Wednesday, January 17, 2018

Bitcoin's Nouveau Riche Run to Gold as Cryptocurrency Crashes

Amid the wild Bitcoin ride that’s wiped more than 40 percent off the cryptocurrency’s price in a month, a pattern may be emerging: sellers are switching out of digital gold and into the real thing.

Bullion dealer Sharps Pixley, a subsidiary of Europe’s largest precious metal coin and bar outlet regularly sees trades north of a million pounds, while sales of gold coins at Frankfurt-based CoinInvest jumped fivefold as the largest digital asset collapsed after surging 1,400 percent last year, according to Director Daniel Marburger.

“Yesterday was a hell of a crazy day,” he said from Frankfurt. “Emails and phones did not stand still with customers asking how they could turn their crypto into gold.”
The current price swings across seemingly every cryptocurrency are bringing to the fore a question that has loomed over the industry since its inception: to what extent can a virtual asset be a store of value? By swapping out of digital gold and into the real thing, some investors may be providing an answer.

After Gold Rush

Ross Norman, a gold dealer with a store tucked in a corner of London frequented by the upper classes, started exchanging gold for bitcoin via an intermediary three months ago. He describes his customers as almost embarrassed by their new-found fortunes. They often store it in safety deposit boxes in his underground vault, following extensive due-diligence to prevent money laundering.

“We’re seeing trades north of a million pounds every couple of weeks,” said Norman from his shop in St James’s St. “It’s been a welcome addition to our business in a period when physical demand from more traditional sources has been subdued.”

Customers as young as 25 come in carrying laptops holding bitcoin they accumulated when it traded at $1 or below. One, Norman said, had 1,000 bitcoin he intends to turn into physical metal. The company, owned by Degussa Goldhandel GmbH, doesn’t take possession of bitcoin. Customers buy via an intermediary.

“Bitcoin is a bit of a lobster pot -- it’s easy to get in, but hard to get out,” Norman said. “Gold also offers investors 4,000 years of history as a store of value, and that’s looking quite appealing right now.”

Lack of demand hasn’t proved much of a headwind to gold prices in recent weeks. The yellow metal, supported by a falling dollar, rallied 7.5 percent in the past month to a four-month high before tempering gains. Bitcoin fluctuated on Wednesday, but was about 44 percent lower than its peak in December.

Marburger said CoinInvest sold almost 30 kilograms of gold, worth $1.2 million in the spot market, as Bitcoin dropped 23 percent on Tuesday. One bitcoin buys about eight one-ounce Britannia gold coins, he said.

It was a similar story at GoldCore Ltd., where clients have been diversifying away from cryptocurrencies and into physical gold in both bars and coins, according to Director Mark O’Byrne.

“They told us they were concerned that the massive price appreciation was unsustainable and they got nervous about it,” he said in an emailed note. “We think increasingly people are realizing that these digital assets have much higher risk levels than the traditional safe haven asset.”

But Marburger at CoinInvest says physical gold bullion also holds attraction for bitcoin investors because the assets have much in common.

“Both are limited in quantity, easy to trade and you can store them decentralized,” he said. Gold has advantages because there are “no passwords you can lose, the volatility is much lower, sustainable growth and in the end you can hold your investment in your hands,” he said.

Bitcoin dropped below $10,000 on Wednesday and was trading 5 percent lower at $10,132 at 11:45 a.m. New York time. It reached a record high of $19,511 on Dec. 18. Gold was 0.4 percent lower at $1,332.48.

— With assistance by Todd White

Trump's Offshore Oil Plan Faces Opposition on All Coasts: Map

The Trump administration is hoping to lure investment to the U.S. with a proposal to sell leases in almost every inch of the nation’s outer continental shelf -- including waters hugging the U.S. East Coast that share characteristics with Brazil, Guyana, Ghana and other countries attracting hundreds of millions of dollars in oil companies’ quest for crude. Geologists speculate that the U.S. waters could hold an equally tantalizing amount of crude and natural gas. But oil companies may be unwilling to endure the high production costs and public opposition to find out. A gusher of litigation is more likely than a gusher of oil.

Jennifer A Dlouhy
and Dave Merrill

Tuesday, January 16, 2018

Burning oil tanker sinks in the East China Sea

Digging data not ditches 
Phillips 66 Assets

A OneBridge-Phillips 66 joint development project is set to advance digital management and machine learning for pipelines into the cloud.

The US Pipeline and Hazardous Materials Administration reports that since 1997, in Natural Gas pipelines alone incidents have resulted in 322 deaths and damages totalling to over $7 billion. Ageing infrastructure and increased public scrutiny on how energy companies conduct their business means that being able to know what a pipeline looks like and where the problems are is only becoming more important.

In September 2017 OneBridge, a software company out of Alberta, Canada, supplied the Houston-based diversified company, Phillips 66 with something to address this issue: a machine learning and data science system called the cognitive integrity management (CIM) solution. Now both companies are looking to build on the system by moving the software into an online app, dubbing it the ‘integrity management solution’ (IMP). The IMP is now in development, and is aimed at catering to the needs of major pipeline operators.

The previous pipeline management solution was a combination of the CIM and Phillips 66’s pipeline data management system (PT-DMS). Phillips 66’s system was developed to be a comprehensive solution to manage its pipelines, combining functions including assessment team scheduling, analyses of data integrity and anomaly worklist tracking.

The CIM built on this by providing data normalisation and alignment, and applying machine learning technology to identify threats to the pipeline. In a statement, the software company said that they reduced the time it took to analyse the data from ten weeks, to two hours. CIM also allowed all of the data to be assessed whereas in the previous manual process could only process 5% of data collected.
OneBridge has patented this machine learning technique.

The resulting boost in awareness of pipeline condition allows companies to streamline their maintenance programme and allow engineers to spend more time on more substantial tasks like risk analysis and corrosion modelling. OneBidge is also preparing to use Microsoft’s HoloLens to enhance pipeline assessment.

In a press release, OneBridge President Tim Edward said: “This development project with Phillips 66 represents an important milestone for OneBridge… Our vision at the outset was to develop a cloud application that enables pipeline operators to manage their pipeline assets as smart infrastructure.”

CTO Brandon Taylor added: “PT-DMS is one of the most comprehensive and sophisticated pipeline management solutions within the industry today, which will ease migration to the cloud and reduce time-to-market for IMP.”

The company expects IMP to launch market-wide in Q4 of 2018.

Monday, January 15, 2018

DOE Interest 'Extremely Important' to Making Underground NGL Storage a Reality, Researcher Says

It could be anywhere from six months to two years before the U.S. Department of Energy decides whether it will guarantee a $1.9 billion loan for an underground storage hub in Appalachia.

Appalachian Development Group is trying to secure the loan guarantee to help build the hub somewhere in the quad-state region — Kentucky, Ohio, Pennsylvania or West Virginia. ADG recently was invited to continue to Part II of DOE’s vetting process for the loan guarantee, which would facilitate construction of secure storage for high-value natural gas liquids.

ADG CEO Steve Hedrick had said the initial cost for a storage hub would be “north of $3 billion,” but West Virginia University Energy Institute Director Brian Anderson had said costs for a full build-out could eventually reach as high as $10 billion. A federal loan guarantee would help erase some of the uncertainty surrounding financing for the hub, the American Chemistry Council said in a 2016 study.

That study suggested keeping the NGLs in the Appalachian region rather than shipping them to the Gulf Coast could spark as much as $36 billion in investments by chemical and plastics companies and create more than 100,000 jobs in the quad-state area.

Hedrick said ADG has already completed its pre-engineering work needed to satisfy Part I of DOE’s application process. The focus now is on developing the framework for requesting information and proposals for the permitting, detailed design, engineering and construction of the hub.

ADG will work closely with the DOE on Part II of the application process while simultaneously working to avail the market with the opportunity to secure an equity position in this development,” said Hedrick, who also is president and CEO of Mid-Atlantic Technology, Research & Innovation Center in Charleston. “We all have to be patient as we move forward.

With the invitation for ADG to now complete Part II of the application process and seek the issuance of the loan guarantees, we are excited to take next steps.

Hedrick said they still haven’t selected a site for the hub, saying their plan is to use the “best available and most technically sound geologic formations, in the most viable geographic locations.

This may include hard rock limestone formations, sandstone formations or salt strata,” he said. “All of these geologic formations exist in Appalachia, as was outlined in the geologic study led by WVU and brought forward from Ohio, Pennsylvania and West Virginia. While plans are in fact made, it is premature to publicly discuss specific prospective sites until further permitting and engineering has been completed.

Anderson, who headed that research team, said the announcement that China Energy Corporation had signed a memorandum of understanding to invest up to $84.7 billion in energy projects in the Mountain State hasn’t changed the timeline, but it does bring a sense of urgency to the project.

China Energy’s interest “serves as a significant indicator that the (storage hub) is a critical component of the infrastructure needed for substantial growth in the petrochemical industry in Appalachia,” he said, pointing out it’s a vertically-integrated company that “believes in investing in the supply chain to their proposed petrochemical investments.”

Anderson said the hub would integrate the NGL storage network with surface infrastructure, including pipelines that provide the inter-connectivity between petrochemical sites, fractionation and storage.

As such, the flexibility in locations provided by the geology of the region identified in the geologic report last summer is extremely valuable to minimize the disturbance caused by the pipeline network,” he said.

“The maximization of the potential growth of the petrochemical industry is less reliant on the location of the storage as it is on the development of available industrial sites and the coordination of the inter-connectivity of these sites through the surface infrastructure associated with the ASTH.

Anderson said DOE’s announcement was an extremely important step to bringing the project to fruition, saying it indicates that the project meets eligibility requirements associated with the Advanced Fossil Loan Program.

The two primary requirements are that the project will deploy advanced and innovative technologies and that the project will reduce emissions of CO2 and other gases as compared to existing technology,” he said. “The (storage hub) will be incorporating cutting edge technologies that serve to protect the environment and minimize the environmental impact.

Friday, January 12, 2018

Number of piracy incidents drop

Around 180 incidents of piracy and armed robbery against ships were reported to the International Chamber of Commerce’s (ICC) International Maritime Bureau (IMB) last year, according to its report.
This is the lowest annual number of incidents since 1995, when 188 reports were received.
In 2017, 136 vessels were boarded, while there were 22 attempted attacks, 16 vessels fired upon and six vessels hijacked. In 15 separate incidents, 91 seafarers were taken hostage and 75 were kidnapped from their vessels in 13 other incidents. Three crew members were killed last year and six injured.
In the previous year, 191 incidents were reported, with 150 vessels boarded and 151 crew members taken hostage.
The report also underlined several highlights from the past year.
For example, in the Guff of Guinea (GoG), there were 36 reported incidents but no vessels were hijacked and 10 incidents of kidnapping, involving 65 crew members in or around Nigerian waters. Globally, 16 vessels reported being fired upon—including seven in the GoG.
“Although the number of attacks is down this year in comparison with last year, the Gulf of Guinea and the waters around Nigeria remain a threat to seafarers. The Nigerian authorities have intervened in a number of incidents helping to prevent incidents from escalating,” said Pottengal Mukundan, IMB director.
Nine incidents were recorded off Somalia last year, up from two in 2016. 
Following an attack on a containership, six Somali pirates were detained by EU NAVFOR, transferred to the Seychelles and charged with ‘committing an act of piracy’ where they face up to 30 years’ imprisonment if convicted.
“This dramatic incident, alongside our 2017 figures, demonstrates that Somali pirates retain the capability and intent to launch attacks against merchant vessels hundreds of miles from their coastline,” Mukundan warned.
Elsewhere, Indonesia recorded 43 incidents last year, down from 49 in 2016. The IMB report said that Indonesian Marine Police patrols continued to be effective in the country’s 10 designated safe anchorages.
In the Philippines, however, the number of reported incidents more than doubled, from 10 in 2016 to 22 in 2017. According to the report, the majority of these incidents were low-level attacks on anchored vessels, mainly at the ports of Manila and Batangas.
Vessels underway off the Southern Philippines were boarded and crew kidnapped in the first quarter of 2017.  However, alerts broadcast by the IMB’s Piracy Reporting Centre (PRC), on behalf of the Philippine authorities, have since helped to avoid further successful attacks.

Thursday, January 11, 2018

Analysis: China's slow strategic petroleum reserves build signals reduced dependency for energy security

China's pace of strategic petroleum reserves growth slowed over mid-2016 to mid-2017, compared to the previous two years, in a sign that Beijing was comfortable in lowering its dependency on those reserves for energy security.

The country did not bring any new SPR storage site on stream in that period.

But the country's implied crude stocks growth over the same period hit a record high, suggesting more crude barrels went into commercial storage.

Some analysts expected China to need more crude to build its SPR in H2 2017, and also in 2018, because of more SPR storage sites coming online.

 PIRA Energy Group, a unit of S&P Global Platts, expects China to build 100,000 b/d of crude stocks for its SPR in 2018.

The National Bureau of Statistics at the end of December said the country's SPR had reached 37.73 million mt of crude as of mid-2017, or 276.56 million barrels, up 4.48 million mt, or 89,968 b/d from 33.25 million mt recorded in mid-2016.

The SPR stocks build pace was 37% slower than the 143,195 b/d over mid-2015 to mid-2016, and was at only one-third the pace of 274,524 b/d over mid-2014 to mid-2015, S&P Global Platts' calculations based on NBS data showed.

"No new SPR storage site was launched over the period [mid-2016 to mid-2017], preventing the government from bringing in more crude to build the reserves," Wang Zhuwei, senior analyst with S&P Global Platts' China Oil Analytics said.

The nine SPR storage sites, which were in use as of mid-2017, were the same as of mid-2016 -- having a total capacity of 198.83 million barrels, according to NBS announcements. In contrast, the Zhoushan II site in Zhejiang province, with a capacity of 18.87 million barrels, was put into use over mid-2015 to mid-2016.

From mid-2014 to mid-2015, the capacity of SPR storage sites had surged by 76.8 million barrels to 179.93 million barrels due to the launch of four sites -- Dushanzi, Lanzhou, Tianjin and Huangdao II.

Analysts estimate that Beijing would need more crude barrels from the previous period over mid-2016 to mid-2017 to build its SPR, amid expectations that PetroChina's Jinzhou (18.87 million barrels capacity) SPR storage site would have been put to use in H2 2017, while CNOOC's 31.45 million barrels capacity Huizhou site would be functional in 2018.


Due to limited availability at the SPR storage sites, the government has been gradually injecting crudes meant for its SPR into rented commercial tanks, Wang added.

Assuming the nine SPR storage sites were fully filled as of mid-2017, about 77.73 million barrels would have made its way into commercial storage, compared to nil in mid-2014.

"It is unlikely for owners of the commercial tanks to offer more space to store SPR barrels due to its lower lease rate, competing with commercial crudes," a Beijing-based analyst said. "This could be also have an impact on the SPR stock build rate."

Market sources said the annual lease rate at commercial storage tanks for SPR crude was around $1.2/b lower than that for commercial barrels, while the lease business for commercial crudes was thriving last year.


A policy paper dated May 2016 by the National Administration of Energy said that all the crude barrels stored in country could be used for state energy security if needed.

That was to say, for energy security purposes, the government is allowed to take barrels not only from SPR tanks, but also any other tank in country. With that policy, Beijing was not in a hurry to build up SPR stocks on the back of the 351.11 million barrels absolute volume increase from mid-2016 to mid-2017 in China's total implied crude stocks, Platts calculations showed.

The volume was more than 10 times the SPR stocks change over mid-2016 to mid-2017, which was only up 32.84 million barrels. Beijing does not release official data on its absolute oil stock levels.

The volume change figure of implied crude stocks during the mid-2016 to mid-2017 period was equivalent to 43 days of the country's net import cover, considering the country's net crude inflow of 8.08 million b/d between mid-2016 and mid-2017. As of mid-2017, China's SPR stocks were at the level to cover 34 days net crude imports.

The State Council in 2007 approved a long-term plan that envisioned the national petroleum reserves base reaching some 500 million barrels by 2020, or the equivalent of 90 days of net import cover.

-- Oceana Zhou,

-- Edited by Geetha Narayanasamy,

Wednesday, January 10, 2018

Trump administration says no oil drilling off Florida coast

The Trump administration said Tuesday it would not allow oil drilling off the coast of Florida, abruptly reversing course under pressure from Republican Gov. Rick Scott.

Interior Secretary Ryan Zinke said after a brief meeting with Scott at the Tallahassee airport that drilling would be "off the table" when it comes to waters in the eastern Gulf of Mexico and the Atlantic Ocean off Florida.

The change of course — just five days after Zinke announced the offshore drilling plan — highlights the political importance of Florida, where President Donald Trump narrowly won the state's 29 electoral votes in the 2016 election and has encouraged Scott to run for Senate.

The state is also important economically, with a multibillion-dollar tourism business built on sunshine and miles and miles of white sandy beaches.

Zinke said Tuesday that "Florida is obviously unique" and that the decision to remove the state came after meetings and discussion with Scott.

Zinke announced plans last week to greatly expand offshore oil drilling from the Atlantic to the Arctic and Pacific oceans, including several possible drilling operations off Florida, where drilling is now blocked. The plan was immediately met with bipartisan opposition on both the Atlantic and Pacific coasts.

Scott, who is expected to run for Senate later this year, came out against the Trump administration plan when it was first announced, saying his top priority is to ensure that Florida's natural resources are protected.

Other Republican governors also oppose the plan, including Maryland Gov. Larry Hogan, South Carolina Gov. Henry McMaster and Massachusetts Gov. Charles Baker.

"For Floridians we are not drilling off the coast of Florida, which clearly the governor has expressed that's important," Zinke said, adding that he knew when he announced the drilling plan last week that it would spark discussion across the country.

"Our tactic was open everything up, then meet with the governors, meet with the stakeholders so that when we shaped it, it was right," he told reporters at a news conference Tuesday night. "The president made it very clear that local voices count."

When asked what caused the administration to change its position on Florida drilling, Zinke said bluntly, "The governor."

Scott said he was pleased at the administration's change of heart.

"It's a good day for Florida," he said, adding, "I think it's very important to continue our efforts to take care of our environment."

Democratic Sen. Bill Nelson said the meeting with Zinke was "a political stunt orchestrated by the Trump administration to help Rick Scott," who Nelson said has long wanted to drill off Florida's coast.

"I have spent my entire life fighting to keep oil rigs away from our coasts. But now, suddenly, Secretary Zinke announces plans to drill off Florida's coast and (five) days later agrees to 'take Florida off the table'? I don't believe it," Nelson said in a statement. "We shouldn't be playing politics with the future of Florida."

Zinke said last week that the drilling plan called for responsible development that would boost jobs and economic security while providing billions of dollars to fund conservation along U.S. coastlines.

The five-year plan would open 90 percent of the nation's offshore reserves to development by private companies, Zinke said, with 47 leases proposed off the nation's coastlines from 2019 to 2024. Nineteen sales would be off Alaska, 12 in the Gulf of Mexico, nine in the Atlantic and seven in the Pacific, including six off California.

Industry groups praised the announcement, the most expansive offshore drilling proposal in decades. The plan follows Trump's executive order in April encouraging more drilling rights in federal waters, part of the administration's strategy to help the U.S. achieve "energy dominance" in the global market.

A coalition of more than 60 environmental groups denounced the plan, saying it would impose "severe and unacceptable harm" to America's oceans, coastal economies, public health and marine life.

VLCCs: 2018 marks tough start for tanker owners

Hot on the heels of a troublesome 2017, the new year has proven to be just as challenging for owners of the largest tankers. In its latest weekly report, shipbroker Charles R. Weber said that “VLCC rates continue to sour as the market progressed into 2018 as rising levels of surplus availability in the key Middle East market against lackluster demand continues to undermine sentiment.    The VLCC surplus at the conclusion of the January Middle East program’s second decade is projected to stand at 29 units, which represents the highest level since September, when AG‐FEAST TCEs stood at about $11,600/day.    TCEs on these routes are presently averaging ~$12,862/day, suggesting that further near‐term downside potential remains. In the coming week, we expect that rates will continue to decline to an effective floor just above OPEX”.

The shipbroker added that “thereafter, the surplus appears set to narrow modestly by end‐January loading dates in the Middle East market, though it is uncertain if commercial managers are hiding a larger number of vessels than usual. Given this uncertainty and the lagging nature of rates to fundamentals changes, we would not likely expect much rate improvement until charterers have progressed firmly into February loading dates, even if fundamentals do narrow during January’s final decade”.

Meanwhile, “the VLCC fleet grew by 4% during 2017 on a net basis (a level which was markedly lower than had been projected as rising $/LDT demolition values incentivized an unexpected surge in demolition sales during the year), and followed on 2016’s net growth rate of 7%, leading the market into its worst structural position in decades. Indeed, present average earnings of just ~$13,653/day represent a y/y decline of 71% ‐‐ and compare with average earnings during 2017 of ~$25,308/day. Coming at a time when the market is typically at a seasonal high, the indication is that 2018 will likely be an extremely challenging year for owners”, CR Weber concluded.

In the tanker market this past week, in the Middle East, rates to the Far East shed 0.82 points to conclude at ws40.23. TCEs concluded at ~$13,653/day. Rates to the USG via the Cape were unchanged at ws19.86. Triangulated Westbound trade earnings concluded at ~$15,616/day. Similarly, “the West Africa market saw rates unchanged at ws43.79 with corresponding TCEs concluding at ~$15,156/day. Rates in the Atlantic Americas were softer on a growing supply/demand imbalance on sluggish exports from both the US and Venezuela. The CBS‐SPORE benchmark route shed $400k to conclude at $3.20m lump sum.  Round‐ trip TCEs on the route concluded at ~$15,156/day”, the shipbroker noted.

Meanwhile, in the Suezmax market, the shipbroker said that “demand in the West Africa market declined for a third consecutive week to its slowest pace since August.  Coming against a rise in availability, negative pressure on rates remained. The WAFR‐UKC route shed 4.2 points to conclude at ws61.2.    A particularly strong demand run during December’s final decade (materializing on the back of widened cash discounts to Brent) have kept availability levels from rising further still; however, as the perfuming units return to availability, a fresh misbalancing may materialize and place rates under fresh negative pressure.   Compounding woes, rates in the Americas market are declining on slower demand for long‐haul, extra‐regional voyages while slowing recent demand in the Middle East market could lead to westbound ballasts.  Limiting the extent of downside, average earnings in the class are already hovering around OPEX levels”, CR Weber concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

Tuesday, January 9, 2018

Sanchi oil tanker: 'No big spill' off China coast

Burning oil tanker in the East China Sea. Photo: 9 January 2017

No large oil spill has been detected so far from a tanker that has been burning since Saturday evening off the coast of China, Chinese officials say.

The Sanchi is still alight and bad weather - with waves of up to 4m (13ft) - is hampering the rescue work.

The vessel collided with a cargo ship about 260km (160 miles) off the coast of Shanghai.

Of the 30 Iranians and two Bangladeshis on the tanker, only one body has so far been found.

Twenty-one Chinese nationals on the cargo ship were rescued.

The Sanchi tanker has on board 136,000 tonnes of condensate, which is an ultra-light version of crude oil.

What are the latest developments?

China's transport ministry said heavy winds, rain and high waves continued to hamper efforts to contain the fire. 

However, it added that experts at the scene believed that, given the wave conditions, no more than 1% of the condensate was on the surface of the water.

A formal accident investigation, involving several government departments, would start on Tuesday, officials said.

Where, how and when did the accident happen?

The collision, in the mouth of the Yangtze River Delta, occurred on Saturday evening.
The exact cause is not yet known.

What is the Sanchi carrying?

The tanker, run by Iran's leading oil shipping operator, has on board about one million barrels of condensate, which at current prices is worth roughly $60m (£44m).

The Sanchi will also be carrying a certain amount of heavy - and toxic - shipping fuel.
Condensate is very different from the black crude that is often seen in oil spills.

It exists in gas form within high-pressure oil reservoirs and liquefies once extracted.

It is toxic, low in density and considerably more explosive than regular crude oil.

Condensate, which does not need the heavy refining process of denser crude, creates products such as jet fuel, petrol, diesel and heating fuel.

How does this compare with other oil spills?

The harm from oil pollution depends on a number of factors, not just on how much is spilled.

Location is paramount, followed by factors such as the type of oil, sea conditions, wave directions, climate and time of year.

The Atlantic Empress incident listed below - the record spill from ships - saw little oil reach coastlines, whereas the Exxon Valdez, which spilled eight times less, is considered one of the world's worst environmental disasters.

Arguably the worst spill was the deliberate release of up to 500 million gallons by the Iraqis in January 1991 during the Gulf War. The resultant slick covered some 10,300 sq km (4,000 sq miles).
As far as ships are concerned:
  • The Atlantic Empress and Aegean Captain collided off Trinidad and Tobago in 1979. The Atlantic Empress exploded and 26 crew members died. The 90 million gallon oil spill is a record from ships
  • The ABT Summer exploded off Angola in 1991, spilling about 80 million gallons over 200 sq km
  • The Castillo de Bellver caught fire and broke apart off Cape Town, spilling 78 million gallons
  • The Amoco Cadiz spilled almost 69 million gallons after running aground off Brittany in France in 1978
  • The Torrey Canyon hit a reef off Cornwall, England, in 1967, spilling 36 million gallons of crude and affecting almost 200 miles of coastline
  • The Exxon Valdez only spilled 11 million gallons in Prince William Sound, Alaska, in 1989 but was a major environmental disaster

Monday, January 8, 2018

Two U.S. Energy Companies Merge to Enhance Shale Oil Storage, Delivery

U.S. refining company Andeavor said on Wednesday that it had agreed to acquire 100 percent of the equity of Rangeland Energy II, LLC, further enhancing its position in the Permian Basin in the U.S. state of Texas.

Rangeland, based in Houston, Texas, owns and operates assets in the Delaware and Midland Basins, including a recently-constructed crude oil pipeline and three crude oil storage terminals.

Houston-based Andeavor plans to integrate the acquired 176-km crude oil pipeline (with ultimate throughput capacity of 145,000 barrels per day) and crude oil storage terminals with its nearby Conan Crude Oil Gathering System, currently under construction.

Once fully integrated, the combination of the two systems will provide producers access to multiple markets by connecting to existing takeaway pipeline systems.

The combined system also supports Andeavor's development of additional gathering systems in the area, as well as enhancing commercial opportunities by providing direct access to the Midland market hub.

Andeavor is a premier, highly integrated marketing, logistics and refining company. Its retail-marketing system includes more than 3,200 stores marketed under multiple well-known fuel brands.

Shale oil production in the Permian Basin, a mature hydrocarbon "super basin" located in west Texas and southeastern New Mexico, reached a new record, averaging 2.75 million barrels per day, exceeding its previous peak set in 1973.

The Permian Basin ranked top among all U.S. shale oil basins in production capacity. By the end of 2018, the Permian surge should push total U.S. liquids production to a new all-time high of 10.5 million barrels per day.

Operators began production in the Permian Basin in the 1920s and have since pumped more than 39 billion barrels of oil there.

Friday, January 5, 2018

Largest independent tanker owner formed

Just before the holiday break, tanker operators Euronav and Gener8 Maritime announced that they were to merge. 
The companies reached an agreement on a stock-for-stock merger for the entire issued and outstanding share capital of Gener8, which would become a wholly-owned subsidiary of Euronav.

This deal will create the world’s leading independent crude tanker operator, as the combined company will have a fleet of 75 crude tankers, including 44 VLCCs and 28 Suezmaxes, totalling over 18 mill dwt. 

US-based law firm Seward & Kissel is serving as legal counsel to Euronav in connection with the merger. The Seward & Kissel team was lead by business transactions partners, Jim Abbott and Nick Katsanos, capital markets partners Gary Wolfe and Keith Billotti, corporate finance partner Michael Timpone, and tax partner James Cofer.

The merger will also create combined entity balance sheet assets of over $4 billion with an estimated pro-forma market capitalisation of about $1.8 bill based on Euronav’s closing price of $8.10 per share on 20th December, 2017.

The expanded company will have a liquidity position estimated at more than $750 mill, including cash on hand and undrawn amounts available under existing credit facilities.

Key terms included 0.7272 Euronav shares exchanged for each share of Gener8,  which is expected to result in the issuing of around 60.9 mill new Euronav shares to Gener8 shareholders.

This will result in Euronav shareholders owning about 72% of the issued share capital of the combined entity and Gener8 shareholders owning around 28% - based on the fully diluted share capital of Euronav and the fully diluted share capital of Gener8.

The deal is subject to the approval of Gener8’s shareholders, the consent of certain of Gener8’s lenders to assign certain debt facilities to the combined entity, the effectiveness of a registration statement to be filed by Euronav with the US Securities and Exchange Commission (SEC) to register the Euronav shares to be issued in the merger, the listing of the shares on the New York Stock Exchange (NYSE) and other customary closing conditions.

Euronav, as the combined entity, will remain listed on NYSE and Euronext under the symbol ‘EURN.’

Carl Steen, Paddy Rodgers and Hugo De Stoop will remain board chairman, CEO and CFO of the combined entity, respectively.

A Gener8 independent board member, Steve Smith, is expected to join the Euronav board following completion of the merger, which is expected by the end of June, 2018 at the latest.

Commenting on the deal, Carl Steen, Euronav chairman, said: “The merger between Euronav and Gener8 is expected to deliver real value for both sets of shareholders. The financial strength of the combined entity together with a strong leadership team will make it well placed to navigate the tanker cycle”.

CEO Paddy Rodgers, said: “This transaction marks an exciting development for Euronav. The merger creates the leading tanker company which is better placed to serve the needs of our customers and support our partners.”

Peter Georgiopoulos, Gener8 chairman and CEO, said: “I have been a vocal advocate for consolidation in the shipping industry and have always stated that we would be a willing buyer or seller depending upon what is best for our shareholders. This transaction creates the largest independent VLCC fleet in the world. The combined company has a very bright future that will benefit both Gener8 and Euronav shareholders.”

As mentioned above, Seward & Kissel is serving as legal counsel to Euronav, while Shearman & Sterling is serving as legal counsel to the transaction committee of Gener8 and Kramer Levin Naftalis & Frankel is serving as legal counsel to Gener8. 

RMK Maritime is serving as financial advisor to Euronav’s board and UBS Securities is serving as financial advisor to Gener8. For Belgian law matters, Euronav was advised by Argo Law.

It was later announced that US-based International Seaways (INSW) had agreed to purchase six of the VLCCs from the merged company upon its closing for $434 mill in total.

This sale will allow Euronav to maintain sustainable and robust financial ratios and keep leverage and liquidity well within management’s desired levels, the company explained.

The ships include five 2016-built VLCCs and one 2015-built VLCC, each built by Shanghai Waigaoqiao Shipbuilding. The vessels are expected to be delivered to INSW in the second quarter of 2018.

INSW said that, in connection with the transaction, it intends to assume the debt currently secured by the acquired vessels, which consists of a $311 mill credit facility, maturing between 2027 and 2028, and carrying a fixed annual interest rate of LIBOR plus 2%.

This transaction is also subject to a number of closing conditions, including consummation of Euronav’s acquisition of Gener8.

Following the closing of the transaction, INSW will reduce the average age of its fleet by over two years while expanding the size of its fleet by 30% on a dwt basis.

“We are pleased to have entered into this compelling en bloc transaction that positions INSW to further increase its earnings power and industry leadership,” Lois  Zabrocky, INSW’s president and CEO, said.

Thursday, January 4, 2018

Saudi Arabia demanding $6B for release of Prince Al-Waleed Bin Talal

Oil Jumps After U.S. Crude Stockpiles Shrink Most Since August
  • Nationwide oil inventories dropped by 7.42 million barrels
  • Refiners boosted operating rates to the highest since 2005
Oil topped $62 a barrel for the first time since May 2015 after U.S. crude stockpiles shrank by the most since the summer driving season.

Futures rose as much as 0.9 percent in New York. American crude inventories slipped by 7.42 million barrels last week as refiners boosted operating rates to the highest level in more than a decade, the Energy Information Administration said on Thursday. Stored crude supplies have been dwindling for seven straight weeks and the scope of last week’s withdrawal surprised analysts.

“The crude oil inventory number was pretty healthy relative to consensus,” Brian Kessens, who helps manage $16 billion in energy assets at Tortoise Capital Advisors LLC, said by telephone. “People are optimistic that there are some tailwinds behind the underlying crude oil price.”
Oil is hovering near $62 in New York and a settlement above that mark would be the first time since December 2014. The Organization of Petroleum Exporting Countries and Russia are working to reduce global inventories and price levels have also been boosted by concerns over the stability of the group’s third-biggest producer, Iran. Meanwhile, in the U.S., crude output rose last week.

West Texas Intermediate for February delivery jumped 42 cents to $62.05 a barrel at 11:37 a.m. on the New York Mercantile Exchange, the highest intraday level since May 2015.

Brent for March settlement advanced 12 cents to $67.96 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $6.08 to March WTI.

U.S. crude inventories fell to 424.5 million barrels last week, while distillate supplies climbed by about 8.9 million barrels, the most since December 2016, the EIA said. U.S. refineries boosted operating rates for a third straight week, contributing to the decline in stored oil supplies.
Oil-market news:
  • OPEC crude production held steady in December as the group approached a fresh year of output curbs in full compliance with its supply deal.
  • Saudi Arabia cut February pricing for most of its crudes sold to U.S. buyers for a second month as the world’s largest oil exporter ships record-low volumes to American ports in its effort to trim a global glut.
  • Iraq exported near-record levels of oil from the south in December as the federal government sought to make up for production disruptions after territorial disputes in the country’s north.

Wednesday, January 3, 2018

OPEC Holds Production Steady as Compliance Exceeds Promised Cuts

OPEC’s crude production held steady in December as the group approached a fresh year of output curbs in full compliance with its supply deal.

The 14 members of the Organization of Petroleum Exporting Countries pumped 32.47 million barrels a day, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data.

Libya saw a 30,000-barrel-a-day decline to 970,000 a day following a pipeline blast, which was offset by an increase from Nigeria. Both countries were exempt from cuts last year but are now expected to join the effort with a combined limit of 2.8 million barrels a day. OPEC and its allies agreed Nov. 30 to extend their output agreement until the end of 2018 to balance the market.

Production in Saudi Arabia, OPEC’s biggest member, slipped by 20,000 barrels a day to 9.95 million a day, the surveyed showed. Venezuela, which has suffered a slump in output amid economic collapse and U.S. sanctions, reduced volumes by a further 50,000 barrels a day to 1.81 million a day.

The 12 OPEC members bound by output caps implemented 121 percent of their pledged cuts in December, the same as the prior month, the survey showed.

— With assistance by Wael Mahdi, Anthony Dipaola, Mohammed Sergie, Stephan Kueffner, and Fabiola Zerpa

Tuesday, January 2, 2018

Iran May Not Be Oil's Biggest Wild Card in 2018

The oil market rediscovered geopolitics in the latter part of 2017. Continuing the theme, 2018 has kicked off with mass protests in Iranian cities.

As you sketch out scenarios for the Middle East, though, don't forget another big wild card: the U.S.
This isn't to say Iran's problems don't matter. They're occurring in a context of heightened tension with Saudi Arabia, and both countries are liable to launch rhetorical assaults as a matter of course. Iranian-backed fighters in Yemen's civil war are also launching assaults in the form of missile attacks on Saudi Arabia, though they've been thwarted thus far. It's all too easy to join the dots from a missile hitting, say, a Riyadh neighborhood to an escalation, and potentially explosive miscalculation, by both governments.

Equally, the sheer opacity of Iranian (and Saudi Arabian) politics to most outsiders makes it very hard to weigh the probabilities -- or the impact on oil prices. The nearest analogue to the current situation is Iran's "Green Movement" of 2009 and 2010. On the surface, those protests -- bigger than the current ones so far -- had no discernible impact on oil.

Yet extrapolation from that earlier example is essentially useless. Back then, everything -- from the state of the global economy, just emerging from the 2008 financial crisis, to the prevalence of social media in the Middle East -- was very different.

While you can't ignore the potential for explosive outcomes in that region, the more tangible, if less dramatic, swing factor to watch in oil this year is the U.S.

America's capacity for upending the oil market is well-established at this point. Here's exhibit A:

That disruption continues. The day after the current spate of protests got underway in Iran in late December, the U.S. Energy Information Administration released its latest monthly oil supply figures, for October. Crude oil output jumped by almost 170,000 barrels a day that month -- and the gain would have been double that, were it not for hurricane impacts keeping Gulf of Mexico barrels off the market:

At this point, the single biggest and most tangible swing factor in 2018's oil market is how much more oil comes out of U.S. shale basins. And projections for this are all over the place. For example, while OPEC projects an extra 720,000 barrels a day of U.S. crude oil this year, analysts at Rystad Energy, a consultancy, put it at 1.1 million barrels a day. In a market focused primarily on working off excess oil inventories, that gap is make-or-break -- whether you're a bull or a bear.

If U.S. exploration and production companies maintain momentum, then it's difficult to see how oil prices can move much higher this year, unless something like a deeper crisis in the Middle East transpires (another potential flashpoint, Venezuela, is more of a known known). If shale stalls, then bulls will take heart.

Ultimately working against the bulls, however, is stuff like Iranian protests, which could keep prices just high enough to keep shale humming. Speculative net length in major crude oil and refined products contracts heightens the potential for any whiff of trouble to push oil prices higher, regardless of whether it actually affects physical flows of barrels -- especially as the role of algorithmic trading has grown.

It's worth re-emphasizing that 2018 may bring plenty of unsettling news to feed oil rallies. Besides Iran and its neighbors, the U.S. is an outsize factor here too. This is always the case because of the country's sheer preponderance in the regional and world order; its actions or mere inaction can have profound implications.

Now remember that this year we are likely to see, among other things, the results of special counsel Robert Mueller's investigation into Russian interference in the 2016 election, mid-term elections and a potential revisiting of the nuclear deal with Iran (about which the current protests may or may not affect President Donald Trump's thinking). The U.S. isn't necessarily a stabilizing element on the political front.

What ultimately counts for oil, though, is physical flow. A dollar of pure risk-premium is like a dollar of geopolitical rent for a producer in a place like Texas, helping it hedge future output. Whereas a real crisis can take a lot of oil off the market quite quickly, these days fear of a potential crisis can help bring more barrels onto it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.