Enbridge cancels major pipeline project, BP inks deal with China's CNPC
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02/09/2016
 

Oil Down, But OPEC Offers Glimmer Of Hope

 
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Oil prices rebounded strongly on Friday on comments from Russian President Vladimir Putin. A slight rise in the
U.S. rig count couldn't keep oil from rallying.

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Friday, September 2, 2016

Oil prices had a bad week, falling on persistent concerns about a glut in crude oil and gasoline. Crude stocks climbed once again, news that sent oil prices tumbling midweek. On the other hand, U.S. oil production continues to fall, dipping by another 60,000 barrels per day last week. Also, the EIA confirmed monthly figures for June at 8.7 million barrels per day, which was just shy of a 200,000 barrel-per-day decrease from May. The rig count may be up, but the slide in U.S. oil production has not visibly come to a halt yet. Still, while supply and demand continue to adjust in fits and starts, the slowness of the process repeatedly catches the markets by surprise and frustrate oil bulls. 

OPEC deal looks more likely. Although crude prices performed poorly, the OPEC production freeze deal received a strong boost this week, with several comments from crucial sources in favor of a deal. Iraqi Prime Minister Haider al-Abadi voiced his support for the deal. Saudi Arabia’s foreign minister said at a conference in Tokyo that his country should support a deal if other OPEC members agree to one. And by September 2, the freeze deal had received the
support of Russian President Vladimir Putin, who said that Russia would participate if they could all agree. Taken together, OPEC and Russia produce half of the world’s oil. The barrage of comments from OPEC and Russian officials suggest that all parties are warming to the idea of a freeze. They had come close to that agreement in April in Doha, but Saudi Arabia pulled out at the last second, a move interpreted as a decision by the young Deputy Crown Prince’s unwillingness to do anything to aid Iran. This time around, sentiment appears to be changing, increasing the odds that OPEC and Russia agree to something on paper in Algeria later this month.

BP reaches second deal with China’s CNPC over shale gas. BP (NYSE: BP) is raising its bet on China’s shale gas revolution,
inking another exploration deal with the state-owned CNPC. China is thought to have the largest shale gas deposits in the world but has been so far unable to tap them in a significant way. BP’s fellow oil majors, Royal Dutch Shell (NYSE: RDS.A) and ConocoPhillips (NYSE: COP), have pulled out of previous deals to explore for shale gas in China after being frustrated with their results. Although the financial details were not disclosed, CNPC will maintain operational control, but the deal covers an additional block that sits adjacent to existing partnership. Despite having 68 percent more technically recoverable shale gas reserves than the U.S., China’s geology is said to be much more complex and expensive to unlock. On top of that, water scarcity and a lack of infrastructure also bedevil exploration companies. But while BP’s competitors have thrown in the towel, the British oil giant is doubling down. 

ExxonMobil playing long game on LNG. The market for LNG is oversupplied and arguably in worse shape than that for crude oil. LNG prices have crashed as a wave of new LNG export terminals have come online. Prices are expected to remain depressed through the rest of the decade and companies are cancelling projects on the drawing board. But not ExxonMobil (NYSE: XOM), which sees robust demand for LNG over the long-term. Exxon spent between $2.3 and $3.6 billion for InterOil’s natural gas assets in Papua New Guinea in July, which can be viewed as a long-term bet on LNG. Bloomberg
reports that Exxon is also in talks to purchase gas assets in Mozambique. Both moves seek to capitalize on growing demand for LNG in Asia over the coming decades.

Enbridge Energy Partners cancels major pipeline project. Enbridge Energy Partners (NYSE: EEP)
scrapped its plans for the Sandpiper pipeline, a 616-mile oil conduit that would have run from North Dakota to Wisconsin, carrying Bakken crude. The Canadian company said that because of the collapse in oil prices, the pipeline is no longer needed. It could still return to the project if and when oil prices rebound and North Dakota needs the takeaway capacity, but Enbridge does not foresee that happening within its current five-year plan. 

SandRidge Energy files for bankruptcy. The Oklahoma oil and gas driller SandRidge Energy filed for bankruptcy protection earlier this week, another victim of low oil prices. A week earlier Linn Energy also sought bankruptcy protection. 

Natural gas prices fall on inventory build. Natural gas stockpiles
grew by 51 billion cubic feet last week, surprising consensus estimates. Natural gas prices fell by more than 3 percent on the news. The larger-than-expected increase in storage levels suggest that either demand is weaker than expected or that gas drillers are producing more gas than expected. 

Russia hoping to raise $11 billion on Rosneft sale. Russia plans on selling off minority stakes in its state-owned oil company Rosneft, looking to raise $11 billion for its struggling economy. The sale will consist of a 19.5 percent stake in the company, but could be complicated by international sanctions. The Russian government will still hold 50 percent plus one share of the company, retaining control. In related news, Japan is set to
announce a major energy investment in Russia, which would include a nearly $10 billion investment in Rosneft. Japan will also consider joint surveys of oil and gas fields in Eastern Siberia and Russia’s Far East. 

In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. Find out more by
clicking here

Thanks for reading and we’ll see you next week.

Best Regards,

Evan Kelly
Editor, Oilprice.com

P.S. – In the words of our top trader Martin Tillier: he is ‘’hotter than Kim Kardashian’’ after predicting the current fall in oil prices a few weeks ago. However, the picture for crude oil in the coming weeks is opaque, as technicals and fundamentals create doubt about crude’s next move. Martin strongly advises to lean back and watch oil prices without making a trade. Find out what inspires Martin to sit on the sideline by claiming your risk-free 30 day trial on
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Global Energy Advisory September 2nd 2016

Politics, Geopolitics & Conflict

•    Iraq has warned it might start exporting crude via Iran, if negotiations with the Kurdistan Regional Government (KRG) fail. The negotiations were prompted by a dispute between Baghdad and Erbil, the Kurdistan autonomous region’s capital, over control of Kirkuk, an oil-rich region in northern Iraq. The KRG has been calling on Baghdad to restart shipping Iraqi crude via the pipeline that passes through Kurdistan and into the Turkish port of Ceyhan. Pipeline supplies were indeed restarted last week, at a rate of 75,000 bpd, which is half of what Baghdad was sending by that route prior to March this year. If the negotiations end successfully, this amount will be increased to over 100,000 bpd, but not back to 150,000 bpd, according to Iraq’s deputy oil minister Fayadh al-Nema. Kirkuk—which sits in disputed territory in the north between the KRG territory and the rest of Iraq under Baghdad’s full authority—has now chimed in, making it clear there is no way they will allow Baghdad to redirect crude on trucks through Iran. 

•    Brazil’s President Dilma Rousseff has been formally removed from office by the Senate, which ruled she had violated budgetary laws and used money from state-owned banks to fuel public spending programs. However, the Senate did not implicate Rousseff for participation in the huge corruption scandal centering on state oil giant Petrobras, which led to a large-scale investigation dubbed Car Wash, which revealed senior Petrobras managers had taken money from construction companies that they then routed to the parties making up the governing coalition of the country. What to watch? Whether there’s going to be any movement towards privatizing pre-salt plays in Brazil (right now, this is a verbal game with the statements of various politicians being used against each other); and whether states are going to implement new exploration and production taxes (not a good move right now). 

•    There are two venues that warrant extra attention this week—Uzbekistan and Gabon—from a high-level politics perspective. In Uzbekistan, our high-level sources on the ground confirm the death of long-time leader Islam Karimov, though at the time of writing an official announcement had still not been made. The announcement could come following Independence Day celebration on 1 September. The succession process will be messy, but probably not visibly so because of the tight rein on things by the security services. The security services—with backing from Russia—appears to be propping up the PM to take power, while another powerful figure earlier tipped to succeed Karimov has been aggressively sidelined. Then, in Gabon, the incumbent president who ostensibly lost elections last week is refusing to step down, prompting violent street protests in this smallest of OPEC countries.  

Deals, Mergers & Acquisitions

•    Shell is selling $425 million worth of Gulf of Mexico assets to EnVen Energy as part of efforts to reduce its debt load, which swelled significantly after the acquisition of BG Group. The assets are the Brutus/Glider blocks, including production and transport infrastructure. The daily output from the blocks is 25,000 barrels of oil equivalent. Meanwhile, Shell announced a new gas discovery in the Western Desert of Egypt, with reserves estimated at 500 billion cu ft. 

•    Private energy company Finley Resources has sold some production assets in the Permian to portfolio company Sabalo Energy, part of EnCap Investments. The value of the deal was not disclosed but it’s the latest example of the growing interest in the Permian shale play coming not just from energy companies but also from investment firms.

Tenders, Auctions & Contracts

•    Spanish utility Union Fenosa is in talks with the companies operating the Tamar offshore gas field in Israel to increase the amount of gas it receives by 6 billion cu m annually. Currently, Union Fenosa receives 4.5 bcm of gas per year, under a contract signed in 2014 with field operators Noble Energy and Delek Group.

•    Chevron has sealed a deal with Chinese ENN LNG Trading for the supply of 650,000 metric tons of LNG annually over a ten-year period. First deliveries should come in 2018 or early 2019, from a number of LNG producing sites controlled by Chevron, including the giant Gorgon field offshore Australia, along with Wheatstone and the North West Shelf. This access to a variety of LNG sources is seen as facilitating the emergence of a spot market for LNG in Asia, which should provide a boost to trade in this commodity.

Discovery & Development

•    Andes Energia, an exploration company focused on Argentina and Colombia, announced it had struck oil in the Chachahuen deposit in Argentina. One well yielded a 20-feet column of crude oil and two wells yielded natural gas. According to the company’s chairman, the discoveries confirm the solid hydrocarbon potential of the Chachahuen deposit.

•    Qatar will start work on its $10-billion natural gas project in Barzan in November. The project is a joint venture between RasGas, Qatar Petroleum and ExxonMobil, and aims to increase the gas output of the Gulf state by as much as 2 billion cu ft daily when it goes into full-scale production mode, which should happen by the end of June next year.

•    Australian energy firm AWE announced it has started selling natural gas from its Waitsia project commercially. The launch of commercial sales from the field in the Peth Basin, Western Australia, came on schedule and within budget. The company had allocated around $13.6 million for its development. Initial production will average 9.6 terajoules daily, to be raised to 100 terajoules daily. One terajoule equals a little less than a million cubic feet of natural gas.

•    Norway’s Statoil boasted a 20% reduction of production costs at its giant Johan Sverdrup field in the North Sea, the biggest new oil discovery in the region. Now, the first phase of development of the field is seen to cost $12 billion, down from about $15 billion. Also, production costs per barrel were slashed to as little as $25 and initial output estimates were raised to 440,000 bpd, from between 315,000 to 380,000 bpd.

•    Chevron has launched natural gas production from a deep-water site in Indonesia, through Chevron Indonesia Co. Production has begun in the Bangka field, which has a capacity of 110 million cubic feet of gas per day. Drilling began two years ago.

Company News

•    Scottish utility Nova Innovation has successfully fed power into the local electricity grid produced by an array of tidal power turbines. This is a first for tidal energy and confirms the potential of tidal power as a renewable energy source. Nova’s installation differs from most power plants utilizing the energy of sea waves in that it consists of two separate turbines rather than one whole power plant. The whole array off the Scottish coast will include five turbines.

•    Oil companies with operations in Egypt are due some $3.4 billion payable by the country’s government as of end-June. This represents a $200-million increase over three months. A portion of this amount will be paid by the end of the year. Last financial year, Egypt managed to repay $100 million to oil companies.

•    Gazprom has set up a new subsidiary in Germany, Gazprom NGV Europe, which will be under the full control of the Russian’ giant’s local unit, Gazprom Germania. The new subsidiary will operate the parent’s compressed natural gas marketing business, which includes 50 filling stations and another ten new ones that are currently being built in the Czech Republic and Poland.

Regulatory updates

•    Key Energy, the oilfield service provider, has agreed with its creditors to file for Chapter 11 bankruptcy protection and restructure its operations, joining the ranks of energy companies that the oil and gas price crisis forced to go under. The agreement will see Key Energy’s debt pile cut by $725 million. The company’s largest creditor, Platinum Energy, will become its largest shareholder following the restructuring.

•    A legislative initiative in Colorado that would have cost local oil and gas producers some $10 billion worth of output annually has failed to get the necessary number of signatures to be put to the vote by the local government. The initiative proposed restricting drilling operations near homes. Colorado is the sixth-largest producer of natural gas but E&Ps would have left it in a hurry if the initiative was turned into a law, as it would have basically banned drilling across the state.

•    Australia’s Victoria state has approved a total ban on fracking on land, along with coal seam gas extraction. Conventional drilling for gas, however, may be allowed after 2020. The news is bad for energy companies and manufacturing businesses in the state – as well as throughout eastern Australia – alike since the local manufacturing industry relies heavily on coal seam gas and had been hoping for an expansion of local output that would have brought gas prices down.
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