Tuesday, January 22, 2019

Permian Shale Oil Boom Holds Mixed News for OPEC

Permian Shale Oil Boom Holds Mixed News for OPEC


The year has barely begun but it’s already shaping up nicely for OPEC, with crude rebounding sharply after the worst fourth-quarter performance since 2014.

A new production cuts deal with Russia and thawing U.S.-China trade relations have given the market a boost. But for OPEC, good news often comes hand-in-hand with bad news. For that, look no further than the Permian basin.

The biggest shale play in the U.S. is set to pump 3.8 million barrels a day this month, according to Energy Information Administration data. That’s more than the United Arab Emirates, the Organization of Petroleum Exporting Countries’ third-largest producer.

The cartel’s decision to cut its own production has actually thrown a “lifeline” to companies in the U.S. by stabilizing crude prices, according to Saudi Energy Minister Khalid Al-Falih. This is a dark cloud on OPEC’s horizon, but there’s some good news.

Prolific output from Texas and New Mexico is placing serious pressure on infrastructure. The region isn’t equipped to handle such output levels and could only ship out around 3.5 million barrels a day at the end of 2018, according to Bloomberg Intelligence.

These pipeline constraints mean oil flows in the Permian have less of an effect on the globally relevant prices that OPEC cares about. As production surged last year, the value of crude delivered at the Midland, Texas hub relative to Cushing, Oklahoma -- the delivery point for West Texas Intermediate -- and on the Gulf coast at Houston dropped, according to a Bloomberg Intelligence report.

The bad news for OPEC is that the U.S. is working on another wave of pipeline expansion, which could add 2.1 million barrels a day of takeaway capacity by the end of 2019, and another 2.2 million by 2021, according to Bloomberg Intelligence.

On the plus side for OPEC, shale oil is of the lighter variety that’s less amenable to U.S. Gulf coast refineries configured for heavier grades. That quality could keep the pressure on shale oil prices compared with WTI, and subsequently diminish the cash flow of local explorers and producers.

Problem is, Asian refineries can take the lighter crude. If U.S. shale can reach those plants, then American drillers will happily keep pumping and threatening OPEC’s share of the world’s fastest growing market.

The crude has to get to Asia first, and limitations in U.S. export infrastructure work in OPEC’s favor here. Constraints on tank space, shipping facilities and dock capacity at U.S. ports still have to be resolved, according to Bloomberg Intelligence.

To contact the reporter on this story: Christopher Sell in London at csell1@bloomberg.net To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Rakteem Katakey

Monday, January 21, 2019

Shell Starts Production at New Petrochemicals Unit in U.S. Gulf Coast

Shell’s Geismar chemicals manufacturing site

The successful completion of a major expansion project makes Shell’s Geismar chemicals manufacturing site the largest producer of alpha olefins in the world.

Shell Chemical LP (Shell) has announced the start of production of the fourth alpha olefins (AO) unit at its Geismar, Louisiana, USA chemical manufacturing site. The 425,000-tonne-per-year capacity expansion brings total AO production at Geismar to more than 1.3 million tonnes per annum. Start-up operations began in December 2018.

Alpha olefins are key ingredients in many finished products that people use and enjoy every day, including laundry detergents, motor oils, and hand soaps.

“Our team delivered this world-class expansion project safely, on time and within budget,” said Graham van’t Hoff, Executive Vice President for Shell’s global chemicals business. “This is a key growth project for Shell’s global chemicals business. Geismar will continue to play a leading role in providing the materials for products that an increasing number of people need and enjoy.”

The new unit strengthens Shell’s leading position in the US Gulf Coast and illustrates the strategic value of its integrated downstream business. The Geismar site is supported with advantaged ethylene feedstock from Shell’s nearby Norco, Louisiana and Deer Park, Texas manufacturing sites, enabling the site to respond to market conditions.

The expansion project contains around 3,570 tonnes of steel, 18,290 metres of concrete and 85 linear kilometres of pipe. Several new pieces of infrastructure were built as part of the expansion, including a new water cooling tower, a significant expansion of the site’s rail loading capabilities, and the repurposing of a previously idled tank farm.

Thursday, January 17, 2019

OPEC oil production sinks in December as Saudis cut output more than expecte

A file photo showing a Libyan oil worker from the Libyan National oil and gas company checks an oil pipelines at the Zawiya oil installation in Zawiya, Libya.
Mahmud Turkia | AFP | Getty Images
A file photo showing a Libyan oil worker from the Libyan National oil and gas company checks an oil pipelines at the Zawiya oil installation in Zawiya, Libya.
  • OPEC's oil output falls by 751,000 barrels per day to 31.6 million bpd in December, the producer group reports.
  • Saudi Arabia slashes production by 468,000 bpd to just over 10.5 million bpd.
  • The drop shows OPEC got a jump on a deal with 10 other nations to cut production beginning in January.
When OPEC announced the deal, Saudi Energy Minister Khalid al Falih initially said his country's output would fall to 10.7 million bpd in December from a record high 11.1 million bpd in November. The Saudis are targeting another drop to 10.2 million bpd this month, Falih has said.

The pullback in OPEC production was deepened by supply disruptions in Libya and Iran.

Output in Libya fell by 172,000 bpd to 928,000 bpd in December, after a group of armed protesters and aggrieved workers took over the country's largest oil field.
 Iraq saw the biggest jump in production in the final month of the year. It's output rose 88,000 bpd to just over 4.7 million bpd. At that level, Baghdad would need to cut about 200,000 bpd in January to meet its quota under the supply cut agreement. Iraq, OPEC's second largest producer, regularly pumped above its quota throughout the group's last round of supply cuts.

December marks OPEC's first monthly report since Qatar left the organization amid an ongoing blockade against the Gulf nation by neighbors including Saudi Arabia and UAE.

Excluding Qatar, OPEC forecasts demand for the group's oil will average 30.8 million bpd in 2019, about 900,000 bpd lower than last year. Demand for OPEC's oil fell by about 1.2 million bpd last year, the group says.

OPEC+ collaboration is 'essential'

OPEC's forecast for growth in oil supply and demand is largely unchanged from its last report. It sees worldwide consumption increasing by 1.29 million bpd to just over 100 million bpd.

OPEC revised its outlook for non-OPEC output growth slightly lower, but still sees 2019 supply growth at 2.1 million bpd, outstripping the increase in demand.

In its final report of the year, OPEC highlighted the rise in U.S. interest rates and tightening monetary policy elsewhere in the world. OPEC notes that central bankers appear poised to tap the brakes on further tightening in 2019, which could have implications for global economic growth and the oil market.

"While the economic risk remains skewed to the downside, the likelihood of a moderation in monetary tightening is expected to slow the decelerating economic growth trend in 2019," OPEC said.

"If the anticipated moderation in monetary policies coupled with an improvement in financial markets materializes, this could provide further support to ongoing increases in non-OPEC supply."

The potential increase in crude supply will make it essential for OPEC, Russia and other producer nations to continue coordinating production to keep the oil market balanced, the group said.

Tuesday, January 15, 2019

First U.S. crude cargoes head to China since trade breakthrough: sources

Vessel: Alboran

HOUSTON (Reuters) - Three cargoes of U.S. crude are heading to China from the U.S. Gulf Coast, trade sources said on Monday, the first departures since late September and a 90-day pause in the two countries’ trade war that began last month.

The vessels left Galveston, Texas, last month and are scheduled to arrive at Chinese ports between late January and early March, according to shipbrokers and vessel tracking data. The shipments mark a change since Chinese buyers largely began avoiding U.S. oil during the trade dispute that flared last summer. 

“It looks like China has resumed purchasing U.S. crude,” one U.S.-based shipbroking source said. The person, who declined to be identified because he was not authorized to speak publicly about the matter, said the destination data could yet change. 

China is the world’s biggest crude importer and became a top buyer of U.S. crude after Washington lifted a 40-year ban on shipments in late 2015. It imported 325,000 barrels per day (bpd) of U.S. crude in the first nine months of 2018, customs data showed. 

Beijing has also resumed purchases of some U.S. soybeans for delivery this year. But China’s 25 percent tariff on U.S. soybean cargoes remains in place. 

The supertanker Alboran carrying about 2 million barrels of oil recently rounded South Africa’s Cape of Good Hope and is due to arrive in China late this month, said brokers, citing fixture data. 

The Almi Atlas and the Manifa, two other vessels carrying 2 million barrels of crude, are expected to reach China in late February or early March. The two ships are currently located off Brazil, according to Refinitiv Eikon vessel tracking data. 

Wall Street falls amid growth concerns
The cargoes mark the first shipments of U.S. crude to China since U.S. President Donald Trump in December said China would begin taking more American products. 

“It’s a follow through of statements by the Chinese government they would indeed begin purchasing commodities from the United States again,” said Reid I’Anson, an energy economist at data provider Kpler. 

As China reduced U.S. crude imports, more American oil flowed into neighboring Asian countries, including India, Japan, Taiwan and South Korea. U.S. exports climbed to 2.33 million bpd in October, up from 2.2 million bpd in June. 

Reporting by Collin Eaton; Editing by Richard Chang and Cynthia Osterman

Monday, January 14, 2019

Venezuela congress slams oil deals with U.S., French companies

FILE PHOTO: A view of a gas station of the Venezuelan state-owned oil company PDVSA in Caracas, Venezuela August 20, 2018. REUTERS/Marco Bello

CARACAS (Reuters) - Venezuela’s opposition-run congress on Tuesday issued a resolution calling deals between state-run oil company PDVSA [PDVSA.UL] and U.S. and French companies announced this week illegal, since they had not been sent to lawmakers for approval.

The body said the oilfield deals with France’s Maurel & Prom (MAUP.PA) and little-known U.S. company Erepla violated article 150 of Venezuela’s constitution, which requires that contracts signed between the state and foreign companies be approved by the National Assembly, as Venezuela’s congress is known. 

“They are giving concessions that violate the law,” said lawmaker Jorge Millan, mentioning the two contracts. 

Congress, largely stripped of its power since the opposition took it over in 2016, is unlikely to be able block the deals from going forward. But the rejection could create legal complications under a future government. 

Maduro is set to be inaugurated for his second consecutive term on Thursday following a May vote considered a sham by the domestic opposition and many foreign governments. A regional bloc of Latin American countries last week called on Maduro, a protege of the late Hugo Chavez, not to take office. 

The deals are part of Maduro’s effort to reverse a sharp decline in the OPEC nation’s crude output that has crippled its economy. Erepla said it would invest up to $500 million in three fields, while Maurel & Prom said it would invest up to $400 million for a 40 percent stake in an oilfield joint venture. 

PDVSA did not respond to a request for comment. Maurel & Prom did not immediately respond to a request for comment outside of normal business hours in France. 

Weak trading slams Citigroup's revenue
A spokesman for Erepla, registered in Delaware in November and part-owned by a prominent Florida Republican donor and shipping magnate, said Venezuela’s hydrocarbons law “allows PDVSA to contract with companies like Erepla to execute field services without any additional approvals required.” 

Referring to the Erepla deal during the congressional session earlier on Tuesday, Millan said that while PDVSA referred to the agreement as an oilfield service contract, “the company will be conducting oil exploration and production activities.” 

Maurel & Prom Chief Executive Michel Hochard said the company would act “in accordance with the instructions given” by Maduro and Oil Minister Manuel Quevedo, according to a statement attributed to him in a PDVSA press release. 

Reporting by Mayela Armas; Writing by Luc Cohen; Editing by Lisa Shumaker

Sunday, January 13, 2019

Venezuela opposition leader Guaido addresses rally after brief detention

Juan Guaido, President of the Venezuelan National Assembly and lawmaker of the opposition party Popular Will (Voluntad Popular), gestures while he arrives to a gathering in La Guaira, Venezuela January 13, 2019. REUTERS/Carlos Garcia Rawlins

By Mayela Armas

CARABALLEDA, Venezuela (Reuters) - Venezuelan opposition leader Juan Guaido led a rally on Sunday after being briefly detained by intelligence agents, days after saying he would be willing to replace the increasingly isolated President Nicolas Maduro.

Guaido's comments on Friday spurred some opposition sympathizers to conclude that he had declared himself interim president, and led several government officials to say he should be arrested for treason.

Intelligence agents on Sunday pulled him from his car on the way from the capital of Caracas to the coastal town of Caraballeda, his wife and opposition legislators said.

He was released shortly thereafter, they said.

"I want to send a message to Miraflores - the game has changed," said Guaido, the head of the opposition-run congress referring to the presidential palace, from a stage surrounded by cheering opposition sympathizers. 

"Here we are! We are not afraid!"

Information Minister Jorge Rodriguez told state television that the detention was an "irregular procedure" by rogue agents who wanted to help the opposition create a "media show," adding that the agents would face disciplinary action.

Guaido called Rodriguez's comments a sign that the government had lost control of its own security forces.

Asked whether he should be considered interim president, Guaido responded: "That has been clarified several times." 

The U.S. State Department on Saturday had called on Venezuelan security forces to respect the "safety and welfare" of Guaido and other legislators, calling for an "orderly transition to a new government."

Maduro was sworn in to a second term on Thursday, defying critics in the United States and Latin America who called him an illegitimate usurper of a nation where economic chaos has wrought a humanitarian crisis.

The once-booming OPEC nation's economy has collapsed following the fall of oil prices in 2014. Inflation is close to 2 million percent and some 10 percent of the population has emigrated since 2015 in search of better living conditions.

Maduro says the country is victim of an "economic war" led by his political adversaries with the help of Washington. He insists the 2018 vote was legitimate and that the opposition boycotted it because it knew it would lose.

(Reporting by Mayela Armas; Writing by Brian Ellsworth; Editing by Lisa Shumaker)