happen if prior price levels are reached.

Hart said the company looks at both Brent and WTI to determine its hedges.

"We're looking for areas we think would be indicative of the pricing environment going forward," he said.

Plains: Condensate exports in compliance

6 Nov 2014, 6.32 pm GMT

Houston, 6 November (Argus) — US midstream company Plains All American Pipelines has found that its existing processing systems are ‘in compliance' with US laws for exporting processed condensate, but has not yet exported any light oil.

"To date we have not exported any product" under any self-determination of the rules, chief executive Greg Armstrong said. However, the company has found that "everything we're doing is in compliance" with an objective interpretation of existing laws.

The company's plans could change, however. Armstrong hinted that on the next earnings call he would speak more about the topic. He also touted the company's condensate processing and transportation assets, calling them the highest-volume system available. The company recently announced pipelines from west Texas and the Eagle Ford to Corpus Christi, Texas, where it will build a new dock capable of handling barges and ships.

"If the government will get out of our way we'll prove that crude oil is a worldwide commodity," Armstrong said, adding that the Commerce Department's decision to stop issuing private-letter rulings after granting Pioneer Natural Resources and Enterprise Products Partners clearance to export processed condensate "frustrating" and "politics."

UK-Australian resources company BHP Billiton has chosen to export condensate without receiving a ruling, saying it is in full compliance with laws and regulations.

Ecuador forecasts 5pc rise in 2015 crude exports

5 Nov 2014, 10.03 pm GMT

Quito, 5 November (Argus) — Ecuador's oil exports will grow by 5.2pc in 2015 to 422,740 b/d, up from 401,917 b/d in 2014, according to new finance ministry projections.

But the higher shipments will not necessarily augment revenue in light of falling oil prices. The oil price assumption underpinning the government´s 2015 budget is $79.70/bl, compared with $86.40/bl in this year's budget.

Ecuador has set a 558,000 b/d output target for 2015. This year crude production should hit 555,300 b/d compared to an initial forecast of 525,000 b/d, according to non-renewable natural resources ministry data.

The finance ministry forecasts that imports of refined oil products will grow by 2.5pc to 165,753 b/d in 2015, up from 161,643 b/d in 2014 and from 141,100 b/d in 2013. Ecuador plans to spend some $100/bl on fuel imports this year.

Fuel imports grew steadily in 2014 and are expected to continue to surge in 2015 because of a 13-month series of shutdowns at the 110,000 b/d Esmeraldas refinery for upgrading.

The turnaround began on 12 July and will end on 20 August 2015. The plant is currently shut down completely until 9 November.

The refinery will return to full operations by September 2015, when the country's total refining capacity will reach 175,000 b/d, including the 45,000 b/d La Libertad 20,000 b/d Amazonas (Shushufindi) plants, according to PetroEcuador refining manager Carlos Pareja.

The finance ministry late last week submitted a $36.3bn budget proposal to Ecuador's national assembly which should discuss and approve it within 30 days. The budget is based on 4.1pc GDP growth and a 3.9pc inflation target.

Because of lower oil prices, the 2015 spending plans of state-owned downstream company PetroEcuador and its upstream counterpart PetroAmazonas have been reduced without cutting their main investment plans, according to finance minister Fausto Herrera.

PetroEcuador is operating on $2.27bn budget for 2014, of which $1.1bn is earmarked for investment projects. Investment is up by 46pc from 2013.

PetroAmazonas has a 2014 budget of $4.8bn, up from the $3.6bn approved in 2013. The firm earmarked $3.3bn for exploration and upstream activities in 2014.

ANALYSIS: Obama may have to adjust Iran, Russia sanctions strategy with new Congress

Washington (Platts)--6Nov2014/628 pm EST/2328 GMT

For the past year, as it entered into historic nuclear negotiations with Iran and later confronted Russia over its incursions into Ukraine, the Obama administration has repeatedly asked the US Congress not to pass sanctions legislation that could potentially undermine its leverage in these high-stakes face-offs.

But with Republicans wresting control of the Senate from Democrats for the first time since 2006, the White House may no longer be able to hold back Congress from its hawkish aims, especially if western powers fail to reach a comprehensive nuclear agreement with Iran by the self-imposed November 24 deadline or the security situation in Ukraine deteriorates.

Though members of both parties have criticized the administration for providing Iran some sanctions relief and for not being tough enough with Russia, Senate Majority Leader Harry Reid, Democrat-Nevada, has been able to largely prevent sanctions-related bills from reaching the Senate floor.

The White House likely will lose such protection when Senator Mitch McConnell, a Kentucky Republican, takes the majority leader post in 2015.

Experts say that could prompt the Obama administration to reach a sanctions deal with Republican leaders, including Senator Bob Corker, who is slated to assume the chairmanship of the Foreign Relations Committee.

"While I'm sure the administration would prefer to retain complete control over the sanctions process, there may be some room for negotiation that would see [a new Russian sanctions] bill passed," said Sam Cutler, an associate at Washington-based sanctions litigation firm Ferrari & Associates.

As for Iran, the Obama administration could face "a very large risk of congressional action" if it calls for a lengthy extension of the November 24 deadline in order to be able to continue negotiating, he said.

So far, administration officials say they are focused on their jobs at hand and not worrying about the political implications of Tuesday's midterm elections.

Secretary of State John Kerry, in a briefing Wednesday with reporters in France, denied that negotiations with Iran would be complicated by new Republican leadership in Congress.

"I believe that the same substantive issues would be there regardless of who is in control of the United States Senate," he said.

DEPENDS ON THE DEAL

Corker's office declined to comment on what the senator's priorities will be as the new chairman of the Senate Foreign Relations Committee.

The Tennessee lawmaker earlier this year introduced a bill that would require congressional review of any final nuclear agreement with Iran and prohibit any extensions of the November 24 deadline.

He has repeatedly criticized the preliminary agreement the US and other western powers reached with Iran in 2013, in which the US dropped its pressure on buyers of Iranian crude to reduce their purchases, in exchange for a partial freeze of Tehran's nuclear program.

Analysts with Washington-based ClearView Energy said if the November 24 deadline arrives without a deal, a Republican-led Senate in 2015 "could potentially move Iran sanctions legislation with a veto-proof, bipartisan majority."

In the event a deal is reached, a Republican-led Senate could be a stumbling block to the Obama administration's efforts to lift sanctions, if Republican leaders are dissatisfied with the terms.

But others see sanctions against Iran as unlikely to be seriously affected by the change in who controls the Senate.

Jeffrey Zucker, a Washington-based international trade attorney at Dechert LLP, said the administration likely has enough administrative powers to suspend sanctions on its own, if the Iran negotiations succeed.

And even if the Iran negotiations are extended into the new year, Congress is unlikely to use a sanctions package as a mean to thwart the Obama administration, he said.

"I think it is relatively unlikely that they will do so, with an issue as important to national security as this," he said.

David Goldwyn, the US Department of State's former coordinator for international energy affairs, said how Congress acts on Iran "depends on the deal."

"If there's a decent negotiation then I don't think there will be a lot of opposition to Obama providing some incentives to finish the deal. And if there's a perception that he's given away too much, then there's going to be significant bipartisan blowback," he said.

SANCTIONS 'THE NEW REALITY'

Meanwhile, Corker has introduced a Russian sanctions bill, co-sponsored by the current Senate Foreign Relations Committee chairman, New Jersey Democrat Bob Menendez, that would go further than sanctions already imposed by the Obama administration prohibiting the use of US technology and expertise on Russian Arctic, shale and deepwater oil projects.

The bill would penalize all companies that finance Russian unconventional crude oil projects and impose sanctions on Russian gas giant Gazprom if it withholds "significant natural gas supplies from member countries of NATO or further withholds such supplies from countries such as Ukraine, Georgia or Moldova."

The bill passed the committee unanimously but has not come to the full Senate for a vote.

Several experts said they expect that bill or some new Russian sanctions legislation to be brought up by the new Senate leadership to demonstrate ownership of the issue, though those efforts may not capture enough votes to overcome a filibuster or Obama veto.

Kyle Davis, a Moscow-based energy attorney at Goltsblat BLP, said that in contrast to the EU, which is reliant on Russia for significant energy supplies, the US is less exposed to events in Ukraine.

"Therefore for American politicians the question of when to lift sanctions is more of a domestic political calculation subject to the election cycle," he said.

But he also noted that Republicans' traditional ties to the oil and gas industry may give them pause in imposing further sanctions on Russia's energy sector. ExxonMobil, BP and Shell are among the majors that have joint ventures with Russian companies to explore and drill there.

"If the situation stabilizes in the meantime, it may not be a button that the Republicans will want to push," Davis said.

Company officials and analysts alike have become more pessimistic, with most now anticipating that sanctions will continue into 2015 at the least.

"Actions taken recently by Russian oil companies have been taken with the view that sanctions are the new reality," Grigory Birg, an analyst at Moscow-based Investcafe, said Wednesday. "Lukoil has reduced its investment program for next year, it seems pretty clear that Rosneft and Novatek will receive some government support and companies are looking into establishing oil services divisions."

OPEC 'concerned but not panicking' about oil price drop: Badr

London (Platts)--6Nov2014/1002 am EST/1502 GMT

OPEC Secretary General Abdalla el-Badri said Thursday he believed oil prices would see a recovery by the second half of next year but that it was unclear by how much.

Badri told a webcast press conference that OPEC was concerned by the 28% drop in prices in recent months but not panicking, and that fundamentals of oil supply and demand did not justify the plunge.

He warned that a continuation of prices at the lower levels -- Brent crude traded as low as $81.63/barrel on Wednesday after a relentless slide from levels as high as $115/b in mid-June -- would see upstream investment reduced and supply constrained, resulting in a future price spike.

"We are concerned but we are not panicking," Badri said.

"I think the price will rebound by the second half of next year, but I don't know by how much," he said.

"If this will continue, most of the investment will be stopped," he said, referring to the price fall.

He noted that OPEC had undertaken 117 upstream projects worth around $270 billion and downstream projects valued at $70 billion.

"If we stop this, I am sure the supply will decline very soon and the price will shoot up. We are trying to avoid this," he said. "If we don't have investment, we won't have additional supply. It's for the sake of producers and consumers alike that we should invest."

"The fundamentals do not deserve this 28% decline," he said.

Badri declined to predict the outcome of OPEC's upcoming November 27 talks in Vienna or to say what price level might trigger an output cut.

China imports gasoil on good margins despite stagnant demand: trade

Singapore (Platts)--6Nov2014/918 am EST/1418 GMT

*CNOOC, Sinochem seen importing low-sulfur gasoil

*Domestic demand remains weak

*Possible allocation of new export quotas

A combination of low inventories and refinery maintenance could be spurring some Chinese state-owned companies to seek gasoil imports for the fourth quarter, sources said this week.

Though market sources said that state-owned trader Sinochem had bought 35,000 mt of gasoil for delivery over October-November. No official confirmation could be got from Sinochem.

Other Singapore-based sources said, however, that Sinochem and China National Offshore Oil Corp. had both bought several medium-range tankers of 10 ppm sulfur gasoil that loaded in Japan last month.

Chinese traders attributed the imports to better margins, rather than an uptick in domestic gasoil demand.

"Demand is actually still very weak and we haven't seen any improvement," a source with Chinaoil, the trading arm of China National Petroleum Corp., said earlier this week.

FAVORABLE IMPORT MARGINS

"The imports are probably because economics are good now," the Chinaoil source added.

The domestic retail price of National Phase 3, or 350 ppm, gasoil, is around Yuan 7,000/mt ($1,145/mt) or $153.70/barrel, which is at least Yuan 500/mt higher than the cost of imported gasoil.

The average price of 10 ppm sulfur gasoil loading from Singapore in October was $101.54/barrel, according to Platts data. Prices of internationally traded gasoil have fallen faster than Chinese domestic prices, leading to a significant price disparity, making imports attractive. The FOB Singapore 500 ppm sulfur gasoil was assessed at $95.87/b on Wednesday, 9.5% lower from October 3 when the benchmark was assessed at $105.95/b.

Apart from the sharp plunge in global crude oil prices, the Asian gasoil market has also been reeling from an oversupply due to a closed arbitrage to Europe, weaker demand amid a slowing economy as well as new refineries and upgrades coming on stream in Asia and the Middle East.

Vessels have been used as floating storage by several gasoil traders as landed storage filled up fast. The FOB Singapore 500 ppm sulfur gasoil crack against front-month cash Dubai crude averaged $14.42/b in Q3, compared with $17.39/b in Q3, 2013.

CNOOC likely bought some gasoil last month as the price of imported cargoes was much lower than the domestic price, a company source said.

The imports came in the wake of the shutting of its 12 million mt/year Huizhou refinery in southern Guangdong province since mid-October for scheduled maintenance, the source added.

DECLINING GASOIL STOCKS

Sources at refineries owned by PetroChina -- CNPC's listed arm -- said the company's gasoil stocks have been relatively low in recent months. This prompted it to raise the price of gasoil sold to its retail marketing outlets by Yuan 370/mt in early October from a month earlier to Yuan 7,445/mt -- the first increase in PetroChina's wholesale gasoil prices this year.

China's commercial gasoil stocks have been steadily declining since early this year, according to China Petroleum Stockpile Statistics.

Gasoil inventories fell to a 10-month low of 7.17 million mt at the end of September, according to Platts' estimates based off the CPSS data. In comparison, gasoil stocks had hit a high of 11.14 million mt at the end of February.

SINOPEC, CNPC REMAIN ON SIDELINES

To build stocks, PetroChina's refineries likely adjusted their yields to boost gasoil output in October, according to a source from the company's Guangxi Petrochemical refinery.

In the past, Chinese refiners typically built up stockpiles of oil products in the fourth quarter to prepare for the Lunar New Year holiday in January or February.

The Chinaoil source, however, said the company was not interested in importing any gasoil currently as PetroChina has ample domestic supply.

Unipec, the trading arm of the China Petroleum and Chemical Corp. or Sinopec, has not imported any gasoil in recent months either, a source familiar with the matter said.

China has been a net exporter of gasoil since the latter half of 2012 because domestic demand has been weak.

Gasoil inflows were just 10,000 mt in September, following zero imports in July and August. So far this year, China's total gasoil imports have slumped 15.4% year on year to 220,000 mt in the first nine months of the year.

AWAITING NEW EXPORT QUOTAS

Meanwhile, some refinery and market sources said the government had approved a new batch of oil product export quotas, although none had seen the actual volumes, which are allocated by the Ministry of Commerce.

"We have been given the go-ahead for exports in the fourth quarter," the source at Guangxi said.

The last round of quotas -- the third this year -- given out to the three major state-owned companies around the end of August totaled just over 5 million mt, with gasoil comprising 820,000 mt -- 450,000 mt to Sinopec, 330,000 mt to CNPC and 40,000 mt to CNOOC.

Sinopec is still utilizing the existing quotas for its gasoil exports, one of the sources said.

The Chinaoil source noted that export margins remained weak, so new quotas, or the lack thereof, was not an issue of concern at the moment. "We don't expect to sell much more gasoil. It's not a matter of quotas but whether it makes sense," he added.

China's gasoil exports in the third quarter more than doubled year on year to 980,000 mt, while over January-September they totaled 3.27 million mt, up 62.7% from a year earlier.

Argentina's YPF to sustain run rates as shale output rises

Buenos Aires (Platts)--6Nov2014/225 pm EST/1925 GMT

Argentina's state-run energy company YPF expects to sustain high run rates at its refineries as its growing shale drilling ramps up output of light crude, Chief Financial Officer Daniel Gonzalez said Thursday.

YPF boosted its refinery utilization rate to a five-year high of 94% in the third quarter of 2014 from 91% in the year-earlier period, running 299,000 b/d of crude through its refineries for a 2.4% increase from 292,000 b/d in the year-earlier period, YPF said in an earnings release Wednesday.

This has returned run rates to levels seen before an April 2013 storm damaged its biggest refinery, an 189,000 b/d facility in La Plata on the outskirts of Buenos Aires.

"We do believe that we can sustain these levels," Gonzalez said in a conference call with investors. "There is enough availability of light crude oil in Argentina, and we will continue to grow our shale oil production, which is light crude."

YPF is betting on shale development as well as squeezing more conventional oil out of maturing fields to rebuild oil production after declines of 6% a year for a decade through 2012.

The company plans to step up oil production 5% this year compared with 2013, and so far appears to be on track. In the first nine months of this year, overall oil production increased 5.6% to 242,800 b/d from 229,900 b/d in the year-earlier period.

In the third quarter alone, YPF's shale oil production shot up 20% to 9,500 b/d in the third quarter from 7,900 b/d in the year-earlier period, Gonzalez said.

That helped offset a 1.7% decline in conventional oil production to 223,300 b/d from 227,200 b/d over the same period.

However, Gonzalez said that total shale oil production was really about twice the latest quarter's 9,500 b/d. That is because the numbers account for only its 50% share of production; the rest was reported by Chevron, its partner in the shale project at Loma Campana in the southwest of the country, whereas in the year-earlier period YPF accounted for 100% of production.

"Shale oil gross production really grew around 140% in one year and 39% against the second quarter of 2014," he said.

YPF is producing the shale oil from the Vaca Muerta play, which is thought to have huge potential. Another partnership is due to start with Malaysia's Petronas, raising the possibility of another boost to production.

With the higher run rates, Gonzalez said YPF cut fuel imports 36% year on year in the third quarter and is no longer importing gasoline.

However, he said YPF expects to continue importing diesel until a new coker unit is installed at La Plata by the end of 2015. It is scheduled to start operating in 2016.

YPF also increased its market share of gasoline sales to 58% and diesel to 59% in the third quarter, up from a previous average of 50-55%.

"The market share is at a sustainable level," he said.

This came even as the company boosted prices to 5% less than its competitors like Shell and Petrobras from a 15% pricing gap in 2012, helping to boost revenue.

Gonzalez warned, however, that sales volumes are showing signs of flattening out as the economy contracts. Most economists say Argentina's economy will shrink 2.5% or more this year and in 2015, reducing demand after strong growth between 2003 and 2011 and then slower expansion in 2012 and 2013.

"We believe we can preserve our fuel prices in dollar terms over the medium and long term," Gonzalez said.

Low oil prices could kill LNG projects, cause gas shortage by 2023: Woodside

Tokyo (Platts)--6Nov2014/219 am EST/719 GMT

Asian gas buyers face possible supply shortages as early as 2023 if final investment decisions for 50 million mt/year in new LNG projects are not made soon, given low crude prices and industry weakness, Woodside Energy CEO Peter Coleman said Thursday, November 6.

"I actually see we're starting to build the conditions for a possible supply crunch," he told the LNG Producer-Consumer Conference in Tokyo.

"The prolonged oil price slump will impact returns on existing LNG projects as well as threaten future projects," he added. "In this environment, LNG projects selling at 75-80% oil equivalent simply face the ax."

Coleman said on the sidelines of the conference that projects not in advanced stages of front-end engineering and design today will not be able to supply by 2020 or 2021. "It's very basic math," he said.

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Coleman told the conference that oil and gas companies' returns on average capital employed are currently lower than in 2001, and boards of directors are less willing to wait on returns from slow-to-develop LNG projects.

"This is clearly not sustainable and unfortunately the situation is likely to get worse," he said. "We face rising costs -- upstream costs have quadrupled over the last 14 years, and we're entering now a period of oil price uncertainty."

He said the renewed focus on returns on capital mean companies with projects under construction might have to "wait a period of time to allow themselves to work off the large capital commitments or start to get revenue flowing before they embark on the next projects."

"You're already seeing that in Australia ... you're seeing the same signals coming out of western Canada, and similar issues in developing nations," he said.

Coleman said FIDs for an additional 250 million mt/year in LNG capacity are needed to meet expected 2030 demand.

"The requirement for new LNG project investment increases very quickly," he said. "Delays or deferment will simply lead to a supply crunch."

Coleman said the solution is for buyers and suppliers to work together to support new reliable supplies. But he cautioned that suppliers need a clear price signal now to make those FIDs.

"By holding out for a cheaper price, customers are potentially exacerbating the project FID delays and may unwittingly bring a supply crunch," he said. "Only long-term contracts with robust pricing that will underpin investment decisions will ensure that our projects will go ahead and meet supply needs."

About 1,000 people from more than 50 countries are attending the conference, the third in a series of forums between the world's top LNG producers and consumers.