Not content with the blow it’s dealt to U.S. oil drillers, Saudi Arabia is set to escalate the battle for market share by raising production to maximum levels.

The world’s largest oil exporter has already increased output to a 30-year high of 10.3 million barrels a day in a bid to check growth from nations including the U.S., Canada and Brazil. It will add even more to the global glut, according to Goldman Sachs Group Inc. Citigroup Inc. predicts the kingdom will push toward its maximum daily capacity, which the bank estimates at about 11 million barrels, in the second half of 2015.

Saudi Arabia steered the Organization of Petroleum Exporting Countries in November to protect its market share in the face of swelling U.S. crude output, rather than cut supplies to shore up prices as it did in the past. Having abandoned the role of swing supplier -- adjusting production in line with demand -- the kingdom will maximize sales to increase pressure on producers outside the group, the banks said.

“If you are Saudi Arabia and you’re looking at the new oil order we live in, you would go to full capacity,” Jeff Currie, head of commodities research at Goldman Sachs in New York, said by e-mail on June 15. “The world has come around to the realization that the U.S. shale barrel is the swing barrel.”

Estimates vary on how high Saudi production might go. Oil Minister Ali Al-Naimi reiterated in St. Petersburg Thursday that his country has about 1.5 million to 2 million barrels of daily reserve capacity and is ready to increase output if demand rises. The IEA, a Paris-based adviser to industrialized nations, assesses the full capacity at 12.3 million. Saudi Arabia’s decision not to push beyond 10 million during the 2011 crisis in Libya suggests the maximum is closer to 11 million, said Seth Kleinman, head of energy strategy at Citigroup.

“The clear implication of Saudi Arabia’s new oil policy of pressuring high-cost producers is for them to increase production and exports,” Kleinman wrote in an e-mail on June 15. “With an increasingly compelling picture of lower oil prices over the next 10 to 20 years, it makes sense for Saudi to use it all and use it now.”

http://www.bloomberg.com/news/articles/2015-06-18/saudi-arabia-pumps-oil-flat-out-in-citi-goldman-s-new-oil-order

Russia surpassed Saudi Arabia to become China’s top crude supplier as the fight for market share in the world’s second-largest oil consumer intensifies.

China imported a record 3.92 million metric tons from its northern neighbor in May, according to data emailed by the Beijing-based General Administration of Customs on Tuesday. That’s equivalent to 927,000 barrels a day, a 20 percent increase from the previous month. Saudi sales slumped 42 percent from April to 3.05 million tons.

China is becoming a key market for global oil exporters as surging output from shale fields from Texas to North Dakota allows the U.S., the biggest crude consumer, to rely less on overseas supplies. The Asian nation will account for more than 11 percent of world demand this year, the Paris-based International Energy Agency predicted this month.

“This is a clear sign of how spoilt Asia is for choice these days, with Middle Eastern crude now having to compete with oil from other regions,” Amrita Sen, the chief oil-market analyst at Energy Aspects Ltd., a London-based consultant, said in an e-mail. “Russia is increasingly looking east and the various deals made between Rosneft and China are likely to see more Russian crude head to China permanently.”

Russia is China’s top crude supplier for the first time since October 2005 as it seeks new markets for its crude amid western sanctions over its dispute with Ukraine. OAO Rosneft in 2013 agreed to supply 365 million tons over 25 years to China National Petroleum Corp. under a $270 billion deal. The same year, the company agreed an $85 billion, 10-year deal with China Petrochemical Corp.

Russia isn’t the only crude shipper to overtake Saudi Arabia last month. Angola sold 3.26 million tons to China, 14 percent more from April, rising two places to take second spot. The Middle East country lost its top rank for the first time in 13 months.

“Following Russia’s recent acceptance of the renminbi as payments for oil, we expect more record high oil imports ahead to China,” Gordon Kwan, the Hong Kong-based head of regional oil and gas research at Nomura Holdings Inc., said in an e-mail, referring to the Chinese currency. “If Saudi Arabia wants to recapture its number one ranking, it needs to accept the renminbi for oil payments instead of just the dollar.”

In April, Saudi Arabia had expanded its share of China’s oil market as it shipped 5.26 million tons of crude to the Asian nation, the highest level since July 2013.

The Middle East producer raised official prices for its main crude grades sold to Asia the past four months, after record discounts for March cargoes. Arab Light and Arab Medium were set at 10-month highs for July, according to a statement from state-run Saudi Arabian Oil Co.

http://www.bloomberg.com/news/articles/2015-06-23/russia-pips-saudi-arabia-in-race-to-grab-china-oil-market-share

Indonesia’s industrial customers have been unable to consume the liquefied natural gas produced at Tangguh and Bontang LNG plants creating a surplus of cargoes that are being placed on offer.

SKK Migas’ spokesman Zudaldi Rafdi told Platts, that 79 cargoes to be loaded in 2015 and 2016 are being offered from Indonesia’s LNG plants. Both facilities can not cut on production as it would cause issues in the long-term production and customers for which the LNG is allocated are failing to consume the volumes due to economy-driven slump in consumption.

Rafdi said the cargoes will be offered on the spot market or existing buyers.

According to him, Tangguh LNG plant will have 23 excess cargoes, six in 2015 and 17 in 2016, while the Bontang LNG plant will produce 56 excess cargoes in the same two-year period. The plant is set to put out 13 excess cargoes in 2015 and 43 cargoes of liquefied natural gas in 2016.

http://www.lngworldnews.com/indonesia-selling-79-lng-cargoes/

Oilfield services provider Petrofac Ltd said strong performance at its engineering and construction division had helped increase its order backlog to $20.5 billion at the end of May.

Petrofac shares rose as much as 11 percent to 965.5 pence on the London Stock Exchange on Tuesday morning.

The company, however, said it expected pretax costs at its Laggan-Tormore project to increase by about 30 million pounds ($47.35 million) as it began additional completion and pre-commissioning works.

The company has incurred about 140 million pounds in costs on the project so far this year.

Petrofac has been taking heavy losses on the Shetland Islands project, buckling under the North Sea's hostile environment and the high cost of doing business in the region.

The company had said in April it expected a pretax loss of about 130 million pounds in 2015, in addition to the $230 million it recognised in February.

Laggan-Tormore, a high-quality oil and gas asset 80 percent owned by French oil major Total, is expected to yield about 93,000 barrels of oil equivalent per day at its peak.

Order backlog at Petrofac's Engineering, Construction, Operations and Maintenance (ECOM) division, which accounted for nearly 80 percent of its revenue last year, grew 12 percent from the end of December.

JP Morgan Cazenove analyst Daniel Butcher said Petrofac's ECOM backlog, which was $17.4 billion at the end of May, had the potential to increase to $20 billion for the first half.

Chief Executive Ayman Asfari said the company stood to secure several contracts in the second half of the year as clients were investing in large projects in its core markets.

The company said it expected its net profit for the year to be weighted towards the second half as several projects were near completion.

http://www.reuters.com/article/2015/06/23/petrofac-results-idUSL3N0Z91MP20150623

The Western Australian government must avoid imposing additional cost and complexity on liquefied natural gas projects, the Australian Petroleum Production & Exploration Association said on Tuesday.

The Government today confirmed that the State’s domestic gas reservation policy would be applied to a floating LNG project for the first time.

APPEA Western Region Chief Operating Officer Stedman Ellis said the decision to force projects to reserve gas for the state’s domestic market amounted to a de facto tax.

“In what is now a new investment climate, the Government should be looking to reduce the cost and regulatory burden on LNG projects if it wants to attract investment,” Ellis said.

“Instead, it continues to do the very opposite by imposing a gas reservation policy that simultaneously acts as a tax on gas production and a subsidy on gas consumption,” he added.

According to Ellis, the reality is the policy is not needed to deliver energy security because, as the Independent Market Operator advised last year, WA’s domestic gas market is already well supplied into the future.

The Economic Regulation Authority has also warned that the policy would have negative economic consequences for the State, he said.

“The Government needs to accept that its reservation policy simply adds to the capital cost of projects that are already facing growing global competition,” Ellis concluded.

http://www.lngworldnews.com/appea-gas-reservation-raises-lng-costs-in-wa/

German utility E.ON wants to sell its North Sea and Algerian oil and gas assets, hoping to raise around $2 billion as it restructures, several banking sources said.

The move adds to the rising number of North Sea assets on the market as a result of lower oil prices, but with few deals being concluded.

E.ON has given several prospective buyers access to data on its international exploration and production assets ahead of the official launch of the sale mandate which is expected in the coming weeks, bankers and industry sources said.

Bank of America Merril Lynch is arranging the sale process, which will be held through an auction, according to the sources.

"E.ON has opened up data rooms for its North Sea and Algerian assets," one source said.

The assets are estimated to fetch around $2 billion, though oil price valuations between buyers and sellers have varied significantly in recent months following the drop in crude prices over the past year.

As a whole, E.ON's E&P unit made 1.1 billion euros ($1.23 billion) in earnings before interest, tax, depreciation and amortization (EBITDA) last year, about 13 percent of the utility's total.

Most of it comes from the group's North Sea assets, which had a combined output of 22.3 million barrels of oil equivalent (boe) in 2014.

In Norway, E.ON has a 30 percent stake in the Njord field, a 28.1 percent stake in the Skarv field and a 17.5 percent stake in the Hyme field, according to its website.

In the British North Sea, it operates the Huntington, Babbage, Johnston, Hunter and Rita fields and also holds interests in several producing fields.

In Algeria, E.ON holds a 49 percent of the exploration licence for the Rhourde Yacoub area in the Berkine basin, according to its website.

http://www.reuters.com/article/2015/06/23/e-on-disposals-idUSL8N0Z920N20150623

Shell’s plans to bore two wells in the Arctic Ocean this summer may be jeopardized by an obscure permitting requirement that effectively bars drilling operations close to each other in waters off Alaska.

The restriction highlighted by environmentalists opposed to Shell’s Arctic drilling campaign could be a major stumbling block for the company, which has spent $7 billion and seven years pursuing oil in the region.

The restriction is embedded in the rules for obtaining a “letter of authorization” allowing companies to disturb walruses, seals and other animals in the region — among the last permits Shell needs to launch activities in the Chukchi Sea next month. Under a 2013 Fish and Wildlife Service regulation, those authorizations are precluded for drilling activities happening within 15 miles of each other.

The two wells Shell wants to drill this summer are about 9 miles apart.

A coalition of environmental groups insisted Tuesday that the requirement should block Shell’s planned Arctic drilling and force the Obama administration to rescind earlier approvals.

Any letters of authorization issued to Shell “would violate an explicit condition of the governing regulations, the organizations said in a letter to Interior Secretary Sally Jewell. And they noted that Interior Department regulators did not consider a one-well drilling program when they evaluated the environmental impacts of Shell’s broad exploratory plan for the Chukchi Sea before approving it earlier this year.

The groups, including the Natural Resources Defense Council, Oceana and the Sierra Club, suggested that if the Obama administration allowed Shell to drill even one of its planned wells in the Chukchi Sea — much less two simultaneously — it would not be “lawful or “defensible,” because of the limited scope of that earlier environmental analysis.

Shell has asked federal regulators for permission to drill two wells into its Burger prospect about 70 miles off the coast of Alaska this summer, with more possibly next year. It has lined up two drilling rigs for the job, including one now en route to Dutch Harbor, Alaska to wait for final approvals.

Only four of those needed approvals are left: Two well-specific drilling permits from the Interior Department’s Bureau of Safety and Environmental Enforcement and the two letters of authorization from the Interior Department’s Fish and Wildlife Service.

Shell appeared to be aware of the Fish and Wildlife Service’s prohibition on contemporaneous drilling activities as far back as February 2013, when it sent a letter to the agency objecting to the then-proposed rule.

http://fuelfix.com/blog/2015/06/23/shells-arctic-drilling-plans-may-hit-permitting-snag/?utm_source=twitterfeed&utm_medium=twitter#33661101=0

From Credit Suisse:

■ The Sinopec issue is clearly polarising people: The reaction of investors to yesterday’s note is interesting. It evoked strong, and polar, views. Some see it as churlish to question any risks, given APLNG’s total protection under 100% Take or Pay. Others point to iron ore and see a high probability of default. We probably agree with neither school. There’s a grey area in between, with varying degrees of pain to Origin, to test. Whilst it may come at no financial pain to them (aside from any un-contracted volumes spot), we believe that lifting destination restriction would be the first step into the grey.
■ Origin has already waived binding APLNG terms: We continue to believe commercial logic may need a compromise to be reached. Let’s not forgot that in February 2011 Origin agreed to ‘defer’ (triggers unlikely to be met) the 2x $500m FID payments from Conoco to Origin. The rationale was ‘to better align economic interests’. It may have been needed, but it was a clear deviation from a binding legal agreement. Sound remotely familiar?

Exactly right. Firms will bury the truth in volumes of Orwellian legalese but the bottom line will be that under pressure from a collapsing spot market these contracts will break just as they did in the iron ore market.

Only this time we’ll be on the receiving end.

http://www.macrobusiness.com.au/2015/06/more-on-china-dumping-lng/

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