The queue of ships waiting outside Europe’s biggest port and oil-trading hub of Rotterdam has grown to the longest in seven years as a global supply glut fills storage capacity.

As many as 50 oil tankers, twice as many as normal, are waiting outside Rotterdam because storage sites are almost full, the port’s spokesman Tie Schellekens said by phone on Tuesday.

“This is a clear sign of the oversupply filling up storage to the brim,” Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich, said by phone. “People are preferring to store oil rather than cut production. These are bearish signs.”

The world is so awash with oil that BP Plc Chief Executive Officer Bob Dudley said last month people will be filling up their “swimming pools” with it this year. Traders are taking advantage of a market contango, where forward prices are higher than current prices, by buying oil cheap, storing it and selling the commodity later. As onshore storage fills up, companies could start stockpiling at sea in a repeat of a strategy last seen in 2008 and 2009.

Near Capacity

Crude oil in storage tanks in Rotterdam stood at 51.3 million barrels on Feb. 19, the highest for the time of year in data starting in 2013, according to Genscape, which monitors inventories. Royal Vopak NV, the world’s largest oil-storage company, last week reported a fourth-quarter occupancy rate of 96 percent at its 11 terminals in the Netherlands compared with 85 percent a year earlier.

The situation in Rotterdam mirrors that in the biggest U.S. storage hub of Cushing in Oklahoma, where stockpiles are at a record high.

“In Cushing and probably Rotterdam storage is filling up very quickly,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich, Switzerland. “In China, given high oil imports, there are too many ships and the infrastructure seems not be able to handle that.”

Saudi Arabia, the world’s biggest oil exporter, said last month it won’t cut production to ease global oversupply, while Iran has pledged to increase output after sanctions were lifted in January. Still, oil climbed on Tuesday from the highest close in more than seven weeks on speculation that monetary stimulus in China could help revive flagging economic growth in the world’s second-biggest fuel consumer.

Price Contradiction

Brent crude, the international benchmark, rose as much as 1.3 percent to $37.05 a barrel on the London-based ICE Futures Europe exchange, after prices gained 6.3 percent last week.

There is a “contradiction” between the increase in oil prices and the physical supply and demand situation seen in Rotterdam and Cushing, Zambo said. With storage tanks filling up, oil prices for immediate delivery would probably fall while cargoes for future delivery would increase, resulting in a deepening of the market contango.

Chris Bake, a senior executive at Vitol Group, the world’s largest independent oil trader, said in February that traders are considering storing oil at sea, a strategy last employed in 2008 and 2009.

“Primary and secondary storage is pretty much full,” Bake said. “It’s probably a good time to be a vessel owner.”

On Feb. 11, U.S. benchmark West Texas Intermediate for delivery in four months traded $6 a barrel higher than that for one-month supply, the widest gap in five years. The premium has since narrowed to $3.88 a barrel on Tuesday.

That’s still some way off the $15 premium reached in January 2009, a “super-contango” that helped traders make billions of dollars from storing oil in supertankers moored in sheltered anchorages in the North Sea, the Persian Gulf, the Singapore Strait and off South Africa.

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We may get to end of the year, and even though supply and demand are in balance, the market shrugs and says ‘So what?’ because it’s waiting for proof of inventory draw-downs,” said Mike Wittner, head of oil markets at Societe Generale SA in New York. “Moving from stock-builds to balance might not be enough.”Inventories started to swell in 2014 as the wave of supply unleashed by the U.S. shale oil boom, coupled with other new output, outpaced growth in global oil demand by a factor of three. The pile-up continued in 2015 as OPEC members like Saudi Arabia and Iraq raised production to defend their share of world markets, and are poised to fill even more as Iran -- freed as of last month from international sanctions -- pushes new exports into a market that’s already saturated.
For a historical precedent, Goldman Sachs Group Inc. points to the oil glut that developed in 1998 to 1999 as demand plunged in the wake of the Asian financial crisis. Crude prices kept falling even as the Organization of Petroleum Exporting Countries made output cuts in March and then June of 1998, slipping below $10 a barrel in London in December of that year. It wasn’t until stockpiles in developed economies started dropping in early 1999 that the recovery took shape

The country's trade and energy ministry said on Tuesday.

"We will increase oil and natural gas imports from Iran, especially Iranian condensate," the ministry said in a statement.

It added that the two countries would establish a payment system to facilitate smooth trade of crude and condensate between National Iranian Oil Company and South Korea's SK Energy and Hyundai Oil Bank.

South Korea's imports of Iranian crude oil tripled in January from a year earlier with the United States lifting sanctions on Tehran, but shipments remained far below pre-sanction levels.

The Islamic Republic on Jan. 17 emerged from years of economic isolation as sanctions over its disputed nuclear programme were lifted.

Iran is exporting 100,000 barrels a day of oil to South Korea, one of its main crude customers, and hopes to double that figure by the end of 2016, Oil Minister Bijan Zanganeh was quoted as saying on Monday.

http://www.reuters.com/article/southkorea-iran-oil-idUSL3N16A07E

Beijing has raised the subsidy for coal bed methane (cbm) production by half from this year to 2020 in a move to encourage exploration and production of the cleaner-burning fuel as part of its air pollution control initiatives.

The subsidy for each cubic metre of cbm ¨C natural gas trapped among coal seams ¨C has been raised to 0.3 yuan in the five years to 2020 from 0.2 yuan in previous years, the Ministry of Finance said in a statement posted on its website on Tuesday.

The move is expected to help struggling producers of the greener but more challenging and expensive to extract natural gas, after Beijing slashed non-residential wholesale natural gas prices by an average of 28 per cent from November following a crash in global energy prices.

"Many cbm projects are no longer profitable following the recent domestic gas price cut amid slowing demand growth," Nomura Asia-Pacific head of oil and gas research Gordon Kwan said. "This is why China is lending a helping hand to the producers to motivate long-term investment in cbm."

Cbm and shale gas ¨C natural gas trapped between shale formations ¨C are unconventional forms of gas that are free from state pricing, but they have not been immune from price reduction pressure since conventional gas has similar properties to and competes with unconventional gas.

China is rich in unconventional gas but poorly endowed in conventional gas.

Hong Kong-listed and Shanxi province-based AAG Energy, the first non-state-owned cbm explorer to get Beijing¡¯s permission to enter into large-scale commercial production in 2011, said in January competition from the expected conventional gas price cut forced it to lower its own cbm prices as early as September.

As a result, its average selling price fell 11.9 per cent to 1.56 yuan per cubic metre in the second half of last year from 1.77 yuan in the first half.

The latest 0.1 yuan per cubic metre subsidy increase is not sufficient to offset the price decline.

http://en.chinamining.com.cn/News/2016-03-02/1456888770d75473.html

Frontline, one of the world's largest independent tanker firms, says securing insurance for cargoes carrying oil from Iran is likely to take another two to three months, potentially limiting Iran's ability to quickly ramp up oil exports.

Iran has been seeking to rapidly increase oil exports since international sanctions were lifted as part of its nuclear deal with world powers, which came into effect in January, but it still faces insurance and financing hurdles.

"We have not lifted anything yet, there are still terms of insurance and payments. There are still some outstanding (issues). (But) we expect that to be in place within two to three months," said Robert Hvide Macleod, chief executive of Oslo-listed Frontline.

"That could change, but two to three months (is) our estimate," he told a conference call with investors on Monday.

The United States still prohibits U.S. individuals or companies from trading with Iran and insurers are trying to clarify details on the parameters of the U.S. sanctions.

"In terms of volumes, (Iran's) pre-sanctions levels were 2.8 million barrels of oil per day. Their domestic refineries consumed about 1.8 million," MacLeod said.

"There is a million left to export which they did on their own ships. Now the post-sanctions volumes available into 2016 looks to be between 1.5 million to 2 million barrels."

MacLeod said once the insurance issue is resolved, Iran would rely more on international shipping. Iranian tankers have been holding unsold oil at Iranian ports and will continue to do so due to a lack of land storage facilities, he said.

"We expect the chartering requirement from Iran to increase and (for) them to fix international tonnage," he said.

http://www.reuters.com/article/frontline-iran-idUSL8N1691NB

Sacoil has agreed a deal for the construction of a $6billion, 2,600km large-diameter pipeline to transport natural gas between Mozambique and South Africa.

The South African oil and gas company said the agreement is with national Mozambique oil company ENH and Profin and Chinese pipeline company CPP will transport natural gas from Mozambique’s Rovuma Basin to Gauteng in South Africa and en route will deliver gas to key towns and settlements in Mozambique.

SacOil chief executive Dr Thabo Kgogo said the cooperation agreement is a key milestone in the progression of the natural gas pipeline and distribution project.

“It confirms the financing commitments required for the pre-investment and engineering studies phases of the project, and paves the way for its speedy and effective construction and implementation.

“The agreement brings together a wealth of expertise as a pre-investment consortium that will focus on bringing the project to bankability, assuring that a solid investor group is drawn from China, Mozambique and South Africa.”

https://www.energyvoice.com/oilandgas/africa/102988/sacoil-agrees-6billion-gas-pipeline-project/

India’s GAIL has again postponed the tender seeking to hire nine LNG carriers to carry U.S. liquefied natural gas starting in 2017.

According to the tender documents GAIL has set the new date for bid submissions to March 31, 2016.

Indian company re-floated its tender in September 2015, but has since delayed the bid submissions date twice. It was last expected to close on February 29.

No changes were made to the initial tender as GAIL is still looking for nine LNG ships of a cargo capacity of 150,000-180,000 cbm, enabling it to comply with its off-take commitments at Sabine Pass and Cove Point LNG projects from December 2017.

According to the report by Press Trust of India, GAIL’s chairman and managing director B C Tripathi noted the latest postponement is due to a request by bidders that are looking for more time to complete their bids.

Under the original tender, nine vessels, three of which have to be built by shipyards in India, will have a delivery window from January 1, 2019, to May 31, 2019, for foreign shipyards and July 1, 2022, and ending June 30, 2023, for Indian shipyards.

Indian shipyards, Pipavav Defence and Offshore Engineering and Cochin Shipyard have already agreed deals with South Korea’s DSME and Samsung Heavy Industries, respectively, to cooperate in the construction of the vessels.

Cochin Shipyard has additionally acquired a licence by France’s GTT to build LNG carriers with the Mark III membrane containment system.

http://www.lngworldnews.com/gail-delays-lng-carrier-tender-again/

Colombian state-run oil company Ecopetrol said its proven oil and gas reserves were down 11 percent in 2015 to 1.85 billion barrels equivalent because of a decline in exploration caused by low crude prices.

The reserves were equivalent to 7.4 years of output, down from 2014 figures of 8.6 years. The reserves' replacement index was 6 percent, Ecopetrol said in a statement late on Monday.

"The largest contributions to reserves come from the Castilla and Chichimene fields, both operated directly by Ecopetrol, and the Rubiales field, which will be operated by the company from June 2016," the statement said.

Ninety-five percent of the proven reserves are the property of Ecopetrol, while the remainder belongs to partners and subsidiaries.

The company had reported 2.08 billion barrels equivalent of reserves in 2014.

http://af.reuters.com/article/energyOilNews/idAFL2N1690HE

Anadarko Petroleum Corp said it plans to monetize up to $3 billion of assets this year amid a slump in crude oil prices.

The U.S. oil company has already closed or signed agreements to monetize about $1.3 billion of assets this year, it said last week.

Anadarko also said on Tuesday that it expected 2016 capital expenditures to range between $2.6 billion and $2.8 billion, 

http://www.reuters.com/article/anadarko-petrol-divestiture-idUSL3N1694LO

Aubrey McClendon, former chief executive officer of Chesapeake Energy Corp  and a legend in the U.S. energy industry, was charged on Tuesday with conspiring to rig bids to buy oil and natural gas leases in Oklahoma, the Justice Department said.

The indictment follows a nearly four-year federal antitrust probe that began after a 2012 Reuters investigation found that Chesapeake had discussed with a rival how to suppress land lease prices in Michigan during a shale-drilling boom. Although the Michigan case was subsequently closed, investigators uncovered evidence of alleged bid-rigging in Oklahoma.

In addition to the federal probe, the Michigan attorney general brought criminal charges against Chesapeake, which the company settled in 2015 by agreeing to pay $25 million into a compensation fund for land owners. The Justice Department indictment paves the way for what may be one of the highest-profile criminal antitrust cases against a well-known U.S. CEO in decades, and could thrust McClendon, a controversial figure whose aggressive leasing tactics are legendary in the energy industry, into the highest-stakes legal battle of a decades-long career.

Oklahoma-based McClendon is a shale drilling evangelist who was once among the highest paid U.S. CEOs. He co-founded Chesapeake with fellow Oklahoma oilman Tom Ward in 1989. In 2013, McClendon stepped down from the helm of Chesapeake amid a liquidity crunch and corporate governance concerns. Ward left Chesapeake in 2006 and founded competitor SandRidge Energy Inc (SDOC.PK) the same year.

McClendon, who is now with American Energy Partners (AEP), was charged with one count of conspiracy to rig bids, a violation of the Sherman Antitrust Act, the Justice Department said.

"The charge that has been filed against me today is wrong and unprecedented," McClendon said in statement. "I have been singled out as the only person in the oil and gas industry in over 110 years since the Sherman Act became law to have been accused of this crime in relation to joint bidding on leasehold." Chesapeake itself is unlikely to face criminal prosecution, the company said. "Chesapeake has been actively cooperating for some time with a criminal antitrust investigation by the Department of Justice regarding past land leasing practices," said Chesapeake Energy spokesman Gordon Pennoyer. "Chesapeake does not expect to face criminal prosecution or fines relating to this matter."

Chesapeake shares declined 3.6 percent in after-hours trading to $2.66

The seven-page indictment alleges that McClendon set up a conspiracy of two energy companies which agreed not to bid against each other in purchasing oil and natural gas leases in northwest Oklahoma from 2007 to 2012. The indictment did not name either company.

The indictment comes at a time when energy executives across America are already facing considerable distress. Oil and gas companies like Chesapeake, SandRidge, and McClendon’s new venture AEP, have struggled as the price of oil plummeted by 70 percent since late 2014.

Both Chesapeake and SandRidge, once storied firms in Oklahoma’s oil industry, have recently engaged restructuring experts as they scramble to pay off billions in debt and avoid potential bankruptcy. Chesapeake's stock price has tumbled more than 80 percent in the last year. SandRidge was delisted from the New York Stock Exchange in January, and closed Tuesday at 4 cents per share.

Much of the companies' debt was accrued in the period from 2007 through 2012 when McClendon was allegedly engaged in an antitrust conspiracy, a time when Chesapeake was snapping up millions of acres of land leases nationwide to expand its shale drilling.

McClendon has also been embroiled in a lawsuit with Chesapeake which alleged that he took sensitive company data from his former company to build his new business.

The Justice Department said that McClendon's indictment was the first case in an ongoing federal antitrust investigation into price fixing, bid rigging and other anti-competitive conduct in the oil and natural gas industry.

“His actions put company profits ahead of the interests of leaseholders entitled to competitive bids for oil and gas rights on their land. Executives who abuse their positions as leaders of major corporations to organize criminal activity must be held accountable for their actions,” said Assistant Attorney General Bill Baer, head of Justice Department's Antitrust Division.

Chesapeake, SandRidge, and McClendon had previously disclosed in securities filings that they were being investigated by the Justice Department's Antitrust Division.

http://www.reuters.com/article/chesapeake-enrgy-mcclendon-idUSL2N1692H9

Linn Energy LLC expects to fall out of compliance with the terms of a fully drawn $3.6 billion line of credit in 2016, the company said in a regulatory filing Tuesday.

The covenant breach could result in a default and ultimately a bankruptcy if creditors aren’t willing to renegotiate. The debt terms include a 30-day grace period.

“The Company does not expect to remain in compliance with all of the restrictive covenants contained in its credit facilities throughout 2016 unless those requirements are waived or amended,” Linn Energy wrote in the document.

“The uncertainty associated with the Company’s ability to meet its obligations as they become due raises substantial doubt about its ability to continue as a going concern.”

Linn Energy made the comments in a regulatory filing announcing that the company would delay filing its 10-K form, which outlines annual and quarterly performance. Linn indicated it needed more time to complete the company’s financial statements and disclosures.

On Feb. 4, Linn Energy said it was exploring strategic alternatives, business code for a restructuring or sale that could stave off bankruptcy. In Tuesday’s announcement, Linn indicated it had $1 billion in cash and cash equivalents available.

Linn also indicated it will report significant impairments on its non-cash assets and oil reserves, totaling about $5.8 billion for 2015, according to the documents.

http://fuelfix.com/blog/2016/03/01/linn-energy-expects-to-breach-debt-covenant-company-says/