Monday, May 22, 2017

CEOs follow Trump to Saudi Arabia to discuss kingdom's oil transition plan

Trump and King Salman had a welcome ceremony inside the Royal Terminal of King Khalid International Airport after Air Force One landed

Some of the country's leading CEOs will be heading to Saudi Arabia to hold a first-of-a-kind summit with the Saudi energy minister and other top Saudi officials about the kingdom's plans to diversify its economy away from oil.

The summit will be held alongside President Trump's state visit this weekend, bringing together more than 50 U.S. companies, 40 Saudi companies and nine global companies, the official Saudi news service announced Friday.
The First Saudi-U.S. CEO Forum, called "Generations' Partnership," will be held Saturday as Trump arrives in the desert kingdom. The goal is to develop "active partnerships" and enhance cooperation and investment opportunities between the two countries, the announcement said.

The forum also will highlight Kingdom Vision 2030, King Salman's landmark undertaking to transition his country from its most abundant natural resource — crude oil — to other industries by 2030. Those other industries will include everything from heavy manufacturing to electronics, renewable energy and defense. The plan was a necessary wake-up call for the kingdom after a two-year oil supply glut wreaked havoc on the Saudi economy, which depends on crude for its budget. Revenues were more than cut in half as crude oil prices fell from more than $100 per barrel to about $30 per barrel.

The U.S. Energy Information Administration reported Friday that OPEC members earned roughly $433 billion in net oil export revenues in 2016, the lowest level in more than a decade. The energy data agency projects that OPEC revenues are expected to rebound this year. Saudi Arabia has led an agreement between OPEC and non-OPEC nations to reduce production to allow the price to rise and balance out supply and demand.

The drop in the oil price was blamed partly from U.S. oil coming into the world market through the advent of fracking, which made North America a fossil fuel giant in a few short years. It forced the Saudis to sell off assets to meet the budget shortfall. Next year it plans to begin selling shares of its national oil company, Saudi Aramco, with an initial public offering, which is a key part of the Saudi diversification plan.

The CEO forum will include Jeff Immelt, CEO of General Electric. The manufacturing giant pledged to make a $3 billion investment in the kingdom last year as part of the country's plan to diversify its economy away from oil.

Other CEOs will inlcude Andrew Liveris, chairman and CEO of Dow Chemical, which has eyed the kingdom's oil and natural gas resources as a prime opportunity to build out its chemical business there. Access to cheap and reliable natural gas and petroleum is a key consideration for any chemical operation to set up shop in a country. Dow is set to build a $20 billion chemical chemical complex in the kingdom.

Saudi Aramco is also expected to announce as much as $40 billion in new investments it will make in the United States during Trump's visit. Recently, Aramco become the sole owner of the largest U.S. refinery at the former Motiva complex in Port Arthur, Texas.

The list of Saudi cabinet heads at the meeting will include Khalid Al-Falih, minister of energy, industry and mineral resources; Majid Al-Kassabi, minister of commerce and investment and engineering; Mohammed Al-Jadaan, finance minister; Ali Al-Ghafis, minister of labor and social development; and a number of other Saudi senior officials, the official news service noted.

President Trump is not expected to attend the CEO forum. He will attend a number of other summits being held during his official state visit, including the Saudi-U.S. Summit and the Gulf Cooperation Council-U.S. Summit, and he is scheduled to deliver remarks at the Arab Islamic American Summit.

Friday, May 19, 2017

The Philippine president says China's Xi threatened war if Philippines drilled for oil in South China Sea

Philippine President Rodrigo Duterte said on Friday Chinese counterpart China Xi Jinping had warned him there would be war if Manila tried to enforce an arbitration ruling and drill for oil in a disputed part of the South China Sea.

In remarks that could infuriate China, Duterte hit back at domestic critics who said he has gone soft on Beijing by refusing to push it to comply with an award last year by the Permanent Court of Arbitration in The Hague, which ruled largely in favor of the Philippines.

Duterte said he discussed it with Xi when the two met in Beijing on Monday, and got a firm, but friendly warning.

"We intend to drill oil there, if it's yours, well, that's your view, but my view is, I can drill the oil, if there is some inside the bowels of the earth because it is ours," Duterte said in a speech, recalling his conversation with Xi.

"His response to me, 'we're friends, we don't want to quarrel with you, we want to maintain the presence of warm relationship, but if you force the issue, we'll go to war.'"

Duterte has long expressed his admiration for Xi and said he would raise the arbitration ruling with him eventually, but needed first to strengthen relations between the two countries, which the Philippines is hoping will yield billions of dollars in Chinese loans and infrastructure investments.

Rodrigo Duterte Xi Jinping Philippine President Rodrigo Duterte and Chinese President Xi Jinping after a signing ceremony in Beijing, China, October 20, 2016. Reuters/Ng Han Guan/Pool
The Hague award clarifies Philippine sovereign rights in its 200-mile Exclusive Economic Zone to access offshore oil and gas fields, including the Reed Bank, 85 nautical miles off its coast.

It also invalidated China's nine-dash line claim on its maps denoting sovereignty over most of the South China Sea.
Duterte has a reputation for his candid, at times incendiary, remarks and his office typically backpeddles on his behalf and blames the media for distorting his most controversial comments.

Duterte recalled the same story about his discussion with Xi on oil exploration in a recorded television show aired moments after the speech.

He said Xi told him "do not touch it."

philippines south china sea A Philippine flag flutters from BRP Sierra Madre, a dilapidated Philippine Navy ship that has been aground since 1999 and became a Philippine military detachment on the disputed Second Thomas Shoal, part of the Spratly Islands, in the South China Sea, March 29, 2014. Reuters/Erik de Castro
He said Xi had promised that the arbitration ruling would be discussed in future, but not now.

Duterte said China did not want to bring up the arbitral ruling at a time when other claimant countries, like Vietnam, might also decide to file cases against it at the arbitration tribunal.

It was not the first time the firebrand leader has publicly discussed the content of private meetings with other world leaders.

His remarks came the same day that China and the Philippines held their first session in a two-way consultation process on the South China Sea.
They exchanged views on "the importance of appropriately handling concerns, incidents and disputes involving the South China Sea," the Chinese Foreign Ministry said in a statement that gave few details.

(By Manuel Mogato; additional reporting by Ben Blanchard in Beijing; editing by Martin Petty)

WSS adopts drone technology

  WSS logo_sRGB

Wilhelmsen Ships Service (WSS) will soon be delivering agency services via drones. 
WSS claimed that its ships agency team, rather than the company’s supply chain, or product divisions, have been assessing the business opportunities offered by drones.
Marius Johansen, vice president business solutions & marketing, WSS Ships Agency, explained, “Whether it is deliveries of critical documents or vital medical supplies, tank inspections, or monitoring cargo and stockpile levels, we believe semi-autonomous drone flights can support and further enhance what our ships agency team can offer our customers.
“Relied upon by owners, operators, vessels and crew to get spare parts, medicine, documents, or cash to master where it needs to be at moment’s notice, drone delivery is a natural extension of our existing agency service portfolio, he said.
Dispensing with the need for launch boats to deliver these services to vessels at anchorage, along with cutting delivery times, Johansen estimated that drone flights would also slash costs. With launches typically costing on average $1,500, he suggested a drone delivery would eventually come down to just $150.
Launching a large scale working pilot project in one of the world’s busiest ports in 2017 and in spite of the complexity of global aviation rules and restrictions placed on unmanned aerial vehicles, for WSS drone delivery is very much here to stay.
Discussing the project for the duration of Nor-Shipping, the WSS agency team will be on the Wilhelmsen stand, A1-7 in the Disruptive Sustainability hall.

Thursday, May 18, 2017

Tankers: WAF VLCC freight rates soft due to weak China buying, slow Persian Gulf market


The cost of taking crude oil from West Africa to China on VLCCs has hit a near two-month low, due to slack demand from China and a weak Persian Gulf market, sources said.

The VLCC route from West Africa to China, basis 260,000 mt, was assessed at $11.95/mt on Tuesday, the lowest level since March 31, when it was valued at $11.85/mt, according to S&P Global Platts data.

NPI was heard to have taken the VLCC vessel Kondor on subjects at w55.5 for a voyage from West Africa to China with June 14-16 loading dates, which equates to $11.95/mt.

The leading VLCC market in the Persian Gulf is weak and this is depressing the Atlantic market as well, sources said.

Shipbroking sources estimate the tonnage over-hang at approximately 38 VLCC ships in the Persian Gulf, which is close to the highest level in three years.

"We are looking to the Atlantic for some hope, but the Caribs can't take everything, and there is not much to take Arabian Gulf ships away and reposition them in the Atlantic," said one shipbroker.

Chinese demand for Angolan crude has been slightly lower for May and June cargoes, with the country's teapot refineries reducing their purchases from earlier in the year.

"We have had high global refinery maintenance and don't have peak runs. The teapots haven't come back into the market and a lot of them have already used up their import quotas," said one trader.

The lower Chinese demand has placed downward pressure on Angolan differentials and made these barrels more attractive to European refiners. As the voyage time from Angola to Europe is considerably shorter than from Angola to China, VLCC ton mile demand has been reduced by the lower Chinese demand for Angolan crude.

--John Morley,

--Peter Farrell,

--Edited by James Leech,

Wednesday, May 17, 2017

Salt domes and the U.S. Strategic Petroleum Reserve

Sandia National Laboratories researcher Anna Lord displays a model of the Big Hill cavern field in Texas, part of the nation’s Strategic Petroleum Reserve. Sandia is the geotechnical adviser for the reserve.
Credit: Sandia National Laboratories/Randy Montoya

Decades of Sandia National Laboratories expertise on how salt domes behave went into a recent report that concluded that the U.S. Department of Energy is justified in extending the life of the Strategic Petroleum Reserve.

The report, "Long-Term Strategic Review of the U.S. Strategic Petroleum Reserve," analyzed the reserve's capability to be tapped, or drawn down, and how that figures into future storage decisions. Sandia estimated the number of potential drawdowns per cavern, using computer models that consider such factors as cavern shape, relationship to surrounding caverns and salt movement, or creep, and how such parameters ultimately affect a cavern's stability.

Calculating the number of drawdowns left was particularly important, said geologist Anna Lord, Sandia's project manager for the reserve. The number of times each cavern can still be tapped into affects overall design storage capacity decisions, including whether new caverns would be needed, she said.

The Strategic Petroleum Reserve was established after the 1973 oil embargo to protect the United States from severe oil supply interruptions and to meet its obligations under the International Energy Program.

DOE brought in Sandia five years later. The labs became geotechnical adviser in 1980, responsible for characterizing the site, including cavern and well development, geomechanical analysis, the integrity of caverns and wells, subsidence and monitoring.

Oil tapped at president's order

The reserve operates four major storage facilities in the underground salt domes of the Gulf Coast, two in Louisiana and two in Texas. The stockpile of government-owned crude oil can be tapped at the president's order when an emergency disrupts commercial oil supplies.

"When the president calls up and says, 'We need to release X amount of oil,' they need to be ready to do that at a certain rate and a certain amount a day," Lord said. "All the work we do goes toward making sure they're able to do that."

Sandia's work falls into two areas: geotechnical, which involves updating geologic understanding of the salt domes, modeling the caverns' geomechanical behavior and assuring the integrity of caverns and wells drilled into them; and engineering, which includes understanding fluid behavior, analyzing the leaching process that occurs during oil removal and assuring the reserve meets environmental, safety and oil quality requirements.
Studying well integrity is one of Sandia's most important responsibilities, Lord said. Think of wells as a series of casings inside each other like concentric circles, with each smaller well deeper than the larger one above. The column of casing, called a string, acts as a protective barrier -- if one concentric circle goes, others remain.

Well failure could cause oil to leak into the environment. In addition, a well that loses integrity can't be used to pull oil out.

Sandia's team analyzes well integrity through hydrostatic column computer modeling. Reserve operators send nitrogen gas down the wells to test whether they're losing pressure, and the Sandia models provide rates and locations of any nitrogen leaks. A nitrogen leak does not necessarily mean the well will leak oil, so the model differentiates between pressure changes caused by nitrogen flow versus oil flow. Pressure tests can indicate "when do we worry, when do we need to do remediation?" Lord said.
Geology becomes deciding factor

"No one's ever looked at this before, so we started a program to really try to understand what's going on behind the well. We've come up with a model that can tell us what the leak rates are and where those leaks may be," she said. "We're getting into the new area of what's going on behind the scenes.

"There are well integrity issues everywhere, not just at the reserve. This happens anywhere with aging infrastructure. Geology takes over; engineering doesn't matter."

Oil is removed by injecting fresh water into the brine stored at the bottom of the caverns, pushing out oil floating above the brine. But fresh water dissolves salt, changing the caverns' shape.

"So we do studies to see where the water will change it, how much it will change it, does that new shape affect stability?" Lord said.

Each cavern was meant to be emptied five times. But emptying a cavern makes it larger because the fresh water dissolves some of the salt. Sandia's geomechanical modeling shows, for example, "oh, you really only have three drawdowns in this cavern, you have a full five in this one, but you have none in this one, and if you take all the oil out of this one you cannot use that cavern again," Lord said.

Making sure caverns are optimal shape

When the reserve started, the government wanted to store oil as quickly as possible, and bought caverns the petrochemical industry had used. The reserve still uses some of those, but most oil today is stored in caverns the Energy Department created with Sandia's feedback.

"Different domes behave differently," Lord explained. "Maybe they have higher creep rates than other domes. It depends on how homogeneous it is. Is it pure salt or is it salt with shale or other impurities mixed in, such as anhydrite?"

The reserve's managers can't create a cavern simply by pumping in fresh water -- the configuration of injection wells helps create the desired shape. Sandia researchers determine salt properties in an area by analyzing impurities and doing stress and strain testing, and model different leaching well configurations. From the model, they can determine how the leaching will affect the cavern's shape. They know from past studies what a cavern should look like for continued integrity.

Sandia also makes recommendations for cavern operations based on their size and shape. Salt creeping to close voids causes stresses and strains on caverns and wells. Sandia's geomechanical modeling predicts where those might occur and whether they'll create a problem.

The team stepped up well and cavern integrity modeling in the past couple of years, collecting and analyzing existing data to see what's going on and how one cavern's operation affects a neighboring cavern. "We're trying to bring all the pictures together into one holistic story," Lord said.

Monday, May 15, 2017

Will Cushing Crude Oil Inventories Fall for 5th Consecutive Week?

Cushing crude oil inventories  

Market surveys estimate that Cushing crude oil inventories fell between May 5 and May 12, 2017. A fall in crude oil inventories at Cushing could support US crude oil (USO) (UCO) (RYE) prices. Higher crude oil prices could have a positive impact on the earnings of crude oil producers like Apache (APA), Warren Resources (WRES), and QEP Resources (QEP).

Will Cushing Crude Oil Inventories Fall for 5th Consecutive Week?

EIA’s crude oil inventory report  

On May 17, 2017, at 10:30 AM EST, the EIA (U.S. Energy Information Administration) will release its crude oil inventory report for the week ending May 12, 2017.
For the week ending May 5, 2017, the EIA reported that Cushing crude oil inventories fell by 0.4 MMbbls (million barrels) to 66.2 MMbbls in the previous week. Inventories are down 0.6% week-over-week and 2.2% year-over-year. Cushing crude oil inventories fell for the fourth consecutive week.

Cushing’s storage capacity 

Cushing, Oklahoma, is the delivery point for crude oil futures contracts trading on NYMEX. It’s also the largest crude oil storage hub in the US. Cushing’s crude oil storage capacity is 73 MMbbls.


As you can see in the above graph, crude oil (FENY) (DIG) (ERY) prices and inventories have an inverse relationship. Cushing crude oil inventories hit the highest level of 69.4 MMbbls in the week ending April 7, 2017. Inventories are down 5% from their peak. The fall in Cushing crude oil inventories could support crude oil prices.

Friday, May 12, 2017

Markets - VLCC rates stand up - more newbuildings announced


Recent VLCC activity has been relatively healthy. 
Rates both ex MEG and West Africa have held up stronger than most had thought, Fearnleys said in its weekly report.

The May programme in MEG is nearly finished and we are in the ‘interim-month-days’, while the West Africa/East June programme is well under way.

Rates appear steady for most major routes, but may have peaked around present levels.

As predicted, Suezmaxes experienced a sharp correction downwards last week, as activity became sparse in West Africa in the third decade of May, charterers were in complete control and were able to negotiate rates down by over 10 points settling at WS72.5.

The Mediterranean and Black Sea experienced similar lethargy and the signs are that we are entering into a period of sustained pressure for owners. Cargoes are increasingly being shown with a wide range of discharge options, as traders appear  to be struggling to sell barrels, Fearnleys said.

Owners are reluctant to let the market slip any further but unless volumes increase substantially, a further erosion of rates seems likely in the week ahead.

Aframax rates in the North Sea and Baltic appear to have stabilised and charterers are working far forward, as the downside is minimal. At these levels, some owners are refusing to give short options, due to low returns. This could apply a bit of pressure for end month fixing.

This week in the Mediterranean and Black Sea, we have seen the market cool off yet again, after last week’s firming rates. We expect the market to soften a bit more before stabilising at low WS100s level, Fearnleys concluded.

The only fixture of interest reported by brokers was that of the 2007-built Aframax  ‘BM Bonanza’ taken by Unipec for six option six months for around $15,000 per day.

In the S&P market, Gener8 Maritime has confirmed the disposal of two 2016-built VLCCs. The ‘Gener8 Noble’ and ‘Gener8 Theseus’ have been sold in an en bloc deal for $81 mill each to AET.'

In addition, the Suezmax ‘Gener8 Orion’ was sold to Indian interests for $13.3 mill.

Arcadia was said to have sold the newbuilding Suezmaxes ‘Aegean Miracle’ and ‘Aegean Fighter’ to Olympic Ship Management for $55 mill. They are to be delivered next month.'

Scorpio Tankers has also confirmed the sale of two 2013-built MRs ‘STI Sapphire’ and ‘STI Emerald’ for bout $56.4 mill in total.

The sales are expected to close in June, 2017 at which time STI will repay the outstanding secured total debt for these vessels of $27.6 mill. The company will record a write-down of around $9.3 mill during 2Q17 in connection with the sale.

They have been sold to Chilean interests on the back of a charter to ENAP, brokers reported.

Elsewhere, the 2009-built MR ‘Kirsten’ was reported sold on subs to Union Maritime for $19.3 mill.

Leaving the fleet were the 1998-built Aframax ‘Oriental Green’ reported sold to either Indian or Bangladeshi breakers at the buyers option for $385 per ldt. Bangladesh buyers were also thought to have taken the 1995-built Handysize ‘Vries Vienna’ for $371 per ldt.

In the newbuilding sector, Euronav has announced an order for two Ice Class 1C Suezmaxes at HHI.
They were placed on the back of seven year charters to Valero, starting in late 2018.

“Euronav believes it has secured an excellent price for two high specification vessels in line with its policy of not adding speculative new capacity to the global tanker fleet. Euronav anticipates the new vessels on order will replace its older Suezmax vessels, hence this order will not add net tonnage to the global Suezmax tanker fleet,” the company said.