Sunday, May 30, 2010

After fix fail, a dispiriting summer of oil, anger

By TED ANTHONY and MARY FOSTER, Associated Press Writers Ted Anthony And Mary Foster, Associated Press Writers

BOOTHVILLE, La. – There is still a hole in the Earth, crude oil is still spewing from it and there is still, excruciatingly, no end in sight. After trying and trying again, one of the world's largest corporations, backed and pushed by the world's most powerful government, can't stop the runaway gusher.

As desperation grows and ecological misery spreads, the operative word on the ground now is, incredibly, August — the earliest moment that a real resolution could be at hand. And even then, there's no guarantee of success. For the United States and the people of its beleaguered Gulf Coast, a dispiriting summer of oil and anger lies dead ahead.

Oh ... and the Atlantic hurricane season begins Tuesday.

The latest attempt — using a remote robotic arm to stuff golf balls and assorted debris into the gash in the seafloor — didn't work. On Sunday, as churches echoed with prayers for a solution, BP PLC said it would focus on containment rather than plugging the undersea puncture wound, effectively redirecting the mess it made rather than stopping it. Yet the new plan carries the risk of making the torrent worse, as top government officials warned Sunday.

"We failed to wrestle this beast to the ground," said BP Managing Director Bob Dudley, doing the rounds of the Sunday talk shows.

As the oil washes ashore, crude-coated birds have become a frequent sight. At the sea's bottom, no one knows what the oil will do to species like the newly discovered bottom-dwelling pancake batfish — and others that remain unknown but just as threatened.

Scientists from several universities have reported large underwater plumes of oil stretching for miles and reaching hundreds of feet beneath the Gulf's surface, though BP PLC CEO Tony Hayward on Sunday disputed their findings, saying the company's tests found no such evidence of oily clouds underwater.

"The oil is on the surface," Hayward said. "Oil has a specific gravity that's about half that of water. It wants to get to the surface because of the difference in specific gravity."

Perhaps most alarming of all, 40 days after the Deepwater Horizon blew up and began the underwater deluge, hurricane season is at hand. It brings the horrifying possibility of wind-whipped, oil-soaked waves and water spinning ashore and coating areas much farther inland. Imagine Katrina plus oil spill.

The spill is already the worst in American history — worse, even, than the 1989 Exxon Valdez disaster. It has already released between 18 million and 40 million gallons of oil into the Gulf, according to government estimates.

"This is probably the biggest environmental disaster we've ever faced in this country," White House Energy and Climate Change Advisor Carol Browner said on NBC's "Meet the Press."

At some point — the widespread debut of the BP "spillcam" is as good a delineation point as any — this tipped, in the national conversation, from a destructive event into a calamitous, open-ended saga. And for the bruised and cantankerous American psyche, it could not come at a worse time.

Fear is everywhere, and polarization prevails. Faith in institutions — corporations, government, the media — is down. Americans are angry, and they long ago grew accustomed to expecting the resolution of problems in very short order, even if reality rarely works that way.

So when something undefined and uncontrollable happens, they speculate in all the modern forums about collusion and nefarious dealings. In the process, this tale of environmental disaster and economic damage cripples the sea-to-shining-sea narrative that usually offers Americans comfort during uncertain times.

"There are people who are getting desperate, and there are more getting anxious as we get further into the shrimping season and there is less chance they will recover," said the Rev. Theodore Turner, 57, at Mount Olive Baptist Church in Boothville, near where oil first washed ashore. Fishermen make up about a third of his congregation.

BP's next containment effort involves an assortment of undersea robot maneuvers that would redirect the oil up and out of the water it is poisoning.

The first step in BP's latest effort is the intricate removal of a damaged riser that brought oil to the surface of the Deepwater Horizon rig. The riser will be cut at the top of the crippled blowout preventer, creating a flat surface that a new containment valve can seal against.

The valve would force the oil into a new riser, bringing it up to a ship. The seal, however, would not prevent all oil from escaping. White House energy czar Carol Browner said Sunday the effort could result in a temporary 20 percent increase in the flow. BP has said it didn't expect a significant increase in flow from the cutting and capping plan.

If the containment valve fails, BP may try installing a blowout preventer on top of the existing one.

In the end, however, a relief well would ease the pressure on the runaway gusher in favor of a controlled pumping — essentially what the Deepwater Horizon was trying to do in the first place. But that will take at least two months.

Using government figures, if the leak continues at its current pace and is stopped on Aug. 1, 51 million to 106 million gallons will have spilled.

"They are going to destroy south Louisiana. We are dying a slow death here," said Billy Nungesser, president of Plaquemines Parish, La.

Coastal tent cities are about to rise to house the workers and contractors minimizing the damage. Sand banks and barriers are being built. But the consensus around the Gulf Coast is turning more apoplectic and apocalyptic. This is, people are starting to say, a generational event — tragic to this generation, potentially crippling to the next.

"The oil spill is part of prophecy," said Turner, the Louisiana minister. "The Bible prophesized hardships. If we believe the word of God is true — and we do — we also know that in addition to prophecying hardships he promised to take care of us."

The Obama administration, which has been grilled for not taking the reins sooner, sought to assure the public.

"I am resolute and confident that we will see a better day ahead of us," Interior Secretary Ken Salazar said Saturday. And yet that statement, stacked up against the word "August," tempers the optimism for many watching this saga unfold.

They see a dissembling corporation, an ineffective government and an ocean surface covered by a viscous shell with the consistency of molasses and the peril of poison. To them, it comes down to only this: There is still a hole in the Earth. Crude oil is still spewing from it. And there is still, excruciatingly, no end in sight.


AP Writers Ben Nuckols, Seth Borenstein, Matthew Brown and Melissa Nelson contributed to this report. Anthony reported from New York.

BP CEO disputes claims of underwater oil plumes

MATTHEW BROWN, Associated Press Writer Matthew Brown, Associated Press Writer

VENICE, La. – BP PLC CEO Tony Hayward on Sunday disputed claims by scientists that large undersea plumes have been set adrift by the Gulf oil spill and said the cleanup fight has narrowed to surface slicks rolling into Louisiana's coastal marshes.

During a tour of a company staging area for cleanup workers, Hayward said BP's sampling showed "no evidence" that oil was suspended in large masses beneath the surface. He didn't elaborate on how the testing was done.

"The oil is on the surface," Hayward said. "Oil has a specific gravity that's about half that of water. It wants to get to the surface because of the difference in specific gravity."

Scientists from several universities have reported plumes of what appears to be oil suspended in clouds stretching for miles and reaching hundreds of feet beneath the Gulf's surface.

Those findings — from the University of South Florida, the University of Georgia, Southern Mississippi University and other institutions — were based on initial observations of water samples taken in the Gulf over the last several weeks. They continue to be analyzed.

One researcher said Sunday that their findings are bolstered by the fact that scientists from different institutions have come to similar conclusions after doing separate testing.

"There's been enough evidence from enough different sources," said Marine scientist James Cowan of Louisiana State University, who reported finding a plume last week of oil about 50 miles from the spill site that reached to depths of at least 400 feet.

Hayward said BP's efforts are concentrated on fighting surface slicks.

At the company's bustling Venice staging center, the embattled CEO tromped through the mud to inspect stacks of orange-colored booms being deployed to protect Louisiana's fragile brackish marshes.

He said the company is pouring cleanup resources into Louisiana for a fight that could last months, and that the effort would continue until "every drop" of oil is cleaned up.

Hundreds of workers already are set up in "floating hotels" at the mouth of the Mississippi River, from where they can quickly respond to slicks of crude once they are spotted in the marshes, Hayward said.

An estimated 18 to 40 million gallons of oil have been unleashed since BP's Deepwater Horizon platform exploded and sank last month, killing 11.

Saturday, May 29, 2010

BP's top kill effort fails to plug Gulf oil leak

By BEN NUCKOLS, Associated Press Writer Ben Nuckols, Associated Press Writer

ROBERT, La. – BP has failed in its latest attempt to plug the oil leak in the Gulf of Mexico with mud and cement, the company said Saturday.

BP Chief Operating Officer Doug Suttles said the company determined the "top kill" method had failed after studying it for three days. The method involved pumping heavy drilling mud into a crippled well 5,000 feet underwater.

"We have not been able to stop the flow," Suttles said. "We have made the decision to move onto the next option."

It was the latest setback for the company trying to stop the crude from further fouling waters, wildlife and marshland. Other attempts included a gigantic box placed over the leak and a tube inserted to siphon the oil away. The box failed after ice-like crystals clogged it, while the tube was removed to make way for the top kill after it sucked up more than 900,000 gallons of oil.

The spill is the worst in U.S. history and has dumped between 18 million and 40 million gallons into the Gulf, according to government estimates.

BP says it's already preparing for the next attempt to stop the leak. Under the new plan, BP would use robot submarines to cut off the damaged riser from which the oil is leaking, and then try to cap it with a containment valve. The new attempt would take four days to complete.

"We're confident the job will work but obviously we can't guarantee success," Suttles said of the new plan.




AP Radio correspondent Shelly Adler and Associated Press writer Ivan Moreno contributed to this report.

Friday, May 28, 2010

Raw Video: Obama Visits Louisiana Beach

Obama inspects beach threatened by Gulf oil spill

By DARLENE SUPERVILLE, Associated Press Writer Darlene Superville, Associated Press Writer

GRAND ISLE, La. – Intent on showing firm command of a deepening Gulf Coast crisis, President Barack Obama kneeled on a Lousiana beach Friday and lamented livelihoods and wildlife imperiled by America's largest-ever oil spill.

He flew to the Gulf Coast amid a rising crescendo of criticism as crude continued to spew into nature after an oil rig exploded and sank April 20. Amid fears the tragedy could also engulf his presidency, Obama has launched a campaign to step up public engagement and directly confront the public's anger.

That frustration — and skepticism about the presidential visit — was palpable here in Grand Isle, a small barrier island town south of New Orleans.

"It's a dog and pony show. What can he really do?" said Billy Ward, 53, who comes to his beach house here every weekend. "If he wants to do something, let him get out there and pump some mud and cement into that hole. Just fix it. Help us."

On Thursday, Obama held a rare White House news conference to address the matter, saying "I take responsibility" for handling what is now considered the biggest oil spill in U.S. history.

And on Friday, he interrupted a Memorial Day weekend stay with his family at their Chicago home for the Gulf visit, with his first stop a beach where absorbent booms and sandbags have been laid for miles to try to keep more oil from washing ashore.

No oil could be seen in the water during Obama's helicopter ride from New Orleans, over Louisiana bayous, to Port Fourchon down the coast from Grand Isle.

That changed when he arrived at Fourchon Beach, however.

A shirt-sleeved Obama walked to the water's edge, stooping as Adm. Thad Allen of the Coast Guard explained what he was seeing.

The beach, sealed off with crime-scene-style yellow tape, is one of the few sandy stretches on Louisiana's coast, where most is marshland. Obama called reporters traveling with him to the water's edge and picked up a few pebble-sized tar balls. No other oil was visible.

"These are the tarballs that they're talking about," he said. "You can actually send out teams to pick up as they wash on shore.
He added, "Obviously the concern is that, until we actually stop the flow, we've got problems."

After about 15 minutes at the beach, the president headed to Grand Isle for a formal briefing from Allen, who is overseeing the spill response for the federal government. At intervals along the way were handwritten wooden signs stuck in the sand with "BEACH CLOSED" in black block letters. One woman held up a sign saying "Clean Up the Gulf" while two people played guitar and sang.

Obama was joined by the governors of Louisiana, Florida and Alabama. He was spending a total of about three hours in the region.

Early in the morning in advance of the president's arrival, hundreds of workers clad in white jump suits and rubber gloves hit the beaches to dig oily debris from the sand and haul it off. Workers refused to say who hired them, telling a reporter only they were told to keep quiet or lose their jobs.

BP PLC is using what is called a "top kill" procedure to try to stop the leak by pumping in heavy mud. If it doesn't work, something BP says will be known within a couple days, Obama's political problems will only compound.

On Thursday, Obama acknowledged his administration could have done a better job on several fronts. They included misjudging the industry's ability to handle a worst-case scenario, not moving sooner to end "cozy and sometimes corrupt" relations between the oil industry and government regulators, and not getting a better estimate on the amount of oil gushing from the broken well.

He spoke in sometimes personal terms about his ownership of the crisis.

"I take responsibility. It is my job to make sure that everything is done to shut this down," Obama said. "This is what I wake up to in the morning, and this is what I go to bed at night thinking about."

But locals suffering the effects of the oil that is soiling birds and darkening beaches didn't see much coming from Obama's visit.

A frustrated Larry Freman, 72, who was cleaning up around his vacation home on Grand Isle's main drag, usually packed with tourists for the holiday, said Obama should have stayed home.

"He's wasting his time," the oil business veteran said.

Ward, a developer from Port Allen, was in the midst of building a gated fishing community here when the oil rig exploded. "We can't build this development not knowing if there's going to be any fishing here ever again," he said. "We don't know if it's gonna be six months or six years before we get back to normal, if ever."

Virginia Smith, 36, wasn't impressed.

"I like the man, but I personally feel he's only here to please everybody," she said. "He's not here to make any changes."

In Washington, Secretary of State Hillary Rodham Clinton said the government was still evaluating offers from 17 countries and organizations for such things as technical expertise and equipment. The Coast Guard hasn't yet accepted any of the foreign help, but BP has accepted booms and skimmers from Mexico and Norway.


Associated Press writers Brian Skoloff, Mary Foster and Kevin McGill along Louisiana's coast and Matt Lee in Washington contributed to this report.

Thursday, May 27, 2010

Gulf leak eclipses Exxon Valdez as worst US spill

By GREG BLUESTEIN and BEN NUCKOLS, Associated Press Writers Greg Bluestein And Ben Nuckols, Associated Press Writers

ROBERT, La. – As BP labored for a second day Thursday to choke off the leak at the bottom of the Gulf of Mexico, dire new government estimates showed the disaster has easily eclipsed the Exxon Valdez as the biggest oil spill in U.S. history.

After an 18-hour delay to assess its efforts and bring in more materials, BP resumed pumping heavy drilling mud into the blown-out well 5,000 feet underwater. Officials said it could be late Friday or the weekend before the company knows if the procedure known as a top kill has cut off the oil that has been flowing for five weeks.

As the world waited, President Barack Obama announced major new restrictions on drilling projects, and the head of the federal agency that regulates the industry resigned under pressure, becoming the highest-ranking political casualty of the crisis so far.

BP PLC insisted the top kill was progressing as planned, though the company acknowledged drilling mud was escaping from the broken pipe along with the leaking crude.

"The fact that we had a bunch of mud going up the riser isn't ideal but it's not necessarily indicative of a problem," said spokesman Tom Mueller.

Early Thursday, officials said the process was going well, but later in the day they announced pumping had been suspended 16 hours earlier. BP did not characterize the suspension as a setback, and Eric Smith, associate director of the Tulane Energy Institute, said the move did not indicate the top kill had failed.

"The good news is that they pumped in up to 65 barrels a minute and the thing didn't blow apart," Smith said. "It's taken the most pressure it needs to see and it's held together."

The top kill is the latest in a string of attempts to stop the oil that has been spewing since the drilling rig Deepwater Horizon exploded April 20. Eleven workers were killed.

If the procedure works, BP will inject cement into the well to seal it permanently. If it doesn't, the company has a number of backup plans. Either way, crews will continue to drill two relief wells, considered the only surefire way to stop the leak.

A top kill has never been attempted before so deep underwater. BP Chief Operating Officer Doug Suttles said the company is also considering shooting small, dense rubber balls or assorted junk such as golf balls and rubber scraps to stop up a crippled five-story piece of equipment known as a blowout preventer to keep the mud from escaping.

The stakes were higher than ever as public frustration over the spill grew and a team of government scientists said the oil has been flowing at a rate 2 1/2 to five times higher than what BP and the Coast Guard previously estimated.

Two teams of scientists calculated the well has been spewing between 504,000 and more than a million gallons a day. Even using the most conservative estimate, that means about 18 million gallons have spilled so far. In the worst-case scenario, 39 million gallons have leaked.

That larger figure would be nearly four times the size of the Exxon Valdez disaster, in which a tanker ran aground in Alaska in 1989, spilling nearly 11 million gallons.

"Now we know the true scale of the monster we are fighting in the Gulf," said Jeremy Symons, vice president of the National Wildlife Federation. "BP has unleashed an unstoppable force of appalling proportions."

BP officials said the previous estimate of 210,000 gallons a day was based on the best data available at the time and that the company's response was not tied to the estimate.

"I don't believe at any time we have misled anybody on this," Suttles said.

The spill is not the biggest ever in the Gulf. In 1979, a drilling rig in Mexican waters — the Ixtoc I — blew up, releasing 140 million gallons of oil.

In another troubling discovery, marine scientists said they have spotted a huge new plume of what they believe to be oil deep beneath the Gulf, stretching 22 miles from the leaking wellhead northeast toward Mobile Bay, Ala. They fear it could have resulted from using chemicals a mile below the surface to break up the oil.

In Washington, Elizabeth Birnbaum stepped down as director of the Minerals Management Service, a job she had held since July. Her agency has been harshly criticized over lax oversight of drilling and cozy ties with industry.

An internal Interior Department report released earlier this week found that between 2000 and 2008, agency staff members accepted tickets to sports events, lunches and other gifts from oil and gas companies and used government computers to view pornography.

Polls show the public is souring on the administration's handling of the catastrophe, and Obama sought to assure Americans that the government is in control and deflect criticism that his administration has left BP in charge.

"My job right now is just to make sure everybody in the Gulf understands: This is what I wake up to in the morning, and this is what I go to bed at night thinking about. The spill," he said.

Obama said he would end the "scandalously close relationship" between regulators and the oil companies they oversee. He also extended a freeze on new deepwater oil drilling and canceled or delayed proposed lease sales in the waters off Alaska and Virginia and along the Gulf Coast.

Fishermen, hotel and restaurant owners, politicians and residents along the 100-mile stretch of Gulf coast affected by the spill are fed up with BP's failures to stop the spill. Thick oil is coating birds and delicate wetlands in Louisiana.

"I have anxiety attacks," said Sarah Rigaud, owner of Sarah's Restaurant in Grand Isle, La., where the beach was closed because blobs of oil that looked like melted chocolate had washed up on shore. "Every day I pray that something happens, that it will be stopped and everybody can get back to normal."

Charlotte Randolph, president of Louisiana's Lafourche Parish, one of the coastal parishes affected by the spill, said: "I mean, it's wearing on everybody in this coastal region. You see it in people's eyes. You see it. We need to stop the flow."

"Tourism is dead. Fishing is dead. We're dying a slow death," she added.

The Coast Guard approved portions of Louisiana's $350 million plan to ring its coastline with a wall of sand meant to keep out the oil.


Associated Press Writers Seth Borenstein, Matthew Brown, Jason Dearen, Andrew Taylor and Matthew Daly contributed to this report.

On Guard - Ad on Oil Spill

Gulf spill surpasses Valdez; plug try going well
By GREG BLUESTEIN and SETH BORENSTEIN, Associated Press Writers Greg Bluestein And Seth Borenstein, Associated Press Writers

COVINGTON, La. – An untested procedure to plug the blown-out oil well in the Gulf of Mexico seemed to be working, officials said Thursday, but new estimates showed the spill has already surpassed the Exxon Valdez as the worst in U.S. history.

A team of scientists trying to determine how much oil has been flowing since the offshore rig Deepwater Horizon exploded April 20 and sank two days later found the rate was more than twice and possibly up to five times as high as previously thought.

The fallout from the spill has stretched all the way to Washington, where the head of the federal agency that oversees offshore drilling resigned Thursday and President Barack Obama insisted his administration, not BP, was calling the shots. His comments marked a change in emphasis from earlier administration assertions that the government was overseeing the operation.

BP said the risky procedure, known as a top kill, was force-feeding mud into the blowout preventer and going according to plan. The company should know by the end of the day whether it was successful.

As for the spill, even using the most conservative estimate, the leak has grown to nearly 18 million gallons over the past five weeks. In the worst case scenario, if 39 million gallons has spilled, the oil would fill enough jugs to stretch from the Louisiana marshes to Prince William Sound in Alaska. That's where the Exxon Valdez ran aground in 1989, spilling nearly 11 million gallons.

"Now we know the true scale of the monster we are fighting in the Gulf," said Jeremy Symons, vice president of the National Wildlife Federation. "BP has unleashed an unstoppable force of appalling proportions."

BP and the Coast Guard estimated soon after the explosion that about 210,000 gallons a day was leaking, but scientists who watched underwater video of well had been saying for weeks it was probably more.

U.S. Geological Survey Director Marcia McNutt said two different teams of scientists calculated the well has been spewing between 504,000 and more than a million gallons a day.

BP spokesman Steve Rinehart said the previous estimate came from industry experts and scientists based on the best data available at the time. Asked for the company's response to the new numbers, he replied: "It does not and will not change the response. We are going all out on our response."

Marine scientists also said Thursday they have discovered a massive new plume of what they believe to be oil deep beneath the Gulf, stretching 22 miles from the leaking wellhead northeast toward Mobile Bay, Ala. The discovery by researchers on the University of South Florida College of Marine Science's Weatherbird II vessel is the second significant undersea plume recorded since the rig exploded.

Last week, BP inserted a mile-long tube to siphon some of the oil from the gushing well into a tanker. It sucked up 924,000 gallons, but engineers had to dismantle it so they could start the top kill Wednesday afternoon.

If that works, BP will inject cement into the well to seal it. The top kill has been used above ground but has never been tried 5,000 feet beneath the sea. BP pegged its chance of success at 60 to 70 percent, and Obama cautioned that it "offers no guarantee of success."

Lt. Commander Tony Russell, an aide to Coast Guard Adm. Thad Allen, said Thursday the mud was stopping some oil and gas but had a ways to go before it proved successful.

"As you inject your mud into it, it is going to stop some hydrocarbons," Russell said. "That doesn't mean it's successful."

In Washington, meanwhile, Minerals Management Service Director Elizabeth Birnbaum stepped down from the job she has held since July 2009. Her agency has come under withering criticism from lawmakers of both parties over lax oversight of drilling and cozy ties with industry.

An internal Interior Department report released earlier this week found that between 2000 and 2008, agency staff members accepted tickets to sports events, lunches and other gifts from oil and gas companies and used government computers to view pornography.

Polls show the public is souring on the administration's handling of the catastrophe, and Obama sought to assure Americans that the government is in control.

"I take responsibility. It is my job to make sure this thing is shut down," Obama said at a news conference.

He announced that a new moratorium on drilling permits will be extended for six months. He also said he was suspending planned exploration drilling off the coasts of Alaska and Virginia and on 33 wells currently being drilled in the Gulf of Mexico.

Amy Jaffe, an oil industry expert at Rice University, said an extended moratorium will force the U.S. to eventually rely even more on imports, though she wondered whether offshore drilling would be affected globally, too. Jaffe said the U.S. relies on oil produced in the Gulf of Mexico, and halting new exploration would guarantee that oil prices will rise.

"Of course we can" stop drilling, she said. "But how much are you really willing to pay for gasoline?"

Fishermen, hotel and restaurant owners, politicians and residents along the 100-mile stretch of Gulf coast affected by the spill are also fed up with BP's failures to stop the spill. Thick oil is coating birds and delicate wetlands along the Louisiana coast.

"I have anxiety attacks," said Sarah Rigaud, owner of Sarah's Restaurant in Grand Isle, La., where the public beach was closed because blobs of oil that looked like melted chocolate had washed up on shore. "Every day I pray that something happens, that it will be stopped and everybody can get back to normal."

Seven cleanup crew members who reported dizziness, severe headaches and nausea while working in boats off the Louisiana coast remained hospitalized Thursday. The Coast Guard pulled commercial fishing boats from cleanup efforts in Breton Sound on Wednesday after workers first reported feeling sick. Later, the Coast Guard approved about half of Louisiana's proposed 86-mile wall of sand to protect the coastline from the oil.

If the top kill fails, BP says it has several backup plans. The only permanent solution is drilling a second well, but that will take a couple of months. BP plans to go ahead with that even if the top kill works.

Though the spill is now the biggest in U.S. history, it's not the biggest ever in the Gulf. An offshore drilling rig in Mexican waters — the Ixtoc I — blew up in June 1979, releasing 140 million gallons of oil.

Borenstein reported from Washington. Associated Press Writers Ben Nuckols, Matthew Brown, Jason Dearen and Andrew Taylor, Matthew Daly and Chris Kahn contributed to this report.

Brazil's OGX Finds More Oil In Two Campos Basin Blocks

RIO DE JANEIRO (Dow Jones)--Brazilian oil and gas company OGX Petroleo e Gas Participacoes SA (OGXP3.BR, OGXPY) said two wells in the Campos Basin's BM-C-41 and BM-C-42 blocks showed signs of oil.

The company said it identified an oil-bearing interval in the 1-OGX-13-RJS well in the BM-C-41 block, the second appraisal well for the Vesuvio prospect. The region had a net pay, or reservoir thickness, of 10 meters, OGX said. OGX holds a 100% stake in the block.

OGX also discovered a 110-meter oil column in the 1-OGX-10-RJS well, dubbed Hawaii, in the BM-C-42 block. Carbonate reservoirs in the Aptian section yielded net pay of 40 meters, OGX said. OGX also holds a 100% stake in the BM-C-42 block.

Drilling at both wells has been completed, with the two rigs now moving to other prospects, OGX said. Pride International's Sea Explorer will now tap the Huna prospect, while Diamond Offshore's operated Ocean Lexington will drill in the Pero prospect.

The BM-C-41 block is home to several OGX discoveries. In February, OGX discovered three separate hydrocarbons-bearing reservoirs at the 1-OGX-3-RJS well. The reservoirs were estimated to hold between 500 million and 900 million barrels of recoverable oil.

The independent driller has also had success in the BM-C-42 block, which the company previously estimated to hold recoverable reserves of between 100 million and 200 million barrels of oil.

OGX holds stakes in 29 exploration blocks in the Campos, Espirito Santo, Para-Maranhao, Parnaiba and Santos basins.

Initial drilling success caused the company to ramp up its exploration program. Over the next four years, OGX plans to drill 79 wells--72 offshore and seven on land.

In 2010, OGX will drill 27 wells. Twenty-six of the wells will be drilled offshore, with a single onshore well planned for the Parnaiba Basin.

-By Jeff Fick, Dow Jones Newswires; 55-21-2586-6085;

China signs $10-billion 'oil-for-loan' deal with Brazil news

Asia's largest crude refiner, China's state-owned Sinopec and China Development Bank (CDB) have signed a $10-billion 'oil-for-loan' trilateral agreement with Brazilian oil giant, Petrobras – finalising an accord agreed in February 2009 during China's vice president Xi Jinping visit to Brazil. (See: China to lend Petrobras $10 billion to secure future oil supplies)

Under the three-party agreements signed this week, the state-owned China Development Bank would lend $10-billion at low-interest rates to the Brazilian state-run oil company in return for a guaranteed supply of 7 million metric tonnes of crude oil in 2010, to Sinopec, which would increase to 10 million tonnes from 2011 to 2020.

This 'oil-for-loan' deal will be the fifth such deal signed by China since February 2010 totalling $45 billion, according to a Securities Journal report yesterday.

China Development Bank had agreed to a similar deal in February 2009 and cemented this year with Russian oil companies, where Russia would supply 300,000 barrels a day for the next 20 years in return for $25 billion loan at 6 per cent interest. (See: China, Russia sign $25-billion loan-for-oil deal)

Petrobras and Sinopec have also signed a memorandum of understanding on exploration, equipment and service supply. Sinopec said that it is negotiating with Petrobras to invest in their upstream projects.

Sergio Gabrielli, CEO of Petrobras, said that the $10 billion loan from China Development Bank, and other Brazilian banks would reach $30 billion, which would be used to explore offshore oil at Tupi basin in Brazil that is expected to cost $174 billion by 2013. (See: Petrobras to make $174.4-billion oil investments by 2013)

China has moved into Latin America for its energy needs in a big way.

This week, Beijing-based state-owned Sinochem Group, which figures in the Fortune 500 list acquired a 40-per cent stake in Norway's Statoil-owned Brazilian offshore Peregrino oilfield for $3 billion, making its first entry into the high risk deepwater exploration. (See: Sinochem acquires 40-per cent stake in Statoil's Brazilian oilfield for $3 billion)

In December 2009, China National Offshore Oil Corporation (CNOOC), the country's largest offshore oil producer, signed a deal to help exploit Venezuela's Orinoco petroleum belt, which in turn would increase the country's exports to China from the current 400,000 barrels per day to 1 million barrels per day. (See: Chinese oil firms in deal to exploit Venezuela's Orinco oil belt)

Earlier, China and Venezuela were reported to have set aside $12 billion for infrastructure construction in Venezuela, and China is ready to invest $800 million in the oil trade with Venezuela.

Venezuelan president Hugo Chavez said in April 2010 that China will provide soft loans worth $20 billion to Venezuela for the development of the Venezuela's oil reserves in the vast Orinoco basin. (See: China offers $20-billion loan to Venezuela)

Chavez said the new loan was on top the existing $12-billion Chinese-Venezuelan investment fund in which China deposits money in return for forward sales of oil.

But Brazil has become a strategic country in terms of energy and iron ore needs for China.

In a move to secure long term supply of iron ore for its steel plants, China's third-largest steel producer Wuhan Iron and Steel (Group) Co. had signed an agreement in December 2009 with Brazil's Mineração e Metálicos SA, to acquire 21.52-per cent stake in the iron ore miner for $400 million.

For its oil imports, China depends on the Middle East and Africa, and in the recent past has increased efforts to procure more oil from its neighbour Russia, with whom it shares a 4,300 km border, as well as from Kazakhstan and even in South America.

China imported more than 21 million tons of crude oil in April, an increase of 30.91 per cent from March, according to the latest statistics released by China Customs.

According to latest estimates, China will be dependent on crude imports by approximately 60 per cent by 2020, which means that it will have to source the globe for its future oil needs from oil producing countries.

TNK-BP expects ESPO oil blend price to grow within 3-6 months

Anglo-Russian oil venture TNK-BP expects the price of Russia's new East
Siberian crude export blend ESPO in the Asian market to rise within the next
three to six months as consumers become more familiar with the grade, TNK-BP
vice president Jonathan Kollek said Thursday.

At present, ESPO is being traded some $1.50/barrel lower than its market
value, Kollek added, speaking on the sidelines of an industry conference in

ESPO, which started being exported from a new export terminal at Kozmino
on Russia's Pacific coast at the end of last year, is currently traded at a
discount to Middle East benchmark Oman/Dubai blend.

In recent weeks, the price of ESPO crude has been rising relative to
other grades.

In its latest tender, Rosneft sold ESPO cargoes loading in July and early
August at discounts to Dubai of 35-66 cents/barrel, compared with bigger
discounts of 89 cents/b to $1.47/b for June and early-July cargoes.

Since coming onto the market in late 2009, ESPO crude has been brought by
many refiners in Asia, with smaller volumes also being shipped to the US.

Kollek said ESPO's price would rise, as the blend's quality and the
stability of supply have been confirmed.

ESPO is likely to become a benchmark within two to three years, when the
second stage of the ESPO pipeline project is completed, boosting the route's
throughput, he told the conference.

At the same time, further development of the project--allowing the linkup
of new fields to the route--will change the quality of the blend, he said.

Russia launched the first, 600,000 b/d stage of the ESPO line running
across East Siberia to Skovorodino in Russia's Far East, near the border with
China, in late December. From Skovorodino, 300,000 b/d is transported by rail
to a new export terminal of Kozmino on the Pacific coast.

The first stage of the ESPO project also includes a 300,000 b/d offshoot
from Skovorodino to China, due to be completed at the end of 2010.

Transneft has already started work on the pipeline's second stage, which
is to extend the route to Kozmino and simultaneously to expand its capacity to
1 million b/d by the end of 2012. At a later stage, the route could be
expanded further to 1.6 million b/d.


Separately, Kollek said an expected increase in Russia's transportation
capacity in the coming years would allow oil producers to re-direct volumes
between westward and eastward directions, providing flexibility for producers'
sales strategy for the first time.

Russia is expected to bring 78 million mt/year of new transportation
capacity by 2014, with crude production estimated to grow by nearly 40 million
mt/year by that time, he said.

"This is a very good thing for oil producers because [the extra capacity]
will give us alternatives, options to choose where to go," he said.

As a result, oil producers will be able to make decisions on crude supply
directions depending on where the price is better, he said.

Transneft, which is also expanding pipeline capacity westwards, is doing
"a fantastic" job, he added.

When asked if this would lead to cuts in supplies of Russia's main export
blend Urals to western markets and how this could affect Urals prices, Kollek
said: "I expect a tightening in the deliveries to the west and consequently a
tightening in the prices."

In theory, he said, the discount at which Urals is currently being traded
to Brent could narrow.

"Those days [of large discounts to Brent] are over," he said.

At the same time, he added that it is hard to say how significant a
change to Urals price could take place, as Urals' quality is lower than that
of Brent.

In June 2009, Russia started building a new 30 million mt/year pipeline
dubbed BPS 2, which is a link from Russia's key westward oil pipeline Druzhba
at Unecha to a loading terminal in Ust-Luga on the Baltic coast, to export
crude westwards bypassing neighboring Belarus.

--Nadia Rodova,

FACTBOX-Russia's relations with Iran
(Reuters) - Iran and Russia clashed on Wednesday over Kremlin support for draft U.N. sanctions against the Islamic Republic, in one of the worst rows between the two powers since the Cold War.


Iran is Russia's biggest trading partner in the Middle East, though bilateral trade fell to $3 billion in 2009 -- or just 0.7 percent of Russia's external trade -- after reaching a record of $3.7 billion the year before.

Russian trade with Iran is about double Russia's trade with Israel and is dwarfed by the $236 billion annual trade with the European Union, Russia's biggest trading partner, or Russia's $39.5 billion annual trade with China.

The trade is also one way: Russian exports -- mostly ferrous metals, cars and arms -- make up 93 percent of last year's bilateral trade with Iran.

Analysts say the raw figures fail to show the true significance of projects such as Russia's deal to build Iran's first nuclear power station in Bushehr for about $1 billion.

A Russian deal to sell Iran S-300 surface to air missiles, which could protect Iran's nuclear facilities against possible air strikes, has been a major issue in relations with Israel.

Many diplomats and some Iranian officials say the S-300 deal and the long-delayed Bushehr plant, agreed under a 1995 contract, are used by Moscow as levers in relations with Tehran.


Russia is the world's biggest energy producer, holding over 23 percent of the world's gas and 6.3 percent of the world's oil. Iran holds 11 percent of the world's oil and 16 percent of the world's gas, the second biggest gas reserves.

Tehran and Moscow cooperate in a Russian-led group of gas powers which control nearly 70 percent of proven world reserves, though Russia has in the past reneged on pledges to OPEC -- of which Iran is a key member -- to limit oil exports.

Iran and Russia are natural competitors in gas pipeline politics and Moscow is keen to prevent Iran taking any of its lucrative gas sales to the European Union.

Iran has said it wants to supply the Nabucco pipeline, a long delayed project that is backed by the European Union as a way to curb dependency on Russia by pumping gas from the Caspian and the Middle East.

That would undermine the efforts of Russia's leaders, who have spent a decade garnering support for rival pipelines such as South Stream and Nord Stream.

Over the past year, Russian energy companies have distinctly cooled towards Iranian energy projects.

* LUKOIL (LKOH.MM) will cease gasoline sales to Iran, industry sources said on April 7. LUKOIL had supplied some 250,000 to 500,000 barrels of gasoline to Iran every other month, traders said. [ID:nLDE63606I]

* Caspian Sea producers will suspend oil swaps with Iran from June 1 after Tehran steeply raised fees on operations to avoid an oil glut following lower sales of its own crude, industry sources said on May 21. [ID:nLDE64K1GT]

* Russian gas giant, Gazprom (GAZP.MM) said in 2008 that it planned to work with Iran and Qatar to develop the world's biggest gas field in Iran's South Pars, which also borders Qatar. But it has said little about its plans recently.

* Gazprom Neft (SIBN.MM), Russia's fifth-largest oil producer, said last year it had signed a memorandum of understanding with the National Iranian Oil Co (NIOC) to study the development of two Iranian oilfields.


Though sometimes painted as Iran's main big-power partner, Russia is still regarded with deep distrust in Iran after the role the Tsarist and then Soviet empires played in helping foreign powers to dominate Persia.

The Soviet Union was reviled by Iran as an infidel Communist state during the Cold War, but ties warmed since 1991 and Russia view Iran as a growing -- if unpredictable -- regional power.

In June 2009 Moscow was happy to welcome Iranian President Mahmoud Ahmadinejad to a summit of BRIC nations in Siberia and congratulate him on his disputed re-election.

But Russia does not want a nuclear armed power along the southern shores of the Caspian Sea and Russia has expressed growing concern about Iran's secrecy about its nuclear programme.

Russian officials in private express frustration with Ahmadinejad's rhetoric and Tehran's erratic negotiating techniques.

Some diplomats say Moscow has skilfully used its supposed clout with Tehran to play a central role in negotiations on the Iranian nuclear programme and to push for concessions from the United States and European Union powers.

Before backing previous sanctions resolutions, Russian leaders have traded right up the Security Council vote. (Writing by Guy Faulconbridge)

Pakistan, Iran to sign pipeline deal
Anita Joshua

Two months after Pakistan and Iran signed a deal for the construction of a pipeline that would allow Iranian gas to be pumped into Balochistan and Sindh, the two countries will sign a sovereign guarantee on Friday for constructing the much delayed project that was envisaged as a “peace pipeline'' extending right into India.

The sovereign guarantee for the $ 7.6 billion project will be signed by representatives of the National Iranian Oil Company and Pakistan's Petroleum Ministry. The two countries had inked the deal on March 17 this year in Turkey as per which a pipeline will connect Iran's South Pars gas field with Pakistan's southern Balochistan and Sindh provinces.

As part of the project, gas will be pumped directly into “energy-hungry'' Pakistan daily from Iran by the middle of the next decade.

The pipeline will begin from Iran's Assalouyeh Energy Zone in the South and stretch over 1,100 km through the country before it enters Pakistan. The initial capacity of the pipeline will be 22 billion cubic meters of natural gas per annum. It is expected to be later raised to 55 billion cubic metres.

Security considerations and inability to come to an understanding with Pakistan over transmission charges saw India vacillate over joining the project.

Finally, Iran and Pakistan decided to enter into a bilateral agreement though the former has continued to maintain that India was welcome to join the project.

Qatar Shipping Report Q3 2010 - New Market Report Published

The merger of two of Qatar's top shipping companies has been completed, and they are now changing gear to cope with the change from recession to impending boom. Qatar Navigation has acquired Qatar Shipping (QShips); both companies are ultimately government-owned and the merger was Doha's response to the 2009 recession. In practice however, the new merged company is positioned to play offensively, rather than defensively, as rising oil and gas revenues put Qatar on an accelerated growth path in 2010. The merged company has reported a first-quarter profit of QAR554.59mn (US$152.46mn) in Q110. More good results can now be expected as oil, LPG and LNG exports, and consequently demand for tankers, begin to surge forward. In a press statement Qatar Navigation asserted that the merger had established 'clear leadership in the Qatari market and the potential to become a major regional player with a firm basis to establish and grow its presence in international markets'.

The macroeconomic environment in which Qatar's shipping and ports sector operates is changing rapidly. After the bursting of banking and real estate bubbles last year, with the associated worries, 2010 presents itself as a particularly sharp V-shaped recovery. With GDP surging ahead, the issue now is how to deal with the problems of growth. We expect the economy to grow by a massive 15.4% this year, followed by double-digit growth again in 2011 (GDP will rise by 10.4%). Gas production, most of which needs to be exported by sea on gas tankers, is forecast to increase at an average annual rate of 11.4% over the next five years.

Cargo volumes handled in Qatar's Port of Doha and in its successor, (currently under construction) the New Port of Doha, are set to grow very strongly. As the Qatari authorities do not publish detailed cargo statistics, and have not said much about the phasing of the move to the New Port of Doha, we are making the broad prediction that volumes over the next five years will grow at annual average rate above GDP (expected to be 8.3%) and close to foreign trade (expected to be 12.1%). By 2014 we expect the number of containers handled at the Port of Doha to be up to 427,811 20-foot equivalent units (TEUs), while at the New Port they will have reached 106,953TEUs.

With a relatively small population and a very large and growing natural gas industry, Qatar is set to see very rapid trade growth. LNG exports will lead the way and deliver double-digit export expansion. In fact, this year alone we see exports rising by over 50% to US$73.6bn, while imports grow by 10% to US$27.7bn, generating a massive surplus. Large positive trade balances will be a marked feature of the next few years.

With such strong growth projections the risks to our ports and shipping forecast must lie on the downside, although in our view they are of no more than moderate probability. We highlight two risks. The first is the possibility of lower than expected oil and gas price increases, which would have the effect of cooling the growth in trade and volumes (note, however, that this depends on elasticities of demand, and arguably the developed economies' demand for LNG is price-inelastic). The second, and perhaps more probable, risk is that the proposed transition from the Port of Doha to the New Port of Doha is delayed or otherwise runs less smoothly than planned. This could quite significantly reduce cargo volumes because of the capacity problems at the existing port.

Qatar Shipping Report Q3 2010:

Oil chiefs predict long-term price strength

(Reuters) - Any dip in oil below $70 a barrel will almost certainly be brief as possible OPEC action and the prospect of future supply limits prevent a sustained slide, industry executives told Reuters Global Energy Summit.

Analysts have cut their price outlooks in response to extreme nervousness across financial markets , but industry players, who traditionally take a long-term view, anticipated higher rather than lower prices.

In the near term, action from the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, could bolster the market if oil fails to sustain its rally from a low this month of less than $65 a barrel.

Representing OPEC at the Reuters energy summit, Libya's most senior oil official Shokri Ghanem said only the group was monitoring the situation and saw no need for intervention yet.

"We are concerned. We are following it up and we are asking each other to abide by the ceiling for the time being this is what we are doing," Ghanem said.

Oil markets are often skeptical about OPEC's ability to comply with its production quotas, especially as discipline has slipped to only 51 percent of agreed curbs.

But deep price falls could concentrate minds as was the case the end of 2008 and start of 2009.

"If it goes below $70, OPEC will ask their members to comply with the quota," said Jean-Jacques Mosconi, head of strategy at oil major Total.

"When the price was really down, they were very scared and they were very compliant with the quota. It's human. When they see the price climbing up, they say 'we don't have to be close to the quota'."

In the current climate of still tepid demand and sluggish economic recovery, he saw this year's peak of $87.15 as overdone, but deep falls would also be an exaggeration.

"We know the price was not justified at $85. Demand was not strong enough. There is excess capacity of 5 million barrels per day (bpd) in OPEC members. The price has not to be $30-$40, but more than $80 was too much.

"Maybe we're coming back toward a price without speculation of $70."


Over the longer term, any reduced investment in new projects following the 2008 price slump, and as a result of tightened deepwater regulation following BP's (BP.L) spill in the Gulf of Mexico, could drive oil higher.

Among those closest to investment trends in the oil sector are contractors, such as France's Technip (TECF.PA), which predicted an oil price rally at some point.

"I'm not an economist, but I can tell you what's absolutely sure is that all the delays that have happened, all the delays that could potentially happen in the Gulf of Mexico, we're going to pay one day," said CEO Thierry Pilenko.

"I don't know whether it's in 18 months or in two years, but at some stage, everybody will be screaming for resources."

He said his customers made conservative price assumptions of around $50-$60 a barrel, a level too low to encourage investment in the more difficult prospects, which many in the industry think the world increasingly will need.

Projects to extract oil from tar sands, for instance, only picked up, he said, when the oil price rose to around $75-$80.

The price at which tar sands become most viable coincides with the $70-$80 a barrel range Saudi Arabia has repeatedly said is good for producers and consumers.

Many industry players are inclined to agree and see the oil market finding equilibrium around that level, with Saudi Arabia, sensitive to possible demand destruction, acting to quash any spikes above as well as below.

"It's unlikely if you exclude major political drama that prices are going much above $80-$85. There is capacity in place that can be ramped up," said Saras (SRS.MI) General Manager Dario Scaffardi. "Saudi Arabia does not want the price to go out of control."

(Editing by Amanda Cooper)

GE reaches deal with Saudi Aramco

DAMMAM, Saudi Arabia

General Electric said Wednesday that it has signed a deal with the national oil company of Saudi Arabia that establishes a framework for the supply of GE turbomachinery equipment and services to support oil and gas production in the country.

The deal between GE and Saudi Aramco is designed to cut costs and lead to shorter cycle times for Saudi Aramco projects. It also builds on initiatives to maximize the performance of Saudi Aramco's fleet of turbomachinery equipment, which includes more than 60 gas turbines, 90 compressors and more than 100 pumps.

No financial terms for the deal were included in the announcement.

Crack spread

Crack spread is a term used in the oil industry and futures trading for the differential between the price of crude oil and petroleum products extracted from it - that is, the profit margin that an oil refinery can expect to make by "cracking" crude oil (breaking its long-chain hydrocarbons into useful shorter-chain petroleum products).

In the futures markets, the "crack spread" is a specific spread trade involving simultaneously buying and selling contracts in crude oil and one or more derivative products, typically gasoline and heating oil. Oil refineries may trade a crack spread to hedge the price risk of their operations, while speculators attempt to profit from a change in the oil/gasoline price differential.

Factors affecting the crack spread

One of the most important factors affecting the crack spread is the relative proportion of various petroleum products produced by a refinery. Refineries produce many products from crude oil, including gasoline, kerosene, diesel, heating oil, aviation fuel, asphalt and others. To some degree, the proportion of each product produced can be varied in order to suit the demands of the local market. Regional differences in the demand for each refined product depend upon the relative demand for fuel for heating, cooking or transportation purposes. Within a region, there can also be seasonal differences in demand for heating fuel versus transportation fuel.

The mix of refined products is also affected by the particular blend of crude oil feedstock processed by a refinery, and by the capabilities of the refinery. Heavier crude oils contain a higher proportion of heavy hydrocarbons composed of longer carbon chains. As a result, heavy oil is more difficult to refine into lighter products such as gasoline. A refinery using less sophisticated processes will be constrained in its ability to optimize its mix of refined products when processing heavy oil.

Fuel Oil Shipments to Singapore May Rise 10%: Energy Markets

By Yuji Okada and Yee Kai Pin

(Bloomberg) -- Fuel oil shipments to Singapore may increase as much as 10 percent next month as prices rise in Asia, encouraging exports from Western Europe, Russia and the U.S. Gulf of Mexico.

Asia’s demand for fuel oil, the residual waste from refining that’s used to generate electricity and power ships, is being driven by Middle East utilities providing power for air- conditioning and a recovery in shipping as the global recession eases. The additional cargoes in Singapore may cap fuel oil’s gain against crude, known as the crack spread, the traders said.

“The key to predict fuel oil prices for the coming months is power companies’ demand in the Middle East,” said Yasuhito Imaizumi, a Singapore-based bunker trading manager at Petro Summit Pte, a subsidiary of Sumitomo Corp. “The market will be quite sensitive to activities among Middle Eastern power companies in the run-up to summer season.”

The discount of Singapore 180-centistoke high-sulfur fuel oil, the Asian benchmark, to Dubai crude oil was $5.44 a barrel yesterday, narrowing about 40 percent this month because of reduced shipments compared with April.

Saudi Arabia

Saudi Arabia, which burns crude and fuel oil for power generation, may use more fuel oil this summer after the average price of New York crude futures so far this year rose 67 percent from a year earlier.

BP Plc, Statoil ASA and Litasco, the trading unit of OAO Lukoil, Russia’s largest non-state producer, hired Very Large Crude Carriers to load European fuel oil for next month’s delivery to Singapore, according to reports from three shipbrokers. Supertankers Gemini Glory, Front Commander and Kazimah III were chartered for as much as $5 million. Rates on the route were about $4.25 million in April and $3.9 million in March.

ConocoPhillips, Trafigura Beheer BV and PowerSeraya Ltd. have booked three more VLCCs to load fuel oil in early June from the U.S. Gulf or the Caribbean for delivery to Singapore, shipbrokers said.

Russian Shipments

Shipments of Russian straight-run fuel oil, used to feed vacuum-distillation units at refineries, may increase in June, two traders said. Straight-run fuel oil is a residue that comes directly from crude distillation.

“These ex-Russia cargoes might be diverted to Singapore from the U.S. in June as run rates at U.S. refineries fell,” said Akira Kamiyama, a Tokyo-based trader at Mitsui & Co.

Refinery utilization rates in the U.S., the world’s largest energy consumer, have fallen three straight weeks after reaching 89.6 percent of capacity, the highest since May 2008. Run rates were at 87.8 percent in the week ended May 21, the Energy Department said yesterday.

The premium of 180-centistoke fuel oil to 380-centistoke grade, also known as the viscosity spread, has tumbled 84 percent so far this month to $1.75 a ton because of increased demand from ship owners that use lower-quality bunker.

“The recent drop in fuel oil prices stimulated ship owners appetite for bunker fuel,” Imaizumi said.

Bunker Fuel

Singapore 380-centistoke bunker fuel has fallen 16 percent in May, Bloomberg data show. Sales in the city-state, the world’s largest bunkering port, rose to a record 3.42 million tons in April, up 2.7 percent from the previous month, according to data compiled by the Maritime and Port Authority. Sales were up 19 percent from a year earlier.

Increased supplies of blending stock, used to reduce the viscosity of fuel oil, also accelerated the momentum of narrowing the spread.

Fuel oil’s viscosity spread rose to a 15-month high of $13.50 a ton on March 10 on increased shipments of high- viscosity fuel oil from Europe and a shortage of blending grades from the U.S.

The premium of Asia’s benchmark gasoil to Dubai crude oil has gained 65 percent so far this year to $10.14 a barrel on May 26, data compiled by Bloomberg show.

Traders forecast the viscosity spread will widen next month because refiners produce less blending material when they produce more gasoil.

“Given the good gasoil crack, viscosity spread should widen to $10 a ton,” Mitsui’s Kamiyama said.

--Editors: Clyde Russell, Jane Lee.

To contact the reporters on this story: Yuji Okada in Tokyo at; Yee Kai Pin in Singapore at

To contact the editor responsible for this story: Jane Lee at

Oil Tanker Rates Drop Most in 16 Months on Mediterranean Plunge

By Alaric Nightingale

(Bloomberg) -- Crude-oil tanker chartering rates fell the most in 16 months as lease rates for ships in the Mediterranean plunged.

The Baltic Dirty Tanker Index fell 4.9 percent to 975 points, the largest one-day drop since January 2009, according to data from the Baltic Exchange. The biggest drop was in rates for ships hauling 80,000-barrel cargoes in the Mediterranean, with a 22 percent retreat to 168.18 Worldscale points.

Charter rates on the industry benchmark Saudi Arabia-to- Japan route fell 0.3 percent to 68.67 Worldscale points, a seventh consecutive drop. Returns from the route fell 2.8 percent to $31,961 a day.

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

Each flat-rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

Global rental income from 1 million-barrel carrying suezmaxes fell 8 percent to $34,775 a day. Aframaxes globally lost 17 percent to $25,586 a day.

--Editors: Stuart Wallace, Dan Weeks

To contact the reporter on this story: Alaric Nightingale in London at

To contact the editor responsible for this story: Stuart Wallace at

Save Gulf Oil For An Emergency

Jeffrey Frankel

The risk of an oil shock means we should keep some reserves underwater.

In the wake of the April oil well blowout off the coast of Louisiana, policy makers are rethinking the issue of offshore drilling. Clearly the last decade's neglect of safety rules by federal regulators needs to come to an end. But what larger implications should we draw for domestic oil drilling?

The tension has long been between those who give primacy to the environment, on the one hand, and those who give primacy to business on the other. Probably some of the first group oppose all oil drilling and some of the latter support all oil drilling (even when the government unconscionably offers oil leases on federal lands at below-market rates, as it often has historically). As so often, the right answer lies in between.

Yahoo! BuzzEver since Sept. 11, 2001, "energy security" has received increased emphasis. The energy security argument is viewed as able to tip the balance in between the dueling environmental and business arguments. Usually it is taken as self-evident that the energy security goal argues in the direction of increased exploitation of domestic oil resources: "Drill, Baby, Drill." But some of us have long thought that a more appropriate slogan for the policy of using domestic reserves as aggressively as possibly would be "Drain America First." A true understanding of energy security could tip the balance the other way instead, in the direction of conserving American energy resources. Oil wells such as the Deepwater Horizon site, once it is capped, should be saved, their future use to be made conditional on a true national emergency, such as a long-term cut-off of Persian Gulf oil resulting in a global oil price of $200 a barrel or more.

Public debate is hampered by the lack of a working definition of energy security. A goal of ending U.S. imports of oil would not be attainable, in the foreseeable future, given the gulf between domestic deposits and our consumption (wind and solar will not give us enough energy to make up the difference, certainly not for many decades.) A goal of ending imports from specific geographic regions such as the Mideast would not be relevant, because oil is mostly fungible: a sudden fall in global supply would raise the global price and thus have virtually the same effect on the American economy regardless whether the cut-off occurs in a region where we had been buying our oil or not.

What, then, should be the goal of energy security policy? Imagine that at some point in the coming half-century, there is a sudden cut-off in oil exports from the Persian Gulf (or the Arabian Gulf, as our non-Iranian friends on the Arabian Peninsula prefer to call it.) Perhaps as a result of military conflict between the U.S. and Iran, Islamist revolutions in Saudi Arabia and Gulf emirates, or terrorist use of radiological weapons. Precedents, of course are the oil shocks of 1973-'74 (precipitated by the Arab oil embargo in connection with the Yom Kippur War), 1979 (the fall of the Shah of Iran) and 1990 (Iraq's invasion of Kuwait).

What would be the impact of a big new shock on the economy of the U.S. and other industrial countries? The quantity of oil in the Strategic Petroleum Reserve (SPR) could at best help tide us over only for a few months. If the global crisis threatened to go on for years, the economic effects could be severe. This fact currently constrains U.S. foreign policy and military policy, which is part of what we mean by the phrase energy security. Also important for our national security are two more points. First, our oil imports currently transfer every year many billions of dollars to dictators and extremists who are potential enemies. Second, our military runs on oil, as did Japan's in 1941, which is largely why it went to war.

Reuters summit-Oil contango here to stay -Mercuria


* Longer term oil prices needs to be $90-$100
* Backwardation likely to be only sporadic, contango endures

By Barbara Lewis and Christopher Johnson

Oil prices are close to the bottom, but the market will probably stay in contango as producer countries ensure a cushion of supply, trading house Mercuria told the Reuters Global Energy Summit.
Longer term, Mercuria said oil needed to trade around $90 to $100 to ensure enough supply to meet demand in emerging countries.

Some investment banks, including Goldman Sachs, have wrongly forecast a return by now to backwardation, in which oil for delivery near term is more expensive than for later delivery.

But Mercuria, which accurately predicted in June last year that the market would retain the opposite structure contango, said it expected the most prompt crude futures to stay cheaper than those for later delivery.

"We don't think we're far from the bottom because the production of oil is still in the hands of not that many countries," Mercuria co-founder Marco Dunand said. "Certain countries need a $65-$70 kind of floor."

Oil prices this month fell to a low below $65 a barrel, but have since rallied back above $70.

Longer term, Dunand was relatively bullish.

"The market needs to be in the region of $90 to $100 and that's where the market has to go if the population in developing countries wants to have cars," he said.

Still that did not mean a return to backwardation, the structure that historically has been associated with rising prices and limited supplies.


"The market is more likely to stay in contango, certainly for crude," said Dunand. "The ultimate regulator of stocks is OPEC. If you have low stocks in a high price environment, it would be extremely dangerous for the economy because you could have a massive bubble in the price."

The Organization of the Petroleum Exporting Countries, led by Saudi Arabia, intervened to boost supply when prices spiked in 2008 to a record of nearly $150 a barrel.

Since a fall in use linked to recession and demand destruction linked to higher prices, OPEC said this year its spare capacity has risen to more than 6 million barrels per day.

During the recession in 2009, oil demand fell so much that millions of barrels of surplus oil were stored in ships at sea.

At the same time, the contango in the oil market gaped wide and trading houses such as Mercuria were able to generate hefty profits through storage plays.

Dunand saw the market staying in structural contango with sporadic backwardation and said the contango would only be wide enough to justify keeping oil onshore, rather than at sea.

"I don't think the contango is going to be high enough to justify storing oil in ships," he said.

Steep short-term falls on the oil market that have coincided with nervousness across financial markets following the Greek debt crisis had little to do with oil demand.

Dunand summed it up as "so-called derisking or deleveraging", which had a marked impact at the back end of the futures curve.

"Clearly some people at the back of the market wanted to exit," he said, but saw reasons for them to return.

BP's Gulf of Mexico spill, for instance, had heightened the cost and risk of future oil supplies and raised the prospect of increased regulation for deepwater drilling.

"I'm sure the regulations will come through in the U.S. and possibly other parts of the world," said Dunand. "It's going to be expensive. It's going to be more difficult."

Mercuria co-founder Daniel Jaeggi took the same view:

"What the BP tragedy illustrates, if it needed to be illustrated, is how fragile the long-term supply side is."

"We are getting to the limits of technology. We are obviously always pushing at the limits." (Editing by Anthony Barker)

BP chief hit by sinking feeling

Tony Hayward CEO BP

Tamsin Carlisle

For Tony Hayward, the embattled chief executive of BP, turning 53 last Friday would probably have been the last thing on his mind.
For more than a month now, the scientist turned oil company manager has been grappling with the blowout at BP’s deepwater Macondo well in the Gulf of Mexico.

As the whole world knows by now, the accompanying explosion on April 20 sank one of the world’s most technically advanced drill ships with the loss of 11 lives, leading to what may be the worst oil spill in US history.

Thousands or possibly tens of thousands of barrels of oil a day have been gushing into the ocean since the blowout and are washing ashore along a wide swathe of US coastline, threatening the region’s fishing and tourism industries.
Amid mounting public hostility towards BP, Mr Hayward has the job of co-ordinating a monumental operation aimed at stopping the flow of oil and mopping up the spill.

But so far, the company’s best efforts have fallen frustratingly short of hopes and expectations. Politicians, the public and the company’s shareholders are losing patience.

“Reputationally and in every other way, we will be judged by the quality, intensity, speed and efficacy of our response,” Mr Hayward said last month, in words that are proving prophetic.

It hardly helps that he promised to focus “like a laser” on safety three years ago when he landed BP’s top job, succeeding Lord Browne, who stepped down after a series of accidents badly tarnished BP’s reputation.

But by all accounts, the new boss took the company’s safety record personally. In the 1990s, while Mr Hayward was the head of BP’s Venezuela unit, a young rig hand was killed in an accident at one of the company’s drilling sites there.
“I went to the funeral to pay my respects,” he said in a 2005 interview with the journalist and author Judi Bevan. “At the end of the service his mother came up to me and beat me on the chest. ‘Why did you let it happen?’ she asked. “It changed the way I think about safety. Leaders must make the safety of all who work for them their top priority.”

Mr Hayward lists his second and third priorities as making all of his staff “feel like they are part of a winning team” and “to conduct BP’s business in a way that is in tune with the world”.
But now, far from feeling like winners, BP’s employees are fretting about their jobs and pensions while its shareholders threaten lawsuits.

And as for BP being “in tune with the world”, some crisis management experts describe the company’s response to its latest disaster as a public relations catastrophe.

They have good cause. Mr Hayward has failed to convince the public and many experts that BP was properly prepared to deal with a disaster of this scale and was slow to acknowledge the severity of the accident.
On April 20, he told CNN that his initial reaction was: “How the hell could this happen?” Days later, he told Britain’s The Guardian newspaper that the spill was “tiny” in relation to the water diluting it.

“The Gulf of Mexico is a very big ocean,” Mr Hayward said. “The amount of volume of oil and dispersant we are putting into it is tiny in relation to the total water volume.”

This did nothing to calm his opponents; instead his comments helped cement public opinion against the company.
Yet until the Gulf incident, much of his considerable success as a corporate leader had flowed from his everyman appeal as an energetic, slightly rough-hewn, hands-on manager – quite different from his polished predecessor and not nearly as diplomatic.

Lord Browne had been dubbed The Sun King, not just for presiding over a company with a sunburst logo, but also for his autocratic management style, one reminiscent of the French monarch Louis XIV.

Peter Sutherland, the former BP chairman, said Mr Hayward had been “a superb chief executive by common consent, in terms of internal and external perception”.

Others have described him as “collegiate”, “a team player”, “bright with a disarming smile”, “humble” and as someone standing for a culture of responsibility.

“People who work for BP care deeply about the company,” Mr Hayward said in 2008. “I think that’s because this is a company that tries to do the right thing.”

Anthony B Hayward was born on May 21, 1957, in Slough, a utilitarian community in the Thames Valley just west of London with few of the refinements of the adjacent neighbourhood of Windsor, where Queen Elizabeth II of England keeps a castle.

His father, the manager of a textile factory, had seven children. Tony, the eldest, grew into an athletic youth who looked out for his brother and sisters and captained his school’s football team.
Football remains a passion to this day and Mr Hayward is an ardent fan of West Ham. He also sails, skis and competes in triathlons.

After attending grammar school in Windsor, BP’s future boss studied geology at Birmingham, choosing the city’s Aston University because it had a good football team and his subject because he liked the outdoors. Soon, however, he developed an enthusiasm for unravelling the earth’s secrets that matched his love of football.

Obtaining a PhD in geology from the University of Edinburgh, Mr Hayward dropped plans for an academic career in favour of the gritty adventure of life on the front line of the oil industry.

He joined BP in 1982, turning down job offers from several rival firms, and was posted to Aberdeen as a rig geologist. That was the first of many field positions that took him from China and Vietnam to Canada and Colombia, where in 1992 he became BP’s exploration manager for the country.

From that time on, Mr Hayward was regarded as a “BP lifer”. He met his wife Maureen through the company, where she worked as a geophysicist before opting to stay at home to raise the couple’s two children Kieren and Tara, now both teenagers.

In contrast to the fine artwork that once adorned Lord Browne’s spacious office at Britannic House, BP’s London headquarters, Mr Hayward’s smaller office is decorated with photos of family sailing holidays.

But before his marriage, Mr Hayward had already caught the eye of Lord Browne and had spent two years in London as a BP “turtle”, or personal assistant to the BP boss – a position that meant he was being groomed for senior management.

Despite being no financial whizz, Mr Hayward was appointed the group treasurer of BP in 2000, mainly to learn about that side of the business. He was named chief executive of exploration and production in 2003.

Along the way, he was at times outspokenly critical of BP’s management style and safety culture – a sign that others in the company’s upper echelons, even Lord Browne, were tacitly supportive of change.

“We have a leadership style that is too directive and doesn’t listen sufficiently well,” Mr Hayward told an audience in Houston in 2005, shortly after an explosion at BP’s Texas City refinery had killed 15 workers.

Two years later, as BP’s chief, he said: “I think we have the opportunity to set a new benchmark in industrial safety in our industry and probably more broadly. So that’s sort of task number one.” Task number two, he added, was “about creating an environment where everyone feels like they have a voice”.

After an independent inquiry commissioned by the US government into the Texas City accident, Mr Hayward said the scathing findings of the Baker Panel in 2007 had given BP “a road map for a three to five-year journey to transfer our operations globally”.

“What I learnt was that we’d become far too introspective at the top. In particular, we weren’t listening to the operating people on safety and reliability.”

In the end, the company may have not had enough time to complete its safety overhaul before the next disaster struck, especially with the global recession intervening to cut resources. A chorus of critics, however, point to BP’s record £3.6 billion (Dh19.17bn) of first-quarter profits, claiming Mr Hayward focused too narrowly on the bottom line to move quickly on safety reforms.

In March, Duane Wilson, an independent expert appointed to BP’s board by the Baker Panel, found that BP had made “substantial progress” in complying with the panel’s recommendations.

But Mr Wilson added there were “a number of activities under way that need to be completed or sustained”, requiring “continued focus over multiple years”.

Time ran out too quickly for Mr Hayward. Like the oil slick still spreading in the Gulf, his future is now growing murky.

“In the last two years, it seemed BP had really cleaned up their act,” Fadel Gheit, a managing director and oil analyst at Oppenheimer, said last month. “Now it looks like a house of cards that totally collapsed.”

America can't afford not drill in the Gulf.

America can't afford not to drill in gulfRead more:

Those who disparage offshore drilling - and seem eager to ban it - ignore that the Gulf of Mexico accounts for one-third of U.S. oil production. Without domestic production, we would be spending even more on imported oil - which is already running $1.5 billion a day.

Any sensible response to the explosion on the Deepwater Horizon oil rig - and the huge oil spill that's fouling gulf waters - needs to recognize two facts. First, the demand for oil is expected to increase. Second, America cannot suddenly stop offshore drilling.

The best place in the United States to find new oil is in the gulf's untapped deepwater areas, in the Atlantic, and off Alaska. These three drilling areas combined hold as much as 22 billion barrels of oil, which is more than our current total estimated reserves. This oil would help meet U.S. energy needs for decades.

But if these areas are closed to oil production, we would need to import more oil from overseas, probably from countries that are nationalistic and, in some cases, hostile. Some of the countries are run by despots like Venezuela's Hugo Chavez.

The reality is that the cards are stacked against us. U.S. investor-owned oil companies hold only 6 percent of the world's petroleum reserves, while state-owned national oil companies in Venezuela, Iran, China, Nigeria, India, Russia, Saudi Arabia and other countries control 80 percent of the reserves. Coincidentally, even some of these countries are drilling for oil in Cuban waters just 50 miles from Florida.

The Gulf of Mexico is among the best areas to which U.S. companies still have access. Drilling for oil in the gulf is an opportunity we cannot afford to squander. Our energy security and economic growth depend on it.

Producing oil safely is essential. The offshore rig explosion that cost the lives of 11 men and now threatens the gulf shores was such a shock that it has restarted a national debate on safety.

To its credit, the Obama administration has mounted a coordinated response to the accident. One is to break up the federal Minerals Management Service, the agency responsible for both regulating safety and raising revenue from offshore drilling. Creating a separate entity to oversee safety and environmental responsibilities is sensible.

Meanwhile, the oil industry has established two task forces to examine its own safety standards and procedures. We can expect oil firms to learn useful lessons from the accident, keeping in mind that any form of energy development poses safety and environmental challenges that must be faced, resolved and overcome. How to maintain stable energy production amid sweeping technological change is a problem our government is only beginning to appreciate.

It's an unfortunate fact that no energy source is perfect.

Imposing a ban on offshore oil development would be a mistake of historic proportions.

The fact is, before the Deepwater Horizon capsized there had not been a large oil spill from an offshore drilling rig in 40 years. The National Research Council reports that offshore drilling accounts for only 1 percent of the oil in U.S. waters, and tankers and pipelines only 4 percent.

By way of comparison, one-third of the oil in U.S. waters comes from other shipping, and 62 percent from natural seepage through the ocean floor.

Nevertheless, some politicians will be tempted to call for a moratorium on offshore drilling. A more measured, less politically galvanizing response would achieve the best results. The question isn't whether to drill offshore, but how to do it more safely.

There is a simple relationship that ties a nation's economic prosperity to its energy availability, and that's why government should not prevent the development of our energy resources. The oil industry accounts for a whopping 7.2 percent of GDP and 9.2 million American jobs - something we should keep in mind as we debate the future of offshore drilling.


Mark J. Perry is professor of finance and business economics at the University of Michigan's Flint campus and a visiting scholar at the American Enterprise Institute in Washington. Readers may write to him at UM Flint, 4173 WSW Building, Flint, Mich. 48502.; e-mail: