Friday, December 15, 2017

Cuba takes over Venezuela stake in refinery joint venture

HAVANA/HOUSTON, Dec 14 (Reuters) - Venezuela has pulled out of a partnership with Cuba in its Cienfuegos oil refinery and the Caribbean island has taken full ownership of the plant, Cuban state media said on Thursday. 

Venezuela is grappling with a crippling economic crisis that already forced it to slash cheap oil shipments to Cuba, which has had a knock-on effect on the island’s ailing economy. 

The reason for the dissolution of the partnership was not immediately obvious. A former Venezuelan government official said Cuba had taken Venezuelan state oil-firm PDVSA’s 49 percent stake in the Cienfuegos refinery as payment for debts it said the country incurred.
The source added that Cuba said Venezuela owed it for professional services provided as well as the rental of tankers. 

PDVSA’s Cuba unit was unable to provide immediate comment. Cuba’s state-run oil monopoly Cubapetroleo (Cupet), which runs the refinery, did not respond to a request for comment. 

“Since August 2017, the Cienfuegos refinery has been operating as a fully Cuban state entity,” the ruling Communist Party’s newspaper Granma wrote. 

The Cienfuegos refinery is a Soviet-era facility configured to run Russian crude that was later upgraded by PDVSA to convert up to 65,000 barrels per day (bpd) of Venezuelan oil into refined products for Cuba’s domestic market and exports. 

It processed just 8 million barrels of crude in 2017 (roughly 24,000 barrels per day), Granma reported, indicating it was operating well below capacity due to lower shipments of oil from Venezuela. 

A lack of medium and light oil had forced PDVSA this year to change the quality of the crude shipped to the island to heavier grades, which are more difficult to process at Cienfuegos. 

Cuba has long relied on the OPEC nation for about 70 percent of its fuel needs. But shipments have fallen by as much as 40 percent since 2014 and Cuba is looking for new suppliers to help mitigate electricity and fuel rationing to state companies. 

Cuba took a delivery of oil from Russia in May, helping compensate somewhat for that drop, and Russian oil major Rosneft said in October it was looking to expand cooperation. 

That could mean increased deliveries to Cuba, joint extraction projects as well as cooperation to modernize the Cienfuegos refinery, Rosneft said. 

Venezuela remains Cuba’s top ally and President Nicolas Maduro was due to stop off in Havana on Thursday as he returned from a conference in Turkey, newspaper El Nacional reported. 

Still, lower Venezuela oil supplies and a cash crunch have forced Cuba to slash imports and reduce the use of fuel and electricity over the past two years. 

This helped tip its centrally planned economy into recession in 2016 for the first time in nearly a quarter century. The government is expected to give an estimate for economic performance this year at the twice-annual parliamentary session next week. (Reporting by Sarah Marsh in Havana and Marianna Parraga in Houston; Editing by Andrew Hay)

Wednesday, December 13, 2017

The Noose Tightens: Venezuela Struggles To Ship Oil

The picture for Venezuela grows grimmer by the day, as tankers waiting to load fuel oil from Venezuela ports grow in number as the national oil company, PDVSA, struggles to deliver the amounts needed to load. That’s what traders and shipping data from Reuters have revealed in recent days.

According to this data, there are four tankers waiting to load crude oil and fuel oil at the port of Paraguana and another eight waiting at the Jose port—PDVSA’s largest export terminal—to load refined oil products. There are also ten vessels waiting to unload refined products for the Venezuelan market, but payments to the sellers have been delayed, and now so is unloading.

Venezuela has been struggling to rein in the decline of its crude oil production resulting from underinvestment, mismanagement, and, most recently, U.S. sanctions. In October, crude oil production fell to the lowest in nearly 30 years, as PDVSA is unable to pay for services rendered by oilfield service providers, who are now refusing to continue working with it.

To add insult to injury, the country’s largest refinery, Paraguana, suffered damages from a fire earlier this month, which caused a severe drop in capacity utilization to just 13 percent. The refinery has a daily capacity of 955,000 barrels of crude. Related: Are NatGas Prices About To Explode?

Venezuela’s fuel oil production also declined as a result of the outages following the fire and a drop in the input of medium and light crude in the distillation units where the oil product is made.

Over the last four years, crude oil production in Venezuela has fallen by about a million bpd, and in October the daily average was below 2 million bpd. Exports are also falling: in October, PDVSA exported 475,165 bpd to the United States, which was down 12 percent on September and 36 percent on October 2016. That’s the lowest daily export rate for the last 14 years.

By Irina Slav for

Tuesday, December 12, 2017

Unfazed by OPEC, Libya and Nigeria seek to boost oil output

Less than two weeks after OPEC’s decision to extend oil production cuts, Libya and Nigeria – the only two exempt members of the group – are signaling their intent to raise output next year.
FILE PHOTO: A man fixes a sign with OPEC's logo next to its headquarter's entrance before a meeting of OPEC oil ministers in Vienna, Austria, November 29, 2017. REUTERS/Heinz-Peter Bader
While several ministers at the Nov. 30 meeting of the Organization of the Petroleum Exporting Countries suggested the two nations had joined the output-curbing deal, both are working to add to their peak production from this year. 

On Friday, oil company Total said its new Egina field offshore Nigeria was on track to start next year – adding 10 percent to the country’s production. 

The field will have a capacity of 200,000 barrels per day (bpd) and launch in the fourth quarter of 2018, counterbalancing production constrained by aging pipelines, perpetual theft and sabotage. 

“That could certainly change the dynamics,” said Ehsan Ul-Haq, head of crude and products at Resource Economist, a consultancy. 

The Nigerian petroleum ministry did not respond to a request for comment on the Egina field startup, and whether production elsewhere would be curtailed as a result. 

On Saturday, the head of Libya’s U.N.-backed government met the head of Libya’s National Oil Corp (NOC) and the governor of Tripoli’s central bank to discuss how the corporation could get more cash to raise oil output next year. 

The NOC received a quarter of its requested budget in 2017, hampering efforts to sustain oil output near 1 million bpd. 

Any additional funds could help make crucial repairs to the country’s energy infrastructure, a regular target for militant attacks, and boost output above the roughly 1 million bpd mark where it currently stands. 

Libya’s NOC has so far not spoken officially about the OPEC deal and declined a Reuters request for comment.


The developments may come as a surprise to market observers, who, after the Nov. 30 meeting, believed Nigeria and Libya had agreed to participate in the OPEC agreement by imposing official caps at their peak 2017 production levels. 

Instead, the two countries merely provided their production outlook for 2018 and an assessment that the combined total would not exceed 2.8 million bpd, their forecast output for 2017, two sources familiar with the matter told Reuters. 

That outlook was dependent on both countries’ finances and security situation, one of those sources said. 

The headline of a statement issued by Nigeria’s petroleum ministry on the day of the OPEC meeting stressed, in block capitals, that Nigeria and Libya were exempt from cuts. 

Oil Minister Emmanuel Ibe Kachikwu emphasized in the statement that the nation’s condensates - a form of ultra-light crude - were exempt from any total, giving it leeway in calculations. He also told local media there was “no obligation” to do anything. 

Oil production from the two countries has averaged 1.7 million bpd and 900,000 bpd, respectively, this year according to Reuters assessments. 

But it has swung in each country in a range of 340,000-350,000 bpd.
Editing by Dale Hudson

Monday, December 11, 2017

China’s Sinopec Looking to Sell Nigeria Business

China’s Sinopec Group has hired BNP Paribas to sell its oil business in Nigeria and Gabon, three people with knowledge of the matter said, as the state-owned oil giant pares back its presence in Africa.

Sinopec and other oil groups including China National Petroleum Corp and CNOOC made large acquisitions between 2009 and 2013 with the help of low-cost loans from Chinese state-owned banks.
The hunt for overseas assets was intended to bulk up their energy reserves and meet future demand from China, the world’s second-largest economy.

But oil prices fell to about $27 a barrel in 2016 from more than $100 in 2014, making some of these investments unprofitable.

Benchmark Brent Crude oil is now trading at more than $60. Militants have also recently attacked oil and gas facilities in Nigeria, further discouraging Sinopec.

China’s economy, which was growing strongly when the company expanded, has also slowed. “Sinopec is trying to sever ties,” one of the people told Reuters.”It has hired BNP to sell (its) assets in Nigeria and Gabon.

A Sinopec spokesman did not respond to requests for comment and a BNP Paribas spokeswoman declined to comment.

Sinopec spent $7.24bn in 2009 for Switzerland-based Addax Petroleum, its largest ever foreign oil acquisition, to secure land in Nigeria, Gabon, Cameroon and Iraq that was licensed for extraction and exploration.

It offered considerable potential as commodity prices rose but bankers expect the Nigeria and Gabon assets to sell for less than $1bn. The sources said Sinopec was planning to sell Addax’s onshore and offshore oil and gas production sites in Nigeria and Gabon.

Sinopec’s Cameroon operation would be its only remaining project in Africa.

We’ve already seen several Chinese companies divest some of their overseas assets,” said a second person, who asked not to be named.”At the current oil prices, such investments (are not) economically viable for Chinese companies.”

The sources said Sinopec had also decided to sell Addax after a recent bribery investigation by Geneva prosecutors into payments made in Nigeria.

Addax agreed to pay 31mn Swiss francs to settle the bribery charges, for which its executive officer and legal director had also been charged, and shut its offices in Geneva, Houston and Aberdeen.

At the time, Addax said its parent company was closing the offices in response to low oil prices and did not comment on the investigations at the time. The Sinopec spokeswoman did not respond for a request for a comment on whether this was a reason for the sale.

Nigeria, Africa’s largest economy, fell into recession for the first time in 25 years in the second quarter of 2016, after militant groups attacked oil and gas facilities in its Delta region. That cut the country’s oil production dramatically.

Lower crude exports, Nigeria’s mainstay, meant less money in government coffers, especially the US dollars Nigeria needs to import essential products and keep businesses running.

The latest group of militants to emerge in the Delta earlier this year also threatened that oil facilities belonging to major international oil companies would be destroyed.

Sinopec’s assets in Nigeria and Gabon could attract the interest of companies already operating in the region including Perenco, which bought Total’s assets in Gabon for $350mn earlier this year, and Kosmos Energy, the sources said.

One of the people who spoke to Reuters said that Sinopec was looking to sell some of the Chinese company’s other exploration and drilling businesses outside China because of falling oil prices and regional political instability.

Sinopec has also agreed to sell its oil business in Argentina for $500mn to $600mn to Mexican company Vista Oil & Gas, according to sources, in part because of social unrest there.

Friday, December 8, 2017

Venezuela re-visited

Leading shipbroker Gibson has once again highlighted the plight of Venezuela, by saying that the focus had now shifted to its huge $150 bill foreign debt. 
Around three weeks ago, Venezuela missed a deadline to make $200 mill interest payments on two government bonds, resulting in Standard & Poor’s formally declaring the first default.
About the same time, the Venezuelan president stated the country’s intention to restructure its foreign debt and the Russian Finance Ministry announced that the two countries had signed a debt restructuring deal, allowing Caracas to make “minimal” payments to Moscow over the next six years to help it meet its obligations to other creditors.
Politics and geopolitics aside, the economic challenges faced by Venezuela have direct implications on the domestic oil sector. The country’s crude production has been in steady decline over the past couple of years, largely due to the lack of investment, the shortage of available funds and ill-maintained production infrastructure.
According to IEA data, crude output averaged just over 1.9 mill barrels per day in October, 2017, down by 0.55 mill barrels per day, or 22%, compared to October, 2015.
The decline in production has had negative implications for the country’s crude exports, although not to the same extent. Venezuela’s financial problems also hit its refining sector, where lack of maintenance has led to a notable decline in domestic throughput volumes, reducing the downward pressure on crude exports.  
Venezuelan crude trade to the US was one of the biggest consequences of the country’s economic and political problems. Between January and August of this year, crude shipments to the US averaged 0.69 mill barrels per day, down 175,000 barrles per day compared to the same period in 2015.
In addition, the EIA weekly estimates suggest that this trade has declined further in recent months, averaging just 0.5 mill barrels per day since early September. Interestingly, Venezuelan crude exports to China have increased. During the first eight months of this year, shipments to China averaged 0.44 mill barrels per day, up by 100,000 barrels per day, compared to the same period in 2015, Gibson said. .
Apart from direct trade implications, it was also reported by Reuters that PDVSA is increasingly delivering poor quality crude to its international customers, which has resulted in complaints, cancelled orders and demands for discounts. There are also reports of logistical issues and disputes over payments. For tonnage calling at Venezuelan ports, this translates into additional, and at times extended, delays and sporadic cancellations.
Despite their recent firming, oil prices are still below the level needed by Venezuela to balance its financial requirements. As such, the difficulties faced by the country at present are unlikely to disappear anytime soon.
The recent debt restructuring with Russia will help to ease the most immediate pressures but it is unlikely to be sufficient to reverse the slide in domestic crude production and exports, Gibson concluded.

Thursday, December 7, 2017

Goldman raises 2018 oil price forecast on robust OPEC commitment
  • Goldman lifted its Brent price forecast for next year to $62 a barrel and its WTI projection to $57.50 a barrel
  • "Of course, risks remain and we see these as skewed to the upside into 2018 on the risk of an over tightening, either because of new disruptions, demand exceeding our optimistic forecast of OPEC letting the stock draw run hot," Goldman analysts said
A stronger than anticipated OPEC-led commitment to extend production cuts will support prices through 2018, according to analysts at Goldman Sachs.

In a research note published late Monday, Goldman lifted its Brent price forecast for next year to $62 a barrel and its WTI projection to $57.50 a barrel. The revisions were up from $58 a barrel and $55 a barrel respectively.

While the OPEC-led deal "leaves room for an earlier exit than currently scheduled, we now reflect this resolve in our supply forecast, with full compliance for longer and a more modest exit rate," Goldman analysts said in the research note.

Oil prices have lost ground in the days following OPEC's deal with global producers last week. The 14-member cartel, Russia and nine other crude producers announced plans to extend their output cuts until the end of 2018.

The move was heavily telegraphed ahead of the decision, but oil producers had earlier indicated they could exit the deal if they feel the market was overheating.

'Risks remain' beyond 2018

"Of course, risks remain and we see these as skewed to the upside into 2018 on the risk of an over tightening, either because of new disruptions, demand exceeding our optimistic forecast of OPEC letting the stock draw run hot," Goldman analysts said.

However, Goldman said the response of shale oil and other producers to higher prices would likely incentivize OPEC and Russia to "pare back" their now greater capacity, thus leaving risks to prices skewed towards the downside over the long term.

The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC's reluctance to cut output was also seen as a key reason behind the fall. But, the oil cartel soon moved to curb production — along with other oil-producing nations — in late 2016.

Brent crude traded at around $62.36 on Tuesday morning, down 0.14 percent, while U.S. crude was trading at $57.29, down 0.31 percent.

Sam MeredithDigital Reporter,