Nigerian lawsuit revives billion-dollar oil scandal

http://www.cnbc.com/2016/12/21/the-associated-press-nigerian-lawsuit-revives-billion-dollar-oil-scandal.html

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

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

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

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

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

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

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

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

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

Trump Tax a Wild Card for Oil

https://www.bloomberg.com/gadfly/articles/2016-12-19/trump-border-adjustment-tax-a-wild-card-for-oil

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

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

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

A recent paper by Philip Verleger and the Brattle Group explains in some detail how a border-tax adjustment could affect energy markets (here's a link). Here are some examples showing how it might work in practice:

• U.S. oil producer: Say you pump oil in Texas. In simple terms, if you sold it to a domestic refiner for $52 a barrel (roughly where WTI crude oil trades now) you would pay 20 percent in tax on that revenue, or $10.40. On the other hand, if you exported it to a foreign buyer, you would pay no tax. Ergo, you would rather export it and would demand domestic refiners pay you a higher price to offset the tax hit -- in this case, $65.
  
• U.S. oil refiner: Conversely, the new tax would, all else equal, encourage refiners to buy domestic oil. Say you buy crude at $52 a barrel and process it into fuels worth $70. If you bought the crude overseas, then you couldn't deduct that cost for tax purposes, so you would pay 20 percent on the entire $70, or $14, in tax, leaving a net profit of $4 ($70 less $52 of crude costs less $14 of tax). Conversely, even if you paid $65 for domestic crude, you could deduct that expense. So the government would only take 20 percent of your net profit of $5, or $1 -- leaving you with $4.

This is very simplistic, but one potential outcome is that domestic fuel prices could rise as refiners and wholesalers pass on their increased costs. Verleger estimates that, at $50 Brent crude and a 20 percent tax, the border adjustment could add 30 cents to a gallon of gasoline.

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

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

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

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

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

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

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

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

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

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

1. To avoid confusion, to absorb the hit of a 20 percent tax, you have to raise your original price by 25 percent. For example, if you pay no tax on a barrel at $52, then to still get that amount after a new 20 percent tax is imposed, you need to charge $65, which is 25 percent higher. The tax hit on $65 would be $13, leaving $52 net.
   

To contact the author of this story:

Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net

What’s next in 2017 for Chinese independent refineries?

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

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

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

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

http://www.platts.com/events/asia-pacific/asian-refining-summit/index?utm_campaign=OLAP201703CF_PD776_Asian+Refining_T10_19+Dec&utm_medium=email&utm_source=Eloqua&elqTrackId=A043D6E343D09E8123D95FDCEF3A09A3&elq=266a4047953c477b88fc13dc2734371b&elqaid=42656&elqat=1&elqCampaignId=38089 

Bill Gates On Clean Energy, Donald Trump, And Stocks (Full Interview) | ...

A low sulphur future

 

http://www.tankeroperator.com/ViewNews.aspx?NewsID=8237

Commenting on the IMO’s recent announcement on new global sulphur limits, Sachin Gupta, Wilhelmsen Services (WSS) business manager, oil solutions explained why systematic fuel treatment is so important, as 2020 nears. 

 

It’s vital that fuel oil on ships is kept in prime condition, to keep engines running smoothly and efficiently and to ensure full compliance with environmental and operational regulations, he said.

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

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

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

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

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

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

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

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

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

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

VLCC Rates Seen Slipping from Eight-Month High

 

 

http://gcaptain.com/vlcc-rates-seen-slipping-from-eight-month-high/ 

 

Freight rates for very large crude carriers (VLCCs) may slip next week as the pre-Christmas cargo flurry, which propelled hire rates to an eight-month high on Thursday, peters out, ship brokers said. 

 

“I would say it’s the last hurrah. I don’t see rates going much beyond current levels,” said Ashok Sharma, managing director of ship broker BRS Baxi Far East in Singapore.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

http://www.denverpost.com/2016/12/14/a-weakened-opec-isnt-the-threat-it-once-was/

I never much liked the OPEC oil ministers.

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

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

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

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

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

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

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

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

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

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

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