Thursday, October 9, 2014
Wednesday, October 8, 2014
Oil prices are plummeting. Here's why that's a big deal.
http://www.vox.com/2014/10/7/6934819/oil-prices-falling-russia-OPEC-shale-boom-gasoline-prices
The sharp drop in oil prices over the last month is arguably the biggest energy story in the world right now — with major repercussions for dozens of countries, from the United States to Russia to Iran.
Ever since 2011, oil prices have stayed consistently high, hovering around $100 per barrel. But this year, they've dropped as much as 20 percent since June — and some analysts now think they could keep nosediving in the months ahead:
If oil prices keep falling, that could have plenty of far-reaching effects. OPEC is already fighting bitterly over how to respond. Russia, a major oil producer, could see its economy crippled if prices decline. Some shale oil producers in North Dakota and Texas may find it unprofitable to keep drilling. And lower gas prices could bolster the US economy (though it would also curtail the recent drive for energy-efficient vehicles). Here's an over:
But that wasn't the end of the story. As oil prices surged, many energy companies suddenly found it profitable to start extracting oil from difficult-to-drill places. In the United States, companies began using techniques like fracking and horizontal drilling to extract oil from shale formations in North Dakota and Texas. That helped foster a boom in "tight oil" production.
But up until recently, that US oil boom has had a minimal effect on global prices. That's because, at the same time, we were also seeing all sorts of geopolitical conflicts elsewhere in the world. There was a civil war in Libya that hurt oil output. Iraq was a mess. The United States and Europe slapped oil sanctions on Iran and pinched that country's exports.
Tally it all up, and more than 3 million barrels per day of crude oil had been taken off the market by mid-2014 (global oil production is around 75 million barrels per day, so this is a significant fraction):
But over the past month, those disruptions have started easing a bit. Libya's oil industry has started pumping out oil again — with exports unexpectedly rising 810,000 barrels per day in September. It's also becoming clear that the Islamic State in Iraq and Syria (ISIS) likely won't threaten Iraq's biggest oil fields in the southern part of the country. And, at the same time, oil demand in Asia and Europe has started to weaken — particularly in China and Germany.
So now oil prices are falling, from their June peak of around $115 per barrel down to around $92 per barrel at the start of October.
Mind you, oil is still much, much pricier than it was a decade ago. And it's entirely possible that the recent drop could prove only temporary (after all, we saw price dips in 2012 and 2013, but new conflicts flared up in the Middle East and prices soon popped back up). But assuming the current drop is real — and sustained — it could have a very large impact around the world.
But it's unclear whether OPEC will actually do this at its next meeting in November. For one, there are bitter divisions within the organization. Some OPEC countries need very high prices to "break even" on their budgets and pay for all the government spending they've racked up in recent years. Iran, for instance, likely needs prices at around $130 per barrel. But Saudi Arabia can probably live with prices closer to $90 per barrel.
Andrew Critchlow of The Telegraph reports that this is already causing tensions within OPEC: "Iran's Oil Minister Bijan Zanganeh [is] calling for Opec to urgently cut output to stem the sharp recent decline in prices, which threatens the Islamic Republic's fragile economy after years of restrictive sanctions. … However, the Gulf's Arab states are all sitting on huge cash piles that are held overseas through sovereign wealth funds and foreign currency assets that can be drawn upon to help them weather any short-term drop in oil export revenues."
How OPEC responds in November could go a long way to determining the course of oil. If the group agrees to curtail production, oil prices might rise again (or at least stabilize). But if OPEC lets things be, then oil prices could conceivably keep falling.
Indeed, some energy analysts are starting to wonder if an oil crash might even force Russia to pull back in Ukraine and elsewhere. And on Tuesday, the Russian finance minister warned that the country could no longer afford a multibillion-dollar upgrade to its armed forces that had been approved by President Vladimir Putin.
In the United States, meanwhile, a fall in prices would have more subtle impacts. Overall, cheaper oil would likely boost economic activity — as gasoline prices declined and US households spent less on fuel, giving them more money to spend on other things.
But a price drop wouldn't necessarily benefit everyone. Oil producers in the shale regions of Texas and North Dakota typically don't find it profitable to drill unless prices are relatively high. A report from analysts at Baird Energy this week suggested US oil production could see a "sustained pullback" if global prices stay below $80 per barrel.
A fall in prices could also affect vehicle sales. Over the past few years, average fuel economy for new cars and trucks in the United States has been rising sharply in response to higher gasoline prices. But in September, average fuel economy actually fell slightly. One possibility is that lower gas prices meant that more people were buying trucks and SUVs:
One final, major caveat to keep in mind: It's hardly guaranteed that world oil prices will keep falling. Yes, some analysts are now suggesting we've entered a new era of oil "abundance." But the world is highly unpredictable. Perhaps new conflicts will arise in oil-producing regions. Or perhaps the US oil boom will lose a bit of steam. Or perhaps something else unexpected will happen. Predicting the future is always difficult — but it's especially difficult when it comes to oil.
At Politico, Elana Schor points out that Washington DC has been slow to adapt to the recent oil slide
Another DC-oriented question: Could falling oil prices (and hence falling gasoline prices) affect the 2014 midterms? It's hard to say for sure, but many political analysts have been skeptical in the past that gas prices sway elections much one way or the other
The sharp drop in oil prices over the last month is arguably the biggest energy story in the world right now — with major repercussions for dozens of countries, from the United States to Russia to Iran.
Ever since 2011, oil prices have stayed consistently high, hovering around $100 per barrel. But this year, they've dropped as much as 20 percent since June — and some analysts now think they could keep nosediving in the months ahead:
(NASDAQ)
So why is this happening? Partly because the United States keeps producing more and more oil, but also partly because some conflict-ridden countries are starting to pick up production. Libya, for one, is boosting its oil output after civil war and internal tensions had shut things down for a spell. Iraq's oil sector is slowly recovering. All that new crude is flooding the market, causing global prices to dip. Meanwhile, potential economic slowdowns in both Germany and China are driving down forecasts for oil demand (and reducing prices further).If oil prices keep falling, that could have plenty of far-reaching effects. OPEC is already fighting bitterly over how to respond. Russia, a major oil producer, could see its economy crippled if prices decline. Some shale oil producers in North Dakota and Texas may find it unprofitable to keep drilling. And lower gas prices could bolster the US economy (though it would also curtail the recent drive for energy-efficient vehicles). Here's an over:
Why oil prices hit $100/barrel — and why they're now falling
Oil prices rose throughout the 2000s because global oil demand surged — especially in fast-growing China — and there simply wasn't enough oil production to keep up. That led to the sharp oil spike in 2008 and subsequent recession. And once the financial crisis waned, the same dynamics returned. Oil has hovered around $100 per barrel since 2011.But that wasn't the end of the story. As oil prices surged, many energy companies suddenly found it profitable to start extracting oil from difficult-to-drill places. In the United States, companies began using techniques like fracking and horizontal drilling to extract oil from shale formations in North Dakota and Texas. That helped foster a boom in "tight oil" production.
But up until recently, that US oil boom has had a minimal effect on global prices. That's because, at the same time, we were also seeing all sorts of geopolitical conflicts elsewhere in the world. There was a civil war in Libya that hurt oil output. Iraq was a mess. The United States and Europe slapped oil sanctions on Iran and pinched that country's exports.
Tally it all up, and more than 3 million barrels per day of crude oil had been taken off the market by mid-2014 (global oil production is around 75 million barrels per day, so this is a significant fraction):
(US Energy Information Administration)
That helps explains why oil has floated around $100 per barrel since 2011, despite the US boom. "The best explanation for that is that it's been a coincidence," said Michael Levi, an energy expert at the Council on Foreign Relations, in a recent interview. "We've had surprising US gains in production that have been offset by surprising losses elsewhere, due to geopolitical disruptions."But over the past month, those disruptions have started easing a bit. Libya's oil industry has started pumping out oil again — with exports unexpectedly rising 810,000 barrels per day in September. It's also becoming clear that the Islamic State in Iraq and Syria (ISIS) likely won't threaten Iraq's biggest oil fields in the southern part of the country. And, at the same time, oil demand in Asia and Europe has started to weaken — particularly in China and Germany.
So now oil prices are falling, from their June peak of around $115 per barrel down to around $92 per barrel at the start of October.
Mind you, oil is still much, much pricier than it was a decade ago. And it's entirely possible that the recent drop could prove only temporary (after all, we saw price dips in 2012 and 2013, but new conflicts flared up in the Middle East and prices soon popped back up). But assuming the current drop is real — and sustained — it could have a very large impact around the world.
OPEC is sharply divided over how best to respond
The big unknown is how OPEC might respond to this fall in prices. OPEC countries — including Saudi Arabia, Iran, Iraq, and Venezuela — still produce 40 percent of the world's oil. And OPEC members can, in theory, coordinate to cut back on production in order to prop up prices.But it's unclear whether OPEC will actually do this at its next meeting in November. For one, there are bitter divisions within the organization. Some OPEC countries need very high prices to "break even" on their budgets and pay for all the government spending they've racked up in recent years. Iran, for instance, likely needs prices at around $130 per barrel. But Saudi Arabia can probably live with prices closer to $90 per barrel.
OPEC "break-even" prices in 2012. (Matthew Hulbert/European Energy Review)
Andrew Critchlow of The Telegraph reports that this is already causing tensions within OPEC: "Iran's Oil Minister Bijan Zanganeh [is] calling for Opec to urgently cut output to stem the sharp recent decline in prices, which threatens the Islamic Republic's fragile economy after years of restrictive sanctions. … However, the Gulf's Arab states are all sitting on huge cash piles that are held overseas through sovereign wealth funds and foreign currency assets that can be drawn upon to help them weather any short-term drop in oil export revenues."
How OPEC responds in November could go a long way to determining the course of oil. If the group agrees to curtail production, oil prices might rise again (or at least stabilize). But if OPEC lets things be, then oil prices could conceivably keep falling.
How falling oil prices affect other nations, from Russia to the US
Lower oil prices could have lots of knock-on effects around the world. Take Russia, which depends on oil sales to bring in foreign currency. The Russian government has set its three-year budget with the expectation that oil prices would stay at $100 per barrel. A sustained fall in prices could seriously hurt the Russian economy and drive up deficits.Indeed, some energy analysts are starting to wonder if an oil crash might even force Russia to pull back in Ukraine and elsewhere. And on Tuesday, the Russian finance minister warned that the country could no longer afford a multibillion-dollar upgrade to its armed forces that had been approved by President Vladimir Putin.
In the United States, meanwhile, a fall in prices would have more subtle impacts. Overall, cheaper oil would likely boost economic activity — as gasoline prices declined and US households spent less on fuel, giving them more money to spend on other things.
But a price drop wouldn't necessarily benefit everyone. Oil producers in the shale regions of Texas and North Dakota typically don't find it profitable to drill unless prices are relatively high. A report from analysts at Baird Energy this week suggested US oil production could see a "sustained pullback" if global prices stay below $80 per barrel.
A fall in prices could also affect vehicle sales. Over the past few years, average fuel economy for new cars and trucks in the United States has been rising sharply in response to higher gasoline prices. But in September, average fuel economy actually fell slightly. One possibility is that lower gas prices meant that more people were buying trucks and SUVs:
(Michael Sivak and Brandon Schoettle, University of Michigan Transportation Research Institute)
Now, overall fuel economy will still keep rising over time — because the federal government has imposed new fuel-economy standards on cars and light trucks that will keep rising through 2025. But lower gas prices might well convince more people to buy SUVs and trucks instead of smaller cars.One final, major caveat to keep in mind: It's hardly guaranteed that world oil prices will keep falling. Yes, some analysts are now suggesting we've entered a new era of oil "abundance." But the world is highly unpredictable. Perhaps new conflicts will arise in oil-producing regions. Or perhaps the US oil boom will lose a bit of steam. Or perhaps something else unexpected will happen. Predicting the future is always difficult — but it's especially difficult when it comes to oil.
Further reading
How the oil and gas boom is changing America.At Politico, Elana Schor points out that Washington DC has been slow to adapt to the recent oil slide
Another DC-oriented question: Could falling oil prices (and hence falling gasoline prices) affect the 2014 midterms? It's hard to say for sure, but many political analysts have been skeptical in the past that gas prices sway elections much one way or the other
How has fracking boosted US oil and gas production?
Since the late 2000s, the amount of oil and natural gas produced in the United States has risen dramatically, thanks to fracking, horizontal drilling, offshore drilling, and other advanced techniques. Supplies are projected to grow further in the years ahead:
Crude oil: By November 2013, the United States was producing 7.8 million barrels of crude oil each day, the most in a quarter-century. Oil production is now expected to keep growing until it reaches a peak of 9.6 million barrels per day in 2019:
Natural gas: US natural gas production has also reached new historical highs, to 24 trillion cubic feet in November 2013. Supplies are currently expected to grow until at least 2040:
Note that these predictions are far from perfect — ten years ago, few were predicting the fracking boom.
Crude oil: By November 2013, the United States was producing 7.8 million barrels of crude oil each day, the most in a quarter-century. Oil production is now expected to keep growing until it reaches a peak of 9.6 million barrels per day in 2019:
Tuesday, October 7, 2014
Gas shortage hits Accra again
http://www.citifmonline.com/2014/10/06/gas-shortage-hits-accra-again/
An acute Liquefied Petroleum Gas (LPG) shortage has hit Accra and other parts of the country forcing consumers to return home with empty cylinders.
Among the worst affected are taxi drivers and food vendors who also depend hugely on the product for their businesses.
The National Petroleum Authority (NPA) has however assured that the shortage will end soon because Ghana will take delivery of gas from today.
The Public Relations Officer of the NPA Yaro Kasambata said the gas will be distributed immediately when it arrives at the Tema Oil Refinery and Takoradi Ports.
“…we expect that the supply situation into the system should begin to pick up this morning going up to the close of the day. From tomorrow, the Tema Oil Refinery would also put 3,000 metric tonnes of LPG into the system.”
He said the NPA “between the 6th and the 7th, October, expects a much bigger cargo of LPG to discharge into the storage of fuel train with another LPG supply point in Tema”
According to him, the measures the NPA is taking will “boost the supplies within the course of the week”
Friday, October 3, 2014
Higher tanker operating costs buck the trend
Total annual shipping operating costs fell by an average of 0.3% in 2013, according to the Moore Stephens yearly report.
This compares with the 1.8% average fall in costs recorded for the previous year.
In 2013, crew costs was the only category to show an increase over the 12 month period, indicating that shipowners continued to focus on managing costs and conserving cash during the year.
These findings are set out in OpCost 2014 (www.opcostonline.com), Moore Stephens’ ship operating costs benchmarking tool, which revealed that total operating costs for the tanker sector were up in 2013, the financial year covered by the study.
Bucking the trend, the tanker index went up by 2 points, or 1.1%, The corresponding figures in last year’s OpCost study showed a fall of 5 points in this sector.
Overall, tankers experienced an increase in crew costs of 1.8% on average, compared to a 2.3% fall recorded in 2012.
Handysize product tankers reported an overall increase of 3.3% in crew costs, while for operators of Suezmaxes and product tankers the increases were 2.5% and 1.9% respectively. The only tanker category to show a fall in crew costs was VLCCs, down by 0.9%.
Expenditure on stores was down by 1.9% overall, compared to a drop of 2.1% in 2012. The biggest fall in stores’ costs was the 5.5% recorded by VLCCs. In the tanker sector, the overall reductions in costs was 2.1%. The most significant increase in stores expenditure was that recorded by the operators of tankers in the 5,000-10,000 dwt range at 6%.
There was an overall fall in repair and maintenance costs of 0.4%, compared to the 1.9% reduction recorded for 2012. However, the highest recorded increase was that for 40,000 --50,000 cu m chemical tankers (3.6%).
The overall drop in costs of 0.3% recorded in respect of insurance compares to the 6.2% fall recorded for 2012 and was the lowest in this category for a number of years. All but 5,000-10,000 dwt tankers and Handysize product tankers – paid less than in 2012.
Moore Stephens partner Richard Greiner said: “This is the second successive year-on-year reduction in operating costs. The fall in costs for 2013, however, is 1.5% below that recorded for 2012 and coincides with a period of slowly returning confidence in the shipping industry, according to the Moore Stephens Shipping Confidence Survey.
“Crew costs were the only category of expenditure to show an increase over the 12-month period covered by the survey. This time it was a comparatively small rise for an industry, which had seen increases of more than 20% at their peak. The fact that crew costs were the only category to show an increase for 2013 is perhaps a reflection of a diminution in the number of owners and operators exiting the industry and a reminder that investment in good people is a must,” he said.
Lacklustre bunker prices to affect Worldscale rates
The lack of sizeable swings in oil and hence bunker prices will be reflected in next year’s Worldscale flat rates.
The bunker element that is taken into consideration in the flat rate formula is based upon prices between October and September each year, therefore most of the data needed is already available for the 2015 calculations, EA Gibson said in a recent report.
Bunker prices are one of the most important factors when setting the Worldscale rates (WS100).
This is particularly true with long haul routes where bunker costs are the largest expense incurred by owners during the voyage, Gibson said.
Until recently, we have seen huge volatility in oil and bunker prices with Brent levels first going above $145 per barrel in mid-2008, collapsing to below $40 per barrel in early 2009 before recovering to above $100 per barrel in 2011.
These swings resulted in significant changes in WS100 rates between 2009 and 2012.
However, today the picture is totally different. There has been little fluctuation in oil and bunker prices since March/April last year, despite crude oil output disruptions in Libya and tensions surrounding Iran, Iraq and Russia, Gibson said.
This period of relative stability was primarily underpinned by rapidly rising crude production in the US, which has increased by over 3 mill barrels per day since 2008 with more major gains expected going forward.
International bunker prices have averaged just 2% lower between October 2013 and September 2014, compared with the corresponding period a year earlier. This suggests that 2015 Worldscale rates will drop by only about 1-2% on long haul voyages and also implies even smaller changes on short haul routes.
However, on shorter voyages, the bunker element forms a much smaller part of the overall costs, thus major fluctuations in exchange rates will play a more significant role in setting flat rates.
Furthermore, from January 2015, owners operating within ECAs will incur additional voyage expenses, due to the requirement to burn 0.1% sulphur fuel.
It will be interesting to see how the Worldscale fixed differential for miles steamed within an ECA region is adjusted to account for this increased expenditure, Gibson concluded.
Thursday, October 2, 2014
Tema Council of Labour to take actions for TOR
The Tema District Council of Labour (TDCL) is to embark on series of actions to back its demands for the revamping of the Tema Oil Refinery (TOR).
Members of the TDCL took this decision on Tuesday at its emergency general meeting in Tema to assess the outcome of organized labour's nationwide demonstration, TOR crisis, Atuabo port issue and effect of power outages and irregular water supply on workers.
Mr Wilson Agana, Chairman of TDCL, who announced the decision after deliberations, said from Tuesday, the Council would commence series of actions, including the issuing of ultimatum to the Government, organising press conferences, demonstrations as well as a sit down strikes in the Tema District.
Mr Agana explained that organized labour had engaged the Government in many discussions concerning the TOR crisis but nothing concrete had been done leading to the gradual collapse of the refinery.
He said the problem of TOR was not only the problem for the workers but rather a national issue and ‘all seriousness must be attached to solving its current crisis.’
Mr Daniel Fugah, Chairman of the TOR Senior Staff Union, told members of the Council that the situation at the Refinery was rather becoming worse despite the Government's assurance to revamp its operations.
Mr Fugah said instead of the more than 800 workers entity getting its crude oil to refine, TOR was only handling third party oil storage.
According to him, for instance, some few weeks ago, a vessel which was supposed to discharge crude oil to TOR suddenly left to Cameroon and Spain with the oil.
Mr Fugah said it had come to their notice that Ghana National Petroleum Corporation (GNPC) which had the mandate to explore for crude, had allegedly started importing finished petroleum products.
He stressed that it was about time some drastic action was taken on the TOR crisis saying that, " We don't know what tomorrow will be for the over 800 workers".
He said there was no premix fuel for fishermen due to the non-functioning state of TOR, explaining that the Bulk Distribution Companies were only interested in the importation of products such as petrol and diesel that would yield fast profit for them.
Mr Kofi Asamoah, Secretary-General of TUC, assured the TDCL of their full support and urged them to go all out with its intended series of actions.
Members of the TDCL took this decision on Tuesday at its emergency general meeting in Tema to assess the outcome of organized labour's nationwide demonstration, TOR crisis, Atuabo port issue and effect of power outages and irregular water supply on workers.
Mr Wilson Agana, Chairman of TDCL, who announced the decision after deliberations, said from Tuesday, the Council would commence series of actions, including the issuing of ultimatum to the Government, organising press conferences, demonstrations as well as a sit down strikes in the Tema District.
Mr Agana explained that organized labour had engaged the Government in many discussions concerning the TOR crisis but nothing concrete had been done leading to the gradual collapse of the refinery.
He said the problem of TOR was not only the problem for the workers but rather a national issue and ‘all seriousness must be attached to solving its current crisis.’
Mr Daniel Fugah, Chairman of the TOR Senior Staff Union, told members of the Council that the situation at the Refinery was rather becoming worse despite the Government's assurance to revamp its operations.
Mr Fugah said instead of the more than 800 workers entity getting its crude oil to refine, TOR was only handling third party oil storage.
According to him, for instance, some few weeks ago, a vessel which was supposed to discharge crude oil to TOR suddenly left to Cameroon and Spain with the oil.
Mr Fugah said it had come to their notice that Ghana National Petroleum Corporation (GNPC) which had the mandate to explore for crude, had allegedly started importing finished petroleum products.
He stressed that it was about time some drastic action was taken on the TOR crisis saying that, " We don't know what tomorrow will be for the over 800 workers".
He said there was no premix fuel for fishermen due to the non-functioning state of TOR, explaining that the Bulk Distribution Companies were only interested in the importation of products such as petrol and diesel that would yield fast profit for them.
Mr Kofi Asamoah, Secretary-General of TUC, assured the TDCL of their full support and urged them to go all out with its intended series of actions.
Wednesday, October 1, 2014
Finland government approves development of three LNG terminals
Over €200 million in total will be invested in Finland's new LNG infrastructure - See more at:
Three new LNG terminals are to be developed in Finland following approval by the country's Ministry of Employment and the Economy (MEE).
The MEE has committed €65.2 million to energy subsidies for the terminals, which are to be built by the companies Manga LNG Oy (MLO), Skangass Oy (SO) and Oy Aga AB (OAA) to help reduce the industrial use of fuel oil and LPG in Finland. MLA, a joint venture between Outokumpu Oyj, SSAB, SO and EPV Energia Oy, will build its terminal at Röyttä Harbour, Tornio.
The JV was awarded €33.15 million for the facility, due to be completed in 2017.
The terminal will have an LNG storage capacity of 50,000m3. SO will construct a terminal at Tahkoluoto Harbor in the Port of Pori, with completion set for autumn 2016.
The company was awarded €23.44 million for the facility, which will have an LNG storage capacity of 30,000m3. The Port of Rauma will provide the location for the OAA terminal, which will consist of eight LNG tanks with a combined capacity of 10,000m3.
The company was awarded €8.6 million for the project, which is set to be completed in early 2017. Combined, the facility's maximum operating capacity will equal around 450,000 tonnes.
The new terminals will also reduce Finland's annual CO2 emissions by around 370,000 tonnes and its carbon emissions by 1,870 tonnes.
- See more at: http://www.tankstoragemag.com/industry_news.php?item_id=8338&utm_source=TSM+Newsletters&utm_campaign=65d4fc6124-TSM_News_01_10_2014&utm_medium=email&utm_term=0_a19947d14a-65d4fc6124-221591897&ct=t(TSM_News_01_10_2014)&mc_cid=65d4fc6124&mc_eid=d7c7dcbd33#sthash.IysQVc42.dpuf
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