Friday, August 17, 2018

Good results from U.S. offshore auction, but expectations low

 
 Industry experts said the results of a lease sale in the U.S. waters were indicative of recovery, though expectations were low. File Photo by A.J. Sisco/UPI | License Photo

https://www.upi.com/Good-results-from-US-offshore-auction-but-expectations-low/4661534411589/

Potential drillers showed a willingness to invest in the U.S. waters of the Gulf of Mexico, though a key industry voice said the auction was no "barn burner."

Results from a U.S. auction for drilling rights in the Gulf of Mexico showed companies are willing to spend again, but expectations were low, experts said.

An auction Wednesday for rights to drill into the U.S. waters of the Gulf of Mexico secured $178.1 million in high bids from 29 different companies. That's an increase of 43 percent from the last lease sale in March.

William Turner, a research analyst at consultant group Wood Mackenzie, said less acreage was on the auction block and the industry didn't get an incentive from lower royalty rates like they wanted so expectations were low.

"However, with an increase in competitive bids and dollar amount from the last round, companies demonstrated their continued confidence in the region," he said in a research note emailed to UPI.

U.S. Interior Secretary Ryan Zinke in April went against policy recommendations by standing pat on royalty rates, arguing pro-industry moves by President Donald Trump would support the industry on momentum alone. Industry groups, however, said it would be tough to stay competitive without incentives like an adjustment to royalty rates.

Randall Luthi, the president of trade group National Ocean Industries Association, said higher oil prices, deregulation efforts by the Trump administration and lower day rates from rig companies all added up to a slow recovery for the offshore segment of the U.S. energy sector.

"While not a barn burner, Lease Sale 251 tops the previous Gulf sale in terms of increased participation, increased competition for offerings, and bid amounts," he said in a statement.

The government estimates the entire region holds about 48 billion barrels of undiscovered and technically recoverable oil and 141 trillion cubic feet in natural gas.

Among the winners were Norwegian energy company Equinor and U.S. supermajor Exxon Mobil, which placed big bets on remote acreage in the Gulf of Mexico. Hess Corp., meanwhile, put down $24.9 million for a site close to one of BP's existing platforms, though that block is near an exploration area that's so far been dry.

Elsewhere, an article in Politico published Wednesday suggests energy sector representatives are lobbying aggressively to Florida lawmakers to get them to open up their coast to drillers. U.S. Sen. Bill Nelson, D-Fla., a long-time opponent of more offshore drilling, said that, with space and military programs centered on Florida's waters, better federal oversight was expected.

In a statement emailed to UPI, Nelson, who is fighting for his senate seat, said the industry is moving to upset years of precedent in Florida's waters.

"We've been trying to get answers and find out what's on the table," he said. "Now we're reading about what might be under the table."

Thursday, August 16, 2018

Saudi cuts oil output as OPEC points to 2019 surplus



OPEC on Monday forecast lower demand for its crude next year as rivals pump more and said top oil exporter Saudi Arabia, eager to avoid a return of oversupply, had cut production.

In a monthly report, the Organization of the Petroleum Exporting Countries said the world will need 32.05 million barrels per day (bpd) of crude from its 15 members in 2019, down 130,000 bpd from last month’s forecast. 

The drop in demand for OPEC crude means there will be less strain on other producers in making up for supply losses in Venezuela and Libya, and potentially in Iran as renewed U.S. sanctions kick in. 

Crude LCOc1 edged lower after the OPEC report was released, trading below $73 a barrel. Prices have slipped since topping $80 this year for the first time since 2014 on expectations of more supply after OPEC agreed to relax a supply-cutting deal and economic worries. 

OPEC in the report said concern about global trade tensions had weighed on crude prices in July, although it expected support for the market from refined products. 

“Healthy global economic developments and increased industrial activity should support the demand for distillate fuels in the coming months, leading to a further drawdown in diesel inventories,” it said. 

OPEC and a group of non-OPEC countries agreed on June 22-23 to return to 100 percent compliance with oil output cuts that began in January 2017, after months of underproduction by Venezuela and others pushed adherence above 160 percent.

In the report, OPEC said its oil output in July rose to 32.32 million bpd. Although higher than the 2019 demand forecast, this is up a mere 41,000 bpd from June as the Saudi cut offset increases elsewhere. 

In June, Saudi Arabia had pumped more as it heeded calls from the United States and other consumers to make up for shortfalls elsewhere and cool prices, and sources had said July output would be even higher. 

But the kingdom said last month it did not want an oversupplied market and it would not try to push oil into the market beyond customers’ needs.

DEMAND SLOWING

Rapid oil demand that helped OPEC balance the market is expected to moderate next year. OPEC expects world oil demand to grow by 1.43 million bpd, 20,000 bpd less than forecast last month, and a slowdown from 1.64 million bpd in 2018. 

In July, Saudi Arabia told OPEC it cut production by 200,000 bpd to 10.288 million bpd. Figures OPEC collects from secondary sources published in the report also showed a Saudi cut, which offset increases in other nations such as Kuwait and Nigeria. 

This means compliance with the original supply-cutting deal has slipped to 126 percent, according to a Reuters calculation, meaning members are still cutting more than promised. The original figure for June was 130 percent. 

OPEC’s July output is 270,000 bpd more than OPEC expects the demand for its oil to average next year, suggesting a small surplus in the market should OPEC keep pumping the same amount and other things remain equal. 

And the higher prices that have followed the OPEC-led deal have prompted growth in rival supply and a surge of U.S. shale. OPEC expects non-OPEC supply to expand by 2.13 million bpd next year, 30,000 bpd more than forecast last month.

Wednesday, August 15, 2018

Mega oil and gas projects are back

Fracking for shale gas has transformed the US energy landscape  
 Fracking for shale gas has transformed the US energy landscape
(Image: PA/AP/Brennan Linsley)


Investors are about to find out whether the world's largest oil companies have learned their lesson from $80 billion of cost blowouts in major projects during the era of $100 crude.

From liquefied natural gas in Mozambique to deep-oil in Guyana, the world's biggest energy companies are gearing up to sanction the first slate of mega-projects since the price crash in 2014, Wood Mackenzie Ltd. analysts including Angus Rodger said in a report. Firms will approve about $300 billion in spending on such ventures in 2019 and 2020, more than in the three years from 2015 to 2017 combined.

That spree will provide the first real test to the capital discipline that energy companies have vowed they adopted after oil's collapse, when they downsized their ambitions and began to complete projects on time and below budget. Before the crash, the 15 biggest oil and gas projects combined went $80 billion over budget, eating away at investor returns, Rodger said.

"Oil companies have improved their delivery in small projects, but can they do it with bigger ones?" Rodger said in a phone interview from Singapore. "There's massive upside on the table if they can show sustained success with capital discipline as oil prices rise. They could deliver the best returns in a decade."

Cost Overshoot

Several years of oil prices in the $100s at the start of this decade emboldened companies to take on massive, complicated projects to extract as much of the valuable oil and gas as they could, Rodger said. That spurred developments like Chevron Corp.'s Gorgon LNG project on the remote Barrow Island in western Australia, where costs ballooned from an initial expected $37 billion to $54 billion.

Cost overruns on projects sanctioned from 2008 to 2014 diluted returns to 12 percent on average, compared with an expected 19 percent at the time of investment, according to Wood Mackenzie.

"Oil companies already had a history of bad project management, and then adding $100 oil to that was like pouring gasoline on a fire," Rodger said. "Costs got out of control."

Those weak returns and plummeting oil prices that began in 2014 forced energy companies to rethink the way they spend. They started targeting smaller fields or expansions of existing projects that were cheaper and could be finished quicker. Fields sanctioned since 2014 have on average been delivered ahead of schedule and under budget, Wood Mackenzie said.

Scaling Up

While the dearth of mega projects has helped energy prices recover, with oil and LNG returning to the highest levels since 2014 earlier this year, large investments are again needed, Rodger said. What's uncertain is whether the cost discipline energy companies enforced on smaller projects could be replicated on a much bigger scale.

For example, oilfield service providers like Halliburton Co. and Schlumberger Ltd. shrunk their workforce during the downturn, leaving only the best roughnecks to work on projects. It remains to be seen if such companies will be able to deliver as efficiently as they scale up to handle new projects, Rodger said.

Oil companies will also have to avoid the temptation from rising oil and gas prices to expand the scope of projects in order to maximize production, Rodger said. Benchmark crude Brent was trading up 0.7 percent at $73.13 a barrel as of 9:09 a.m. London on Tuesday, about 44 percent higher than a year ago.

"Will they live with a lean approach and leave value in the ground, or as prices rise will they want to return to big projects," he said. "If they feel the latter way, we could see the same mistakes again."

Tuesday, August 14, 2018

Saudi Arabia And Iran Reignite The Oil Price War

http://ifpnews.com/wp-content/uploads/2017/08/photo_2017-08-15_11-13-40-696x392.jpg

https://oilprice.com/Energy/Oil-Prices/Saudi-Arabia-And-Iran-Reignite-The-Oil-Price-War.html



The rivalry between Saudi Arabia and Iran is becoming increasingly evident in the oil pricing policies of the two large Middle Eastern producers. The two countries are currently reigniting the market share and pricing war ahead of the returning U.S. sanctions on Iranian oil.

Saudi Arabia, OPEC’s largest producer, has been boosting oil production to offset supply disruptions elsewhere, including the anticipated loss of Iranian oil supply after U.S. sanctions on Tehran return in early November. The Saudis are also cutting their prices to the prized Asian market to lure more customers as they increase supply.

Iran, OPEC’s third-largest producer, is trying to convince its oil customers to continue buying Iranian oil despite stringent U.S. efforts to curb Iranian production.

Iran has slashed its official selling prices (OSPs) for all grades to all markets for September, looking to monetize what could be its last oil sales to some markets in Asia before the U.S. sanctions kick in. Tehran cut the prices for its flagship oil grades to more than a decade low compared to similar varieties of the Saudi crude grades, according to data compiled by Bloomberg.

Last week, the National Iranian Oil Company (NIOC) slashed the OSP for the Iranian Light crude grade to Asia by US$0.80 to US$1.20 a barrel above the Dubai/Oman average, used for pricing oil to Asia. The September prices for Iranian Light to Asia are at a 14-year-low compared to the similar Saudi grade sold to the world’s fastest-growing oil market, Bloomberg has estimated.

Earlier this month, the Saudis also slashed the September prices to Asia for their flagship grade, Arab Light, by US$0.70 to US$1.20 a barrel premium over the Dubai/Oman average. The reduction was slightly deeper than expected and the second consecutive monthly cut in pricing. The Saudis cut the prices for all their grades to all markets except for the United States.

Now Iran is also slashing prices for all grades to all markets, with the prices for Iranian Light, Iranian Heavy, Forozan, and Soroush grades to Asia, Northwest Europe, and the Mediterranean all cut by between US$0.50 and US$1.45, depending on the market and grades.  


The OSPs for Iranian Heavy and Forozan to Asia were slashed against the similar Saudi grades to their lowest levels since at least 2000, the year in which Bloomberg started compiling the data.

Iranian Light and the Saudi Arab Light for Asia for September are now priced at the same level—US$1.20 a barrel above the Dubai/Oman average.

For the Saudis, the cut is aimed at enticing more buyers in order to take advantage of the refiners in Asia that are looking to cut Iranian oil intake for fear of running afoul of the U.S. sanctions. For Tehran, the cut in prices is an attempt to keep refiners buying by offering yet another incentive for them on top of the extended credit periods and nearly free shipping.

It has also been reported that Iran has started to offer India—its second-biggest oil customer after China—cargo insurance and tankers operated by Iranian companies as some Indian insurers have backed out of covering oil cargoes from Iran in the face of the returning U.S. sanctions on Tehran.

India’s imports from Iran could start to slow from August as some big Indian refiners worry that their access to the U.S. financial system could be cut off if they continue to import Iranian oil, prompting them to reduce oil purchases from Tehran. 
 

The U.S. hasn’t been able to persuade Iran’s biggest oil customer China to reduce oil purchases, but Beijing has reportedly agreed not to increase its oil imports from Iran.

Other relatively large Asian buyers of Iranian oil—South Korea and Japan—are looking for U.S. guidance and (possibly) waivers before deciding how to proceed, but they are currently very cautious and on the lookout for alternative supplies.

Analysts, and reportedly the U.S. Administration itself, currently expect the sanctions to remove around 1 million bpd from the oil market.

Considering the intensity of efforts by the U.S. to cut off as much Iranian oil exports as possible, it is unlikely that even Iran’s significant discounts to Asian customers will save the country’s oil exports.
By Tsvetana Paraskova for Oilprice.com

Monday, August 13, 2018

Venezuela's Citgo Refineries At Risk Of Seizure



In 2007, following Venezuela's expropriation of billions of dollars of assets from U.S. companies like ExxonMobil and ConocoPhillips, I suggested a potential remedy.

Since Venezuela's state-owned oil company, PDVSA (Petróleos de Venezuela, S.A.) owns the Citgo refineries in the U.S., the companies that had lost billions of dollars of assets should target these refineries for seizure as compensation.

These refineries have the same vulnerabilities as the U.S. assets in Venezuela that were seized. They represent infrastructure on the ground that can't be removed from the country.

Citgo has three major refining complexes in the U.S. with a total refining capacity of 750,000 barrels per day. Recognizing the vulnerability from asset seizure, PDVSA tried to sell these assets in 2014, and valued them at $10 billion. That value may be grossly overstated, considering that Venezuela subsequently pledged 49.9% of Citgo to Russian oil giant Rosneft as collateral for a $1.5 billion loan.
In recent years, PDVSA has lost a series of arbitration awards related to expropriations, and companies have been looking for opportunities to collect. In May, ConocoPhillips seized some PDVSA assets in the Caribbean to partially enforce a $2 billion arbitration award for Venezuela's 2007 expropriation.

ConocoPhillips had sought up to $22 billion -- the largest claim against PDVSA -- for the broken contracts from its Hamaca and Petrozuata oil projects. The company is pursuing a separate arbitration case against Venezuela before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). The ICSID has already declared Venezuela's takeover unlawful, opening the way for another multi-billion dollar settlement award that may happen before year-end.
 
Last week, a court ruling has opened the door for Citgo assets to be seized to pay for these judgments.
Defunct Canadian gold miner Crystallex had been awarded a $1.4 billion judgment over Venezuela’s 2008 nationalization of a Crystallex gold mining operation in the country. A U.S. federal judge ruled that a creditor could seize Citgo's assets to enforce this award.

This ruling is sure to set off a feeding frenzy among those that have won arbitration rulings against Venezuela. Until the legal rulings are settled, it's hard to say which companies will end up with Citgo's assets. But it's looking far more likely it won't be PDVSA.

Robert Rapier has over 20 years of experience in the energy industry as an engineer and an investor. Follow him on Twitter @rrapier or at Investing Daily.

Trafigura to Build U.S. Deep-Water Oil Port

Trafigura

Swiss commodities trader Trafigura has applied to build a deep-water port in Corpus Christi, Texas, on the Gulf of Mexico, which will be able to load supertankers, reports FT.

The report said that the plan would see the commodity house build an offshore deepwater port facility with a view to accommodate very large crude carriers (VLCC) capable of carrying more than 2m barrels of crude. It requires approval from the US Department of Transportation’s maritime division.

According to a Reuters report, United States began exporting crude oil in 2016 after the ban on exports was lifted but while its production and therefore exports keep hitting new highs, its infrastructure has not kept up.

The United States exports over 2 million barrels per day of crude while output hit 11 million bpd for the first time last month, making the country the biggest producer in the world after Russia.

According to a press release from the company, VLCCs are the most economical and efficient way of transporting crude around the world, carrying up to 2 million barrels per voyage, however no US inland ports are capable of fully loading a VLCC. Currently, to fully load a VLCC multiple Ship To Ship Transfers (STSs) are performed in lightering zones out at sea.

On July 9, 2018, Texas Gulf Terminals, Inc., owned by Trafigura US Inc., part of privately-held physical trading and logistics company with offices in Houston, Texas, submitted its permit application for a new Project. The Texas Gulf Terminals Project is a new offshore Deep Water Port facility that will allow VLCCs and other tankers to load cargo safely, directly and fully via a single-point mooring buoy system (SPM).

Using SPMs eliminates unnecessary ship traffic in inland ports as well as the “double handling” of the same crude oil, reducing the opportunity for spills and emissions each time the crude oil is transferred. Once constructed, this globally-proven technology, will ease infrastructure barriers to crude oil exports, grow the U.S. economy, and support jobs.

The Texas Gulf Terminals Project is the latest in a series of long-term investments that Trafigura has made in communities across the U.S., including a nearly USD1 billion investment in the premier marine export terminal and condensate splitter in Corpus Christi, Texas (Buckeye) and the construction of the Burnside Bulk Storage Terminal in Darrow, Louisiana, which rebuilt a site from the mid-1950s into a state-of-the-art bulk facility designed to facilitate international exports.

The Texas Gulf Terminals Project will give U.S. crude oil producers, particularly Texas operators, safer, cleaner and more efficient access to very large crude carriers, ensuring that the economic and employment benefits of increasing domestic crude production can be fully realized right here at home,” said Corey Prologo, Director, Texas Gulf Terminals Inc. and Director of Trafigura, North America.


Friday, August 10, 2018

U.S. Sanctions Threaten India's Importation of Iranian Oil



https://nationalinterest.org/blog/middle-east-watch/us-sanctions-threaten-indias-importation-iranian-oil-28252

Washington has said that to achieve significant reductions in Iranian oil exports it needs India to observe the sanctions.

When the United States pulled out of the Iran nuclear deal in May, it told countries trading with Iran that they would have to stop soon or face American sanctions. 
 
As the first ninety-day wind-down period for ceasing trading with Iran comes to an end, Washington is ratcheting up the pressure on the main importers of Iranian crude oil. 

However, most of the other countries that signed the nuclear deal —including many in Europe—continue to support it. But companies, not governments, import oil—and they are likely to buckle under the U.S. pressure.

A key exception is Chinese companies, which collectively amount to the world’s largest buyer of Iranian oil. They remain defiant against the U.S. sanctions threat, a stance which their government obviously supports. The defiance comes as tension with America already increasing due to a trade war that Washington started. 

The European Union is also embroiled in a trade war with the United States. This is increasing the pressure on European companies to comply with Washington’s no-trade-with-Iran order. Most have said they will comply with it.

Another important player in the Iran sanctions game is India. In fact, the United States has said that to achieve significant reductions in Iranian oil exports it needs India to observe the sanctions.

Iran’s geographical proximity to India, coupled with India’s growing demand for petroleum, made an oil trading partnership between the two almost inevitable. 

In 2017, India imported almost 40 percent of its oil from Iran, making it the second-largest importer of Iranian crude, behind China. India bought $13 billion worth of petroleum products from Iran that year, with crude accounting for the vast majority 

The energy cooperation between Tehran and Delhi has not been limited to oil and gas trading, however. 

After the Iran nuclear deal was signed in the summer of 2015, India began making major investments in Iran’s oil industry, including building petrochemical and fertilizer plants. 

India has also wanted to invest in the Farzad B gas field. An Indian consortium led by the state-owned Oil and Gas Corporation discovered the field in 2012, and it began producing in 2013. A dispute over the terms of India’s participation in the field’s production has prevented a deal from being reached, however. 

Meanwhile, Iran’s plan to build a gas pipeline through Afghanistan and Pakistan to India has been stalled due to disagreements over the terms of the deal. 

Furthermore, after Iranian President Hassan Rouhani visited India in February, the countries expressed optimism that their trade would double. 

Two events undermined that optimism, however. One was the United States increasing its threats to pull out of the Iran nuclear deal —which it ended up making good on in May. The other was Saudi Arabia, Iran’s main political rival in the Middle East, stepping up its energy diplomacy toward India. 

In April, Saudi Aramco signed a deal with a consortium of Indian companies led by the state-owned Indian Oil Corporation to take a 50 percent stake in a $44 billion mega-refinery and petrochemicals complex that will be built in the port city of Ratnagiri. The Saudis calculated that helping India create one of the world’s largest refining and petrochemical complexes would not only help tilt it away from Iran but also guarantee long-term Saudi crude sales to India 

Meanwhile, the United States has been increasing its diplomacy toward India, with the key goal of persuading India to embrace sanctions against Iran. 

In addition, America’s ambassador to the United Nations, Nikki Haley, who is of Indian descent, visited New Delhi last month to ask that India reduce its Iranian oil imports. 

A U.S. Treasury Department delegation followed. It was led by Marshall Billingslea, the department’s assistant secretary for anti-terrorism financing. Given Billingslea’s background, one topic was likely to be a scheme that Iran and India used to avoid previous U.S. sanctions against Iran.
The two visits are already yielding results for Washington. 

Indian refineries have begun canceling oil import contracts with Iran. Hindustan Petroleum, which owns India’s third-largest refinery, canceled an Iranian oil shipment in July when its insurance company refused to cover the sale because of impending U.S. sanctions. 

In addition, news surfaced that Indian conglomerate Reliance Industries , which owns the largest refining complex in the world, also planned to halt Iranian oil imports. 

Fearing aggressive Trump administration policies towards Iran, India is also expected to scrap the rupee-based trade agreement it concluded with Iran three years ago, Iranian sources say. 

India had used the rupee-rial arrangement to buy Iranian oil before U.S. sanctions were lifted against Iran in 2016. The two sides used Turkey’s Halk Bank as an intermediary in their trading. 

In May, a federal judge in New York sentenced a top Halk Bank executive to three years in prison for designing and carrying out the scheme. U.S. prosecutors had contended that the deal was used to evade U.S. sanctions against Iran that the Obama administration imposed before the nuclear deal.

Washington has said that to achieve significant reductions in Iranian oil exports it needs India to observe the sanctions.

Before he became assistant Treasury secretary for anti-terrorism financing, Billingslea was managing director of business intelligence services for Deloitte, where he focused on illicit finance. In the wake of the prison sentence against the Halk Bank executive for the rupee-rial scheme, it was significant that after Billingslea left India, his next destination was Turkey

India did obtain one sanctions-related victory from the United States, however. Washington agreed to allow it to invest in the expansion of Iran’s port of Chabahar if it complies with U.S. import sanctions against Iran. 

Chabahar is key to an Indian policy of offsetting Pakistan’s and China’s use of Pakistan’s port of Gwadar to project more power in the region. China has made renovation and expansion of the port of Gwadar an integral part of its $62 billion China-Pakistan Economic Corridor project. The project includes a naval base. 

Chabahar is only 107 miles from Gwadar. Iran has asked India to help it build steel and petrochemical plants in the port to boost its economy and increase development along the Makrān coast. It also plans to create a free trade zone in the port to try to spur economic growth. 
 
With so many countries trying to flex their muscle in the region —the United States, Saudi Arabia, Iran, China and Pakistan—India is likely to find it harder to strike a balance between competing interests in the Middle East and Southwest Asia.

It will continue to accommodate Iran by supporting the nuclear deal and by participating in mutually beneficial projects such as the expansion of the port of Chabahar.

But it will be increasingly difficult and dangerous for Indian refining and petrochemical companies to find wiggle room that allows them to avoid U.S. sanctions, as they once did. 
 
Rauf Mammadov is a resident scholar at Middle East Institute and Senior Advisor at Gulf State Analytics. 
 
Omid Shokri Kalehsar is a Washington-based senior energy security analyst, and Ph.D. Candidate in International Relations at Yalova University, Turkey. 
 
Image: Indian Prime Minister Narendra Modi attends the BRICS summit meeting in Johannesburg, South Africa, July 27, 2018. REUTERS/Mike Hutchings