Sam Fletcher
OGJ Senior Writer
The plan to release emergency oil stocks held by the US and other countries to push down high crude prices almost worked—for about a week.
The August contract for benchmark US crudes dropped $4.39 to $91.02/bbl and North Sea Brent crude fell $6.95 to $107.26/bbl June 23 when the International Energy Agency said member countries would release some 60 million bbl of crude and petroleum products from emergency stockpiles to reduce high energy costs.
But by June 30, the August contracts for benchmark US and Brent crudes had climbed back to $95.42/bbl and $112.48/bbl, respectively, before a single barrel reached the market. “From the price action, we have to conclude either that the supply and demand is so tight that 30 million bbl of sweet oil released from the US Strategic Petroleum Reserve does not matter or that the futures markets are disconnecting from the reality of the physical markets,” said Olivier Jakob at Petromatrix, Zug, Switzerland.
Nevertheless, the Department of Energy described industry interest in the tender of crude from SPR as “very high and oversubscribed.” Jakob said, “We can therefore expect that all of the 30.2 million bbl [of SPR crude] offered will be taken. The question now is where do we find the spare storage tank capacity to hold all those barrels?” Commercial Gulf Coast storage is near record levels with space for only 17 million more bbl of crude, and there’s not much storage available in the Midwest.
Mississippi is tops
Meanwhile, Mississippi was found to be the best place in the world for oil and gas investment, according to an annual survey of industry executives by the Fraser Institute, an independent Canadian public policy research organization. The state vaulted from sixth place last year to the top of 136 international government jurisdictions in Fraser Institute's 2011 Global Petroleum Survey released June 27.
However, US Gulf of Mexico plummeted from 11th place in 2010 to the 60th spot in one of the biggest drops in the rankings this year, since last year’s survey was before the Macondo blowout and tighter federal restrictions on drilling in the gulf. “The decline isn't surprising, given the greater difficulty of obtaining drilling permits in the wake of the BP [PLC] disaster,” said Gerry Angevine, Fraser Institute senior economist and coordinator of the survey.
Still, US states dominated the top 10 selections in the survey with Ohio, Kansas, Oklahoma, Texas, and West Virginia taking second through sixth places in that order. The Netherlands section of the North Sea was in seventh place, followed by Alabama, Hungary, and North Dakota, respectively. The Saskatchewan province moved up to 11th place as the highest ranked Canadian jurisdiction.
The survey had 502 respondents representing international oil and gas companies whose budgets account for more than 60% of annual spending on exploration and production. “By offering clear, stable regulatory and fiscal terms relative to other jurisdictions, many American states have cemented themselves as global favorites for oil and gas investment,” Angevine said.
However, several US jurisdictions earned poor scores for environmental regulations and associated uncertainties. US Pacific-Offshore was the worst among the 23 American jurisdictions in 101st place, up from 103rd last year. California was the lowest-ranked state, dropping to 91st from 87th in 2010. “Survey respondents pointed to California's complex environmental restrictions and lengthy wait times to [obtain] drilling approvals as highly unattractive,” Angevine said. Alaska was the second-least attractive state, dropping to 83rd from 68th. Survey respondents remain critical of Alaska's fiscal regime, environmental regulations, and land claims issues.
“Jurisdictions with reputations for political instability and corruption, steep royalty fees and tax rates, inadequate infrastructure, price controls, and labor shortages have difficulty attracting investment,” Angevine said. The least attractive jurisdictions are: Venezuela, Ecuador, Bolivia, Iran, Kazakhstan, Uzbekistan, the Democratic Republic of Congo (Kinshasa), Iraq, Libya, and Russia. Jurisdictions that had remarkable declines this year include the Philippines, Canada's Northwest Territories, Uganda, Brunei, Uruguay, Angola, Cameroon, Equatorial Guinea, and US Offshore-Alaska.
(Online July 5, 2011; author’s e-mail: [email protected])
US Government Accountability Office.
