Friday, May 29, 2015

Austria wants the UK to give its gold back

Austria has unveiled plans to repatriate billions of dollars' worth of its gold reserves back from the U.K., becoming the latest country keen to bring its gold home.

The Austrian central bank currently has 280 tons of gold reserves, worth around $10 billion at current prices. Just 17 percent of these holdings are kept in Austria, with 3 percent in Switzerland and the vast majority -- 80 percent -- in the United Kingdom.

By 2020, however, Austria wants to hold 50 percent of its reserves in Austria, 20 percent in Switzerland and just 30 percent in London. This means moving gold worth $5 billion from the Bank of England across Europe.

Gold bars in Vienna, Austria
Lisi Niesner | Bloomberg | Getty Images
Gold bars in Vienna, Austria

The bank, which revealed the plans in a statement accompanying its annual report on Thursday, did not explain how it would ship the gold, but said: "Starting from mid-2015, the new storage policy will be gradually implemented in keeping with security and logistical requirements."

"A comprehensive review and, if need be, adaptation of the storage policy is scheduled for 2019," it added.

It comes after the country's Court of Audit in February warned that holding so much of its reserves in one place – the Bank of England – "ran a high concentration risk."

Adrian Ash, head of research at Bullion Vault, highlighted the logistics involved in "digging out" the Bank of England's vaults, as it's known.

"According to a Bank of England official speaking a few years ago, a typical 20-ton shipment needs two days' work, with a guy in a forklift driving round to find and collect it," Ash told CNBC via email.

"Moving that by plane would incur a big insurance risk – similar to the 'concentration risk' which the Austrian auditors were maybe right to highlight about holding 80 percent of the nation's gold in one location overseas."

Brexit fears?

There has also been speculation that the decision to move gold away from the U.K. could be related to the risk of Britain exiting the European Union – known as a "Brexit."

U.K. Prime Minister, David Cameron – who won a general election in the country earlier this month – has promised an in-out referendum by 2017, and the related uncertainty has spooked markets.

However, Austrian Central Bank Governor, Ewald Nowotny, insisted on Thursday that the decision to shift the country's gold reserves was "absolutely not" related to the possibility of a Brexit, Reuters reported.

First Germany…

Instead, Nowotny said that it marked a trend among European central banks of repatriating reserves to their own countries.

Bullion Vault's Ash agreed: "For Germany, the Netherlands and now Austria, it reflects domestic political pressure over the loss of sovereignty from being in the single Euro currency."
"It also marks a deeper anxiety amongst tax payers and savers for the monetary system to have a more solid base than QE (quantitative easing) and zero rates, as we saw with last year's Swiss referendum on boosting gold reserves and holding them all at home."
In January 2013, Germany's central bank, the Bundesbank, revealed plans to move some of its gold holdings from the New York Federal Reserve and the Bank of France. It aims to hold 50 percent of its reserves in its Frankfurt vaults by 2020.

Germany is the second-largest holder of gold reserves, with 3,389 tons, according to the IMF, after the U.S. which has 8,134 tons.
Meanwhile in November last year, the Dutch central bank said it was shipping gold from the U.S. to the Netherlands to "spread its gold stock in a more balanced way."

Notably, however – and unlike the Austria -- both Germany and the Netherlands left the gold they hold in London untouched.

"London is the world's central wholesale gold market, and it offers euro zone states deep liquidity for non-euro currencies – which they'd want in the kind of ultimate crisis maybe forcing a gold sale," Bullion Vault's Ash added.

Thursday, May 28, 2015

OPEC sees rivals boosting oil output despite weak prices

Oilfield workers collect a crude oil sample at an oil well operated by Venezuela's state oil company PDVSA, in the oil rich Orinoco belt, near Morichal at the state of Monagas April 16, 2015. REUTERS/Carlos Garcia Rawlins

LONDON The North American oil boom is proving resilient despite low oil prices, producer group OPEC said in its biggest and most detailed report this year, suggesting the global oil glut could persist for another two years.

A draft report of OPEC's long-term strategy, seen by Reuters ahead of the cartel's policy meeting in Vienna next week, forecast crude supply from rival non-OPEC producers would grow at least until 2017.

Sluggish global demand for oil means the call on OPEC's crude will fall from 30 million barrels per day (bpd) in 2014 to 28.2 million in 2017, effectively leaving the group with two options - cut output from current levels of 31 million bpd or be prepared to tolerate depressed oil prices for much longer.
"Since June 2014, oil prices have experienced a significant reduction, reaching levels even lower than the crisis experienced in 2008, yet non-OPEC supply is still showing some growth," the OPEC report said.

Brent crude has collapsed from $115 a barrel in June 2014 due to ample supplies amid a U.S. shale oil boom and a decision by OPEC last November not to cut output.

Instead the group chose to increase supply in a bid to win back market share and slow higher-cost competing producers.

But shale oil production has proved to be more resilient than many had originally thought.

"Generally speaking, for non-OPEC fields already in production, even a severe low price environment will not result in production cuts, since high-cost producers will always seek to cover a part of their operating costs," the OPEC report said.

"For future non-OPEC production, only expectations of an oil price environment in the long-term below the marginal cost of production may deter substantial non-OPEC developments. Over the very long term, the economic threshold at which oil companies invest in upstream projects likely reflects their long-term oil price expectations."

It also said that since 1990, most of the forecasts concerning future non-OPEC oil supply have been pessimistic and often erroneous: "For example, non-OPEC production was once projected to peak in the early 1990s and decline thereafter."

OPEC publishes long-term strategy reports every five years. Its 2010 report did not mention shale oil as a serious competitor, highlighting the dramatic change the oil markets have undergone in the past few years.

The long-term report is prepared by OPEC's research team in Vienna and traditionally cautions that it does not articulate the final position of OPEC or any member country on any proposed conclusions it contains.


OPEC's ability to cut and raise production over the past decades to balance demand has earned it a reputation of being a swing producer. But the long-term report suggested it is tight shale oil that is now playing this role.

"Recent structural changes in the growth patterns of non-OPEC supply as a result of the substantial contributions from North American shale plays might prove to be a turning point (e.g. short lead times of the projects and higher short-term price elasticity)," the report noted.

It said new and cheaper technologies in extraction of tight crude, shale gas, and oil sands would guarantee aggregate growth at 6 percent per year and contribute 45 percent of the growth in energy production to 2035.

"Improved technology, successful exploration and enhanced recovery from existing fields have enabled the world to increase its resource base to levels well above the expectations of the past... The world's liquids resources are sufficient to meet any expected increase in demand over the next few decades," it said.

"With plenty of oil still left in familiar locations, forecasts that the world’s reserves are drying out have given way to predictions that more oil than ever before can be found," the report said.

By 2019, OPEC crude supply at 28.7 million bpd will still be lower than in 2014, the report said, and demand for its oil will start rising only after 2018-2019, reaching almost 40 million bpd by 2040.

(Writing by Dmitry Zhdannikov; editing by Susan Thomas)

Wednesday, May 27, 2015

VLCC “burning hot” for yet another week of trading

VLCC upward sentiment persisted this week in the VLCC sector with returns pushing to the highest levels of the year and despite some “profit taking” (whereby owners stop pushing for higher rates in order to fix quickly and lock into what are otherwise high TCE returns), the active first decade of June kept momentum on an upward track. This, according to the latest weekly report from shipbroker Charles R. Weber, which noted that increased production from Saudi Arabia continued as JODI data published Monday showed that exports rose to 7.898 million barrels per day in March – their highest level in over a decade.

Additionally, CR Weber noted that “the introduction of Iraq’s heavy Basrah grade furthered the increased volume in early June loadings. In fact, of the 53 fixtures reported to-date for June loading, 51 have lay-cans beginning within the first decade of next month, marking the loftiest tally within any decade this year and while this pace is not likely sustainable, it does point to a larger volume of cargoes expected for June. The increased demand further entrenched the bullish tone of owners as returns improved to levels in excess of $85,000/day for eastbound business while triangulated returns approached $100,000/day. The latter returns were due in a large part to the surging rates seen on Caribbean export routes where CBS-SPORE rates also neared YTD highs as charterers reached out almost six weeks to secure suitable tonnage amid a growing imbalance between regional demand and arrivals. By the close of the week, however, the market’s hectic pace gave way to a fresh demand lull ahead of the holiday weekends in the US and parts of Europe”.

The shipbroker added that “though unsurprising given the volume of cargoes covered in recent weeks, the slowing nevertheless has had an impact on rates, taking away upward pressure and instead prompting a modest retreat. Though modest further downside could materialize following the long weekend, the fact that a very low number of units remain uncovered in the Middle East following the recent surge in first?decade June loadings, rates are expected to remain elevated as charterers work into the second decade. This week’s activity brought the June cargo count to 53 and as mentioned above was largely concentrated within the first decade. With the higher expectations, we anticipate another 12?15 cargoes to go through the middle of next month. We compare this to a position list with some 28 vessels available over that same period; factoring for around 6 units expected to be drawn to the West Africa market, the remaining surplus is 7-10 units, which compares with 5 surplus units at the conclusion of the May program. As we look ahead to next week we expect some further giveback following a quieter period as owners look to lock in levels that still yield relatively strong returns. AG-FEAST rates will likely settle in the low ws70s, while AG-USG levels fall further into the low ws40s”, CR Weber said.

Meanwhile, in the Suezmax segment, “though chartering demand in the West Africa Suezmax market was unchanged w/w at 16 fixtures, most of these were reported early during the week while the remainder of the week was markedly slower. This came as little surprise given stronger VLCC coverage of the early part of the June program and accompanied the progressing of Suezmax charterers further into June dates (following last week’s rush to cover remaining May stems). Moreover, availability levels for normal dates rose to the close of the week. Rates entered into a correction mode, accordingly, with the WAFR-USAC route shedding 20 points to conclude a ws97.5. Further rate erosion is likely given further availability builds over the holiday weekend. Aframax The Caribbean Aframax market remained active this week with the fixture tally unchanged from last week’s 11-week high of 21. On a four?week moving average basis, the fixture tally stands at 17 – the highest level since early November ’14. The demand gains of late follow the resuming of substantial fixture activity for loadings on Mexico’s East Coast – as well as a surge in heavy crude imports at PADD 3 (USG) as area refiners boosted utilization rates last week and seek to increase imports to offset consumption of domestic light crude. The CBS-USG route added 12.5 points to conclude at ws122.5 on the back of the activity. We note that while rates have been heavily sensitive to date/voyage specifics, supply/demand fundamentals remain favorable to further rate gains during the upcoming week. Contributing further to owner sentiment in the region is the fact that the Caribbean market’s earnings imbalance relative to other key Aframax markets has grown with some regions offering TCEs approaching $60,000/day while the CBS?USG route stands at ~$33,374/day”, CR Weber concluded.

 Nikos Roussanoglou, Hellenic Shipping News Worldwide

Oil falls below $63 as dollar strengthens

Oil pump jacks are seen next to a strawberry field in Oxnard, California February 24, 2015. REUTERS/Lucy Nicholson

LONDON Crude oil futures reversed early gains to fall below $63 a barrel on Wednesday as the dollar's recovery from early losses outweighed expectations of a draw on U.S. oil stocks.

July Brent crude LCOc1 fell 83 cents to $62.89 a barrel by 1347 GMT, down from an intraday high of $64.67, while U.S. crude CLc1 was down 21 cents at $57.82 after touching $58.95 earlier in the session.

Oil prices had fallen nearly 3 percent the previous day, pressured by a strong rally in the dollar.

A weaker U.S. dollar makes dollar-backed commodities such as crude oil more attractive for holders of other currencies.
The dollar was up 0.34 percent against a basket of currencies .DXY, recovering from a fall of 0.33 percent.

"We are hostages a little bit to the swings in the currency markets," said Ole Hansen, head of commodity strategy at Saxo Bank.

U.S. commercial crude inventories are expected to have fallen by 2 million barrels last week, a preliminary Reuters survey showed. Declining U.S. stockpiles of crude and oil products in past weeks indicate robust demand in the world's largest oil consumer, supporting prices. [EIA/S]

The American Petroleum Institute will release its data on Wednesday at 2030 GMT, delayed by one day because of the U.S. Memorial Day holiday on Monday. The U.S. government's Energy Information Administration will publish its own data at 1500 GMT on Thursday. [API/S]

"If global demand continues to surprise to the upside and diesel somehow manages to hold value, then crude can surge," Energy Aspects analysts said in a note.

However, investors have started taking profits on Brent as hedge funds and money managers cut their bets on rising prices for a second straight week.

"Further unwinding of these positions would remove a key pillar of support to prices," BMI Research analysts said in a note.

Investors also remained wary of ample supply as top OPEC producers Saudi Arabia and Iraq kept exports near record levels. The Organization of the Petroleum Exporting Countries (OPEC) is expected to keep production steady at its meeting on June 5.

"I am not so bullish on fundamentals," said one bank trader who declined to be identified because of company policy. "Brent could possibly go down to $60 on profit-taking."

(Additional reporting by Florence Tan in Singapore; Editing by Dale Hudson and David Goodman)

Friday, May 22, 2015

Nigeria -- Africa's largest oil producer -- crippled by fuel shortages

Lagos, Nigeria (CNN)Nigeria is Africa's largest oil producer, but fuel shortages have paralyzed the country that just a year ago was declared Africa's largest economy.

At one gas station in Lagos, crowds push at the gates waving empty jerry cans. Cars queue for a kilometre down the road creating gridlock.

Similar scenes are being repeated at almost every petrol station across Nigeria.

"I've been here since 4 a.m. It's not good," says local resident Abdulsalam Mohammed as he finally drives his car to the petrol pump. "Now it's almost 3 p.m. Nobody can work today."

"We are an oil producing country, very rich, a giant in Africa," says Seun Olewale, another driver who is carrying empty fuel cans. "But the experience we are getting now is so hard."

The shortages have been going on since March despite the fact that, according to the Nigerian National Petroleum Corporation, Nigeria produces about 2.5 million barrels of crude oil per day. 

The problem is Nigeria does not have the capacity to refine enough of its own oil into fuel to meet the needs of its population of 150,177 million people.

Fuel in Nigeria is used not just to run cars and transport for goods and services, but also to power generators for homes and businesses; most Nigerians get only a few hours of electricity a day.

The companies that import fuel claim they have not been paid by the Nigerian government -- and so they cut off the supply. As a result, Africa's largest economy has ground to a halt.

Ngozi Okonjo-Iweala, Nigeria's finance minister, told CNN's John Defterios the situation was complex.

"You have to verify the claims of the marketers before they are paid, and because the government is coming to an end, they are getting quite nervous," she said.

"They are pushing very hard and they are using this shortage as an instrument to try to get the existing government to pay them quickly, without going through the thorough verification, and we are not going to do that."

Nigerians are no strangers to fuel shortages -- the country was subject to similar shortfalls in 2012.

The obvious solution would be to simply pay the fuel importers, but the Nigerian government subsidizes the country's fuel prices, and with oil prices falling, it needs to save money.

And that, says Seun with his two jerry cans, is the real problem. He says the government's policies are hurting Nigeria's economy, and hurting ordinary Nigerians even more.

"This is a war on the poor," he insists.

Thursday, May 21, 2015

Crude Oil Market Outlook


North Sea crude oil shows mixed signals

May 19, 2015 - The North Sea crude oil market showed mixed signals May 15, with Dated Brent versus second-month cash up $0.21/barrel at minus $0.94/b, even as Forties came off a touch.

A late May cargo traded at Dated Brent minus $1.00/b, Gunvor to Unipec.

However traders were not convinced this signaled Forties as a whole would continue to trade weaker, with June still seen as tighter due to two or three VLCC fixtures this week.

"Maybe, it is just that Forties cargo is too prompt," said one trader.

Dated Brent

On futures, one trader said the July/August Brent futures spread at minus $0.50/b was overdone given the supply/demand balance in the North Sea.

"We think the market should be weaker, in a deeper contango. But the market does not seem to agree."

Refinery margins stayed strong and run rates high while the end of spring maintenance approached, with many traders anticipating higher crude demand in June and July compared with April and May.

Upstream, Forties output was surprising to the upside, with the June program swelled by the addition of one cargo, the 600,000 barrel Suncor equity F0620, loading on June 12-14 -- just too early to be chained.

Traders had been saying earlier last week production was better than expected at the Nexen-operated Buzzard field.

Various equity holders were offered advancements on their loading dates to accommodate the high production, and there was talk of forced advancement if none took up this option, but the addition of a cargo may have removed the need for this.

However, one source said there was still "pressure on Hound Point's ullage levels. So, if production stays as strong between mid-May and mid-June as recently, it could continue to bring about advancements."

There was talk of an Ekofisk injection cargo in the June program, in addition to BP's C11788 added last weekend, but no new parcel number emerged.

Ekofisk "production is apparently very good", said one trader, adding he had thought planned J-block maintenance would slow things down more in June.

Meanwhile there were two cargoes heard entered into the month-ahead nomination process May 15: ENI equity Ekofisk cargo C11759 on June 15-17 was heard kept from chains by Shell, and ConocoPhillips equity Ekofisk cargo C11765 on June 17-19 was heard chained from Vitol to Shell.

Wednesday, May 20, 2015

Australian LNG could become ‘world’s largest and most advanced’

The LNG industry in Australia could contribute more than AUD$55 billion (€39 billion) to the country's GDP in 2020 and become the world's largest and most technologically advanced, according to a report by Accenture.

To secure its place as the world's leading LNG producer there is a need to improve international competitiveness, remove regulatory constraints and introduce a more flexible labour relations regime.

Over the next five years, natural gas production will increase by more than 90%, the number of wells in production will increase by 400% and pipeline infrastructure in Australia will increase by 45%.

Total cumulative capital investment and operating expense will reach around AUD$360 billion (€255 billion) by 2020 – 40% more than the AUD$250 billion (€177 billion) invested during the recent capital investment boom.

In addition, greater industry and regulatory collaboration, accelerated workforce re-training and further investment in digital and automation will be required.'The speed, scale and scope of the transition is unprecedented,' says Bernadette Cullinane, Asia Pacific MD for Accenture's energy industry group.

'The industry must be ready to support and maintain safe, efficient and reliable operations for the next 40 years.'

- See more at:

Tuesday, May 19, 2015

Pipeline Billionaire Kelcy Warren Is Having Fun in the Oil Bust

Brent Humphreys/Bloomberg Markets

The price of oil was $106.50 a barrel when Dallas-based Energy Transfer Partners announced plans last June to build a 1,134-mile pipeline that would pump crude from North Dakota’s Bakken shale through an Illinois terminal to the Gulf Coast.
The price had dropped to $69 when the 100 Grannies activist group protested the pipeline at a Dec. 1 meeting in Fort Madison, Iowa. By March 12, when a coalition of South Dakota business and labor interests declared support for the project, oil was at $47.05 and still hadn’t hit bottom.
Nobody was happier about the crash than Energy Transfer Chairman and CEO Kelcy Warren, Bloomberg Markets magazine reports in its June issue. “We got so lucky,” he says, flashing a giddy smile during an interview in his capacious Dallas office. “All of our competition vaporized.”
Enterprise Products Partners, a giant rival of Energy Transfer, shelved plans to build its own Bakken line as producers grew skittish about future drilling and shied away from commitments to pay for more pipeline capacity. Warren stabs a finger at North Dakota on a U.S. map. “I don’t think there’s ever going to be another pipeline built to the Gulf Coast out of there,” he says. Unless the star-crossed Keystone XL pipeline wins approval, “we’re all by ourselves.”
Warren, a solidly built 59-year-old with a head of cottony white hair, is among America’s new shale tycoons who’ve amassed fortunes by tapping gas and oil deposits in dense rock that’s being cracked open by horizontal drilling and hydraulic fracturing. His company does no divining or drilling. Rather, it takes the stuff others pull from underground and moves it from one place to another, chilling, boiling, pressurizing, and processing it until it’s worth more than when it burst from the wellhead.
The fracking revolution that has generated a glut of oil and gas has been a boon for Warren and his cohorts in the pipeline industry. They’re remapping America’s 2.5 million-mile (4 million-kilometer) pipeline network, reversing the historical south-to-north flow that carried crude imports and refinery products away from the Gulf Coast. Oil gushing out of North Dakota and gas flowing from Ohio and Pennsylvania have created new and more-complex transportation needs.
More than 40 pipeline projects are in the works in Ohio’s Utica and Pennsylvania’s Marcellus fields alone, says Rick Smead, who specializes in natural gas markets at Houston-based RBN Energy. The U.S. could need more than $600 billion in new oil and gas infrastructure by 2035, the industry-funded Interstate Natural Gas Association of America Foundation estimates.
Some pipeline companies are feeling pain, thanks to the oil bust. A Standard & Poor’s pipeline industry index fell 18 percent from July, when oil prices started to plunge, through mid-March, before it began to recover. A prolonged shale bust could begin to test Energy Transfer, not just its rivals. If oil prices stay low, Smead says, demand for new infrastructure will tail off. A growth slowdown that curtails investment could start a vicious cycle, he says. Partnerships like Energy Transfer need to be careful where they invest—and need to not run out of places to invest.
With acquisitions and construction projects, Energy Transfer now has 71,000 miles of pipeline.
Courtesy of Energy Transfer Partners
Warren voices no such worries. He says the price shock will weed out weak players so that well-capitalized and diversified outfits—such as Energy Transfer, which accrued $3.2 billion in cash last year to distribute to its investors—can snatch them up cheap and put their assets to better use. “Like Mother Nature, the energy industry purges itself now and then,” says Warren. “I don’t wish any negatives on my friends, but the most wealth I’ve ever made is during the dark times.”
The Bloomberg Billionaires Index estimates Warren’s net worth at $7.3 billion. The polished mahogany desk in his office is draped with maps of bountiful natural gas and oil fields that Energy Transfer now serves after a five-year, $40 billion acquisition binge. Across the room stands a chrome sculpture of a 42-inches-in-diameter circle meant to signify a pipeline. It celebrates a risky but lucrative decision Warren made to build an unusually large connector pipeline from his home state’s Barnett field, America’s first major shale play, to Louisiana.
He lives in north Dallas with his third wife, Amy, 50, in a 23,000-square-foot (2,100-square-meter) home on 10 acres in the pricey Preston Hollow neighborhood, where one house was for sale in April for $33 million. Warren’s six-bedroom, 13-bathroom home has a chip-and-putt green, a pole-vault pit, a four-lane bowling alley, and a 200-seat theater where the billionaire’s musician pals play private concerts. A polished 12-foot section of an oak tree gives his 12-year-old son Klyde’s bedroom the feel of a treehouse. “Isn’t that cool?” Warren asks as he shows a visitor around.
Giraffes, javelinas, and a hulking, ill-tempered species of Asian oxen called a gaur roam Warren’s 11,000-acre ranch northwest of Austin. He also has ranches in eastern Texas and southwest Colorado, a house on Lake Tahoe, and an island off the coast of Honduras.
He donated millions of dollars (he declines to say how many) to have a Dallas park named for Klyde. He indulged his passion for music by co-founding a label called Music Road Records.
Five years ago, Energy Transfer was a little-known family of partnerships with about $6 billion in revenue and pipelines that moved nothing but gas almost entirely within Texas. Today, it’s a 71,000-mile oil-and-gas transportation-and-processing web that spans the country and exports worldwide.
“To be where we are today, it’s like a dream,” Warren says. “I swear to God, I almost think we did it without anybody noticing.”
One sunny March afternoon, Warren settles into the cabin of his Dassault Falcon 900 jet, taking pains to note that he, not Energy Transfer, owns this and his other jets. The next day, he’ll hop one of those planes for a meeting in Tegucigalpa with the president of Honduras about a potential project.
Now, he’s in jeans and a white Energy Transfer polo, heading for a quick visit to his Austin recording studio. Joining him are Energy Transfer colleagues Matt Ramsey and Cliff Harris. They love to needle him about his houses and planes and how his hip replacement last year helped his golf game (or not). As the Falcon exits Dallas airspace, they shut up long enough for their friend to tell some of his story.
He grew up middle class in little White Oak, Texas, about 120 miles east of Dallas, population 1,903 when he lived there. His father worked in the oil fields and urged his son to get an education so he wouldn’t have to do the same.
Young Kelcy flunked out of the University of Texas at Arlington after a year of partying and went home to work for his dad’s employer, Sun Pipeline. He attended night classes while toiling on a pipeline under construction nearby. “That was hot, dirty work,” Warren recalls. “I really grew up.”
He returned to UT, earned an engineering degree in 1978, and took a $1,333-a-month job designing pipelines for Lone Star Gas in Dallas. “I thought I was rich,” he says. He moved to Odessa, Texas, to learn the commercial side of the business and then back to Dallas to work for another pipeline outfit, Endevco.
Endevco got into financial trouble after an ill-advised purchase of a refinery, paving the way for Warren’s first stab at profiting from a problem. In 1993, he and a well-heeled friend, Ray Davis, now co-owner of the Texas Rangers baseball club, bought Endevco out of bankruptcy. When they sold it two years later, Warren made $13 million. “It was more money than I’d ever dreamed of seeing,” he says. “So I chucked it all in the middle of the table, and so did Ray Davis, and we started Energy Transfer.”
Courtesy of Energy Transfer Partners
Courtesy of Energy Transfer Partners
The fall of Enron, which owned pipeline assets, offered Energy Transfer its earliest opportunities. “People were running from pipelines because all of a sudden they were persona non grata,” says Ramsey, a director for Energy Transfer’s parent, Energy Transfer Equity. “They became incredibly cheap, and Kelcy was one of the guys who not only identified it but executed on it.”
Pipeline companies make money by charging fees set in long-term contracts for moving molecules from point A to point B. They also can profit on spreads between spot market prices at different junctures. Increasingly, they’re also adding value to gas as it moves by using heat, cold, and pressure to fractionate dry gas into propane and other liquids in heavy demand in the U.S. and abroad.
Successful operators keep construction and maintenance costs low and their pipelines full from the minute they start pumping. While these companies aren’t totally insulated from swings in commodities prices, they’re better off than most, especially if they spread the risk over a diverse array of businesses.
Some of what the young Energy Transfer bought included pipes tapping the Barnett shale around Fort Worth—at a time when production there was beginning to climb. “We made a very ballsy move,” Warren says. Thinking he could funnel gas nationwide, he ordered up a 42-inch pipeline from the Barnett to East Texas and then on to Louisiana.
It was one of the first pipelines with a diameter that big in the U.S. Few pipe mills could supply the raw materials, and few construction companies had the requisite skills, making the fat conduit costlier than more-traditional pipe. But Warren’s sales team got contracts with the producers who would use the line, assuring it would be full—and profitable. Energy Transfer gave customers commemorative sculptures like the one in Warren’s office.
The willingness to take risk where others might not was typical of Warren, says Harris, a former Dallas Cowboys All-Pro safety who’s now director of a gas technology company owned by Energy Transfer. “At the same time, it’s expected that the people who work for him are going to fill that pipeline up,” Harris says.
Despite its appeal to investors, growth isn’t a goal in and of itself, Warren says. “Our strategy always has been about creating a more efficient hydraulic machine,” he says. The pipes and other pieces of the system have to work well together, transporting the right products to the right hubs, ports, and processing facilities. The machine, as of 2010, was getting almost all of its revenue from gas in Texas. Making money was becoming tougher because shale production up north had created a glut that cut prices. Warren decided he needed a bigger and more diverse network.
On a Friday evening in March 2011, Warren had come to relax with Amy and Klyde at his ranch near Palestine, Texas, after losing a bid to buy a trove of pipelines and other properties from Louis Dreyfus Highbridge Energy. The lake there shimmered beneath a flawless sky as he nursed his disappointment over missing out on a chance to expand his gas liquids business, where margins can be much larger than for pure gas.
He and Klyde were about to take a spin on ATVs when Warren’s mobile phone rang. He took the call on the lakeside deck, where cell coverage was good. An investment banker told him Energy Transfer could win the Dreyfus deal if Warren could stomach a higher price and other conditions. Within 90 minutes, he’d gotten his board of directors, all by phone, to give a go-ahead on what would be a $2 billion acquisition.
The Dreyfus purchase touched off a string of dealmaking that made Wall Street nervous. Next, Energy Transfer won a bidding war with Williams Partners to acquire Southern Union for $8.5 billion. Southern Union brought 20,000 miles of pipelines stretching into Florida and Michigan as well as a liquefied natural gas facility in Lake Charles, Louisiana, that Warren saw as a potential export gold mine.
The deal had barely closed when he learned that venerable Sunoco, operator of 4,900 gas stations and a vast Texas shipping terminal—the company where his father worked for more than 40 years—was available.
It seemed a stretch for Energy Transfer. “We were not in gas stations and peanuts and Slurpees,” Warren says. Worse, “we were getting a reputation as deal junkies. We had critics saying anybody can grow if they just keep buying things.”
Again Warren turned to his board. The directors saw a good fit, he recalls. “They said: ‘Kelcy, what are we missing? Why wouldn’t we do that?’” He sent deputies to New York to calm the ratings firms. Sunoco went to Energy Transfer for $8.7 billion.
Even as Energy Transfer Partners has added debt, it has kept its rating at the lowest investment-grade level. Both Moody’s Investors Service and S&P say the outlook for the debt rating is stable.
More deals were to come, including January’s $18 billion pact to merge with Dallas-based Regency Energy Partners. But it was Dreyfus, Southern Union, and Sunoco that gave Energy Transfer the financial and geographic heft to vie with the likes of Enterprise Products Partners and Kinder Morgan, the largest U.S. pipeline company and source of Chairman Richard Kinder’s $12.4 billion fortune.
Warren says the pieces of his hydraulic machine are working well together. Today, the company is converting an old Southern Union gas pipeline to carry Bakken crude from Illinois to the Sunoco terminal in Nederland, Texas. Ships that tie up at one of the five Nederland docks recently started loading propane funneled from a fractionation plant on a site once owned by Dreyfus in Mont Belvieu, Texas. The propane is moving all over the world.
“When they make an acquisition, they’ve got an ability to see something associated with that acquisition nobody else sees,” says Brian Kessens, managing director at Tortoise Capital Advisors, one of the biggest unitholders in Energy Transfer and related entities.
The counterpoint is that the complexity of Warren’s empire might eventually catch up with him, says senior analyst Ethan Bellamy of Robert W. Baird & Co. “There’s a danger that there’s so many moving parts that it’s hard for anyone to keep their finger on it all.”
Energy Transfer Partners is one of four master limited partnerships over which Warren has effective control. MLPs, used primarily by energy companies, don’t pay income taxes. Instead, investors holding units—the rough equivalent of shares—pay taxes on the quarterly cash distributions they receive.
That gives MLPs a lower cost of capital for acquisitions and construction projects. But they have to crank out those cash payments to keep unitholders happy, which means they must keep acquiring new properties or expanding existing ones. “You must grow until you die,” Warren says. He touched on the topic during Energy Transfer’s quarterly earnings conference call earlier this month. He said he was “a little frustrated right now” because he had expected that cheap oil and narrow natural gas processing margins would have created more takeover bargains.  
Energy Transfer is developing a $9.6 billion export-import facility for liquefied natural gas on the Gulf Coast with partner BG Group, the U.K. gas producer that’s agreed to sell itself to Royal Dutch Shell. With oil prices down about 40 percent from a year ago, BG has yet to commit to its part of the investment, and Energy Transfer expects the facility won’t be in service until 2020, a year later than planned. “I’m not happy about it,” Warren says.
Generally, MLPs are overseen by one entity encompassing a general partner responsible for the operating units and strategy. In Energy Transfer’s case, that’s Energy Transfer Equity. ETE holds a 1.1 percent share of Energy Transfer Partners in addition to incentive distribution rights, essentially claims on the operating unit’s cash flow.
In theory, these claims give top managers an incentive to grow cash payouts to unitholders in the limited partnerships. As those distributions grow, the general partner’s share of the cash grows disproportionately. Payouts of IDRs can be enormous. Last year, Energy Transfer Partners paid ETE $504 million. Warren, who’s also chairman of ETE, has much of his wealth tied up in that entity.
Critics of MLP structures say the arrangement benefits the general partner at the expense of limited partners. Kevin Kaiser, an analyst at Hedgeye Risk Management, a Stamford, Connecticut, investment advisory firm, says limited partners’ relative benefit can shrink as the general partner’s share of the cash payouts balloons. “The more complex you make the MLP structure, the less obvious it is where these fees are going,” Kaiser says. “What [limited partners] pay that fee for is up for debate.”
In Energy Transfer’s case, says Bellamy of Robert W. Baird, they’re paying for the smarts and guile of one of the world’s top pipeline managers: Warren. Investors baffled by the complexity of Energy Transfer’s structure often park their money alongside Warren in publicly traded ETE. That entity’s total return to investors was more than 250 percent during the past three years, according to Baird.
Indulging his love of music, Kelcy Warren owns a studio in Austin and a record label.
Matthew Mahon/Bloomberg Markets

For all of his success, Warren remains a small-town sort of guy who likes to have buddies to his Dallas mansion on Wednesdays for beers, shuffleboard, and chain yanking. “He’s just a normal cat,” says Jimmy LaFave, the Austin singer-songwriter who co-founded Music Road Records with Warren in 2007. LaFave was playing a Dallas pub 20 years ago when Warren’s brother introduced them because Warren, barely a millionaire then, was too nervous to approach the singer. “For all I knew, he was a plumber,” LaFave says.
Warren started playing guitar after a friend gave him an acoustic for his 40th birthday. He now has more than 30 guitars, including a 1943 Martin D-28 “that just sounds incredible,” he says. He co-wrote a song, “Talk to an Angel,” on LaFave’s new album. “All you’ve got to do to get some bullshit you wrote on a record is invest in a record company,” Warren jokes.
The music business has hardly been a pipeline of profits. Music Road has released 18 albums, including a collection of songs written by a Warren favorite, Jackson Browne, as performed by Bruce Springsteen, Bonnie Raitt, and others. “Some of our projects make money; others don’t,” Warren says while chatting with LaFave, Ramsey, and Harris at the old Austin farmhouse that’s home to his Cedar Creek Recording studio. “It’s a hard business.”
Building pipelines isn’t so easy, either. New projects are encountering more resistance over safety, fracking, and environmental concerns. It’s a way to slow the proliferation of fossil fuels, says Karthik Ganapathy, communications manager for the climate activist group “We’re building to a place where every single new pipeline will face a backlash,” he says.
Opposition from environmentalists recently prompted Energy Transfer to scrap plans for a new gas pipeline in Michigan; instead, it contracted with Vector Pipeline to connect with existing pipe. Warren says necessary infrastructure will get built, especially to move oil from shale deposits. “Pipelines are eminently cheaper and safer than shipping by rail,” he says. “I don’t think it’s fair for a few activists to decide what the American people want.”
Warren says he thinks Energy Transfer can more than double its pipeline mileage to 150,000 in the next 10 years. It would help, he says, if oil prices would stay low a bit longer. “The weak and the wounded will be vulnerable,” he says. “There will inevitably be those that feel they should consolidate into a more sustainable entity. We’ll be there.”

This story appears in the June 2015 issue of Bloomberg Markets.

Oil Falls as Reduced U.S. Refinery Activity Curbs Crude Demand

Oil fell for a second day after the biggest drop in U.S. refinery activity in four months cut crude demand.

Refinery utilization slowed by 1.8 percentage points last week, the biggest decline since Jan. 16, the U.S. Energy Information Administration said Wednesday. Oil supply from both the Organization of Petroleum Exporting Countries and U.S. shale drillers is set to expand later this year, weighing on prices, hedge fund manager Pierre Andurand said.

Oil’s recovery from a six-year low is stalling near $60 a barrel amid speculation that the price rebound will sustain a supply glut. U.S. crude stockpiles remain more than 100 million barrels above the five-year average for this time of year and producers are pumping near a record pace.

“The market is still trying to figure out what to make of yesterday’s refining number,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “It changes the whole nature of the market because it was unexpected. Any decline would have been a surprise but this was the biggest we’ve seen since January.”

West Texas Intermediate for June delivery fell 62 cents, or 1 percent, to settle at $59.88 a barrel on the New York Mercantile Exchange. Total volume was 9.9 percent below the 100-day average at 2:51 p.m. Prices are up 12 percent this year.

Refinery Utilization

Brent for June settlement, which expired Thursday, fell 22 cents, or 0.3 percent, to end the session at $66.59 a barrel on the London-based ICE Futures Europe exchange. The more-active July contract slipped 57 cents to $66.70. Volume was down 24 percent from the 100-day average. Brent has risen 16 percent this year. The European benchmark crude closed at a $6.71 premium to WTI.

U.S. refineries operated at 91.2 percent of capacity last week, down from 93 percent in the prior seven days, according to the EIA. A 0.5 percentage point gain was projected by analysts surveyed by Bloomberg before the report.

“I’m very surprised by the refinery utilization number,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone.

Crude inventories shrank by 2.2 million barrels to 484.8 million. While that’s a second weekly decrease, supplies are still near the highest level since 1930, based on monthly records from the EIA dating back to 1920. Gasoline stockpiles fell 1.14 million barrels to 226.7 million. Supplies of distillate fuel, a category that includes diesel and heating oil, dropped 2.5 million to 128.3 million.

Oil Drillers

U.S. crude production rose by 5,000 barrels a day to 9.37 million, the data showed. Output averaged 9.42 million a day in the week to March 20, the most since at least January 1983. Oil drillers cut the number of rigs to 668 last week, the least since September 2010, said Baker Hughes Inc., an oil-services company. The rig count has dropped 58 percent since December.

“Global production is still rising,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “Production here was up last week despite the declines in the rig count. The shale producers haven’t gone away.”

Prices will remain “relatively low” for the next two years as recent gains allow U.S. producers to revive output, said Andurand, who generated a 38 percent return in 2014 from wagering that oil would fall. At the same time, Saudi Arabia, the United Arab Emirates and Kuwait are raising their production, he said.

Downward Pressure

“We’ll be in a market where both U.S. production will go up and OPEC,” Andurand said in a Bloomberg Television interview with Stephanie Ruhle at the Commodity Debate conference in New York on Thursday. “It’s going to be difficult for prices to go much higher in the short term.”

Gulf-based members of OPEC are boosting production to defend market share, according to the International Energy Agency. Oil supplies from Saudi Arabia, Kuwait and the United Arab Emirates remain near the highest level in three decades, the IEA said in a monthly report Wednesday.

Saudi Arabia led OPEC’s decision Nov. 27 to maintain collective quotas at 30 million barrels a day. The group, scheduled to meet again June 5 in Vienna, has supplied above that target for the past 11 months, according to a Bloomberg survey of companies and analysts.

In Libya, Eni SpA is producing about 300,000 barrels a day of crude, bringing its output above pre-civil war levels amid strife in the OPEC nation. Oil prices will average $55 to $60 a barrel this year, Chief Executive Officer Claudio Descalzi said in an interview in Rome Wednesday.

Monday, May 18, 2015

West African VLCC freight rates hit 2015 high on heavy global cargo flow

VLCC shortage in West Africa helps firm freight rates

West African VLCC rates have risen to the highest level in 2015 on the back of a heavy flow of cargoes in multiple regions, shipping sources said.

The key WAF-Far East route, basis 260,000 mt, was assessed Worldscale 2.5 higher at w72.5 Friday, which equates to $28.70/mt.

This is the highest assessment since December 17's $29.30/mt. The route advanced by w12.5 during the course of last week.

On the fixture front, Day Harvest was heard to have placed the Hua San on subjects at w72.5 for a WAF-China voyage loading June 14.

The primary driver of the rising rates has been a large number of cargoes entering the market in the Persian Gulf, the Caribbean and the US Gulf.

Shipping sources said there were almost 50 fixtures in the Persian Gulf alone last week, close to the highest level of the year.

There were also multiple ships booked by Petrobras for Brazil-China crude oil runs.

This has kept tonnage supply low across all regions, and helped compensate for a relatively light week's fixing in WAF.

"There are many cargoes in many different areas. It's always about the number of cargoes versus ships and when there are so many cargoes around the list gets shorter and it's inevitable that the rates will rise," said a shipowner.

Also, because business has been relatively brisk across all areas, shipowners have not had to ballast their ships from region to region to find a cargo.

"The PG, Brazil and the Caribs have all been active, which means that ships don't have to ballast around in search of business," said the shipowner.

Though there weren't a lot of inquiries in the WAF region last week, sources said that there was likely to be more activity in the area this week.

Any cargoes that are released this week will be faced with a fairly depleted WAF tonnage list for the second and third decades of June.

--John Morley,
--Edited by James Leech,

Friday, May 15, 2015

Iranians attack Norwegian-managed MR

Iranian gunboats reportedly fired at a Singapore-flagged tanker on Thursday as it was passing through the Strait of Hormuz.
Five gunboats, believed to be from the Iranian Revolutionary Guard, ordered Transpetrol’s MR ‘Alpine Eternity’ to stop. When the crew refused, the gunboats fired across the bow, according to media reports.

When the tanker increased speed, the gunboats shot at the stern in an alleged attempt to disable the propeller. When that failed, the Iranians asked for help from United Arab Emirates warships in the area.

The Emirati ships approached, but the Revolutionary Guard gunboats turned back toward Iran. ‘Alpine Eternity’ finally berthed in Jebel Ali. The crew were reported to be safe.

It was not known why the Iranians ordered the tanker to stop.

In April, Iranian patrol boats seized a Marshall Islands-flagged containership and held it for a week and a half. Iran claimed that the seizure was tied to an old debt owed by the vessel’s operator Maersk.
The vessel’s manager Transpetrol has since confirmed that the incident took place

A spokesman told Reuters that the vessel was attacked at sea at 0800 GMT on Thursday while in transit to Fujairah.

"The nature of the attack is still unclear," the spokesman said. "She reached UAE waters and she is in the port of Jebel Ali now. The vessel is safe and there are no injuries to crew."

The spokesman said the attack had been reported to Singaporean authorities.

Thursday, May 14, 2015

Here’s why Iran and Iraq should worry OPEC

Oil Iraq OPEC
Atef Hassan | Reuters

Caveat emptor! The big Organization of Petroleum Exporting Countries (OPEC) summer pow-wow is only 24 days away now and ceteris paribus we should see a continuation of the status quo. Right that's enough Latin, the only languages that really count at the meeting will be Arabic, Farsi, Kurdish and money, namely petrodollars.

As far as I can see, this one is about how Saudi Arabia, Iran and Iraq solve a growing problem of how you cap OPEC production – and thereby falling prices - at a time when Baghdad and Tehran are desperate to up output.

Despite the rally from the mid-$40 region, OPEC could be hundreds of billions light in terms of revenues this year causing some to once again trot out the old, tired and inaccurate line that OPEC is losing its importance in world energy supply.

I even read a report under the headline 'OPEC going broke…' Really?

Well no-one is doubting that the loose alliance is fractured, sometimes dysfunctional and limited in its adherence to stated production levels but going broke and irrelevant? Dream on.

What is clear though is that some countries desperately need the petro-dollars that would come from increased production. Iran and Iraq are not only near the top of that list but also have the capacity to ratchet up their levels, albeit with the caveat in Iran's case of completing nuclear talks.

Bernstein Research has just put out a briefing on the importance of Iraqi and Iranian production ahead of the OPEC meeting on 5th June and amid the reams of statistics I pulled out a few. And if you think it's only Saudi Arabia that matters then look again at these numbers on Iran and Iraq:-
  1. Iran has 1 percent of global population but an estimated 157 billion barrels of proven crude oil reserves.
  2. The Iranian number equates to 9.5 percent of world total and is fourth largest amongst all countries after Venezuela, Saudi Arabia and Canada.
  3. Iran also has the second-largest proven gas reserves at 1,193 trillion cubic feet – 17 percent of the world's resources and 35 percent of OPEC's.  
And the Iraqi numbers are not to be sniffed at either:-
  1. Iraq comes close with 144 billion barrels of proved crude oil reserves.
  2. The Iraqi figure equates to 9 percent of the world total and is fifth largest globally.
  3. Iraq is the second-largest OPEC producer currently, producing 3.4 million barrels per day, equating to 4.3 percent of the world total.
To put this in context, Bernstein's report says there are roughly 1,6 trillion barrels of proven oil reserves in the world.

So Iran and Iraq are potentially the major players who could upset not only OPEC equilibrium with their challenge to number one producer Saudi but have the ability to put the skids under the big rally in oil off the March lows.

Follow Steve on Twitter: @steve_sedgwick

Wednesday, May 13, 2015

Inter Pipeline reports surge in storage utilisation rates

Inter Pipeline

The favourable effect of the contango market has resulted in substantially higher utilisation rates for Inter Pipeline in the first quarter of 2015, the company has reported.

While generated funds from operations were down by less than a million dollar to $20.5 million (€18.2 million) compared to $21.6 million (€19.2 million) in the first quarter of 2014, utilisation rates averaged 90% compared to 78%.

The first quarter 2014 results benefited from various one-time revenues that were not repeated in 2015.The company credited the stronger market conditions for its improved utilisation rates.

'Utilisation was favourably impacted by stronger contango pricing relationships in certain petroleum futures markets,' it says in a statement.

'The stronger market conditions particularly benefit our Danish operations where utilisation rates averaged 92% in the first quarter of 2015 compared to 69% in the same period of 2014.

'Overall the transportation and storage company generated record funds from operations of $177 million – an increase of 34% from the same period the previous year.

During the period, Inter Pipelines initiated a 400,000 barrel crude oil storage expansion project at the Kerrobert Terminal on the Mid-Sakatchewan pipeline system.

It also completed a restructuring of its European bulk liquid storage operations within the first quarter of 2015. The entire business has been rebranded as Inter Terminals.

 - See more at:

US crude oil inventories fall again

barrels of oil

US crude oil inventories fell again last week. 

The latest data from the Energy Information Administration out Wednesday showed that commercial crude inventories fell by 2.19 million barrels in the week ended May 8.

In the prior week, inventories declined by 3.9 million barrels. 

Crude oil refinery inputs averaged 370,000 barrels per day less than the previous week's average.

This week's decline brought the total to 484.8 million barrels, and oil inventories are still at 80-year highs.

But the build in inventories we've seen over the past several months may be slowing down.

On Tuesday, the American Petroleum Institute reported that 2 million barrels of oil were drawn from inventories, which was more than expected.

In its short term outlook released Tuesday, the EIA lowered its 2015/2016 US energy production forecasts, and projected that US oil output will decline from June through September before picking up again.

Following the release, West Texas Intermediate crude oil prices rose by 1% to as high as $61.60 per barrel.

In an email Tuesday, CEO Morgan Downey wrote: "The bullish oil story is now accelerating on all four cylinders: 1. US oil inventories falling, 2. Global oil supply growth slowing; 3. Global demand growth increasing; 4. US drilling still declining.

Monday, May 11, 2015

ExxonMobil to begin operations in Ghana


Citi Business News can confirm oil giant ExxonMobil is to begin operations in Ghana.

According to state owned oil firm, Ghana National Petroleum Corporation (GNPC,) ExxonMobil has signed a Memorandum of Understanding (MOU) with it to purchase an oil block close to the Hess and Jubilee fields.

GNPC’s CEO Alex Mould told Citi Business News ‘we are attracting the right partners, ExxonMobil has signed an MOU with us to look at a block and the minister is going to take it to cabinet and parliament for approval’.

The deal which is subject to cabinet and parliamentary approval will see ExxonMobil join a growing list of oil giants who have oil blocks in the country.

This is not the oil giant’s first major stint with Ghana. // <![CDATA[ google_ads = "on"; google_ad_client = "pub-6034552436546687"; google_ad_slot = "1534252255"; google_ad_width = 468; google_ad_height = 60; // ]]> In 2010 ExxonMobil was reported to have bought Kosmos Energy’s stake in the jubilee field but pulled out of the deal. The pull out according to persons familiar with the matter was due to a firm resistance from government.

Five years on, Chief Executive of the Ghana National Petroleum Corporation, Alex Mould, tells Citi Business News the two sides are back to do serious business.

‘ExxonMobil is looking at a block which was relinquished and is vacant, their interest is to develop it and stay in Ghana. Exxon Mobil produces 12 percent of all their oil from Africa and as you know Africa is one of their four major businesses and we are very happy to have attracted ExxonMobil to Ghana.’

He said. - See more at: