A year on, as Opec ministers prepare to meet next week with oil languishing near $45 a barrel, senior Saudi officials have a different message. In recent weeks, in public forums and private briefings, they have emphasised the dangers of future supply shortages as the oil industry has slashed investment in new projects.

Prices fell further than they ever anticipated, they say, remarks that for many in the oil market imply the Opec kingpin wants the year-long oil rout to come to a close.

Saudi officials say they are not about to reverse the policy that saw them open the taps and prioritise their long-term exports over short-term financial gain. But behind closed doors they say they want prices to stabilise between $60 and $80 a barrel.

That level, they believe, would foster oil demand but not encourage too much supply growth from alternative sources — a goldilocks scenario. Market watchers say that by focusing on the future outlook the kingdom can slowly coax the price higher without abandoning its strategy.

“They have made their point and no one in the world has missed it,” says Nat Kern, at Washington DC-based consultancy Foreign Reports. “Prices have fallen a lot lower than they wanted to go and investment cuts are far steeper than they expected.”

Prince Abdulaziz bin Salman al-Saud, Saudi Arabia’s deputy oil minister and son of the king, has been at the forefront of the shift in messaging. In a speech in Doha this month he warned that the investment needed to ensure future oil supplies could not be achieved “at any price”.

“The scars from a sustained period of low oil prices can’t be easily erased,” he said.

Demand for Opec’s crude is expected to rise next year as production outside the cartel falls — a key pillar of the strategy. But Saudi officials are keen to temper the industry’s response to the price crash after more than $200bn in energy investments have been scrapped.

Mr Naimi said last week that the world will need $700bn in investment over the next decade to meet growing oil demand, which it estimates will increase by at least 1m barrels a day each year.

In many ways, Saudi Arabia is now being forced to present a counter narrative to the oil industry’s new mantra of “lower for longer” prices — that has taken hold as a result of Riyadh’s own policy and is being pushed by influential banks such as Goldman Sachs.

“The Saudis want to warn the market not to overdo it,” says Amrita Sen at consultancy Energy Aspects in London.

The kingdom is also showing signs of easing off. After raising production to a record 10.6m barrels a day in June — almost 1m b/d above the 2014 average — output was cut to 10.3m b/d by October, the latest data from Opec show.

While the reduction is partly driven by falling domestic demand, some question why the kingdom has not ramped up output further if winning customers is its main priority.

The kingdom is vying with Russia to be the top oil supplier to China and must prepare for the return of higher Iranian oil exports next year if sanctions are lifted. It already faces increased competition in India and Europe from record Iraqi exports, while the US could become a growing market again as shale production tails off. Saudi oil exports to the US have dropped 29 per cent in three years.

“It’s unclear to me why they would hold any barrel that they could produce back,” says Bob McNally, a former White House adviser and consultant at Rapidan Group.

One explanation is that Saudi officials are concerned that the world’s cushion of spare production capacity — that they largely maintain — has shrunk to about 2 per cent of world demand. They also question if the US shale industry can replicate the kingdom’s so-called “swing producer” role.

Saudi Arabia may also have good reason to talk up the price. An oil price averaging almost half the level enjoyed for the first four years of this decade has put pressure on domestic finances.

The kingdom has drawn on its foreign exchange reserves and plans to tap international debt markets to maintain social spending and meet higher defence costs as its war in Yemen drags on.

It also has to placate Opec peers, especially economically weaker members like Venezuela and Ecuador, which were struggling to balance their budgets even when oil was above $100 a barrel.

“They don’t want to see oil below $40 [when Opec meets] on December 4,” says Ole Hansen at Saxo Bank, adding that he believes the kingdom is trying to make a “verbal intervention” in the market, as it has done in the past.

“This is all really about buying time,” he adds. “Demand growth will eventually start to work off the glut, but there’s no point going bankrupt in the meantime.”

http://www.ft.com/cms/s/0/4f3567a2-938d-11e5-b190-291e94b77c8f.html?ftcamp=published_links/rss/companies_energy/feed//product&utm_source=twitterfeed&utm_medium=twitter#axzz3sbY7havg

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Saudi Aramco is looking for further investment opportunities in Indonesia's downstream refining and petrochemicals industry, the company's CEO said on Thursday, after initiating a $5.5 billion project to upgrade the country's largest refinery.

The Saudi Aramco CEO's comments are positive for Indonesian President Joko Widodo's efforts to attract investment after a clean-up of the country's oil and gas sector that followed a series of scandals.

"Indonesia is an important country for Saudi Arabia, a rising global economy, we would like to be a part of the growth of Indonesia," Saudi Aramco CEO Amin H Al-Nasser said at the signing of the initial agreement to upgrade the Cilacap refinery in Indonesia's Central Java province.

Indonesia will rejoin OPEC as its 13th member nation next month.

The project is expected to increase the refinery's crude processing capacity to 370,000 barrels per day (bpd) from 348,000 bpd at present, and is also likely to include an agreement to import crude from Saudi Arabia, the world's top crude exporter.

The upgrade will include a new hydro cracker unit, as well as units to increase production of paraxylene and polypropylene production, according to a Pertamina statement.

"It's a great opportunity for growth in a global market," Nasser said. "We're hoping this is the start."

Aramco was also expected to join a tender to develop a greenfield refinery project in East Java, Wiratmaja Puja, Indonesia's director general of oil and gas, said.

Further details on a strategic partnership between Aramco and Indonesia's state energy company Pertamina have yet to be finalised, including how a joint venture between the two will be shared.

Indonesia broke off talks on building two refineries with Aramco and Kuwait Petroleum in 2014 due to a disagreement over taxes and fiscal terms.

Brent crude trading at $45 a barrel may have helped restore investor interest in Indonesia's downstream sector as Saudi Arabia and other oil companies move to secure markets.

Saudi Arabia, OPEC's top producer, has rebuffed calls to cut output in an effort to support prices, and is instead focused on defending market share.

Nasser said Aramco would meet its customers' demands.


Read more at Reutershttp://www.reuters.com/article/2015/11/26/saudi-aramco-indonesia-pertamina-idUSL3N13L42X20151126#dux2CDDt1yIDKm27.99

Glencore Plc oil chief Alex Beard defended the company’s crude-export contract with Libya’s National Oil Corp. in the west of the divided country after the competing administration in the east threatened to block its tankers.

“International oil companies and the international community fully support NOC’s position,” Beard said in a statement, confirming for the first time the September deal with the Islamist-backed government to ship oil from the Marsa al-Hariga port. “They have made it very clear there is no alternative to the NOC at its legal address in Tripoli as the only recognized marketer of Libyan oil.”

The comments follow claims earlier this week from the competing NOC arm in the internationally recognized government in eastern Libya that it will try to stop any tanker operating for Glencore from loading oil at the nation’s ports. The NOC in eastern Libya in the east had sent a letter to Glencore seeking to confirm whether an accord had been signed with the administration based in Tripoli.

Mustafa Sanalla, chairman of the oil operator in the western region, said it’s legally entitled to sign a contract with the Swiss commodities trader.

“The NOC, at its legal address in Tripoli, remains the only legally empowered oil contracting authority of the Libyan state,” Sanalla said in the joint statement distributed by Glencore. “It remains the seat of contracts for all the production, transportation and sale of Libyan oil. The Board of NOC is committed to protecting the integrity and viability of the NOC.”

http://www.bloomberg.com/news/articles/2015-11-26/glencore-oil-chief-says-libyan-deal-has-international-support

Offshore drillers have scrapped forty-four floating drilling rigs in a little over a year, due to a combination of persisting low oil prices, reduced drilling activity, and oversupply in the rig market.

The numbers above were revealed this week by Seadrill, one of the largest providers of ultra-deepwater drilling rigs, who expects the challenging market situation for drillers in 2016 as well.
In its report, Seadrill said that the 44 rigs scrapped over the past 14 months, represent more retirements than over the past 20 years combined.

According to Seadrill, scrapping spree will most likely continue as older and less capable drilling rigs that are coming off contracts in the near term, will have a difficult time securing new work. Why? Because the older units will be priced out of the market by newer, more capable rigs.

Drilling rigs that are 15 or 20 years old require significant capital investments to remain part of the active fleet and very few rig owners will find economic justification to keep these old assets working, Seadrill explained.

When a rig is out of work, the owner has three option: warm stacking, cold stacking, or scrapyard.

Warm stacking means a rig will be idle, but with crew on board, ready for quick redeployment; cold stacking is done when the owner thinks a rig will be unable to get a meaningful contract for a considerable amount of time.

Seadrill is rooting for more cold stacking: “Significant cold stacking activity would represent a positive development in the market, effectively reducing marketed supply and helping to stabilize utilization and pricing until a more fundamental recovery is in place.”

The driller also highlighted the fact that under the current market condition, it will be challenging to return a cold stacked rig to the market: “Cold stacked units will generally require an improvement in dayrates sufficient to overcome reactivation costs before they are reintroduced into marketed supply.“

However, Seadrill doesn’t see much improvement in the drilling market conditions, at least in the near term, as oil companies are slashing their drilling budgets and pressing drillers to lower dayrates.

In addition, there is an issue of the already mentioned oversupply, in a market that currently doesn’t need any more rigs.

Currently, Seadrill says, 205 rigs are working, representing 73% marketed utilization. It is estimated that 180-200 rigs are needed in the floater fleet to maintain current decline curves. On the assumption that no new contracts are signed the market is expected to reach this level by Q1 2016.

“After two significant year on year declines, there is some recovery in spending is expected in 2017, but forward visibility continues to be challenged and the timing and extent of the recovery remains uncertain,” the company said.

As for the floater orderbook, the driller says, there are currently approximately 70 units on order, of which 29 are Sete new builds.

“A significant number of these newbuild orders have been delayed or cancelled and we expect this trend to continue. Delayed or cancelled newbuilds will ultimately be added to the fleet, however until an improved market justifies taking deliveries, the vast majority will likely remain in the shipyards,” the company said.

Seadrill expects, between now and 2018, to see an overall contraction in the floater fleet due to delivery delays and scrapping activity.

http://www.offshoreenergytoday.com/more-floaters-scrapped-in-one-year-than-in-previous-two-decades/

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China's Sinopec Corp is offering its subsidiary refineries big incentives
to export their diesel fuel, sources said, in a rare move that reflects the top Asian refiner's deepening concerns about a growing domestic glut.

The internal bonus scheme marks the latest step by the state-owned refiner to battle local oversupply of the industrial fuel as slowing economic growth curbs diesel use in mining, construction and transportation.

The company has maintained relatively high production in order to feed growing domestic demand for kerosene and gasoline, thus exacerbating the diesel surplus, oil sources say. Sinopec's crude runs were up 1.4 percent in the first three quarters of 2015 compared with a year ago, according to corporate filings.

About a half-dozen of Sinopec's refineries are being offered around 240 yuan ($37.60) for each tonne of diesel exported, under a scheme that started in September and has been extended to December, said two people familiar with the bonus plan.

That's an additional 6 percent on top of domestic pre-tax wholesale prices, worth some $80 million over four months, according to Reuters' calculations based on estimates of Sinopec's exports.

"Sinopec is anticipating China's robust gasoline demand growth will sustain in 2016. To produce more gasoline means more diesel output from refineries," said Gordon Kwan, head of oil and gas research with Nomura in Hong Kong.
 
"Diesel demand in China will remain subdued, thus the potential for diesel exports to rise further ahead."

The growing overseas sales from Sinopec, representing roughly 60 percent of China's diesel exports, comes as the government prepares to allow smaller, independent refineries to export refined fuel for the first time.

Read more at Reutershttp://www.reuters.com/article/2015/11/27/sinopec-corp-oil-products-idUSL3N13K20J20151127#k9CD3Il0ccaJmm3p.99

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Gazprom has agreed to purchase all of the LNG from the Perenco project in Cameroon. The project is owned by the Norwegian shipping company, Golar LNG, and is scheduled to begin operations in 2017.

Gazprom Marketing & Trading (GM&T) will buy 1.2 million tpy of LNG from the facility, which Reuters claims it will try to sell to Atlantic markets and China.

Reuters claims that Gazprom had also previously tried to purchase all available LNG from a production plant in Colombia, but this has not gone through due to project delays.

http://www.lngindustry.com/liquefaction/26112015/Gazprom-to-purchase-all-Perenco-project-LNG-1687/

Norway waits for a response, as cost cuts, unemployment and fears for future projects take their toll

Statoil is behaving like most major oil companies these days — delaying projects, cutting costs and reducing its workforce. But how much longer will its major stakeholder, the Norwegian government, sit idly by and allow this to carry on?

Industry observers are waiting for the government to respond to Statoil and others cutting more than 35,000 jobs from the oil and gas sector over the past year, almost singlehandedly increasing the country’s unemployment rate by nearly 2%.

The budget cuts even spurred wholly-owned state player Petoro to warn the Ministry of Petroleum & Energy that constrained access to capital may mean some of the country’s time-sensitive hydrocarbon resources will never be developed.

Statoil argues that project postponements are just part of a drive to reduce costs in Norway, but the logic can be questioned.

So far four drilling rigs on long-term charters to Statoil have been cold-stacked, earning dayrates of between 70% and 80% of the contractually agreed sums, even though the operator has several profitable drilling targets on existing fields.

Petoro believes Statoil is stalling or scaling-down several profitable projects at fields including Snorre, Oseberg, Heidrun, Johan Sverdrup 2 and Johan Castberg.

Energy advisor Hans Henrik Ramm argues that capital restraints should not be accepted as a valid excuse to avoid investments, as this is purely a question of priorities.

He believes the government — which is highly dependent on petroleum revenues — will be forced to act if there is a risk that profitable, time-sensitive resources are at stake. The government, however, cannot use its 67% ownership to force Statoil to make investments that its management opposes without causing a stock market uproar and possible legal action by minority shareholders.

Some argue the time has come to allow Petoro to act as an operator, having been established in 2001 at the same time as Statoil was listed on the Oslo and New York stock exchanges.

Petoro, with only 68 employees, handles the state’s direct financial interest in Norwegian offshore licences and is supposed to function as a counter-weight to Statoil.

However, this role is made all the more difficult if the government continues to give Statoil’s views on oil and gas policy more weight than Petoro’s.

Another way for Statoil to raise cash and boost spending is by divesting stakes in producing fields, but those such as Snorre, Oseberg and Heidrun have a strong symbolic value for Norway and are extremely profitable.

Neither the government nor Statoil may be keen to sell stakes in these fields to foreign investors, and the company would probably prefer to sacrifice a few hundred million barrels in future production. Then there is the question of Statoil’s dividend payments, with some, including Norwegian Business School professor Oystein Noreng, arguing they should not be prioritised given current circumstances.

“But management bonuses are tied to the share price. Curiously, the major owner, the state, does not intervene,” he said.

http://www.upstreamonline.com/live/1417968/norway-government-on-spot-over-statoil?utm_source=twitterfeed&utm_medium=twitter

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Leading operator Frontline said that less than five percent of the global fleet of supertankers is currently used for storing oil as the cost of renting the ships, known as very large crude carriers or VLCCs, is too high to make this profitable.

Frontline Management Chief Executive Robert Hvide Macleod said that around 20-30 VLCCs, or between 3.1-4.7 percent of the global fleet of 645 ships, is now used for storage.

The vessels now used for storage could typically store a combined 40-60 million barrels of oil.

Oil traders who expect crude prices to rise will often buy cargoes and store them on ships, but the cost of renting the vessels has risen sharply this year thanks to rising output from leading producers.

http://steelguru.com/logistic/frontline-says-20-30-vlccs-currently-storing-oil-globally/439986

As of mid November, drillers had punched 462 natural gas wells in the ground in B.C., down 32 per cent from the end of November a year ago, according to the B.C. Oil & Gas Commission.

Natural gas drilling activity has dropped off sharply in British Columbia’s northeast this year and 2016 doesn’t promise to be any better, according to a new report by the Canadian Association of Oilwell Drilling Contractors.

The situation will continue as long as North America’s energy markets remain depressed and producers wait out decisions on whether or not liquefied natural gas export proposals will proceed.

As of mid November, drillers had punched 462 wells in the ground in B.C., which isn’t the worst result in the last five years, but is down 32 per cent from the end of November a year ago, according to the B.C. Oil & Gas Commission.

And the CAODC doesn’t see conditions changing much for 2016, said John Bayko, the association’s vice-president of communications.

“By all indications, B.C. is trending downward just like the rest of Western Canada,” Boyko said. “I think we’ve seen a (big) decrease in operating days year-to-date in B.C. and we don’t anticipate that being any different moving into 2016.”

The association doesn’t have a specific forecast for B.C., but predicts across Western Canada contractors will drill 4,728 wells in 2016. Without complete figures for 2015 yet, the organization cast the figure as a 58-per-cent decline from 11,226 wells in 2014.

“The key (drivers), obviously, are commodity prices, and those have been down for quite some time,” Bayko said.

For B.C., natural gas prices have wavered up and down at depressed levels that have made profitability a difficult proposition for many companies.

Natural gas prices dipped again Wednesday as long-term weather forecasts in the eastern U.S. continue to call for temperatures well above seasonal norms, which has led American stores of the fuel to grow to a four-year seasonal high, according to the U.S. Energy Information Administration.



Read more:http://www.vancouversun.com/technology/natural+drilling+suffers+decline+report/11544423/story.html#ixzz3sbXWbjQZ

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EQT Corp. this summer drilled what by some measures is the biggest natural-gas gusher ever. The Pittsburgh energy company’s reward: a tumbling stock price.

The well, in southwestern Pennsylvania’s Greene County, spewed enough gas in its first 24 hours to power every home in Pittsburgh for nearly three days. Named Scotts Run 591340 after a historic coal field that sparked a regional energy boom after World War I, the well has continued to produce at unusually high rates with no signs of fading soon.

That would sound like good news. But in a glutted industry in which natural-gas prices are plunging as record amounts of unused gas build up in storage, it is a problem. Since EQT finished drilling the gusher in July, its shares have lost 29%, while U.S. natural-gas prices have fallen 24%.

Scotts Run 591340 taps part of a rock formation called the Utica Shale that has only been lightly explored so far because it sits almost 3 miles below the Earth’s surface.

Situated beneath Pennsylvania, West Virginia and Ohio, the Utica is close to gas-consuming regions of the Northeast. If it proves as productive as EQT’s well and a few nearby wells suggest, it could mean trouble for billions of dollars of wells and pipelines built in and from more established regions like north Louisiana and the Rocky Mountains.

“Because the Utica is a big unknown, fear has overtaken the market,” said Matt Portillo, managing director at energy-focused investment bank Tudor, Pickering, Holt & Co.

EQT said last month that it would suspend drilling projects in other parts of Pennsylvania to concentrate on the Utica, where it thinks wells have the potential to be so prolific that they could lower natural-gas prices and make competing projects uneconomical.

“Some of our other inventory that requires higher prices to make economic returns would be deferred, possibly for many years,”David Porges, EQT’s chief executive, told investors on a conference call last month.

The Utica is already starting to alter the U.S. natural-gas balance. The U.S. Energy Information Administration said this week that the country’s proved reserves of natural gas rose 10% in 2014 to a record of 388.8 trillion cubic feet. Ohio’s reserves nearly tripled thanks to finds in portions of the Utica Shale, a big factor in the higher total, the government agency said.

Meanwhile, gas stockpiled in the contiguous 48 states exceeded four trillion cubic feet for the first time ever last week, as producers continue to drill new wells despite depressed prices and forecasts for a mild winter that would limit demand for the heating fuel.

Shares of EQT rivals Range Resources Corp. and Consol EnergyInc. have slid 44% and 54%, respectively, since those companies disclosed their own prolific Utica wells in December and July.

http://www.wsj.com/articles/gas-driller-hits-a-gusherand-sinks-its-own-stock-1448533982

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