Thursday, December 29, 2016

Oil prices slip as US crude inventories rise by 614,000 barrels

Oil prices slipped on Thursday after official government data showed U.S. crude stockpiles rose last week more than analysts expected, while gasoline stocks and distillate inventories fell.

Crude stocks rose by 614,000 barrels in the week to Dec. 23, as refineries cut output crude imports fell, the Energy Information Administration reported.

Analysts polled by Reuters ahead of the report had forecast on average that inventories would decline 2.1 million barrels.

Data released by industry group the American Petroleum Institute (API) late on Wednesday showed a 4.2 million barrel increase in U.S. crude stocks in the week to Dec. 23.

Gasoline stocks fell by 1.6 million barrels, compared with analysts' expectations in a Reuters poll for a 1.3 million-barrel gain.

Distillate stockpiles, which include diesel and heating oil, fell by 1.9 million barrels, versus expectations for a 1.8 million-barrel increase, the EIA data showed.

U.S. light crude was down 25 cents at $53.81 by 11:12 a.m. ET (1612 GMT), while North Sea Brent crude was up 8 cents at $56.30 a barrel.

Traded volumes were thin with many investors away for year-end holidays, although the expiry of the front-month February ICE Brent contract on Thursday could generate some activity.
Both crude oil benchmarks have made big gains this month since OPEC and other producers agreed to curb production in an attempt to balance an oversupplied fuel market. 

"The market is in good shape although it might fail to make significant advances this year," said analyst Tamas Varga at London brokerage PVM Oil Associates. "If that is the case the uptrend should continue in early January." 

"Either way, the odds are still on higher numbers." 

A committee of the Organization of the Petroleum Exporting Countries and non-OPEC producers will meet in Vienna on Jan. 21-22 to discuss compliance with the production agreement, Kuwaiti oil minister Essam Al-Marzouq told state news agency KUNA.

"Brent will be ... positively impacted by the OPEC and non-OPEC cuts should the agreed reductions be largely adhered to over the next six months," said Philips Futures' investment analyst Jonathan Chan. 

— CNBC's Tom DiChristopher contributed to this report.

Wednesday, December 28, 2016

Venezuela says to cut 95,000 bpd crude output in OPEC deal

 Venezuela's President Nicolas Maduro speaks during a meeting with ministers at Miraflores Palace in Caracas, Venezuela December 17, 2016. Miraflores Palace/Handout via REUTERS
Venezuela's President Nicolas Maduro speaks during a meeting with ministers at Miraflores Palace in Caracas, Venezuela December 17, 2016. Miraflores Palace/Handout via

Venezuela said on Tuesday it will cut 95,000 barrels per day of oil production in the New Year in fulfillment of a producers' deal to reduce global output and strengthen prices. 

Jan. 1 marks the start of the pact by the Organization of the Petroleum Exporting Countries and several non-OPEC producers to lower production by almost 1.8 million bpd. 

"Without prejudicing its international contractual obligations, from Jan. 1 2017, (state oil company) PDVSA and/or its subsidiaries will implement a reduction in the volumes of its main crude sale contracts, all in conformity with existing terms and conditions," the Energy Ministry said. 

Venezuela, a price hawk within OPEC and one of the nations worst affected by a fall in crude revenue since mid-2014, currently produces just over 2.4 million barrels of crude and condensates per day, according to ministry data.

Oil Minister Eulogio Del Pino said the output deal should lead to a re-balancing of inventories, after which he forecast Brent crude would settle at a price range of around $60-$70 a barrel and Venezuela's crude basket between $45-$55 a barrel. 

Venezuela's basket trades at a discount to other benchmarks because of its higher content of heavy oil.
President Nicolas Maduro has said he will soon embark on a tour of oil-producing nations to support the OPEC deal. 

"I am proposing a new system, a new formula to fix markets and oil prices to enable stability, harmony, continuity," he said on Monday, without giving further details of his itinerary or planned proposal to fellow producers. 

"I aspire to at least 10 years of stability with realistic, fair prices of oil, and I am going to achieve it."
Oil prices jumped 1.7 percent on Tuesday, continuing a year-end rally with support from expectations of tighter supply once the first output cut deal between OPEC and non-OPEC producers in 15 years takes effect on Sunday. 

Brent rose 94 cents, or 1.7 percent, to $56.10 a barrel. 

(Writing by Andrew Cawthorne; Editing by Chizu Nomiyama and Meredith Mazzilli)

Tuesday, December 27, 2016

Asia Boosting Oil Refining

Asia will post its biggest net refining capacity addition in three years in 2017, further boosting demand for crude in the world's biggest and fastest growing oil consuming region.

New and expanded refineries from China to India will offset closures in Japan, adding a net 450,000 barrels per day of crude processing capacity in 2017, the highest since 2014, energy consultancy Wood Mackenzie says, Reuters reported.

The increase amounts to about an additional 1.5% of refining capacity on top of Asia's total installed capacity of nearly 29 million bpd, Thomson Reuters Eikon data shows.

"Heavy crude demand in particular is expected to rise in 2017 as more Asian facilities undergo upgrading and new ... refineries come online," said Sushant Gupta, WoodMac's Asia research director for refining.

The rise in capacity will tighten Asia's crude market as it coincides with planned output cuts by oil producers like the Organization of Petroleum Exporting Countries and Russia in a bid to end oversupply and prop up prices. China National Offshore Oil Corp plans to start a new 200,000-bpd refinery in southern China, while PetroChina aims to start a 260,000-bpd refinery in Yunnan, pending talks with the Myanmar government.

Chinese independent refiners are also expected to import an extra 200,000-400,000 bpd of crude, research consultancy Energy Aspects estimates, and an upgrade by Taiwan's CPC at its Talin refinery will raise crude and condensate demand by 100,000 bpd. These additions will more than offset a 400,000 bpd decline in refining capacity in Japan by early April due to shrinking local demand, according to Wood Mackenzie.

To meet Asian demand, Iraq has already inked new Basra Heavy deals, while Iran expects to complete a pipeline and terminal to export a new grade of heavy crude, known as West Karun, next year.

Sunday, December 25, 2016

Friday, December 23, 2016

How to keep your best employees from quitting, according to the CEO of Chevron

Chevron Chairman and CEO John Watson 
 Chevron Chairman and CEO John Watson

John Watson didn't expect to stay with one company for over three decades, but that company made him an offer he couldn't refuse: That he would never have to be bored.

In 1980, he joined Chevron (NYSE: CVX) as a financial analyst, held multiple supervisory positions and eventually became CEO and chairman. He's held that position since 2010.

And, as Watson tells LinkedIn Executive Editor Daniel Roth, "every time I said, 'Well, gee, I wish I could do something else,' I was moved on to some other part of the company."

To keep strong employees, Watson says companies should use that same strategy and support workers who want to move between departments. It not only encourages retention but also creates connections among different teams, he says. 

At Chevron, thanks to this policy, "everybody knows everybody."

"If you have to leave a company to get a new challenge, I think that's a really sad statement," Watson says. 

"I think it's a missed opportunity for some companies to not try to retain their workforce and keep them stimulated over time."

Thursday, December 22, 2016

World Bank Group to provide $517 mln for Ghana oil and gas project

File:World Bank Group logo.png 

The World Bank Group said on Thursday it would provide $517 million to Ghana in debt and guarantees to support the $7.7 billion Sankofa oil and gas project being developed by Italy's ENI and upstream trader Vitol Ghana.

The finance adds to a $700 million guarantee package and brings its total financing to around $1.217 billion for the offshore project, whose gas component is set to open in 2018, a statement said.

The Bank's investment arm, the International Finance Corporation (IFC), has committed a loan of $235 million to Vitol Ghana and is arranging another $65 million in debt.

Guarantees by the Multilateral Investment Guarantee Agency, another Bank institution, will support Vitol Ghana's commercial borrowing needs for the project and will be issued for up to 15 years.

"Sankofa is expected to generate $2.3 billion in revenues for Ghana's government per year and provide a stable, long-term source of domestic gas that will solve Ghana's chronic gas supply constraints," an IFC statement said.

ENI holds a 44.4 percent stake in Sankofa, Vitol holds 35.6 percent while Ghana National Petroleum Corporation holds a combined carried and participating interest of 20 percent.

Ghana first began pumping oil in 2010 at the offshore Jubilee field operated by Tullow, a British company that this August opened a second field called TEN.

Sankofa is expected to generate about 1,000 megawatts of power to Ghana and combined with gas from two other new fields could eliminate the need for Ghana to import gas from Nigeria through the West African Gas Pipeline Company. (Writing by Matthew Mpoke Bigg; Editing by James Dalgleish)

Wednesday, December 21, 2016

Obama invokes 1953 law to indefinitely block drilling in Arctic and Atlantic oceans

President Barack Obama on Tuesday moved to indefinitely block drilling in vast swaths of U.S. waters. 

The president had been expected to take the action by invoking a provision in a 1953 law that governs offshore leases, as CNBC previously reported. 

The law allows a president to withdraw any currently unleased lands in the Outer Continental Shelf from future lease sales. There is no provision in the law that allows the executive's successor to repeal the decision, so President-elect Donald Trump would not be able to easily brush aside the action. 

Trump has vowed to open more federal land to oil and natural gas production in a bid to boost U.S. output. Obama on Tuesday said he would designate "the bulk of our Arctic water and certain areas in the Atlantic Ocean as indefinitely off limits to future oil and gas leasing, though the prospects for drilling in the affected areas in the near future were already questionable. 

U.S. Outer Continental Shelf

The lands covered include the bulk of the Beaufort and Chukchi seas in the Arctic and 31 underwater canyons in the Atlantic. 

Canada also imposed a five-year ban on all oil and gas drilling licensing in the Canadian Arctic. The moratorium will be reviewed every five years.

"These actions, and Canada's parallel actions, protect a sensitive and unique ecosystem that is unlike any other region on earth," Obama said in a statement.

"They reflect the scientific assessment that, even with the high safety standards that both our countries have put in place, the risks of an oil spill in this region are significant and our ability to clean up from a spill in the region's harsh conditions is limited." 

The action potentially tees up a battle that touches on hot-button issues: environmental protection, energy independence, climate change, and the scope of executive power.

Like other efforts by the Obama administration to advance environmental protection through executive action, it could also be challenged in the courts. It could get tied up there throughout much of Trump's four-year term. 

The Republican-controlled Congress could also try to change the law. 

The provision, contained in the 1953 Outer Continental Shelf Lands Act, has been invoked in the past to set aside smaller portions of the Outer Continental Shelf, such as coral reefs or natural habitats. Presidents George H.W. Bush and Bill Clinton used the provision to block drilling in much of the Outer Continental Shelf, but for limited periods. 

The Obama administration's action marks the broadest use of the statute ever because it would be far-reaching in terms of the lands it would protect and come without an expiration date. 

Provision 12(a) of the law states, "The President of the United States may, from time to time, withdraw from disposition any of the unleased lands of the outer Continental Shelf." 

Momentum to use the provision has been building this year. In May, a coalition of environmental groups circulated a fact sheet that highlighted the authority provided under 12(a). 

In September, Democratic Congress members Frank Pallone, Jr. and Jared Huffman sent a letter to Obama urging him to exercise that authority. The letter was signed by 74 lawmakers, almost all Democrats, and contained quotes from representatives from some of the groups that produced the fact sheet in May. 

Environmentalists say drilling in the Arctic and Atlantic puts the waters at immediate risk, for oil and gas that would not come online for years, after a transition to cleaner energy sources could be under way. 

"The Arctic Ocean is ground zero for the impacts of climate change, and any oil production there would be decades away and inconsistent with addressing climate change before it is too late," the League of Conservation Voters said in a statement after the announcement.

The White House echoed that sentiment on Tuesday, saying, "it would take decades to fully develop the production infrastructure necessary for any large-scale oil and gas leasing production in the region — at a time when we need to continue to move decisively away from fossil fuels. 

Industry groups acknowledge that offshore projects come with long lead times, but they say deepwater oil will be critical for meeting the country's future energy needs. 

"Our national security depends on our ability to produce oil and natural gas here in the United States," Erik Milito, upstream director at the American Petroleum Institute, said in a statement. "This proposal would take us in the wrong direction just as we have become world leader in production and refining of oil and natural gas and in reduction of carbon emissions."

API said it believes Obama's action can be overturned and said it looked forward to working with the Trump administration.

To be sure, any drilling in the affected waters already faced significant challenges in the coming years. 

Energy companies have pulled out of Alaska's Arctic waters, where conditions can be perilous and weather conditions allow drillers to operate for only a few months of the year. In light of more than two years of weak oil prices, drillers could not justify the costs and risks of exploration there. 

Last month, the Bureau of Ocean Energy Management did not include any blocks in the Atlantic, Arctic or Pacific in the latest five-year plan to lease offshore land controlled by the government. Trump could scrap that plan and develop a new auction schedule for the 2017 to 2022 period, but it typically takes two to three years to put together a new program. 

Drilling in the Atlantic has also faced challenges from a number of other sources, including coastal states that could be affected by a spill, as well as the Pentagon, which said drilling in the Atlantic could disrupt naval exercises. 

The federal government spent $1.5 billion to compensate drillers whose offshore leases were canceled due to local and state opposition in North Carolina, Florida, California and Alaska, according to a 2012 Congressional Budget Office review. 

Fifty-nine percent of voters surveyed in September said they would support blocking leasing in the Arctic and Atlantic, according to a study from Hart Research Associates that was paid for by the NRDC and the League of Conservation Voters. The survey polled 1,103 registered voters by phone and had a margin of error plus or minus 2.9 percentage points. 

In response, the pro-drilling Arctic Energy Center conducted a survey of 511 Alaskans that found 76 percent supported drilling in Arctic waters. The margin of error was plus or minus 4.4 percentage points. Alaskans receive a cash disbursement from the state every year that is underwritten by oil revenues. 

In his statement, Obama said significant production in the Arctic will not occur in the current low oil price environment, citing the Department of the Inerior analysis. He said Arctic communities must focus on economic diversification.

— CNBC's Eamon Javers contributed reporting to this story.

Nigerian lawsuit revives billion-dollar oil scandal


Nigeria's anti-corruption agency is reviving a five-year-old scandal involving one of Africa's richest oil blocs, in which a former petroleum minister and his allies allegedly made $1.1 billion dollars and the state oil company $210 million.

The Economic and Financial Crimes Commission filed suit Tuesday in the federal high court charging former petroleum minister Dan Etete, former justice minister Mohammed Bello Adoke and businessman Aliyu Abubakar with fraud and money laundering of hundreds of millions of dollars in the sale of the bloc. The money came from a Nigerian escrow account at the London branch of JPMorgan Chase, according to the court document.

The story of the Malabu OPL 245 oil bloc already is being investigated in the United States, Britain, Italy and France. The accusations are typical of the corruption that has impoverished Nigeria, which has the continent's biggest economy and second-largest oil production.

Separately, Nigeria's legislature is investigating why the state got so little of the proceeds of a deal brokered by Bello Adoke in 2011 to resolve an ownership dispute involving British-Dutch oil multinational Shell, Italian Eni, Etete's Malabu Oil, Abubakar's Rocky Top Resources and Nigeria's state oil company.

Earlier this year, Italian prosecutors raided the headquarters of Shell in The Hague and Eni in Milan. Global Witness, the corruption watchdog that has long pursued the case, said that "Shell and Eni have always denied knowledge of the corruption at the heart of this deal ... exposed their investors to massive risks and have been tainted by this theft from Nigerian citizens."

Etete could not be reached for comment Wednesday on the latest court challenge, though he and the others involved have declared their innocence.

Malabu Oil paid $20 million for OPL 245 in 1998 under a contract awarded by Etete, who was then petroleum minister in the regime of military dictator Sani Abacha. The bloc is said to hold 9 billion barrels of crude and an unquantifiable amount of natural gas.

When civilian rule came in 1999, the government of Olusegun Obasanjo seized the bloc and invited multinationals to bid on it.

Ten years later, to end a protracted legal battle preventing exploration of Nigeria's most valuable oil bloc, Bello Adoke, then justice minister and attorney general, brokered a deal by which Shell and Eni paid $1.1 billion to Malabu and $210 million to Nigeria for an exploration license.

Tuesday, December 20, 2016

Trump Tax a Wild Card for Oil

It's only fair to warn you that this column concerns tax policy, so maybe grab a coffee first. It's also about oil (if that helps.)

One of the incoming Trump administration's priorities is tax reform. And one proposal outlined in Speaker Paul Ryan's "Tax Reform Task Force Blueprint" with big implications for oil involves a so-called border adjustment tax. This would effectively tax U.S. businesses on their imports while offering a break on domestically produced goods for export. In other words, it is designed to encourage making stuff in the U.S. rather than buying it from overseas.

This matters for global oil markets because, even though the U.S. is less dependent on foreign barrels than it was a decade ago, it is still a big part of global oil trading.

A recent paper by Philip Verleger and the Brattle Group explains in some detail how a border-tax adjustment could affect energy markets (here's a link). Here are some examples showing how it might work in practice:
  • U.S. oil producer: Say you pump oil in Texas. In simple terms, if you sold it to a domestic refiner for $52 a barrel (roughly where WTI crude oil trades now) you would pay 20 percent in tax on that revenue, or $10.40. On the other hand, if you exported it to a foreign buyer, you would pay no tax. Ergo, you would rather export it and would demand domestic refiners pay you a higher price to offset the tax hit -- in this case, $65.
  • U.S. oil refiner: Conversely, the new tax would, all else equal, encourage refiners to buy domestic oil. Say you buy crude at $52 a barrel and process it into fuels worth $70. If you bought the crude overseas, then you couldn't deduct that cost for tax purposes, so you would pay 20 percent on the entire $70, or $14, in tax, leaving a net profit of $4 ($70 less $52 of crude costs less $14 of tax). Conversely, even if you paid $65 for domestic crude, you could deduct that expense. So the government would only take 20 percent of your net profit of $5, or $1 -- leaving you with $4.
This is very simplistic, but one potential outcome is that domestic fuel prices could rise as refiners and wholesalers pass on their increased costs. Verleger estimates that, at $50 Brent crude and a 20 percent tax, the border adjustment could add 30 cents to a gallon of gasoline.

If it sounds weird that any Republican government might promulgate a policy potentially raising pump prices, then you haven't been paying attention. As recently as September, Harold Hamm, CEO of Continental Resources and adviser to president-elect Donald Trump, was calling for OPEC -- an international cartel, mind -- to do its part to raise oil prices (he got his wish).

While the border adjustment is potentially a boon to domestic E&P companies, some refiners look more exposed to it than others. The U.S. isn't a unified oil market but a set of regional ones. Refiners with a lot of capacity on the Gulf Coast would enjoy the flexibility to export their products -- thereby avoiding the tax if they process domestic crude -- but those on the East and West Coasts depend much more on imports.

None of this would happen in isolation, though, and this presents perhaps the biggest risk to the global oil market.

Go back to that premium U.S. oil producers could command. If rigs are being put back to work with oil in the low $50s, what do you think would happen if frackers could suddenly demand an extra 25 percent? That could complicate OPEC's efforts in trying to support prices high enough for their members' needs without priming shale output too much.

The more pernicious impact, though, could involve the dollar.

By raising demand for more competitive U.S. exports,  the new tax ought to serve to strengthen the dollar. This ultimately negates some of the potential effects outlined above because a stronger dollar will tend to make exports less competitive (and imports cheaper) and suppress commodity prices in general.

It would, however, put further pressure on emerging economies, for whom dollar-denominated debt would become more expensive.

As fellow Gadfly Lisa Abramowicz pointed out recently, non-bank borrowers in emerging markets owe more than $3 trillion of dollar-denominated debt. And as I pointed out earlier this year, a lot of those borrowers are oil producers for whom rising debt costs provide an incentive to maximize output to pay their interest charges. Plus, of course, emerging economies are the engine of oil demand.

Entering 2017, the oil market is focused on the actions of Saudi Arabia, Russia and other producers. That shouldn't blind it to the potential for another state actor to upend things.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. To avoid confusion, to absorb the hit of a 20 percent tax, you have to raise your original price by 25 percent. For example, if you pay no tax on a barrel at $52, then to still get that amount after a new 20 percent tax is imposed, you need to charge $65, which is 25 percent higher. The tax hit on $65 would be $13, leaving $52 net.
To contact the author of this story:
Liam Denning in New York at

To contact the editor responsible for this story:
Mark Gongloff at

Monday, December 19, 2016

What’s next in 2017 for Chinese independent refineries?

Flag of China

Despite slowing economic growth in China and overcapacity in its oil refining industry, the country’s independent refineries have driven China’s overall crude import at a startling rate. 

Oil imports by the Shandong area have risen 303.1% by value in the first quarter of 2016, as compared to a year earlier.

A year on from this, what can we expect from Chinese state-owned and independent refineries in 2017? What can we expect from crude import quotas and what impact would that have on Asia’s refining industry?

Find out more at Platts 4th Annual Asian Refining Summit (March 9-10, 2017, Singapore) as key industry leaders address this topic and how to tackle it. 

Friday, December 16, 2016

A low sulphur future

  AD-117: Ultra low sulfur diesel fuel only. Pack of 100.

Commenting on the IMO’s recent announcement on new global sulphur limits, Sachin Gupta, Wilhelmsen Services (WSS) business manager, oil solutions explained why systematic fuel treatment is so important, as 2020 nears. 
It’s vital that fuel oil on ships is kept in prime condition, to keep engines running smoothly and efficiently and to ensure full compliance with environmental and operational regulations, he said.

The recent decision from IMO to reduce the global fuel sulphur limits to 0.5% shows that our industry, more than ever, is committed to reducing its impact on the environment. Shipowners now have a number of fuel alternative options to choose from.

They can continue to use heavy fuel oil, however, if they do, they need to invest in scrubber technology. The second option is to switch over to low sulphur distillate or diesel oil, or gas oil. Third option is to explore new fuels, like bio fuels and last but not least, using LNG as a fuel is another alternative.

There is no clear frontrunner right now and each of the low sulphur solutions has its own set of combustion issues, Gupta warned.

Take for example low sulphur distillate fuel. Along with price volatilities, that may arise due to the economics of supply and demand imbalance, the two most common challenges with diesel or distillate oils is reduced lubricity or low lubricity and fuel degradation. 

Whilst the refining process removes the sulphur and the aromatic compounds, it also reduces the polar compounds that aid lubrication. In simple terms, the refining process itself reduces the inherent lubricating priorities of distillate or diesel oil. It is also important to remember that the ISO spec for the fuel is 520 micron-meters, the wear scar limit. However, OEMs recommend it be much lower at 400, he said.  

The refining process also removes the naturally occurring antioxidants in distillate oil or diesel oils. What this means is that diesel oils or distillate oils are always degrading. Whether they are sitting on shore in a tank, or on board a ship, as long as they are in contact with oxygen, they are always degrading.

Reduced lubricity increases the wear and tear of engine components like fuel pumps and injectors. Degradation of the fuel leads to an increase in fouling or choking of fuel injectors, or deposits on fuel filters and pumps, along with actually increasing emissions! Both, the reduced lubricity and degradation, increases vessel maintenance costs.

Often unmentioned, these challenges can be easily, and most importantly, with very little cost, be managed on board, Gupta asserted.  

We believe systematic fuel treatment is an absolute operational necessity as we approach 2020. Helping to maximise your low sulphur distillate fuel’s performance our dedicated, independently test-proven range of marine fuel treatment products will help ensure your low sulphur future, post 2020, is free from combustion issues,” he said.

Finally, he claimed that the patented Unitor fuel treatment chemicals improves fuel quality and reduces sludge and emissions.

Thursday, December 15, 2016

VLCC Rates Seen Slipping from Eight-Month High

 vlcc supertanker
Freight rates for very large crude carriers (VLCCs) may slip next week as the pre-Christmas cargo flurry, which propelled hire rates to an eight-month high on Thursday, peters out, ship brokers said. 
“I would say it’s the last hurrah. I don’t see rates going much beyond current levels,” said Ashok Sharma, managing director of ship broker BRS Baxi Far East in Singapore.

“The decline could be much steeper than the rise.”

Rates gained up to 10 points on the Worldscale measure this week, pushing rates from the Middle East and West Africa to Asia to the highest since April 4.

Around 130 cargoes have been fixed for December loading from the Middle East with around 33 from West Africa, a European ship broker said. There are about five Middle East cargoes still waiting to be fixed for December loading.

Charterers including Unipec and Statoil have started to fix Middle East cargoes for January loading with seven such charters concluded this week, chartering data on Thomson Reuters Eikon showed.

The January loading programme from Basra should get fully underway next week, brokers said.

“I don’t think rates will hit W100 – there are not so many cargoes that can push it up,” the European ship broker said. “I don’t see January being a big month for charter fixtures.”

Average daily VLCC rates are around $46,000, the second best year since 2008 when the shipping downturn began.

But the second half of this year has been much more disappointing as a raft of new vessel deliveries weighed on freight rates, said Ralph Leszczynski, head of research at ship broker Banchero Costa (Bancosta).

“Between the freeze in OPEC production and continuing strong vessel deliveries next year, it’s likely that rates in 2017 will be on average somewhat lower than in 2016, but should still be well above running costs,” Leszczynski said.

Morgan Stanley has forecast average VLCC rates could fall over 44 percent to $25,000 a day next year depending on the level of crude output curbs by OPEC.

VLCC rates from the Middle East to Japan were around W79 on Thursday from W69 a week earlier.

Rate for VLCCs from West Africa to China climbed to W76.75 from W70 during the same period.

Charter rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia surged to W130.50, the highest since March 30 on soaring cargo volumes. (Reporting by Keith Wallis; Editing by Manolo Serapio Jr.)

Wednesday, December 14, 2016

OPEC isn’t the market-moving force it once was

Oil ministers meet at OPEC headquarters in Vienna, Austria on Nov. 30.
Oil ministers meet at OPEC headquarters in Vienna, Austria on Nov. 30.

I never much liked the OPEC oil ministers.

Years ago when I periodically covered the Organization of the Petroleum Exporting Countries, they were the 800-pound gorilla in the room. In every room, in fact.

The ministers acted like they owned the world because, with everyone desperately depending on what they produced, they did. They were imperially pompous and demanded deference. Not just from journalists like me who reported on their meetings from Vienna to Algiers, but from nations that feverishly bought the barrels of oil they fervently filled. Including the United States.

So I don’t shed tears now that the price of oil has gone so low, the nations that produce it are just as desperate as the ones that use it. Nor that the deal OPEC will enact Jan. 1 to trim petroleum production — to shrink the surplus and force higher prices — is destined to disintegrate. As soon as some producers calculate that lower output at higher prices makes them even less money than higher output at lower prices, they will cheat and the united front will fail. That’s not a wild prediction; it’s a fact from history. What could stop them from undermining the deal? Like the Pope, OPEC has no army to enforce its will.

The 800-pound gorilla has grown weak. Saudi Arabia has taken such losses from the low price of oil (and from waging war in its region) that it has cut subsidies to its citizens for the first time ever — for water, electricity, even gasoline — and is contemplating taxation for a population that has heretofore never paid a penny in tax. Sanctions cost Iran so much that it’s eager to pump every barrel of oil it can, not to mention regaining its once-impressive market share and shoring up its rivalry with Saudi Arabia (and waging its own wars). And Iraq? Already ravaged by war, it needs every dollar it can earn to keep from sinking into irreparable anarchy.

OPEC countries have an ominous complication, though: they don’t even produce half the world’s oil any more. Saudi Arabia is still the biggest, but do you know who comes next? Russia. Although not part of OPEC, Russia has agreed to also make small production cuts, but it has its own problems, namely that almost half its undiversified economy is funded by petroleum. It’s even contemplating a dip into its version of Social Security to bolster its federal budget. Russia cannot afford to reduce its revenue from oil.

And who comes next? The United States. Thanks to increased efficiencies in extracting our own home-grown energy and to our growing reliance on renewable energies, we are on the verge of energy independence. Back in the 1970s, out of political pique, OPEC embargoed oil to the United States and we looked like a Third World lackey, waiting in long lines to fill our cars with gas. Today, OPEC can no longer hold that noose over our heads.

One last ingredient to allay the impact of the OPEC agreement: almost all the OPEC countries the past few months have ramped up their production to near-capacity. Which means reducing their output will basically bring it back to where it already has been.

Make no mistake, some of our most important European and Asian allies still deeply depend on OPEC oil. If they get hurt, we get hurt. And, as the price of oil goes a little higher because of the coming cutbacks, the price of a tank of gas will, too (although, relative to the price of gas back in 2014, not much).

But even against those prospects, OPEC’s production cuts shouldn’t be appallingly painful. In fact they might even be helpful, because when the world price of petroleum trends up, producers in our own country have new incentives to restart their drills and reopen their wells. Which ultimately enhances our own economy. And our energy independence.

Greg Dobbs of Evergreen is an author, public speaker, and former foreign correspondent for ABC News.

To send a letter to the editor about this article, submit online or check out our guidelines for how to submit by e-mail or mail.

Tuesday, December 13, 2016

Trump picks ExxonMobil CEO Rex Tillerson to be secretary of state

President-elect Donald Trump has picked as his secretary of state Rex Tillerson, the chief executive of ExxonMobil, setting up a possible confrontation with members of his own party in the Senate, Trump’s transition team announced Tuesday.

Since Tillerson’s name emerged as a candidate for the post, leading Republicans have expressed reservations about his years of work in Russia and the Middle East on behalf of the multinational petroleum company.

GOP advisers have warned that a growing number of Republican senators may be unwilling to vote to confirm Tillerson because of his ties to Russia. While Senate Democrats cannot filibuster Trump’s Cabinet picks, Republicans have only 52 votes in the Senate, leaving them in potential jeopardy if Democrats unite in opposition to Tillerson. It will take at least 50 votes to confirm a nominee, plus Vice President-elect Mile Pence casting a tiebreaking vote.

Yet Trump, after a protracted selection process that saw him also considering 2012 presidential candidate Mitt Romney, has decided to press ahead with Tillerson. Like others in the new Trump Cabinet, the ExxonMobil chief executive lacks any experience in government but will try to apply his experience in the business world to the realm of diplomacy. And he has worked extensively around the globe and built relationships with such leaders as Russian President Vladi­mir Putin.

The Trump team is planning an aggressive public relations campaign to win confirmation for Tillerson and dispel what it sees as a false narrative about his ties to Russia, a person involved in the transition said. 

In a sign of the potential political battles ahead, Sen. Marco Rubio (R-Fla.) expressed “serious concerns” about Tillerson’s nomination, noting that America’s top diplomat must be “free of potential conflicts of interest.” Rubio, however, left open room for compromise, saying he looked forward to “learning more about [Tillerson’s] record and his views.”

At the same time, support flowed in Tuesday for Tillerson from prominent figures such as former Secretary of State Condoleezza Rice and a former defense secretary, Robert Gates. Former vice president Richard B. Cheney also is supportive and may advocate for his confirmation.

In a statement, Trump called Tillerson an “embodiment of the American Dream” and cited the oil executive’s “tenacity, broad experience and deep understanding of geopolitics.” Trump, however, made no mention of the nomination process in the announcement.
Gates was the first person to raise Tillerson as a secretary of state possibility with Trump during a meeting at Trump Tower, the transition official added. Trump did not know much about Tillerson but started chewing over the idea. He invited Tillerson for a meeting and the two global dealmakers hit it off. They recognized similarities in each other, and the more they talked, the more they liked each other, the transition official said. 

“[Tillerson] would bring to the position vast knowledge, experience and success in dealing with dozens of governments and leaders in every corner of the world,” said a statement from Gates, which did not cite any specific countries.

Rice also did not mention Russia or other nations in her statement of support, but appeared to answer potential critics of Tillerson by calling him a “patriot” who would “represent and interests and values of the United States.”

Rice, who has served on the board of Chevron, spoke with Trump about Tillerson by phone Monday as Trump made his final decision.
One argument that the defenders of Tillerson — who during his career has also cultivated leaders of countries such as Saudi Arabia, Yemen, and Qatar — will probably make is that he stands firm in business negotiations in Russia and elsewhere. 

“One of the things I know about the Russian government: I’m very predictable. And they know if I say no it means no. And talking about it more isn’t going to change that. No is still going to be no,” Tillerson said in a talk last year at the Texas Tech business school. “Over the years we’ve earned each other’s respect. Then when you say yes, you know we’ll follow through. It means something.”

Weighing whether to lift economic sanctions on Russia will be one of the first things on Tillerson’s plate, given Trump’s desire to smooth relations with the Kremlin. International economic sanctions, imposed after Russia annexed Crimea and gave support to insurgents in Ukraine’s eastern provinces, have fallen heavily on financial institutions and ExxonMobil. 

ExxonMobil, which has a profitable operation on Sakhalin island in eastern Russia, had begun a drilling program in the Arctic’s Kara Sea, where Exxon made a find, and had agreed to explore shale oil areas of West Siberia and deep waters of the Black Sea. If sanctions are lifted, Tillerson told analysts this year, the Black Sea drilling would probably be the first to be restarted. 

While ExxonMobil complained privately to the Obama administration about the sanctions, the company has abided by the law. 

“They understand the situation. We understand the situation,” Tillerson said of the Kremlin when asked at an oil analysts’ meeting this year about whether Exxon would resume work in Russia if sanctions were lifted.

In addition, Tillerson will have to deal with climate issues because the State Department is the lead agency in international climate negotiations. Unlike Trump, Tillerson has said that he believes that climate change is real and has favored a revenue-neutral carbon tax of more than $20 a ton. 

But environmental groups charge that Exxon knew about the harmful effects of fossil fuels as much as 40 years ago and failed to inform investors and the public, possibly in violation of securities laws. The New York and Massachusetts attorneys general and a range of nongovernmental organizations are locked in battle over the charges.

Human rights experts are also unhappy about Tillerson’s nomination, noting that ExxonMobil does business in countries ruled by autocrats or dictators including countries in the Middle East, Equatorial Guinea and Kazakhstan. 

“I don’t think that companies’ role is to play politics,” said Pavel Molchanov, oil analyst at the investment firm Raymond James. “They’re there to invest in resources. Saying that he personally has some special feelings toward Russia just because Exxon has invested there is probably overstating the case.”

But that might not be the way lawmakers see it. 

At least four Republican senators have already publicly expressed their concerns with Tillerson’s Russia ties. Sen. Lindsey O. Graham (S.C.) called the fact that Putin awarded Tillerson the Kremlin’s Order of Friendship in 2013 “unnerving,” while Sen. John McCain (Ariz.) questioned Tillerson’s judgment on CNN on Monday noting, “I don’t see how anybody could be a friend of this old time KGB agent,” referring to Putin.

Established in 1994 by the president at the time, Boris N. Yeltsin, the Order of Friendship has been handed out by Russian leaders to figures as diverse as pianist Van Cliburn, former Cleveland Cavaliers coach David Blatt, and Raymond E. Johnson, founder of the Museum of Russian Art in Minneapolis. 

Rubio also tweeted over the weekend that “being a ‘friend of Vladimir’ is not an attribute I am hoping for from a Secretary of State,” while a spokesman for Sen. James Lankford (Okla.) said he “has a lot of questions about Mr. Tillerson and his ties to Russia.”

Of the four, only Rubio sits on the Senate Foreign Relations Committee, which first must approve Tillerson’s nomination before it can head to the floor. Committee chairman Bob Corker (R-Tenn.), who was in the running to be Trump’s Secretary of State, tweeted over the weekend that Tillerson “is a very impressive individual.”

But Republicans outnumber Democrats by only one on the Senate Foreign Relations Committee, giving Democrats an opportunity to block one of Trump’s most important Cabinet picks if they stay united in voting against Tillerson’s nomination. Democrats would not say if they expect their committee members to hold rank. But if they can, they only need one Republican to vote against Tillerson’s nomination to keep him from proceeding to the Senate floor for a full confirmation vote.

Earlier Monday, Kremlin spokesman Dmitry Peskov acknowledged Tillerson’s relationship with Putin and his friendly attitude toward Russia, but played down the idea that it would influence policy.
“As to the allegations of whether his attitude to the Russian Federation is good or bad: being secretary of state is very different from leading a company, even a very big one. Therefore, any, so to speak, sympathies become secondary,” Peskov was quoted by the Interfax news agency as telling reporters. 

“The only thing that remains here is readiness to demonstrate a constructive attitude and be professional,” he said. “We are hoping that this is what will happen.” 

Peskov said that Tillerson and Putin had met on several occasions but offered only measured comments about their relationship. 

“Indeed, he repeatedly had contacts with our representatives due to his work in the post of one of the world’s largest oil companies; he fulfills his duties very professionally,” Peskov said. 

David Filipov in Moscow, and Paul Kane, Anne Gearan and Brian Murphy in Washington contributed to this report.

Monday, December 12, 2016

Pipeline spills 176,000 gallons of crude into creek about 150 miles from Dakota Access protest camp

A pipeline leak has spilled tens of thousands of gallons of crude oil into a North Dakota creek roughly two and a half hours from Cannon Ball, where protesters are camped out in opposition to the Dakota Access pipeline.

Members of the Standing Rock Sioux and other tribes, as well as environmentalists from around the country, have fought the pipeline project on the grounds that it crosses beneath a lake that provides drinking water to native Americans. They say the route beneath Lake Oahe puts the water source in jeopardy and would destroy sacred land.

North Dakota officials estimate more than 176,000 gallons of crude oil leaked from the Belle Fourche Pipeline into the Ash Coulee Creek. State environmental scientist Bill Suess says a landowner discovered the spill on Dec. 5 near the city of Belfield, which is roughly 150 miles from the epicenter of the Dakota Access pipeline protest camps.
The leak was contained within hours of the its discovery, Wendy Owen, a spokeswoman for Casper, Wyoming-based True Cos., which operates the Belle Fourche pipeline, told CNBC.

It's not yet clear why electronic monitoring equipment didn't detect the leak, Owen told the Asssociated Press.

Owen said the pipeline was shut down immediately after the leak was discovered. The pipeline is buried on a hill near Ash Coulee creek, and the "hillside sloughed," which may have ruptured the line, she said.

"That is our number one theory, but nothing is definitive," Owen said. "We have several working theories and the investigation is ongoing."

Last week, the Army Corp of Engineers said it would deny Dallas-based Energy Transfer Partners (ETP) the easement it needs to complete the final stretch of the $3.7 billion Dakota Access pipeline. United States Assistant Secretary of the Army Jo-Ellen Darcy said the best path forward was to explore alternative routes for the pipeline, something Energy Transfer Partners says it will not do.

Energy Transfer Partners says the Dakota Access pipeline would include safeguards such as leak detection equipment and that workers monitoring the pipeline remotely in Texas could close valves within three minutes if a breach is detected.

Republican President-elect Donald Trump has voiced support for the Dakota Access Pipeline. About 5,000 people are still occupying land near the planned construction site.

The 6-inch steel Belle Fourche pipeline is mostly underground but was built above ground where it crosses Ash Coulee Creek, Suess said. Owen said the pipeline was built in the 1980s and is used to gather oil from nearby oil wells to a collection point.

Suess said the spill migrated almost 6 miles from the spill site along Ash Coulee Creek, and it fouled an unknown amount of private and U.S. Forest Service land along the waterway. The creek feeds into the Little Missouri River, but Seuss said it appears no oil got that far and that no drinking water sources were threatened. The creek was free-flowing when the spill occurred but has since frozen over.

About 60 workers were on site Monday, and crews have been averaging about 100 yards daily in their cleanup efforts, he said. Some of the oil remains trapped beneath the frozen creek.

Suess says about 37,000 gallons of oil have been recovered.

"It's going to take some time," Suess said of the cleanup. "Obviously there will be some component of the cleanup that will go toward spring."

True Cos. has a history of oil field–related spills in North Dakota and Montana, including a January 2015 pipeline break into the Yellowstone River. The 32,000-gallon spill temporarily shut down water supplies in the downstream community of Glendive, Montana, after oil was detected in the city's water treatment system.

True Cos. operates at least three pipeline companies with a combined 1,648 miles of line in Montana, North Dakota and Wyoming, according to information the companies submitted to federal regulators. Since 2006, the companies have reported 36 spills totaling 320,000 gallons of petroleum products, most of which was never recovered.

Trump to nominate ExxonMobil CEO Tillerson secretary of state, transition sources say

Rex Tillerson Putin, Rex Tillerson Donald Trump, Rex Tillerson Secretary of State

President-elect Donald Trump will nominate ExxonMobil CEO Rex Tillerson for secretary of state, according to two sources close to the transition.

The sources warned that nothing is official until the president-elect announces it, which is likely to come over the next few days. Trump told Chris Wallace on “Fox News Sunday” that he was “getting very, very close” to an official announcement. 

In another Cabinet development, Trump officially announced Monday morning that he plans to nominate retired Marine Gen. John Kelly for secretary of the Homeland Security Department. Trump had been widely expected to announce the former U.S. Southern Command leader for the post. 

Trump met with Tillerson earlier this week, whose company is based in dozens of countries across six continents and has business dealings in Russia, Yemen and other political hot spots. A source close to Trump told Fox News on Friday that the president-elect was impressed with Tillerson.

Trump spoke highly of Tillerson on “Fox News Sunday,” saying that he was “much more than a business executive.”

“He's in charge of an oil company that's pretty much double the size of his next nearest competitor. “It’s been a company that's been unbelievably managed-and to me a great advantage is he knows many of the players-and he knows them well, he does massive deals in Russia, he does massive deals-for the company, not for himself for the company.”

Trump’s potential Tillerson selection came under earlier Sunday as Sen. Marco Rubio and other GOP senators raised concerns about his reported Russian ties. The Wall Street Journal reported last week that Tillerson has close ties to Russian leader Vladimir Putin and other world leaders.

Rubio posted a thinly veiled warning about Tillerson on Twitter without mentioning him by name.

Sen. John McCain, R-Ariz., chairman of the Armed Services Committee, told Fox News on Saturday that Putin is a “thug” and while he doesn’t know the nature of Tillerson’s relationship with the Russian leader, it’s a matter of concern.

Speaking Sunday with CBS News’ “Face the Nation,” McCain said the Senate would give him a “fair hearing” and noted Tillerson’s ties could be “strictly commercial.”

But he reiterated that “it should be a matter of concern.” He voiced concern that Tillerson’s relationship could “color his approach” toward Putin and the Russian threat.

The 64-year-old Tillerson began his career at Exxon in 1975 as an engineer, rising through the ranks and becoming president and director in 2004 and CEO two years later. He was born in Wichita Falls, Texas, and studied civil engineering at University of Texas.

House Majority Leader Kevin McCarthy, R-Calif., told Fox News’ “Sunday Morning Futures” that Tillerson would be a “smart pick.”

Speaking on ABC News’ “This Week,” incoming Trump chief of staff Reince Priebus also defended Tillerson as an “incredible businessman and American patriot.”

While noting a “conclusion has not been made,” he stressed that Tillerson is in the business of finding oil around the world, and said “the fact that he actually has a relationship with people like Vladimir Putin and others across the globe is something that [we] shouldn't be ... embarrassed by.”

Asked about tough questions from Republican senators, he said, “We don't have concerns about confirmation.”

Should he become America's top diplomat, he will have a pay cut and complicated financial situation to sort out. Tillerson reportedly makes more than $40 million per year and owns more than $100 million of stock in a company that has holdings and dealings throughout the world.

Fox News was told last week that former U.N. ambassador John Bolton and Rep. Dana Rohrabacher, who were also in the mix for secretary of state, were being considered for deputy secretary.

Fox News’ Serafin Gomez and the Associated Press contributed to this report.

Saturday, December 10, 2016

Total and NNPC Start Gas Flows to Alaoji Power Plant 
 Alaoji Power Plant / Rivers State, Nigeria

The JV between Total and NNPC have commenced the supply of gas to the Alaoji Power Plant. The plant, located in the Rivers state, was built under the National Integrated Power Project scheme.

The commencement of supplies follows the completion and start up of the Obite-Ubeta-Rumuji pipeline (OUR pipeline) and the Northern Option Pipeline (NOPL) projects by the JV.

Total E&P Nigeria Ltd.’s Managing Director and CEO, Nicolas Terraz, said: “The completion of these pipelines is an important milestone in the activities of Total in Nigeria. The NOPL is unique and strategic in meeting the federal government’s objectives of gas supply to the domestic market.”

Nigeria and Morocco Sign JV Agreement for Pipeline


During a visit to Nigeria by Morocco’s King Mohammed VI, an agreement was signed that has Morocco and Nigeria jointly developing a gas pipeline. The two countries signed an agreement aimed at connecting Nigeria and some other African countries to European gas markets.

Geoffrey Onyema, Nigeria’s Minister of Foreign Affairs, said the pipeline project would be designed with the participation of all stakeholders.

“In this agreement both countries agreed to study and take concrete steps toward the promotion of a regional gas pipeline project that will connect Nigeria’s gas resources, those of several West African countries and Morocco,”Onyema speaking to reporters.

Onyema said the project aimed to create a competitive regional electricity market with the potential to be connected to the European energy markets.No timeline was given for when the pipeline construction work will start or how much it will cost.

This is not the first scheme Nigeria has been involved in aimed at transporting natural gas to European markets via a pipeline. More than half-a-decade ago Nigeria, Niger, and Algeria embarked on a project to take gas from Nigeria, through Niger to the coast of Algeria; the Trans-Saharan Gas Pipeline or TSGP. The pipeline was discussed for a number of years, but due to a myriad of reasons it never got off the ground.