Counting barrels of crude

Industry analysts lately have been counting barrels—barrels of refining capacity lost as plants shut down on both sides of the Atlantic; barrels of crude flowing into the US Midwest and their impact on prices for West Texas Intermediate; and barrels of supply that may be lost if the European Union activates its proposed embargo on Iran in 6 months or if Iran beats them to the punch by stopping shipments.

“The key question in all three cases is whether the changes are large enough to change our previous main medium-term conclusions; i.e. that refining margins will be under pressure through to the middle of decade, that sanctions have tended to just change trade flows and not affect revenues, and that US Midwest balances still look a bit heavy,” said Paul Horsnell, managing director of Commodities Research at Barclays Capital, London.

He said, “We still see medium-term refinery margins as being under pressure, and we still see Midwest balances as heavy, if not even heavier. However, the process of Iranian export barrel-counting suggests that, depending on the stance taken by a couple of key consumers, the mathematics of clearing all the barrels through the market might no longer add up.”

The International Monetary Fund recently projected the global price of oil could escalate $20-30/bbl if Iran were to block the Strait of Hormuz as it has threatened. But oil markets have mostly ignored Iranian rhetoric, with prices flat or down slightly in the recent weeks.

Stopping exports to Europe before the EU embargo officially begins in July “would move Iran from being a ‘victim’ to being an aggressor and would also provide justification” for the Cooperation Council for the Arab States of the Gulf countries to replace Iranian crude in that market, said Olivier Jakob at Petromatrix in Zug, Switzerland. “Hence we are not sure that Iran has a lot to gain politically from being proactive on sales restrictions to Europe.” If Iran tries to halt passage of oil tankers through the strait, Jacob said, “It should be relatively easy for the International Energy Agency to authorize a release of strategic stocks for any country that would be hurt.”

Jakob foresees no major changes in European supply and demand “because the oil demand destruction it is currently suffering from is greater than the amount of Iranian crude oil that it is importing.” Still, he said, “In the micro balances, it does not work that easily as the petrol stations around London still need to be supplied by someone, and the[bankrupt] Petroplus Holdings AG’s refining system was not running on Iranian crude oil. The crude oil molecules going into the Petroplus system were more expensive than those going into the Greek refineries, and that will remain a risk for the refineries of southern Europe that will have to go through a higher cost of input when replacing Iranian crude oil.”

It’s not just oil

Analysts in the Houston office of Raymond James & Associates Inc. reported pipeline infrastructure in the region could mitigate the impact of a Hormuz blockade by rerouting much of Middle East crude supplies away from the strait. But crude is not the only energy commodity that passes through those waters in massive amounts.

“The percentage of global liquefied natural gas supply passing through the strait actually exceeds that of oil,” they said. “Qatar is the world’s No. 1 producer of LNG, with a market share near 25%, and the UAE is also a player. Unlike oil, there is no practical way for LNG shipments from these two countries to bypass Hormuz. Thus, a blockade would instantly halt over a quarter of the global supply of LNG.”

Most of the LNG shipments out of the Persian Gulf go to Asian markets. Three of the top four purchasers of LNG from Qatar and the UAE are Japan, India, and South Korea. “These countries could receive a double economic hit, i.e., a disruption in oil as well as LNG imports,” said Raymond James analysts. Japan, the world’s third-largest economy and the No. 1 LNG importer, would be particularly impacted.” Japan is one of the few industrialized economies that still use significant quantities of oil for power generation. “If oil supply were temporarily disrupted, Japan would naturally need to buy more LNG to compensate, especially given the issues with its nuclear fleet following the Fukushima disaster. If both oil and LNG supply are disrupted, Japan would face a colossal problem, possibly having to resort to energy rationing,” Raymond James analysts said.

(Online Jan. 31, 2012; author's e-mail: samf@ogjonline.com)

Related Articles

Energy consumption to escalate

07/30/2013 World energy consumption will jump 56% in the next 30 years, driven by growing demand in developing countries, the US Energy Information Administra...

US, Mexico energy trade in flux

05/28/2013 Energy trade between the US and Mexico is in flux with rising crude production in the US, falling production in Mexico, and rising Mexican demand f...

Foreign crude supply concentrated

04/29/2013 It’s no secret the jump in US oil production in recent years has dropped imports of foreign crude to the lowest It’s levels since 1997—down 1.3 mil...

Corn, ethanol prices squeeze profit

03/25/2013 Last summer, US prices for ethanol and corn reached such an imbalance that production costs exceeded revenue at relatively simple ethanol plants, t...

Working on the railroads

02/26/2013 The rapid increase of North American crude production has resulted in pipeline bottlenecks in some areas, forcing more reliance on rail transportat...

War, weather issues affect energy

01/28/2013 The fatal 4-day siege at the In Amenas gas production plant in eastern Algeria near the Libyan border that left 81 people dead “heightens concerns ...

2013 looks a lot like 2012

12/31/2012 New Year 2013 looks as though it will be much like the old one. There’s rioting in Egypt, confrontation with Iran, continued crisis in the Euro-zon...

Political crisis weighs on oil

11/26/2012 On Nov. 21, Egyptian officials announced a ceasefire agreement—which they helped broker—between Israel and Hamas leaders to end a week of fighting.

Storms, oil, and elections

10/29/2012 Hurricane Sandy was bearing down on the East Coast on Oct. 29, disrupting oil supplies, energy demand, and early voting in the last full week befor...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected