Monday, December 31, 2018

Port of Corpus Christi to Double Crude Oil Exports in 2019

Three new pipelines coming online in the second half of 2019 will deliver an onslaught of crude to the port of Corpus Christi. According to ESAI Energy’s recent North America Watch, local refinery demand for light sweet crude will remain unchanged, so these new flows will double the surplus crude available for export.

In the report, ESAI Energy forecasts crude oil production in the Permian Basin to accelerate after long-awaited pipeline takeaway capacity is added late next year. With most of the new pipelines delivering crude oil to Corpus Christi, terminals at the port are also expanding their loading capabilities to get ready for this flood of crude oil. The port has already reported record tonnage in 2018, with crude oil exports averaging close to 400 000 bpd so far this year. Over the second half of 2019, ESAI Energy projects an additional 400 000 bpd will be available at Corpus Christi terminals to export.

“The timing of port expansions will be critical as pipeline flows begin”, notes Elisabeth Murphy, analyst at ESAI Energy. “Bottlenecks and congestion have so far eluded Corpus Christi but could easily build up with this much crude arriving at the docks.”

PDVSA Hopes To Retain Bullen Bay Terminal, Not Refinery

Bullen Bay Terminal

The Venezuelan state-owned PDVSA hopes to retain access to Bullen Bay terminal after its lease expires in December 2019, but the Isla refinery at Schottegat has lost strategic value for the company. This is according to sources within the Venezuelan company.

The refinery barely operated in 2018 because of a lack of feedstock, maintenance and domestic utility services. Normally the facility processed around 220,000 b/d.

A senior Venezuelan energy ministry official said PDVSA no longer has any commercial or financial interest in the refinery. "Isla has lost its strategic importance as a refining center for our company," the official said. "PDVSA can't supply the crude Isla needs, can't afford imported crude from other suppliers and doesn't have the financial resources to maintain the refinery even in nominal operating capacity."

"Bullen Bay is very important to PDVSA's export logistics, but PDVSA isn't interested in spending up to $3bn to upgrade the refinery," official added.

Bullen Bay is a critical transshipment hub for PDVSA's export operations, particularly involving shipments to China, India and close ally Cuba. PDVSA also leases storage on the other Dutch Caribbean islands of Aruba and St Eustatius and owns the 10mn bl Bopec storage facility on Bonaire.
The value of the logistical network was highlighted in May, when US independent ConocoPhillips imposed pre-judgment attachments on PDVSA's Dutch Caribbean assets to force the company to honor a $2bn arbitration award for the 2007 takeover of the US firm's Venezuelan assets. PDVSA reached a settlement with ConocoPhillips in August and has complied with an initial $500mn cash and in-kind payment, the US company confirms. PDVSA is otherwise in default on billions of dollars in bond, commercial and arbitration debt.

PDVSA’s export operations would be significantly impaired if it loses access to Bullen Bay, according to a company official at the main Venezuelan oil terminal of Jose. PDVSA lacks sufficient domestic storage and terminal capacity to compensate for a potential loss of access to Curaçao, although continued access to Bopec, Aruba and NuStar's St. Eustatius terminal would soften the blow.

Venezuela's current production of just over 1mn b/d and significant oil-backed debtcommitments and barter deals leave little room to supply crude to Curaçao, the Venezuelan officials say.

Sunday, December 30, 2018


Here's why gas prices are falling, and why drivers shouldn't get too used to them

A seasonal shift in refinery activity has helped turn gas into 'the unwanted hydrocarbon', an oil expert told CNBC recently, which is unlikely to last beyond winter. 

A seasonal shift in refinery activity has helped turn gas into 'the unwanted hydrocarbon', an oil expert told CNBC recently, which is unlikely to last beyond winter. 

Crude oil's sharp fall in 2018 has helped put some extra money in consumers' pockets, in the form of falling gas prices.

According to AAA, nine states saw prices at the pump drop below $2 a gallon late this week, a gift for drivers this holiday season. Over the last 90 days, retail averages have dropped 83 of the past 90 days, with the downward trend expected to continue into early next year, the organization said.

Over the last two years, Russia and the cartel of the world's largest oil producers known as OPEC have been managing the global petroleum supply, in order to rebalance the market after a prolonged and punishing oil price downturn.

While there are many factors driving down energy prices, it raises the question of whether the drop is linked to supply and demand. According to one veteran oil market watcher, a more technical factor could be behind the move.

"I think it's mostly supply and it's something that tends to happen between October and April when gasoline becomes the unwanted hydrocarbon," said Tom Kloza, global head of energy analysis at fuel price service OPIS.

Kloza explained that during this period, refiners are moving to more profitable diesel, heating oil and jet fuel production, and away from gasoline.

"We just manufacture too much of it," Kloza told CNBC's On The Money in a recent interview, "and we just came out of a couple months where OPEC producers were producing more crude than what they pledged to in January."

However, Kloza predicted the low prices at the pump will head back up in the springtime. "I think the bottom line is 2019 and the end of 2018 will be bookended with cheap prices, but in the middle we're going to go considerably higher than that and you've got to be aware of that, " Kloza told CNBC.

"When the baseball season's on, you're going to see higher prices," he added. Nevertheless, Kloza predicted that "demand for gasoline is probably going to be flat actually for the next few years. The thing that keeps refiners going is export demand."

With travelers still hitting the friendly skies, and airlines also deriving a benefit from cheaper fuel prices, Kloza said.

Yet flyers shouldn't get their hopes up for cheaper travel costs.

"Lower jet fuel prices don't mean lower airfares, we've learned that in the last ten years," Kloza added.

--CNBC's Tom DiChristopher contributed to this report.
On the Money airs on CNBC Saturdays at 5:30 am ET, or check listings for air times in local markets.

Friday, December 28, 2018

Russia dashes plans to make its oil market alliance with OPEC permanent

Russian Energy Minister Alexander Novak.
Leonhard Foeger | Reuters
Russian Energy Minister Alexander Novak.
  • Russian Energy Minister Alexander Novak says his country and other oil producers will probably not make their alliance with OPEC permanent.
  • The oil producers have been coordinating output for two years and have long discussed institutionalizing the partnership.
  • Novak cites burdensome bureaucracy and U.S. legislation that targets OPEC as reasons to abandon the plan.
The marriage between Russia and OPEC is off.

Russian Energy Minister Alexander Novak on Friday poured cold water on long-simmering plans to make Moscow's alliance with OPEC and other oil producers permanent. The group of roughly two dozen producers has been managing global petroleum supply for the last two years in order to rebalance the market after a prolonged and punishing oil price downturn.

The effort succeeded in shrinking global crude stockpiles and boosting prices to four-year highs — until the market suddenly crashed again in early October. The group has agreed to a fresh round of output cuts that begin Jan. 1.

For at least a year, OPEC Secretary General Mohammed Barkindo has discussed "institutionalizing" the arrangement. That would essentially form a supergroup of oil producers comprised of the 14-nation OPEC, Russia and nine other oil-exporting nations, which would be able to more quickly respond to problems in the market.

Energy ministers had been talking up progress toward the permanent arrangement as recently as their meeting in Vienna earlier this month.

But on Friday, Novak said the prospects for that plan now look dim, Reuters reported. He said it would create too much red tape and expose the non-OPEC members of the alliance to potential sanctions from the U.S. government.

"There is a consensus that there will be no such organization. That's because it requires additional bureaucratic brouhaha in relation to financing, cartel, with the U.S. side," Novak told reporters, according to Reuters.

The U.S. penalties in question are spelled out in legislation known as NOPEC, or the No Oil Producing and Exporting Cartels Act. The bill would authorize the Justice Department to sue groups like OPEC that are deemed cartels for price fixing and antitrust violations, stripping countries of sovereign immunity protections currently built into U.S. law.

The legislation was first introduced in 2007, during a time of rising crude prices and concerns that the world's oil reserves would run dry. It was revived earlier this year in both chambers of Congress by bipartisan groups of lawmakers.

The White House has historically opposed the legislation, but President Donald Trump's attacks on OPEC this year have raised concerns that he could back the measure.

However, like past presidents, Trump has shown he is willing to work with OPEC when it suits his needs.

His administration lobbied top OPEC producer Saudi Arabia to reverse the alliance's policy of capping production in order to prevent oil prices from spiking as the U.S. prepared to sanction Iran, OPEC's third-biggest producer. The alliance agreed to hike output in June, a decision that ultimately contributed to the current oil price slump.

Russia and Saudi Arabia were the world's top two oil producers until this year, when U.S. output surpassed production from both countries.

Thursday, December 27, 2018

America's Oil And Gas Reserves Double With Massive New Permian Discovery

permian rig

America’s energy security just got a lot more secure. On November 28 The United States Geological Survey (USGS) published an assessment of continuous (unconventional or ‘tight’) resources in a part of the prolific Permian oil and gas basin that straddles Western Texas and Southeastern New Mexico. Located in the Wolfcamp Shale and overlying Bone Spring Formation, the unproven, technically recoverable reserves are officially the largest on the planet. But curiously this story isn't making waves in the mainstream media.

Nearly one third of the United States’ crude already comes from the Permian, making it the largest shale-oil producing region in the country. While numerous studies have been conducted on the Permian's half-dozen sub-basins and their many overlapping formations, this represents the first comprehensives USGS assessment of continuous resources in Wolfcamp and Bone Spring within the Delaware Basin.

And the findings are truly incredible.

The USGS estimates that over 46 billion barrels of oil, 280 trillion cubic feet of gas, and 20 billion barrels of natural gas liquids are trapped in these low-permeability shale formations. To better understand just how staggering these numbers are, think about this: at the end of 2017, total U.S. proven reserves of crude oil hovered around 40 billion barrels. For natural gas, figures stood around 465 trillion cubic feet (tcf). The new upward revision of Permian resources represents a more than 100% and 65% increase in U.S. oil and gas reserves, respectively, if they can be extracted economically.

It is important to note that the recent USGS survey includes estimates for unproven reserves (estimated resources based on geologic knowledge and theory) and technically recoverable reserves (resources available using current technology and industry practices). While reasonable conclusions can be drawn about the extent of resources in these basins, the approximations do not address future economic profitability. The future prices of hydrocarbons and their economic viability may vary due to environmental regulation, technology, specific geology, and cost of production. But don't let that detract from the scale of this find.

Historic U.S. proven oil and gas reservesEIA


Here's another way to look at it: the world consumes approximately 100 million barrels of oil and .36 trillion cubic feet of natural gas per day. This means that Wolfcamp and Bone Spring have sufficient reserves to meet global oil demand for over a year, and gas demand for several more. Not bad for a country that, up until early 2015, banned the export of crude oil for fear of running out of domestic supplies.

Still not impressed?

At $50 dollars per barrel (where West Texas Intermediate (WTI) is currently trading following a 35% price drop since October) the Wolfcamp Shale and Bone Spring Formation would be worth a whopping  $2.3 trillion. As for natural gas, 280 trillion cubic feet will fetch you $1.1 trillion at today’s prices of $3.75 per million Btu (mmbtu).  It won’t solve the national debt problem – which is now nearly $22 trillion – but windfall taxes for the companies operating in these basins (not including the taxes along every step of the oil and gas value chain) would be a boon for state, local, and the national economy. Tax revenues from this mass reserve could help fund our schools, social security, critical infrastructure, and national defense. This is very literally buried treasure.

But unlike your typical buried treasure, the hard part isn’t just finding this stuff, it's moving it.

The United States is currently suffering from a major mid-stream infrastructure bottleneck, meaning the country lacks sufficient pipeline capacity to move all the oil and gas we are extracting to willing buyers.

Shale producers in the Permian, for example, have some 300,000 barrels per day to ship, but are unable to do so. The capacity situation is so bad that for a brief period in November, natural gas prices in the Permian Waha hub actually dropped into the negatives, forcing gas traders to pay customers to take their product. Relief is expected to come by 2020, when a host of massive pipelines and railroad projects are due to be completed. Energy Trading Partners (NYSE:EPT-D), Phillips 66 Partners (NYSE:PSXP) and Andeavor (NYSE:ANDV) are among those companies pouring billions into the Permian's high-demand mid-stream sector. One would hope that overzealous regulators and judges not stand in their way.

Base Map showing the Delaware Basin, Permian Basin Province, New Mexico and Texas, and the extent of the two

Wolfcamp shale-gas continuous assessment units (AU)USGS

But in the short term, the landscape does not look promising for energy investors on any side of the oil and gas equation. Return to the ‘lower for longer’ energy price environment, an impending global recession, higher interest rates, a global oil production glut, and weak demand – particularly from emerging markets – paint a bleak picture.  The promised  OPEC and friends 1.2 million barrel per day cut isn’t likely to help much, as this would just remove around 1% of global supply. Considering the lag time for any such cut to take effect, plus the tendency of OPEC+ producers to cheat, we shouldn’t expect an appreciable increase in oil prices any time soon.

The future of the Wolfcamp and Bone Spring treasure will be contingent on the direction of global oil markets and the North American natural gas demand, but it is good to know that the country can breathe easier if global instability threatens imports. The state of the Union’s oil and gas stocks is bright.

James C. Grant, Program Manager at International Market Analysis Ltd., contributed to this article

Wednesday, December 26, 2018

Oil Prices Climb After Christmas Eve Drop

Oil Prices Climb After Christmas Eve Drop

Oil prices climb on Wednesday, reversing a trend that saw crude benchmarks hit their lowest point in 17 months.

U.S. and Brent crude oil, the global benchmark, were both up more than 7%. Brent crude was up about 7.88% in late trading, while WTI crude climbed 8.58%.

Igor Sechin, head of Russia's Rosneft and a close ally of President Vladimir Putin, said Wednesday the drop in global crude oil prices was due to the Federal Reserve raising interest rates last week.

Sechin also said he saw oil prices at $50-53 per barrel next year "under a conservative scenario," according to a Reuters story.

Oil prices have fallen by more than a third this quarter. Last week, the Federal Reserve raised rates by a quarter percentage point for the fourth time this year to a range of 2.25% to 2.50%.

Crude has been caught up in wider financial market issues, such as the U.S. government shutdown, higher U.S. interest rates, and the U.S.-China trade dispute, which shook investors.

On Monday, global oil markets extended their declines, taking crude prices to the lowest levels since July of last year.

Exxon Mobil (XOM) rose 2.77% to $67.32. Chevron (CVX) climbed 4.41% to $105.44. BP (BP) rose 2.63% to $37.62, while Royal Dutch Shell dipped slightly to $25.03.

Oil output goes AWOL in Venezuela as soldiers run PDVSA

FILE PHOTO: Venezuela's Oil Minister and President of PDVSA Manuel Quevedo pauses while he talks to the media during a news conference in Caracas
Major General Manuel Quevedo / PDVSA

Last July 6, Major General Manuel Quevedo joined his wife, a Catholic priest and a gathering of oil workers in prayer in a conference room at the headquarters of Petroleos de Venezuela SA, or PDVSA.

The career military officer, who for the past year has been boss at the troubled state-owned oil company, was at no ordinary mass. The gathering, rather, was a ceremony at which he and other senior oil ministry officials asked God to boost oil output. 

“This place of peace and spirituality,” read a release by the Oil Ministry that was later scrubbed from its web site, “was the site of prayer by workers for the recovery of production of the industry.” 

President Nicolas Maduro turned heads in November 2017 when he named a National Guard general with no oil experience to lead PDVSA [PDVSA.UL]. Quevedo’s actions since have raised even more doubts that he and the other military brass now running the company have a viable plan to rescue it from crushing debt, an exodus of workers and withering production now at its lowest in almost seven decades. 

Aside from beseeching heaven, Quevedo in recent months has enacted a series of controversial measures that oil industry experts, PDVSA employees and contractors, and even everyday citizens say are pushing the once-profitable and respected company towards ruin. 

Soldiers with AK-47s, under orders to prevent cheating on manifests, now board tankers to accompany cargo inspectors, rattling foreign captains and crews. 

Workers who make mistakes operating increasingly dilapidated PDVSA equipment now face the risk of arrest and charges of sabotage or corruption. Military chieftains, moonlighting in the private sector, are elbowing past other contractors for lucrative service and supply business with PDVSA. 

In a little-noted reversal of the Socialist government’s two-decade drive to nationalize the industry, the lack of expertise among military managers is leading PDVSA to hire outsiders to keep afloat even basic operations, like drilling and pumping oil. To the dismay of many familiar with Venezuela’s oil industry, some of the contracts are going to small, little-known firms with no experience in the sector.
Combined, industry veterans say, the steps leave Venezuela’s most important company - which accounts for over 90 percent of export revenue - with even fewer means to rebuild the nation’s coffers, pay its many creditors and regain self-sufficiency as an oil producer. 

“What we are witnessing is a policy of destroying the oil industry,” said Jose Bodas, general secretary of the Oil Workers Federation, a national labor union. “The military officials don’t listen to workers. They want to give orders, but they don’t understand this complicated work.” 

Maduro defends the military managers, arguing they are more in synch with his Socialist worldview than capitalist industry professionals who exploit the country for personal profit. “I want a Socialist PDVSA,” the president told allied legislators earlier this year. “An ethical, sovereign and productive PDVSA. We must break this model of the rentier oil company.” 

Quevedo, who holds the title of oil minister as well as president of PDVSA, didn’t respond to requests for comment for this story. Neither Venezuela’s Information Ministry, responsible for communications for the government and senior officials, nor PDVSA’s press office returned phone calls or emails from Reuters. 

PDVSA and the Oil Ministry disclose scant information about Quevedo, who is 51, according to his social security registration. He seldom makes public speeches. But at an industry event in Vienna last June, Quevedo told journalists PDVSA is aware of its challenges and hoped within months to make up for plummeting output. 

“We hope by year end to recover the lost production,” he said in a forecast that has been missed. “We have the capacity and we have summoned the strength of the workers.” 

Nearly 20 years after the late Hugo Chavez launched his “Bolivarian revolution,” much of Venezuela is in tatters. Food and medicines are scarce, hyperinflation has gutted purchasing power for increasingly desperate citizens and roughly three million Venezuelans have fled the country in search of a better life. 

At PDVSA, managers long sought to keep the company running, even if the economic meltdown and falling oil prices meant they had fewer resources to invest in exploration, growth and basic maintenance. Despite their efforts, decay led to dwindling production, deteriorating facilities and a progressive loss of skilled workers. 

Now, critics say, military officials atop PDVSA have put aside any pretense of running it like a proper business, doing little to stem the fall in production or improve the company’s financial, operational and staffing problems.


No matter the dysfunction, PDVSA remains a rare and crucial source of foreign currency in the enfeebled Andean country. For Maduro, who became president after Chavez died in 2013, handing the company over to the military is seen by many as a calculated move to buy loyalty from officers. 

“No one will be able to remove the military from PDVSA now,” said Rafael Ramirez, a former oil minister. Ramirez ran the company for a decade under Chavez before clashing with Maduro, who accuses him and many other former executives of corruption. “PDVSA is a barrack.” 

PDVSA is struggling to fulfill supply contracts with buyers, including major creditors from China and Russia who have already advanced billions of dollars in payments in exchange for oil. Last month, the head of Rosneft, the Russian oil company, flew to Venezuela and complained to Maduro about the delays, Reuters reported. 

Demand remains healthy for Venezuelan oil. Operational problems under Quevedo, however, have caused production to drop 20 percent to 1.46 million barrels per day, according to the latest figures Caracas reported to OPEC, the oil cartel, of which it is a member. 

Quevedo in January will assume OPEC’s rotating presidency for one year. PDVSA’s financial problems are likely to demand much of his attention. 

The gross value of PDVSA’s oil exports is expected to fall to $20.9 billion this year compared with $24.9 billion last year, according to a calculation provided to Reuters by the International Energy Center at IESA, a Venezuelan business school. Exports a decade ago were over four times as much, reaching $89 billion, according to PDVSA’s accounts for 2008. 

PDVSA didn’t publish a 2017 report and hasn’t released financial results in 2018. 

Little has been publicly disclosed by PDVSA or Maduro’s government about the military transformation within its ranks. 

A Reuters examination based on confidential PDVSA documents – as well as interviews with dozens of current and former employees, shippers, traders, foreign oil executives and others who do business with the company – shows how Quevedo’s National Guard is seeping into every facet of its operations. The documents include employment records, agreements with contractors and internal staff memos. 

Quevedo has appointed more than 100 aides and advisors from the military and from a previous post as a government minister to senior positions, according to a person familiar with PDVSA’s human resource records. 

At its shabby concrete Caracas headquarters, once brimming with suited executives, military officers are now in charge of operations. Workers say offices in Quevedo’s penthouse sanctum remain luxurious. But in the run-down halls below, socialist propaganda, including portraits of Fidel Castro and Ernesto “Che” Guevara, is among the scant decor left on the walls. 

The shift toward military management was the result of a purge of PDVSA leadership. 

Allegations of corruption have been rife across the Venezuelan government in recent years; Maduro himself is the target of U.S. sanctions for graft and human rights violations, which he denies. 

In 2017, the president leveled his own accusations against PDVSA, describing it as a den of “thieves.” He accused many former executives of skimming from contracts and laundering money and argued that their graft worsened the country’s crisis. 

He ordered the arrest of dozens of top managers, including PDVSA’s two previous presidents, chemist Nelson Martinez and engineer Eulogio Del Pino. Martinez died at a military hospital earlier this month, suffering a heart attack while undergoing kidney dialysis, two people familiar with the circumstances said. 

Del Pino remains detained, awaiting trial. Reuters was unable to reach his lawyers for comment. A person familiar with Del Pino’s defense said he has yet, after a year in jail, to have an initial court hearing.


At the time of the purge, Quevedo had risen from the National Guard ranks to become a prominent government loyalist. 

Quevedo’s Twitter profile often features a photo of the general, a stocky and balding man with heavy eyebrows, reviewing paperwork with the president or smiling happily alongside him. His feed consists almost exclusively of retweets of Maduro’s posts. 

Since 2001, the general has moved between military and civilian positions. He has a longstanding relationship with Diosdado Cabello, the powerful vice president of the Socialist party: The two were classmates as young men at military school. 

Those ties led to senior posts for Quevedo at the Defense Ministry and a program created by Chavez for low-income housing, according to official government gazettes and people who know his trajectory. 

In 2014, back in a command role with the National Guard, Quevedo led a unit that clashed with demonstrators during protests that shook Venezuela for four months. At least 43 people, on both sides, died during the demonstrations, sparked by the onset of food shortages. 

Quevedo was criticized by many government opponents for using excessive force, which he denied. He appeared frequently on state television at the time, donning an olive-green helmet and bullet-proof vest. “These are terrorist groups,” he said of the protestors, who eventually dissipated, leading him to declare that “the coup has been defeated.” 

Pleased with Quevedo’s performance, Maduro in 2015 named him housing minister. In his two years in the post, he again became a fixture on state television, often wearing the red shirt of the Socialist movement and praising Maduro’s “humane” housing policies. 

Opposition leaders scoffed at what they saw as Quevedo’s outsized boasts, including an unsubstantiated claim that the government constructed more than 2 million homes, despite widespread shortages of basic building materials. The housing ministry didn’t respond to requests for comment. 

In November 2017, intelligence agents arrested former PDVSA chief Del Pino in a predawn raid on unspecified graft charges. By then, Quevedo was Maduro’s choice to lead the all-important company. The announcement prompted widespread skepticism in the industry. 

Quevedo said he would need little time to get a handle on the oil businesses. “Give me 10 days,” he told acquaintances, according to one person who spoke with him at the time. 

From the start, Maduro made clear the challenge ahead. In a public address during “Powerhouse Venezuela 2018,” a government conference meant to showcase business potential, the president ordered Quevedo to boost oil output by a whopping 1 million barrels per day – roughly a 50 percent increase at the time. 

Over the past year, though, Quevedo has failed to reverse the slide. 

One of his first challenges, according to people within PDVSA, was to stanch the flow of workers, many of whom deserted the company and Venezuela altogether. PDVSA hasn’t disclosed recent employment figures. But estimates by IPD Latin America, an oil and gas consultancy, indicate PDVSA has about 106,000 workers – 27 percent fewer than in 2016. 

Because of cost-of-living increases that now top 1 million percent per year, according to Venezuela’s National Assembly, PDVSA salaries have crumbled to the equivalent of a handful of dollars a month for most workers. 

With no money, and little real work to do at idle and faulty facilities, some employees only show up to eat at the few company cafeterias that remain open. Shippers told Reuters that PDVSA workers at times board vessels to ask for food.


To boost manpower, Quevedo has been staffing some jobs, including posts that once required technical knowledge, with National Guard recruits. The terminal of Jose, a Caribbean port in northeast Venezuela, is one of the few remaining facilities from which PDVSA exports crude oil. 

The changes are disturbing buyers here. Some tanker captains complain that young soldiers are woefully unprepared to verify technical details, like whether crude density, a crucial attribute of quality, complies with contract specifications, according to three shippers and one PDVSA employee.
Crews fret a stray bullet from the soldiers’ rifles could spark fires and complain that some of the crime afflicting the country is making its way on board. Although Quevedo has tasked the soldiers to help spot graft, some of the low-paid recruits ask for bribes themselves, shippers said, for signing off on paperwork or completing inspections. 

“There are many risks,” one captain told Reuters. 

Venezuela’s Defense Ministry, which oversees the National Guard, didn’t respond to Reuters phone calls or emails requesting comment. 

Even with soldiers as substitutes, PDVSA can’t find the workers it needs to man many posts. From the processing of crude at refineries to contract negotiations with buyers, the shortage of skilled staffers is hobbling the company. 
Trump dials back Fed attack after market plunge
In a recent internal report, PDV Marina, the company’s maritime unit, said staffing was in a “critical state” on PDVSA’s own tankers, forcing some workers to toil far more than allowed by union rules. The “alarming deficit of main staff,” the report read, means “we cannot honor labor agreements.” 

Tensions with military managers are causing even more departures, some workers say. 

Consider an incident in June, when two tankers docked at Jose. One prepared to take on heavy crude, the other a lighter grade of oil. 

As the tankers loaded, PDVSA port employees noticed a mixup – the two crudes had blended. The mistake, the government said later, forced PDVSA to pay the buyers, because of contractual penalties, $2.7 million. 

It would also be costly for nine PDVSA employees. 

Shortly after the error, soldiers and intelligence agents arrested the workers, and prosecutors charged them with sabotage. “This was premeditated,” said Tarek Saab, Maduro’s chief prosecutor, announcing the arrests on television. “The actions go beyond negligence – there was malice here.” 

After three days in an overcrowded military jail, they were released, pending trial. Two workers in the oil industry familiar with their case said poor maintenance, not sabotage, caused the mishap. A faulty valve system, flimsy after years without upkeep, caused the fuels to mix, they said. 

Six months later, the government has presented no evidence against the workers. 

Reuters was unable to reach the accused or to independently determine the cause of the mishap. Colleagues said the workers are under orders not to speak publicly of the incident. 

The arrests have rattled PDVSA employees, especially because soldiers and intelligence agents have also detained workers at other facilities after mistakes. 

In July, four PDVSA employees were arrested after crude spilled into a river near an oilfield in the state of Monagas, according to workers and media accounts there. One worker in Monagas told Reuters that faulty turbines caused the spill and that a vehicle shortage kept employees from reaching the site to stem the flow. 

“We don’t understand how a lack of resources becomes an excuse to accuse workers of negligence or sabotage,” he said. “They’re being asked to work without safety equipment, tools, even without being able to feed themselves or their families.” 

Quevedo has been creating new partnerships that are meant to shore up PDVSA. In August, for instance, the general said the company was “opening its doors” for seven private companies to pursue unspecified “service contracts” across the country. 

The move raised eyebrows here, because it ran counter to longstanding efforts to nationalize the entire industry. Chavez himself phased out similar contracts, arguing that they enriched private enterprise for work that the state should do itself. 

According to a document seen by Reuters, the companies obtained six-year agreements to operate oilfields on behalf of PDVSA in return for boosting output, financing investments and procuring equipment. 

But the companies are unfamiliar even to veterans of Venezuela’s oil industry. None are recognized as having experience operating oilfields. Consorcio Rinoca Centauro Karina, one of those listed on the document, doesn’t appear to have a web site. Reuters was unable to reach it or any of the others. 

Critics of the arrangements, and government opponents, say the transactions aren’t transparent. By keeping details from the public, they argue, the company faces little scrutiny over whom it chooses to do business with. 

“PDVSA is looking to maintain its confederation of mafias, its quota of looting,” said Jorge Millan, an opposition legislator who in September led a push in the National Assembly to denounce the contracts. 

While Quevedo’s militarization of PDVSA hasn’t reversed the company’s decline, the government shows few public signs of displeasure. In October, the government announced a PDVSA board shuffle. Among the changes: Jose Rojas, another National Guard general, replaced a civilian director.
Past executives joke that Quevedo knew what he was doing when he prayed for help. 

“He’s right,” said Jose Toro Hardy, an economist who served on PDVSA’s board of directors in the 1990s. “A miracle is needed for an increase in these conditions.” 

Additional reporting by Mayela Armas and Vivian Sequera in Caracas and Ernest Scheyder in Vienna. Editing by Paulo Prada.

Friday, December 21, 2018

Chinese Refiners Aren’t Buying U.S. Crude

Chinese refiners are not buying more U.S. oil despite the three-month truce agreed by Presidents Trump and Xi last month, Reuters reports, citing cargo loading plans of Chinese downstream operators.

According the Reuters, Chinese demand for U.S. crude has been dampened by political uncertainty around the trade war and, more directly, by relatively high costs of transportation. This means that despite the truce and future positive developments in bilateral talks on trade, U.S. oil will have yet to become a major element of China’s imported crude oil mix.

One Chinese analyst told Reuters that price was the top consideration of buyers and the price of U.S. oil simply wasn’t competitive.

“Chinese companies have little incentive to buy U.S. crude due to the wide availability of crude supplies today from Iran and Russia,” Seng Yick Tee from consultancy SIA Energy said. Yet trade tensions are not helping, either. With the constant threat of more tariffs, refiners are reluctant to change their buying habits.

“Even though the trade tension between China and the U.S. had been defused recently, the executives from the national oil companies hesitate to procure U.S. crude unless they are told to do so.”

U.S. crude oil exports hit a high of 23.95 million barrels in October 2017, data from the Energy Information Administration shows, but have since then declined, reaching 2.17 million barrels in September this year before Chinese refiners completely stopped buying U.S. crude in October.

Yet China’s total oil imports in October, on the other hand, hit 40.80 million tons (9.61 million bpd), of which teapots imported 8.22 million tons. This was the highest monthly oil import amount on record, according to customs data from Beijing. The increase came despite depressed refining margins that could have motivated lower appetite for crude but apparently did not. The independent refiners drove the increase as they sought to fulfill their import quotas until year-end.

By Irina Slav for

Thursday, December 20, 2018

Texas VLCC terminal moves closer

Corpus Christi Authority Port Authority has announced several milestones in the development of the crude oil export terminal on Harbor Island, Texas.
Locally-based Lone Star Ports will lead the development of the terminal, claimed to be the first US onshore export terminal able to handle fully-laden VLCCs.

Lone Star is a joint venture between The Carlyle Group and The Berry Group. Berry is the largest private employer in the Corpus Christi area through its numerous investments and operations in the oil and gas industry and its subsidiary Bay Ltd, a Corpus Christi-based infrastructure, construction, and fabrication contractor for the oil and gas sector. 

Lone Star Ports is led by CEO Jeremiah "Jerry" Ashcroft III who has been responsible for the development of several large marine terminals.

The company has signed indicative agreements with Harvest Midstream and EPIC Crude Pipeline, which is backed by funds affiliated with Ares Management. These two pipelines will provide connectivity to more than one million barrels per day.

It also entered into an indicative agreement with Martin Midstream Partners to provide a single, integrated VLCC solution on Harbor Island.

These agreements and arrangements still remain subject to definitive documentation among the relevant parties, co-ordination with the Port, satisfactory completion of due diligence and final approval by each relevant party.

"Our partnership with the Carlyle Group is designed to assure global energy markets that requisite infrastructure will be in place and ready to support the growing exports of American crude oil. We are pleased with the progress The Carlyle Group has achieved thus far in reaching full project commercialisation," said Sean Strawbridge, Port of Corpus Christi CEO.

Wednesday, December 19, 2018

Oil Prices Plummet 7% on Fears of a Glut


HOUSTON — Oil prices tumbled more than 7 percent on Tuesday, falling to their lowest levels in more than a year, after investors learned that Russia and the United States were pumping a lot more oil than had been expected.

The American benchmark fell below $47 a barrel for the first time in 15 months, capping a slide that has brought prices down by more than a third since early October.

Bountiful, cheap oil supplies are an unanticipated holiday bonus for American consumers. The average price of regular gasoline has fallen to $2.37 a gallon, according to the AAA motor club, 26 cents lower than a month ago. For most of the year gasoline prices were rising, but the recent decline in oil prices has driven gasoline down by about a nickel a gallon compared with a year ago.

Oil prices had stabilized earlier this month when the Organization of the Petroleum Exporting Countries and Russia agreed to slash production by 1.2 million barrels a day. But Russia announced on Monday that its output had increased to more than 11.4 million barrels a day, a record, putting in doubt its commitment to coordinate policies with Saudi Arabia and other oil producers.

On the same day, the Energy Department reported that the United States was producing 11.6 million barrels of crude oil a day, nearly a million barrels more than a year ago. The department projects that shale-oil production will climb to record levels this month, and increase by 134,000 barrels a day in January.

A shortage of pipelines has driven down oil prices from the Permian Basin of West Texas and New Mexico, the most productive American oil field. But the completion of a series of pipelines in late 2019 should benefit producers and increase exports, adding even more barrels to the global glut.

The oil industry has struggled since prices plummeted to below $30 a barrel in 2016. Hundreds of small producers and oil-services companies sought bankruptcy protection, and more than 160,000 jobs were cut. As prices increased in 2017 and earlier this year, the industry regained some of that lost ground — a recovery now under threat.

“It sure will hurt if it lasts very long,” said Tom Dunlap, president of Tripledee Drilling of Ardmore, Okla. Mr. Dunlap said a price of $60 to $70 a barrel was typically needed to drill a new well profitably in his state.

Oil companies have become more efficient by relying on robotics and other technologies to replace workers, enabling them to explore and produce at lower prices. Those adjustments could come in handy as businesses are forced to cut back again in the coming months.

“These organizations have had to figure out they need to make a profit at $50 to $60 oil,” said Thomas M. Siebel, chief executive of C3, an artificial-intelligence software company that works with Royal Dutch Shell. “To do that they need to lower the cost of production, lower their exploration costs, lower their drilling costs; costs of operation have to be more efficient.”

So far, there are few signs that companies will meaningfully reduce exploration in 2019, though that could change if prices keep falling and the economy slows.

A version of this article appears in print on , on Page B2 of the New York edition with the headline: Oil Prices Plummet 7% As Investors Fear a Glut.

Tuesday, December 18, 2018

Oil Closes Below $50 for First Time in a Year as Glut Fears Grow

Oil Prices Fall Below $50bbl Where Oil Prices Are Heading Next

  • Skepticism abounds despite exporters’ pledges to curb output
  • WTI crude falls 2.6 percent, erasing early-session gains
OPEC has its work cut out to persuade the market that its output caps will stabilize oil prices -- and U.S. producers aren’t helping.

Crude settled below $50 a barrel in New York on Monday for the first time in more than a year and continued falling in after-hours trading. The slide began after data provider Genscape Inc. was said to report growing inventories at the biggest American storage hub and intensified as the U.S. Energy Department forecast higher output in the country’s shale plays.

Oil prices are on track for a third straight monthly decline despite efforts by OPEC, Russia and other major exporters to halt the slide. Crude had slunk near $50 in recent weeks but always rebounded. Crossing the threshold was “significant," said Michael Loewen, a commodities strategist at Scotiabank in Toronto.

“We’re probably going to see a supply slowdown in the U.S.," he said by telephone. “I do think that producers will react."
A dive for U.S. equities added to the pressure on Monday. The S&P 500 hit a 14-month low as investors anticipated a Federal Reserve interest-rate hike that could slow the economy.

West Texas Intermediate for January delivery fell $1.32 to settle at $49.88 a barrel on the New York Mercantile Exchange. Bears gained steam after the official close, with oil falling to $49.01, the lowest level since September 2017. The WTI February contract fell to $49.47.

Brent for February settlement closed down 67 cents to $59.61 on London’s ICE Futures Europe exchange. The global benchmark traded at a premium of $9.41 a barrel to same-month WTI.

“There’s always a question mark over to what extent the OPEC countries and Russia will or will not fulfill their promises,” said Pavel Molchanov, a Raymond James & Associates Inc. analyst. “There is naturally some skepticism.”

It typically takes about six weeks for OPEC nations to implement supply changes, and Saudi Arabia, the group’s biggest producer, faces added political pressure from U.S. President Donald Trump to keep the taps open, Molchanov said.

Other oil-market news:

  • Gasoline futures fell 1.7 percent to $1.4104 a gallon in New York trading.
  • A former lobbyist who’s helped drive the Trump administration’s policies to expand drilling on public lands is poised to take over at the U.S. Interior Department
  • Kuwaiti Oil Minister Bakheet Al-Rashidi and two top executives of state-owned energy companies resigned in the latest sign of disputes within OPEC’s fifth-biggest producer.
— With assistance by Catherine Ngai, and Rakteem Katakey

Monday, December 17, 2018

Under New Management — Russia Now Runs OPEC

Khalid Al-Falih hands Alexander Novak the keys to OPEC decision making in the office of the group’s secretary general. Source: Russian Energy Ministry 
The oil producer’s group has been seriously weakened by its need to bring an outsider into its heart to broker a deal on output.

If anyone doubted that OPEC is now little more than a zombie organization, the last 10 days have proved it.

The group has shown itself incapable of making it own decisions. Its smaller members have borne the brunt of an agreement to cut output that was only achieved after Russia took control of discussions from the heart of OPEC’s head office. Then, even after Saudi Arabia announced it would reduce supply by nearly a million barrels a day by January, oil traders merely shrugged.

It is a sad result for an organization that once made governments tremble. Here’s how it unfolded.

OPEC oil ministers gathered in the group’s secretariat building on a wintry Thursday in Vienna. Weakening demand growth and soaring U.S. production prompted agreement that they needed to reduce production in order to balance the market in 2019. What they didn’t see eye to eye on was how to share that burden.

Saudi Arabia insisted that all members should play an equal part, cutting by the same percentage from a new baseline set at October’s production level. Naysayers argued that, given how the group’s biggest producer had boosted its own output by more than a million barrels a day since May, it should therefore bear the brunt of the cuts needed to get the market back into balance. Furthermore, Iran led a contingent of countries claiming their special circumstances warranted exemptions.

The stand-off looked very similar to the one that had scuppered a deal in Doha in April 2016 – something that nobody wanted to repeat. But by the end of that Thursday, Dec. 6, officials had failed to reach an agreement and Saudi oil minister Khalid Al-Falih said he was “not confident” one was possible. The gala dinner at the Liechtenstein Palace was sparsely attended, with both the Saudi and Iranian delegations, among others, skipping the event.

Friday, the day originally scheduled for the group to meet with its partners, began little better. OPEC ministers were once again locked away in discussions. The talks went nowhere, and the OPEC+ meeting got pushed back to the afternoon. 

Then the Russians arrived.

Bilateral discussions to hammer out negotiating positions are a regular feature of the days and hours before the main OPEC gatherings. They take place in the suites of Vienna’s grandest hotels, where the various delegations are holed up. In recent years, the Russians have been part of this scene.

But when Russian Energy Minister Alexander Novak arrived Friday morning, he moved in to the office of OPEC’s Secretary General. If ever there was a symbol of OPEC’s demise, it was this. He then summoned first Iran’s oil minister, then Saudi Arabia’s, for about 45 minutes each. Two hours later, the group reached a deal. And Iran, Libya and Venezuela got their exemptions, even if they didn’t appear in the final communiqué.

The agreement that emerged is, on paper, fair and reasonable. OPEC will cut production by 800,000 barrels a day from a new baseline of October 2018 production, with participating members cutting by 3 percent. The group’s partners will reduce their supply by 2 percent, contributing a further 400,000 barrels a day. That combined reduction is just about enough to balance supply and demand in the first half of next year. 

Saudi Arabia went even further. Al-Falih said the kingdom’s production would fall to 10.2 million barrels a day in January, down from 11.1 million last month.

That looks like a huge cut, but it is still 150,000 barrels a day above its target under the original deal. 

And this is where the inequality of the new OPEC+ deal becomes apparent. Saudi Arabia, Russia, the United Arab Emirates and Iraq boosted their combined output by almost 1.6 million barrels a day between May and October. That not only contributes to the current glut, it also gives them much higher starting points for the latest cuts than for the previous ones. Other OPEC members all face lower starting points.

The effect has been to shift a disproportionate share of the burden of OPEC’s supply management since 2016 onto the group’s smaller producers.

Handing control of OPEC decision making to the Kremlin has come at a high cost for the group, and most particularly for its smaller members. Some of the latter were already feeling marginalized. This latest deal will do nothing to change their view and the divisions between the organization’s “haves” and “have nots” will only widen.

Russia has done very well out of this. It agreed to cut output by 230,000 barrels a day from its October output level of 11.42 million. That would reduce its production to 11.19 million barrels a day, a figure that is just 15,000 barrels below its original 2016 baseline — a cut of just 0.1 percent.
Contrast that with OPEC member Algeria, which produces around a tenth as much oil as Russia. Its new target will be 1.023 million barrels a day. That’s a cut of 66,000 barrels a day, or 6.1 percent below the 2016 baseline. 

And what did this all achieve?

Oil markets have reacted with indifference. After a brief rally when the deal was revealed, Brent subsequently sank back below the level it was trading at before the meeting began. Perhaps traders don’t believe the group will be able to implement the arrangement, or are waiting to see evidence that it’s taken effect.

OPEC has lost a lot for very little gain. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Julian Lee at
To contact the editor responsible for this story:
Jennifer Ryan at

Thursday, December 13, 2018

Iran falls to 6th biggest oil supplier to India in November, from 4th in October

A worker walks atop a tanker wagon to check the freight level at an oil terminal on the outskirts of Kolkata in this November 27, 2013 file photo. REUTERS/Rupak De Chowdhuri/Files 

NEW DELHI (Reuters) - India's monthly oil imports from Iran plunged to their lowest in a year in November with Tehran dropping two places to become only the sixth biggest supplier after New Delhi cut purchases due to the impact of U.S. sanctions, according to ship tracking data and industry sources.

Last month, the United States introduced tough sanctions aimed at crippling Iran's oil revenue-dependent economy. Washington did, though, give a six-month waiver from sanctions to eight nations, including India, and allowed them to import some Iranian oil.

India is restricted to buying 1.25 million tonnes per month, or about 300,000 barrels per day (bpd).

In November, India imported about 276,000 bpd of Iranian oil, a decline of about 41 percent from October and about 4 percent more than the year-ago month, ship tracking data obtained from shipping and trade sources showed.

After abandoning the 2015 Iran nuclear deal, U.S. President Donald Trump is trying to force Tehran to quash not only its nuclear ambitions and its ballistic missile programme but its support for militant proxies in Syria, Yemen, Lebanon and other parts of the Middle East.

India's imports from Iran in November, included some parcels that were loaded in October. In November, Iraq and Saudi Arabia continued to be the top two oil sellers to India. 

The UAE, which was the sixth biggest oil seller to India in October, became the third top seller to India in November, knocking down Venezuela by a notch to fourth position. 

Nigeria continued at No. 5 position, while Iran slipped to sixth place. 

"Iran do not have vessels to export oil on time ... some November loading vessels will arrive in December," said an industry source, with knowledge of the matter.

Local and international shippers are not carrying Iranian cargoes despite India winning a waiver, this source said. The key problem is that while India can import Iranian oil without falling foul of Washington, that may not apply to a shipping company signing a new delivery contract.

Instead, India is relying on Iranian tankers for crude imports and Iran is using many of its vessels for crude storage.

The sources declined to be identified citing the confidentiality of the numbers.

Indian refiners, wary of the impact of U.S. sanctions, had boosted imports from Iran ahead of their introduction, with imports averaging about 563,000 bpd in April-November, a growth of about 32 percent from a low base in the previous fiscal year, the data showed.

In the previous financial year to March 2018 India had cut oil imports from Iran due to a dispute over development rights of a giant gas field. 

Iran was hoping to sell more than 500,000 bpd of oil to India in 2018/19, its oil minister Bijan Zanganeh said in February, and had offered almost free shipping and an extended credit period to boost sales to India.

Government sources say Reuters' calculations showing India's oil imports from Iran in this fiscal year would be higher than the 452,000 bpd, or 22.6 million tonnes, it imported in the previous year, are correct.

During January-November this year India's oil imports from Iran rose by an annual 18.4 percent to 552,000 bpd, the data showed. 

(Reporting by Nidhi Verma; Edited by Martin Howell and David Evans)