OPEC Freeze Wouldn’t Be So Potent as Gulf Rivals Pump More

Even if OPEC strikes a deal with Russia next month in Algiers to freeze oil production, success will mean a lot less than when they tried and failed four months ago.

Oil has rallied more than 10 percent since the Organization of Petroleum Exporting Countries said that it will hold informal meeting in the Algerian capital, fanning speculation the group could complete a supply agreement with rival producers that sputtered in April. Iran may now drop its refusal to join a freeze after restoring most of the crude output curbed by sanctions, a development analysts say makes a deal more likely, but also less worthwhile.

“A freeze at 34 million barrels a day is not the same as one at 33 million barrels a day,” said David Hufton, chief executive officer of PVM Group in London, referring to the broker’s own estimate for total OPEC output. “It pushes the re-balancing process back at least a year.”

Saudi Arabia and Iran, whose political rivalry thwarted the previous negotiations, are together pumping about 1 million barrels a day more than in January -- the proposed level of the original freeze. That additional crude has prolonged a global oversupply, preventing the market from sliding into deficit this quarter, according to Bloomberg calculations based on International Energy Agency data.

Prices have struggled to go much higher than $50 a barrel. After the longest run of gains since March, Brent crude, the international benchmark, traded at $50.82 at 5:22 p.m. in London on Thursday.

Sixteen nations representing about half the world’s oil output gathered on April 17, but talks broke down because of Saudi Arabia’s last-minute demand that Iran must also participate. Iran wasn’t at the Doha meeting because it refused to consider any limits on its production, which had only been released from nuclear-related sanctions in January.

Record Production

Now that major producers including Iran are pumping at or close to capacity, they have little to lose by agreeing to a cap, Chakib Khelil, former OPEC president and Algerian energy minister, said in a Bloomberg television interview Aug. 17.

Iran produced about 600,000 barrels a day more in July than January as it restarted oil fields shuttered during almost four years of sanctions, according to the IEA. Saudi Arabia pumped an extra 410,000 a day, lifting output to a record as it met surging domestic demand and defended its share of global markets, the IEA said.

“All the conditions are set for an agreement,” said Khelil, who steered OPEC in 2008, the last time it announced a supply cut. “Russia, Iraq, Iran and Saudi Arabia are reaching their top production level. They have gained all the market share they could gain.”

There are still reasons to think Iran could be reluctant to join a freeze.

The nation will refuse to accept any limits as long as officials insist they can boost output further, said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. Iran is also trying to attract billions of dollars of investment from international oil companies to expand production capacity, which would conflict with submitting to a cap, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA.

Iranian Oil Minister Bijan Namdar Zanganeh hasn’t decided yet whether to participate in the talks in Algiers, a spokesman said on Aug. 16.

Market Psychology

Other OPEC members who supported an agreement in April may now be less keen, or seek exemptions, because they are suffering output losses, said Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland.

Nigeria’s production is near a 27-year low as militants attack oil pipelines while Venezuela’s output dipped to the lowest since 2003 amid an economic crisis. They may join conflict-hit Libya, who refused to freeze at reduced levels back in April, Jakob said.

Major producers have kept expectations low. Saudi Arabian Energy Minister, Khalid Al-Falih, said only that “there is an opportunity” to discuss “possible action that may be required to stabilize the market,” according to the Saudi Press Agency. Russia sees no need for a freeze at current crude prices, while leaving open the possibility for the future, Energy Minister Alexander Novak said Aug. 8.

Even with a deal, the extra oil OPEC is pumping means it would be less effective than the Doha proposal, said Algeria’s Khelil. Still, the demonstration of unity after a series of inconclusive meetings would improve the “psychology” of the market, he said.

“This time it’s more psychological because they will retain the surplus in the market,” said Khelil. “It would have been better before, but it’s never too late.”

http://www.swissinfo.ch/eng/new-opec-freeze-wouldn-t-be-so-potent-as-gulf-rivals-pump-more/42383726

A Nigerian militant group, which has claimed a wave of attacks on oil facilities in the Niger Delta, said it was ready for a ceasefire and a dialogue with the government.

The restive southern swampland region has been rocked by violence against oil and gas pipelines since the start of the year, reducing the OPEC member's output by 700,000 barrels a day to 1.56 million bpd.

Any ceasefire agreement would be very difficult to enforce as the militant scene is divided into small groups dominated by unemployed youth driven by poverty, who are difficult to control even by their "generals".

"We are going to continue the observation of our announced ceasefire of hostilities in the Niger Delta against ... the multinational oil corporations," the Niger Delta Avengers said in a statement received by Reuters on Sunday.

"We promise to fight more for the Niger Delta, if this opportunity fails," it said.

The Niger Delta Avengers have claimed several major attacks but have been apparently less active in recent weeks, which has led to speculation about a ceasefire as the government has been trying for two months to reach out to the militants.

The group said it would support a dialogue "to engage with the federal government of Nigeria, representatives from the home countries of all multinational Oil Corporations and neutral international mediators."

It only said it wanted talks to focus on de-escalating the Niger Delta conflict. The group previously said it was fighting for oil revenues to drag the region out of poverty, floating even the idea of secession, a goal out of question for the government.

The statement was sent to Reuters by mail but it was not possible to contact the group which only communicates with the media via statements on social media, its website or sent by mail.

Like other militant groups, the Avengers has apparently split, making it difficult for the government to identify the right people to talk to.

The was no immediate statement from the government of President Muhammadu Buhari but a youth council representing the largest ethnic group in the swampland urged the government to seize the opportunity for dialogue.

"We welcome the conditional declaration of ceasefire by the Niger Delta Avengers if it is actually from them," the Ijaw Youth Council said in a statement.

"We call on the federal government, especially President Buhari, to take advantage of this ceasefire to aggressively dialogue with the people of the region to address the issues affecting the region."

http://www.reuters.com/article/us-nigeria-oil-group-idUSKCN10W0CT

North Sea Oil Prices Rebound as Glut of Floating Crude Clears

The glut of crude oil stored in ships on the North Sea is finally starting to dissipate.

Demand for the commodity has increased as traders take advantage of remaining discounts before maintenance begins at the U.K.’s largest oil field. The result: a whittling away at the backlog of floating storage that has persisted for months.

The “timing is right” for buying interest in North Sea crudes to rise, David Reid, an analyst at Vienna-based JBC Energy GmbH, said by e-mail. Planned work at the 170,000 barrel-a-day Buzzard field, scheduled to begin in mid-September and last about a month, will curtail production and push up prices, he said.

Vessels storing crude on the North Sea are moving to port as oil demand rises.

The movement of crude-laden vessels to port reverses a floating-storage build-up that peaked at more than 11 million barrels in late July. Earlier in the summer, faltering demand spurred by unexpected refinery strikes led to excess storage of the fuel at sea. Now, with discounts vanishing, it’s more profitable to send the oil to shore.

Declining Volumes

Crude kept in North Sea tankers has declined by more than 50 percent, to five million barrels, within the last three weeks, according to ship-tracking data compiled by Bloomberg. Ships loaded with Brent and Forties oil, two of the region’s primary grades, discharged their cargoes in Germany and Rotterdam this week after being anchored for as many as four months.

Other factors helping to reduce the excess in North Sea storage include supply disruptions in Nigeria and an increase in crude purchases in Asia, according to Amrita Sen, chief oil analyst at London-based Energy Aspects. “Chinese buying in particular is returning slowly,” she said in an e-mail.

Forties crude, one of four grades used to price Dated Brent, the global benchmark, traded at a two-month high early this week. The grade last sold at a discount of 15 cents a barrel to that benchmark, versus 65 cents two weeks earlier, according to data compiled by Bloomberg. Meanwhile, the structure of derivatives used in the North Sea for speculation or hedging is shifting toward backwardation, an indication of a strong market where existing cargoes sell at higher prices than those for later delivery.

Brent futures on Thursday climbed above $50 a barrel into a bull market, capping a six-day run of price increases.

Price Rally

Crude moving out of North Sea storage is “consistent with what we’re seeing in the overall rally in prices,” Craig Pirrong, director at the Global Energy Management Institute at the University of Houston’s Bauer College of Business, said in a phone interview. An increase in demand will draw oil out of storage, and “it tends to come out in a run.”

Two supertankers and two smaller vessel loaded with Forties, Brent and Norwegian Oseberg crude remain off the U.K.’s shores. The two-million-barrel carrier Maran Thetis has been floating near Scotland’s Hound Point terminal since July 26. A similar vessel, the Front Ariake, is anchored at Southwold, England, after receiving Forties and Brent crude via two ship-to-ship transfers three weeks ago.

Loading disruptions and cancellations in the region may create more demand for any crude available, according to a survey of six North Sea traders. A Forties cargo was dropped from the September shipping schedule, and at least six cargoes had to defer their loading dates due to a slow restart of oil flows via the Forties Pipeline System, operated by BP Plc.

“You put stuff in storage for a rainy day,” Pirrong said. “The rainy day’s here, so you take it out of storage.”

http://www.bloomberg.com/news/articles/2016-08-19/north-sea-oil-prices-rebound-as-glut-of-floating-crude-clears

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Attached Files

A new China-Russia oil pipeline will help guarantee China's oil consumption and, cut its transportation costs, said Gao Jian, an oil analyst at commodities consultancy Sublime China Information Co Ltd.

Compared with other countries, Russia has oil of quite good quality, and its location near China makes it competitive in exporting oil to China, Gao said, adding that Russia will certainly become China's largest exporter of oil in the near future.

The European economic situation made Russia shift its oil export destinations to the Asia-Pacific region, while China, as one of the world's largest oil consumers, has the need to import oil from neighboring countries, according to Gao.

Construction of the second China-Russia crude oil pipeline started recently in northeastern China's Heilongjiang province, a move that expands the capability for oil transportation from Russia to China.

The pipeline, traversing the China-Russia border, is 940 km in length and 813 mm in diameter, with a capacity to transport 15 million tons of crude oil annually, according to China National Petroleum Corporation.

The Chinese section of the pipeline starts from the border city of Mohe in Heilongjiang, runs southward through the Inner Mongolia autonomous region and ends at Daqing in Heilongjiang.

The pipeline is expected to be put into operation at the beginning of 2018.

It will run parallel to an existing pipeline-the first China-Russia crude oil pipeline that was put into use in 2011, which can also transport 15 million tons of oil each year.

According to the CNPC Economics & Technology Research Institute, China imported 328 million tons of oil last year.

In 2015, Russia exported 41.04 million tons of crude oil to China, making China the country's largest oil importer, Russian media reported.

That means more than 12.5 percent of crude oil China imported last year was from Russia.

China and Russia signed a cooperation agreement on expanding bilateral trade in crude oil in 2013.

Following the agreement, CNPC signed a trade contract with Rosneft, Russia's largest oil producer, to expand the supply of oil for China.

Building a new pipeline is the main action under the contract.

http://www.chinamining.org/News/2016-08-22/1471845703d77111.html

LNG is considered a specialist commodity requiring particular care and the attention of experienced personnel. The technically complex and sophisticated nature of both the ships and terminals, as well as the highly regulated nature of the trade, requires the agent to be fully conversant with the unique characteristics of the LNG trade, including local and international regulations.

LNG carriers, ports and terminals have to meet exceptionally high safety standards. Therefore, it is a requirement, and there is an implicit understanding, that all responsible parties, including the agent, are trained and vetted to a high standard and act with a full working knowledge of the entire operation, and their role within it.

China

In December 2014, the Gaslog Chelsea, loaded with 150 000 m3 of LNG from Papua New Guinea, berthed at the Sinopec Shandong Qingdao LNG terminal in China. Its arrival marked Sinopec’s first LNG project in Shandong Province. The first phase of the project has a designed receiving and transport capacity of 3 million t of natural gas and is capable of meeting the demand of 22 million households per year.

Located at the new Dongjiakou port in the West Coast New Area, the Sinopec Shandong Qingdao LNG terminal was constructed and is operated independently by Sinopec. In the future, it will have a receiving and transport capacity of 10 million tpy.

In 2009, Sinopec signed a long-term deal to buy 2 million tpy from the PNG LNG project over a period of 20 years. Sinopec is the last of China’s three national oil companies to begin importing LNG, making a significant contribution to energy conservation and emission reduction in the country.

As agent, Inchcape Shipping Services (ISS) China has been involved in this project since 2010. It assisted Sinopec in developing know-how of terminal and ship operations, port tariffs, tug usage and other matters, such as assimilating and collating LNG terminal information and port manuals for China’s LNG terminals.As of December 2015, ISS Qingdao had acted as local agent for 13 LNG shipments at the new port.

Compared with other vessels, LNG carrier operations are demanding, commencing with the berthing operations at the yet to be finished Qingdao LNG terminal. Furthermore, it takes at least five working days to obtain relevant government permissions for berthing such vessels. The LNG commercial interests also require a high level of quality service.

As such, ISS Qingdao formed a team of specialised operational staff dedicated to the LNG business. The Qingdao LNG terminal is still in its construction and expansion phase and ISS continues to assist the terminal in all aspects of its marine business, including the incoming LNG vessels.

Papua New Guinea

In May 2014, the Spirit of Hela loaded the first LNG cargo out of Papua New Guinea bound for Tokyo Electric Power Co. in Japan. ISS PNG acted as the terminal agent for this historic shipment.

The ISS PNG agency team is on site at the terminal, located 20 km from Port Moresby, on a daily basis, with vessels loading every three to four days. As agents, ISS coordinates and communicates between the terminal and the carrier to handle arrival and departure, organise clearance procedures and ensure that there are no operational delays. ISS also fulfils its client’s cargo export documentation to meet customs requirements.

To date, having handled over 150 vessel calls, the PNG terminal is almost regarded as the home port for the regular LNG carriers. ISS has extended its services to these vessels for all husbandry needs, such as crew changes, immigration formalities, ship provisioning and spares, waste removal, etc. These husbandry operations are carried out through the terminal or over the seaward ship’s side, which ensures that loading operations are not disrupted.

ISS handles the coastal petroleum product tanker trade on behalf of a client in Papua New Guinea. With the commencement of the LNG trade, which is expected to produce more than 9 trillion ft3 of gas over the estimated 30 years of operations, ISS continues to strengthen its service delivery to its LNG clients.

Japan

Japan is currently the world’s largest importer of LNG, although its imports dropped to 85 million t in 2015.

In the early days of the LNG trade, all cargoes were delivered by vessels chartered by cargo vendors under Delivered Ex Ship (DES) terms. ISS estimates that more than 30% of cargoes are currently delivered by vessels chartered by Japanese buyers under Free on Board (FOB) terms, and this is a growing trend.LNG cargoes are imported by 17 buyers at 29 LNG receiving terminals around Japan. The number of both buyers and receiving terminals is expected to grow further in the year ahead.

Another feature of the trade in its early stages was the use of long-term contracts, typically for 20 years or more, with vessels deployed according to an annual delivery programme.

In recent years, the long-term contracts serving older LNG projects are expiring or are being renewed under new terms and conditions, while new LNG projects are appearing simultaneously.

As cargo sources have expanded, LNG buyers have started importing cargoes from various points of origin on spot, short-term or portfolio contracts, to meet peak demand or to cover the time gap between termination of old contracts and the commencement of new projects.

In particular, following the Tohoku earthquake and nuclear accident at Fukushima in 2011, electric power companies dramatically increased LNG imports on spot and short-term contracts, to cover the closure of nuclear power stations.

ISS expects LNG import volumes in Japan to remain stable for the time being, although the import sources are expanding.

Today, ISS Japan is working for nine projects supplying cargoes under long-term contracts, and for more than 30 owners and operators of LNG vessels who trade under spot and short-term contracts. In 2014, ISS attended 898 LNG calls at ports around Japan. The company’s role is not only to arrange port clearance, but to assist its clients in maintaining and developing business.

For owners and operators, it is important to comply with the requirements of each terminal and local regulations in addition to international rules. To this end, ISS assists its customers in meeting requirements, such as:

Customs verification to Custody Transfer Measurement System (CTMS): before trading to Japan, LNG vessels are required to have verification for accuracy of CTMS by Japanese customs authorities in order to determine the import quantity for taxation.
Confirmation of ship-shore compatibility: when the vessel calls at an LNG terminal for the first time, it is common procedure to hold a meeting at the terminal in order to confirm ship-shore compatibility, (e.g. interface of ship-shore connection, mooring arrangement, cargo operation procedures, etc.).
Local regulations: for LNG vessels, each port authority and terminal has the regulations for safety in port entry and cargo operations according to the particular conditions of each region.

LNG operators and officer personnel are required to study and understand those local regulations in advance, and to fulfil the necessary reporting and arrangements for escort tugs, watch boats, etc.

US

In early 2012, ISS noted in an article published by LNG Industry: “As an important footnote, the discovery of shale gas in the US has prompted existing as well as potential new facilities to be built with liquefaction capability, radically altering the balance of trade. Where several billion dollar facilities have been developed over recent years for the import of LNG based on the fear of shortages, these are now being transformed into export facilities with US government approval. This in turn has resulted in a transitional lull in business until conversion work is completed – still two years or more away.”1

Now, four years on, with much of the LNG market still in limbo or in transition from regasification to liquefaction, the authors can only speculate as to how the market will develop over the next year.

The transition from regasification to liquefaction is, of course, market driven. In respect of the US Gulf, the market underwent a drastic change in 2011 and has remained somewhat weak ever since. The development of LNG production in shale sites has dramatically changed the market, forcing many players to reverse direction or stop completely.

LNG movements that shipping agents such as ISS have handled include discharge operations at terminals such as CMS Trunkline LNG, Lake Charles, Louisiana; Sempra Marine Terminal, Hackberry, Louisiana; Cheniere Energy Inc.’s Sabine Pass, Louisiana; Golden Pass LNG, Sabine Pass, Texas; Freeport LNG, Freeport, Texas; Southern LNG, Elba Island, Georgia; and Dominion Cove Point LNG, Lusby, Maryland.

Several of these terminals are in the process of re-fitting, and many new start-ups are either breaking ground or are still in the planning stage.

Most of the projects referred to above will not have reached the US Federal Energy Regulation Commission (FERC) approval and financial agreement stage until later this year or into 2017. Completion of many of the conversion projects in the states of Louisiana and Texas are only forecast for 2017 to 2019.From the agent’s point of view, the operational learning curve to adjust to such change is minimal. However, the inherent volatility of the LNG market and the financial ramifications have been seen before.

http://www.lngindustry.com/special-reports/08082016/LNG-trade-an-agents-perspective-2873/

A tanker sent by Libya's National Oil Corporation (NOC) began to load oil on Thursday at the country's eastern Zueitina port, after rival forces stationed in the area agreed to let it dock and take the oil to safety, a port official said.

The NOC expressed concern earlier this month after reports of possible clashes between the Petroleum Facilities Guard (PFG), one of Libya's many armed brigades, and forces loyal to eastern commander Khalifa Haftar, fearing these might damage the port infrastructure.

The PFG has signed a deal with the U.N.-backed Government of National Accord (GNA) in Tripoli to end its blockade of Zueitina and two other ports, but eastern forces loyal to a separate government in eastern Libya have threatened to block port loadings and exports.

Those forces recently mobilized near Zueitina and PFG positions, though there have been no reports of violence.

The port official stressed that the port was still closed, but the tanker had started emptying storage tanks and reservoirs.

The Zueitina storage tanks contain about 3.08 million barrels of crude oil and 180,000 barrels of condensate, the NOC said in a statement.

"NOC can confirm, that after considerable efforts, we have received the consent from all relevant parties to permit the Greek flag vessel New Hellas to enter Zueitina terminal in order that it will transfer a shipment to Zawiya refinery" in western Libya, the NOC said in a statement.

The NOC said the New Hellas would transport about 620,000 barrels of oil at a time to Zawiya, and that it would charter additional ships to finish the process as soon as possible.

"I want to express my appreciation to all sides for heeding our request," NOC Chairman Mustafa Sanalla said.

"It was the right thing to do and I think shows that when the opportunity arises, we Libyans can do the right thing. Instead of all being harmed, all will benefit."

Libya's oil output has been reduced to a fraction of the 1.6 million barrels per day (bpd) it used to produce before the uprising that toppled late dictator Muammar Gaddafi in 2011. Recently, output has been hovering at about 200,000 bpd.

The NOC has ambitious plans to revive production but political disputes, blockades, insecurity and damage to oil facilities have so far frustrated their efforts.

http://www.reuters.com/article/us-libya-security-oil-idUSKCN10U0ZN

LNG slump, cost cutting spur rare output curb at Australian plant

Spending cuts and weak global liquefied natural gas prices have forced the operator of the $18.5 billion Gladstone LNG project in Australia to consider running the plant at less than full tilt, an unusual move for the global LNG industry.

It's a sign of how the LNG market - long dominated by large plants with low costs running at maximum capacity - will evolve with exports from a new breed of projects, the world's first to be fed by coal seam gas in Australia and U.S. plants fed by gas from the grid.

Traditionally, LNG producers spend billions of dollars building large plants directly connected to conventional gas fields, with most of their output contracted to long-term customers. The running costs are low once built, which spurs them to run at full capacity to boost returns.

The plants fed by coal seam gas rely on hundreds of wells to be drilled each year, an ongoing cost which traditional plants don't face, and as a result they could become more like swing producers, said Saul Kavonic, head analyst for Australasia at consultants Wood Mackenzie.

Gladstone, which shipped its first cargo last October, is one of three new Australian coal seam gas-fed LNG plants that have started operating since early 2015 on the country's east coast.

Santos has been squeezed by a heavy debt load taken on to build the Gladstone LNG project and falling oil and LNG prices, sapping funds needed to drill its coal seam gas wells.

As a result it has opted to buy more gas from third parties to supply the plant in order to meet LNG contracts, and said on Friday it would be willing to run the plant, which has two production trains, below its full capacity of 7.8 million tonnes a year.

"We wouldn't be looking to ever mothball one train," Santos CEO Kevin Gallagher told analysts on a conference call after the company reported an inerim loss.

"But what I would say is that we will operate both trains potentially at reduced capacity to optimise the production across the facilities," he said, adding that would depend on market conditions and contract requirements.

He declined to say how much LNG Gladstone has contracted to supply, but analysts estimate it at 7.2 million tonnes per annum (mtpa), out of a capacity of 7.8 mtpa with the two trains.

"I view Santos' indications that it is considering operating the LNG trains below capacity - an iconoclastic approach for the industry - as a positive sign that value is being prioritised over volumes by Santos' new management," Kavonic said.

He predicted that U.S. LNG plants may eventually follow the same path, at times when U.S. benchmark Henry Hub prices climb above prices that would justify exports to Europe.

"At times we expect even half their LNG capacity could be shut," he said.

Santos rival, Woodside Petroleum, Australia's biggest LNG producer, said output cuts at Gladstone LNG would not have a huge impact on the LNG market, which is heavily oversupplied, but it would help with overall sentiment.

"Clearly every bit of capacity overhang that's not there is a help - more in the short to mid-term market, than the long term,"

Now, InterOil Corp. has announced that it has filed and will begin the mailing to InterOil shareholders of the Management Information Circular (MIC) relating to the company’s special meeting of shareholders in order to vote on the transaction with ExxonMobil Corp. InterOil claims that the special meeting is due to take place on 21 September 2016 in New York City, US, and that shareholders of record as of 10 August will be able to vote at the meeting. In order to be counted, InterOil claims that all proxies must be received by 12.00 PM on 19 September 2016.

In its statement, the InterOil board has recommended that shareholders vote for the ExxonMobil transaction so that they receive significant and superior value for their investment in InterOil.

Oil Search had previously made a bid to acquire InterOil, but declined the opportunity to submit a revised bid following ExxonMobil’s superior bid.

http://www.lngindustry.com/liquefaction/19082016/InterOil-encourages-shareholders-to-vote-for-ExxonMobil-transaction-2929/

Iran, Oman in subsea gas pipeline studies

Iran and Oman have intensified works on identifying the best route for a subsea pipeline that would carry Iranian gas to Oman.

According to Alireza Kameli, managing director of National Iranian Gas Exports Company (NIGEC), studies to select the best route have started, and two routes are being considered. These include deepwater and shallow water paths.

He reportedly said that the deepwater option would mean a shorter pipeline and no need for permission from a third country. However, the decision will be made after the studies have been completed.

The Iranian Offshore Engineering and Construction Company (IOEC) is conducting the offshore studies and Pars Consulting Engineers Company the onshore ones.

The land part of the gas pipeline extends for 200 kilometers from Rudan to Mobarak Mount in Iran’s southern Hormozgan province. The seabed section between Iran and Sohar Port in Oman will stretch for another 200 kilometers.

http://www.offshoreenergytoday.com/iran-oman-in-subsea-pipeline-studies/

China's diesel, gasoline and kerosene exports surged in July from a year earlier, customs data showed on Monday, the latest sign the world's top commodities consumer can't cope with its domestic oversupply of fuel.

Diesel exports rose 181.8 percent to 1.53 million tonnes, gasoline shipments were up 145 percent at 970,000 tonnes and kerosene exports jumped 46 percent to 1.09 million tonnes.

The world's second-largest economy imported 1.6 million tonnes of liquefied natural gas, down 16.4 percent from a year earlier and increased its purchases of foreign kerosene by 15.2 percent to 340,000 tonnes.

http://www.reuters.com/article/china-fuel-trade-idUSB9N1AS00A

Australian construction company CIMIC Group said on Monday it had started court proceedings in the United States against Chevron Corp and KBR Inc, seeking as much as A$1.86 billion ($1.42 billion) regarding a dispute over the jetty at the Gorgon LNG project in Western Australia.

CIMIC was commissioned to build the jetty there in 2009 and issued a notice of dispute regarding the work in February, following a disagreement over changes to the project.

The company said then that it was entitled to A$1.86 billion for the work.

"Negotiations under the contract continue," CIMIC said in a statement on Monday.

"The commencement of the proceedings has no effect on the negotiation process or CIMIC Group's entitlement to the amounts under negotiation," it added.

Entirely comprising oil-directed units, the US drilling rig count increased by 10 during the week ended Aug. 19, according to data from Baker Hughes Inc.

Now at 491 rigs working, the overall count has risen in 10 of the last 12 weeks, adding 87 units during that time. Compared with Dec. 5, 2014, the week prior to the drilling freefall, the count is down 1,429 units.

Largely bolstered by increased oil-directed drilling activity in the Permian basin, last week’s overall 17-unit rise in the US was the country’s largest since July 24, 2015 (OGJ Online, Aug. 12, 2016). The basin has represented more than two thirds of the total US gain during the recent rally.

Meanwhile, US crude oil production during the week ended Aug. 12 jumped 152,000 b/d to 8.597 million b/d, down 751,000 b/d year-over-year, according to data from the US Energy Information Administration. The Lower 48 accounted for 100,000 b/d while Alaska contributed the remaining 52,000 b/d.

EIA also this week forecast a 3,000-b/d increase in output from the Permian during September after several months of declines (OGJ Online, Aug. 15, 2016). Overall US shale oil output, however, is expected to fall 85,000 b/d during the month.

The projected rise in the Permian comes as firms have been snatching up acreage and adding rigs in the Midland and Delaware basins (OGJ Online, Aug. 5, 2016). Over the past 3 months, Callon Petroleum Co., Pioneer Natural Resources Co., QEP Resources Inc., Laredo Petroleum Inc., SM Energy Co., Concho Resources Inc., and Parsley Energy Inc. have all moved to expand their positions in the Midland basin alone.

Among those planning to maintain higher rig counts during the second half in the Midland basin are Pioneer, QEP, Concho, and Apache Corp. Doing the same in the Delaware basin are Concho, Devon Energy Corp., WPX Energy Inc., and Anadarko Petroleum Corp.

West Texas horizontal wells

With another double-digit increase this week, US oil-directed rigs have added 90 units since May 27 to reach 406, which is down 1,203 units since their peak in BHI data on Oct. 10, 2014.

All but 1 of the 10 oil-directed units began operations on land, bringing that tally to 470. Rigs engaged in horizontal drilling counted 7 more units to 382, up 68 units since May 27. Directional drilling rigs edged up 1 unit to 45. One unit started work offshore Louisiana, lifting the overall US count to 18.

Texas paced the major oil- and gas-producing states, gaining 8 units this week to 238, up 64 units since May 27. As with last week’s 13-unit jump, all but 1 of the units to begin work this week were in the Permian. At 196 rigs working, the basin is up 59 units since May 27.

The last time the Permian recorded an increase as big as last week’s was Mar. 7, 2014. The basin peaked at 568 rigs working during October-November 2014 before plunging to a bottom of 134 in this past April-May.

A 1-unit increase in the Barnett to 5 was offset by a 1-unit decline in the Granite Wash to 9.

Pennsylvania posted the only other double-digit increase, rising 2 units to 17. The Marcellus jumped 3 units to 24. Oklahoma, Louisiana, and West Virginia each edged up 1 unit to 62, 43, and 8, respectively. The Cana Woodford rose 3 units to 32, while the Mississippian dropped a unit to 3.

New Mexico dropped a unit to 30, ending its recent warm streak at 6 weeks. Down 2 units to 27, North Dakota led the way in losses, mirroring the same tallies of the Williston.

Canada recorded its first rig-count decline in 11 weeks, relinquishing 5 units during the week to settle at 121, still up 85 compared with the week ended May 6. Oil-directed rigs, however, remained flat at 65. Gas-directed rigs lost 4 to 56 while the country’s only unclassified rig went offline.

http://www.ogj.com/articles/2016/08/bhi-oil-rigs-lift-overall-us-rig-count-by-10.html

U.S. stocks of natural gas are rising much more slowly than normal for this time of year as a long, hot summer spurs record air-conditioning demand and gas burn by power generators.

Natural gas stocks exhibit strong seasonal behaviour, increasing between April and October, then drawing down during winter between November and March.

But working gas stocks increased by just 22 billion cubic feet (bcf) last week, which was less than half the average increase of 55 bcf at the same time of year between 2011 and 2015.

Stocks have increased by less than normal in 17 of the last 20 weeks. Inventories have risen by just 859 bcf since the start of April compared with a typical increase of 1,328 bcf in the last five years.

Part of the reason is that surging temperatures have spurred record demand for air conditioning and forced power producers to burn more gas to meet demand.

Temperatures have been consistently higher than normal in June, July and August across most of the United States.

Total air-conditioning demand so far in 2016 has been 4 percent higher than in 2015 and 12 percent above the long-term average.

However, even allowing for higher temperatures, natural gas consumption by power producers has been exceptionally strong, while natural gas production has lagged.

For any given level of temperatures and air-conditioning demand, stocks have risen more slowly each week in 2016 than in 2015 (tmsnrt.rs/2bqWz4C).

The market mechanism is working its magic and ultra-low gas prices are gradually forcing production and consumption back into balance.

Cheap natural gas has encouraged power producers to maximise gas-fired generation at the expense of coal and other fuels.

Meanwhile, low prices have discouraged the drilling of new wells. U.S. natural gas production has levelled off in recent months after growing strongly in 2014 and 2015.

Stocks started the year at a record and the oversupply was made worse by mild weather in February and March. By mid-March, gas stocks were 1,014 bcf (69 percent) above the same point in 2015.

But the excess has been whittled away by strong power burn. By the middle of August, stocks were just 312 bcf (10 percent) higher than at the corresponding point in 2015.

Stocks are still at a record for the time of year, around 2 percent higher than the previous peak and 14 percent higher than the five-year average.

But the continuing heatwave across the eastern United States should ensure another week of very low stock builds this week.

And low prices of natural gas will incentivise maximum consumption throughout September, ensuring the rebalancing continues.

http://www.reuters.com/article/usa-natgas-idUSL8N1B01WQ

A number of factors affect the price of natural gas in general–and the price of natgas is always important, no matter which geography it is produced in.

One of the things that affects the price of natural gas is “associated gas” production. What the heck is that? When you drill a hole in the ground to extract hydrocarbons–like oil–other hydrocarbons come out of the ground along with that oil. Those other hydrocarbons are, first and foremost, methane–or natural gas. Propane, butane, ethane, and other hydrocarbons are also in the mix.

But the fact remains, when you drill for oil, you also (almost always) get at least some natgas along with it. That natgas, the stuff you weren’t necessarily drilling for but get anyway, is associated gas. It’s usually extracted in conventional oil drilling–found in deposits close to oil deposits

Perhaps you now begin to see how oil and gas–and their prices–are closely aligned. When the price of oil goes down and drillers quit drilling, the amount of associated gas being produced and brought to market also goes down–affecting the overall quantity of gas available for sale.

The less gas for sale, with demand remaining constant, prices go up. Got it? Good! Fitch Ratings recently published a short article on how associated gas from oily shale plays is on the decrease, and that means prices for natural gas everywhere is on the increase…

http://marcellusdrilling.com/2016/08/falling-associated-gas-volumes-means-natgas-price-on-the-rise/

Pipeline company TransCanada Corp is offering tolls as low as 82 Canadian cents per gigajoule on its natural gas mainline from western Canada if enough producers sign up to long-term contracts, a company executive said on Friday.

Stephen Clark, TransCanada's senior vice president for Canadian natural gas pipelines, said cheaper tolls are crucial if companies in areas like the Montney and Duvernay shale plays are to compete with U.S. gas producers in eastern markets.

The new toll would be a 42 percent cut from the current shipping price of roughly C$1.41 a gigajoule to go from Alberta and British Columbia to markets in Ontario, and depends on customers signing up to 10-year contracts to ship at least two petajoules of natural gas in total on the line.

Clark said the boom in U.S. shale, in particular the Marcellus play in Appalachia, meant more natural gas was flooding into the southern Ontario market and displacing traditional western Canadian supply.

While the remote Montney and Duvernay gas plays can compete with U.S. shale on cost of production, their greater distance from market increases delivery costs and the price of western Canadian gas in Ontario.

"If that market starts to acquire gas from other basins, they will essentially forgo western Canadian supply," Clark said. "Part of the reason we are doing this is we see a supply overhang in western Canada if we don't retain those markets."

TransCanada has been in talks with producers for the last three or four months and is hoping to launch an open season to formally gauge interest in the new tolling system in September.

However, Clark said the company would need to see sufficient interest from shippers in long-term contracts to go ahead with the open season.

"We would like to get into multi-hundreds of millions of commitments, and if we could get north of a billion cubic feet or a petajoule of commitment, that would certainly give us sufficient indication that we should go forward," he said.

Some producers are reluctant to commit because they are unused to 10-year contracts, Clark added, while others are unfamiliar with selling in the Ontario market.

TransCanada's current settlement in place with the Mainline shipper group expires in 2020.

http://www.reuters.com/article/transcanada-gas-tolls-idUSKCN10U22V

U.S. gasoline consumption climbed in July to a record as low retail prices encouraged Americans to hit the highways.

Demand for gasoline rose 2.4 percent from a year earlier to 9.67 million barrels a day, the American Petroleum Institute said Thursday in a monthly report. Total fuel deliveries, a measure of consumption, climbed 0.8 percent to the highest July total since 2007.

"Gasoline deliveries, a measure of consumer demand, hit their highest level on record in July," Erica Bowman, chief economist at the API in Washington, said in an e-mailed statement. "With this indication of increased demand, it’s clear that consumers have continued to benefit from lower gasoline prices at the pump."

The average price of regular gasoline at the pump nationwide was $2.135 a gallon on Wednesday, down 20 percent from a year earlier, according to data from Heathrow, Florida-based AAA, a national federation of motor clubs. Retail prices touched $2.116 on Aug. 3, the lowest since April 20.

Refineries maximized gasoline production at the expense of other fuels. Gasoline output averaged a record 10.2 million barrels a day in July, up 1.9 percent from a year earlier, the API said. Output of distillate fuel, a category that includes diesel and heating oil, averaged 4.96 million barrels a day, down 2.5 percent from a year earlier.

Ample Inventories

Inventories of the motor fuel ended July at 237.1 million barrels, the most for the month since 1984, the API said. Crude-oil stockpiles stood at 519.6 million barrels at the end of last month, the highest July total since 1920.

Producers pumped an average 8.49 million barrels of crude a day in July, down 10 percent from a year earlier. It was the fourth-straight month that output slipped, leaving production at the lowest level since March 2014, the API said.

Output of natural gas liquids, a byproduct of gas drilling, rose 8.7 percent from July 2015 to 3.57 million barrels a day, a record for the month.

http://www.bloomberg.com/news/articles/2016-08-18/u-s-gasoline-demand-rises-to-record-in-july-as-pump-price-drops

Exxon, GT find way to cut carbon emissions for chemicals

Exxon Mobil and Georgia Tech researchers published findings of a breakthrough in the journal Science on Thursday, saying they had devised a way to slash carbon emissions from chemicals manufacturing by using reverse osmosis instead of heat to separate molecules.

Reverse osmosis, which has been widely used for decades in desalination plants that turn seawater into drinking water, has long been seen as having applications for the oil and chemicals industry.

Now researchers have finally come up with a specially treated polymer that can serve as the semipermeable membrane needed to do reverse osmosis for chemicals manufacturing at room temperature.

Current techniques use high temperatures and heat to break up molecules to create chemicals that are used in myriad products across the economy.

Exxon said it was too early to say when the new technology could be applied commercially, or how they might go about patenting and licensing the technology so that other manufacturers could use it.

But if applied globally, the chemical industry's annual carbon dioxide emissions could be slashed up to 45 million tons, which is about equal to the yearly carbon dioxide emissions of about of 5 million U.S. homes.

The fossil fuels industry is under pressure to curb emissions, especially in light of the Paris Agreement signed in December, in which 195 governments agreed that aims to limit the rise in global temperatures to 2 degrees Celsius (3.6 degrees Fahrenheit), raising the potential for regulatory crackdowns on carbon-based businesses.

“We need multiple solutions to reduce CO2 emissions,” said Vijay Swarup, Exxon's vice president of research and development.

Chemical plants account for about 8 percent of global energy demand and about 15 percent of the projected growth in demand to 2040.

Researchers said their next steps will be to develop a pilot project that, if successful, could be scaled up.

http://www.reuters.com/article/us-exxon-mobil-chemicals-emissions-idUSKCN10T1Z0