Market Movement
OPEC increases quota as Ivan decreases US production
On Sept. 15, as Hurricane Ivan was disrupting oil and natural gas production in the Gulf of Mexico, members of the Organization of the Petroleum Exporting Countries excluding Iraq voted to boost their collective production quota by 1 million b/d to a record high of 27 million b/d effective Nov. 1 in an effort to lower crude prices.
But since OPEC already is producing 28 million b/d, analysts said, the net effect at presstime was that Ivan more likely would push up energy prices.
Indeed, after weeks of spiraling downward, energy futures prices soared Sept. 13 and continued climbing Sept. 14 as crews were evacuated from 575 of the 764 manned platforms and 69 of the 117 mobile drilling rigs in the Gulf of Mexico.
Ivan forced the shut-in of 77.6% of the crude and 49.1% of the natural gas normally produced in the gulf. That amounted to 1.3 million b/d of oil and more than 6 bcfd of gas, as of Sept. 15. Other sources reported at least 6% of total US refining capacity was shut down as refineries secured operations in the storm's path or, in some cases, faced the loss of offshore crude supplies.
OPEC lacks capacity
OPEC's quota increase "is not likely to impact production," said Robert S. Morris, analyst with Banc of America Securities LLC, New York. "In fact, several OPEC members indicated that the group is currently producing at or near full capacity, although Saudi Arabia plans to raise its capacity by up to 800,000 b/d by month's end," he said. War-torn Iraq currently is exempt from OPEC's production quota.
"The market continues to look for tangible signs that OPEC intends, and is able, to regain control of prices. The intent may well be there, but the tangible ability does not seem to exist at this time," said analysts with Raymond James & Associates Inc., St. Petersburg, Fla. "A modest surprise was that, contrary to market expectations, OPEC did not arrive at any formal decision on its official price band," they said.
"OPEC decided to delay any potential change to its target price band until its next meeting (Dec. 6), which we believe is largely due to Saudi Arabia's unwillingness to increase the price target prior to the November US presidential election," Morris said.
"The decision to raise the price band, if and when it comes, will not be surprising, nor should it have a noticeable impact on market prices," said RJA analysts. "Iran's OPEC governor said last week that there is 'consensus' for a $30[/bbl] midpoint," compared with the current range of $22-28/bbl. However, they noted, "'Consensus' does not imply unanimity. Qatar, for example, is known to favor a somewhat lower band, while Venezuela seems to be pushing for an even more aggressive increase in pricing policy. Libya said yesterday that it supports a band of $28-36[/bbl]."
Possible near-hit by Ivan
On Sept. 15, Ivan was 170 miles south of the Alabama coastline and moving north, projected to make landfall at Mobile Bay, Ala., early Sept. 16. Although its track appeared likely to avoid "the heart of the oil-producing region," hurricane-force winds extending 105 miles from its center were expected to impact some offshore facilities.
The Louisiana Offshore Oil Port (LOOP), located in the gulf less than 20 miles southeast of Port Fourchon, La., was closed Sept. 13 "along with several Gulf Coast refineries," said RJA analysts. LOOP "normally handles 1 million b/d of [crude] imports (10% of total US imports)." Analysts noted, "Roughly 5 million bbl of imports were curtailed due to LOOP being shut down for about 5 days during Hurricanes Isidore and Lili in 2002."
The US Energy Information Administration reported Sept. 15 that US commercial crude inventories plummeted by 7.1 million bbl to 278.6 million bbl during the week ended Sept. 10. That was largely due to a 800,000 b/d drop in crude imports to 9.9 million b/d "as [Hurricanes] Frances and Ivan interrupted crude shipments through the Caribbean from Africa, the Middle East, and South America, while total refinery utilization fell 0.8% to 95.7%," Morris said. "Thus, US crude inventories are now 0.2% below last year but 8.3% below normal," he said. US gasoline stocks dropped by 1.6 million bbl to 202.5 million bbl in that same period, while distillate inventories increased by 1.7 million bbl to 128.3 million bbl.
Meanwhile, Tropical Storm Jeanne forced refiners in the northeastern Caribbean to curtail operations. That storm—located Sept. 15 about 25 miles south-southwest of San Juan, Puerto Rico—is expected to strengthen into a hurricane.
Industry Scoreboard
null
null
null
Industry Trends
OIL AND NATURAL GAS companies' spending in the US and Canada continues to rise. But the anticipated growth rate of that spending appears to be slowing compared with previous months, acordding to the latest PatchWork Survey by UBS Securities LLC.
"The spending index took a sharp step backward this month from last month's record level but still remains at a high level of 44," UBS analyst James H. Stone said in a Sept. 14 report. The August index was 65.
UBS's survey uses an index ranging from –100 to 100.
Positive numbers indicate that an increase in activity or pricing is expected within 60 days. A negative number indicates a decrease in activity or pricing is expected during the same timeframe.
A value of zero or close to it indicates that no change is expected within 60 days.
"We still expect that spending should continue to increase as operators attempt to take advantage of continued high commodity prices. In fact, several operators have announced spending increases in the last several weeks," he said.
The drilling index for the US dropped to 42 from last month's record level of 61.
"After 3 successive months of record readings, the drop-off is a bit surprising to us, particularly the magnitude of the drop. However, we have seen this before in the survey, only to see a rebound in the next month," Stone said.
Only 11% of the respondents said that they expect drilling to decline within the next 60 days, while 53% expect drilling to increase and 36% expect no change.
Meanwhile, the number of drilling permits issued has shown some weakening in the last 4 weeks, but the permit levels remain strong enough to support the current high level of drilling activity, Stone said.
"Another issue that could hurt the rate of increase in activity is the availability of rigs and crews," he noted.
The workover index for the US and Canada declined slightly to 36 from 40 last month. "However, the index remains at a level that is strong enough to sustain the current level of activity, as the majority of respondents expects flat workover activity during the next couple of months," he said.
The seismic acquisition index rose slightly in September, but it continues to trail all other activity indices. "The index stands at 16, and over twothirds of operators are expecting no change in activity," Stone said.
WORLD METHANOL DEMAND in 2004 is forecast to be relatively flat with 2003, but 2005 demand is expected to increase significantly, said Houston-based petrochemical consultant Chemical Market Associates Inc.
CMAI recently completed its latest 2005 World Methanol Analysis, an annual study providing information on supply, demand, production, history, and forecasts for methanol capacity, trade, and pricing. "Industry supply and demand remains in somewhat of a stalemate," the report said.
World methanol demand was 32.09 million tonnes in 2003. The report forecast demand at 32.01 million tonnes in 2004 and 33.23 million tonnes in 2005.
Government Developments
THE UK ENERY MINISTRY advocates proposals to encourage additional investment in renewable energy, including an extension of the Renewables Obligation to 2015-16.
The Renewables Obligation began in 2002 and currently is slated to end during 2010-11. The policy sets targets for electricity suppliers to obtain an increasing volume of energy from renewable resources. Renewable Obligation Certificates are awarded to suppliers using renewable sources.
"The Renewables Obligation is a long-term policy commitment and will help maintain investor confidence in the industry, which is central to achieving our target of 10% of renewable energy generation by 2010," UK Energy Minister Stephen Timms said earlier this month.
The latest proposals call for 15.4% of UK's power to be generated from renewable resources by 2015-16.
The proposals also call for more flexibility for small electric power generators. An additional suggestion is that certificates
for renewable electricity supplies in northern Ireland be deemed eligible for use toward compliance with the renewables obligations in England, Wales, and Scotland.
UK OFFICIALS are promoting wave and tidal renewable energy development through a £50 million marine development fund.
The UK Department of Trade and Industry awarded the grant to four organizations that collectively will establish the UK Centre for Marine Renewable Energy.
Three organizations are in Scotland: the University of Edinburgh, Robert Gordon University in Aberdeen, and the European Marine Energy Centre (EMEC) in Orkney. The fourth
is the UK-based New and Renewable Energy Centre in Northumberland.
The UK research partnership is charged with establishing a research, development, test, and certification base to help the emerging marine energy industry provide renewable energy from naturally occurring waves and tidal movements.
In a search for alternative energy sources, researchers will explore various options, including wave and tidal, biomass, solar, and wind. One of the four organizations already recorded two milestones this summer.
EMEC officially opened on Aug. 10 in Orkney. EMEC, an independent wave-energy testing facility, has started testing a wave-electricity generating device named Pelamis that is owned by Ocean Power Delivery, Edinburgh.
AUSTRALIA'S LABOR PARTY is committed to helping oil and natural gas companies commercialize stranded gas reserves, said Shadow Minister for Mining, Energy, and Forestry Joel Fitzgibbon.
He outlined his party's energy policy strategies Sept. 7 during the World Energy Congress in Sydney. The Labor Party supports a "gas economy strategy" backed by financial and regulatory incentives, he said.
Australia's elections are slated for Oct. 9. Prime Minister John Howard seeks a fourth term in office for the Liberal Party.
Fitzgibbon, a Parliament member since March 1996, advocates that Australia develop a gas plan aimed at diversifying the nation's energy mix. He promotes bringing gas reserves—primarily from western and northwestern Australia—to major southeastern markets via pipeline or LNG shipments within Australia.
In addition, development of a gas-to-liquids industry could prove to be crucial to Australia's energy independence, said Fitzgibbon.
Quick Takes
STATOIL ASA's Snøhvit LNG development experience off Norway and LNG marketing ability in North America (OGJ Online, June 14, 2004) positions the Norwegian firm for participation with Russian companies OAO Gazprom and
Quick Takes
STATOIL ASA's Snøhvit LNG development experience off Norway and LNG marketing ability in North America (OGJ Online, June 14, 2004) positions the Norwegian firm for participation with Russian companies OAO Gazprom and OAO NK Rosneft in developing supergiant Shtokmanovskoye gas-condensate field in the arctic Barents Sea (OGJ Online, July 16, 2002) and for Gazprom-Rosneft participation in the Snøhvit LNG project and use of Statoil regasification capacities in North America (OGJ Online, June 14, 2004). The three firms signed an agreement Sept. 8 to conduct studies relative to joint participation in the three LNG related initiatives, including Phase I development of Shtokmanovskoye field. Total LNG USA Inc. has entered into a terminal-use agreement with Sabine Pass LNG LP, a unit of Cheniere Energy Inc., Houston. Total will receive the right to 1 bcfd of LNG regasification capacity in the planned 2.6 bcfd Sabine Pass LNG terminal for 20 years beginning Apr. 1, 2009, or earlier. Cheniere said it received the US Federal Energy Regulatory Commission's FERC's draft environmental impact statement Aug. 12 and plans to begin construction in first quarter 2005.
TALISMAN ENERGY (UK) LTD., Calgary, plans to begin in early 2005 the $770 million (Can.) development of Tweedsmuir and Tweedsmuir South oil fields on Block 21/1aN in the UK North Sea some 100 miles northeast of Aberdeen. Four wells will be tied back to the Talisman-operated Piper B platform 55 km to the north, and crude sent via existing pipeline to Talisman's Flotta terminal in Orkney. Talisman will begin producing 40,000 b/d from the two fields in late 2006. Talisman estimates the fields contain probable gross reserves of 71 MMboe. Talisman holds an 87.43% working interest in the fields and has an agreement to acquire an additional 7%. First Oil Expro Ltd. has 5.57%.
POWERFUL HURRICANE IVAN did not affect BP Trinidad & Tobago's natural gas production or its 1.8 bcfd of gas deliveries to the Atlantic LNG export plant. Crude production, however, was reduced by about 21,000 b/d, BPTT said. Ivan passed just north of Trinidad Sept. 7, ravaging the Windward Islands and forcing oil and gas companies operating in Trinidad and Tobago to evacuate personnel. BPTT, which evacuated 80% of its staff, expects soon to have crude oil production back to levels prior to the evacuation. Atlantic LNG officials said the storm did not hamper LNG production, but shipping ceased as Ivan approached. Trinidad and Tobago provides 75% of all LNG supplied to the US. Total SA has renewed its contract with Kuwait's state-owned Kuwait Oil Co. to provide technical assistance in Kuwaiti upstream activity. The French major provides expertise for the production of oil in the Saudi Arabia-Kuwait Neutral Zone and to exploration in Kuwait. Total also is a partner in the ChevronTexaco Corp.-led consortium competing with two other groups amid efforts to open oil exploration in northern Kuwait to foreign companies. Suncor Energy Services Inc. has authorized Jacobs Engineering Group Inc., Pasadena, Calif., to begin preliminary engineering that could lead to the expansion of Suncor's in situ oil sands facilities in Alberta (OGJ, Mar. 15, 2004, p. 37). The contract includes planning for operational debottlenecking and the potential addition of new operating facilities, including power-steam generation.
KOCH SUPPLY & TRADING plans to reconfigure its refinery at the Vopak Europoort terminal in Rotterdam to process primarily crude oil and to expand its production capacity. The facility currently processes mostly gas condensates to produce naphtha, jet kerosine, gas oil, and residuals. The company will invest $15 million to increase processing capacity to 80,000 b/d from 65,000 b/d. Reconfiguration is expected to be completed in mid-2005. The Europoort terminal is a key products hub in Europe , having pipeline connections enabling direct transfer of jet fuel to major airports such as those in Amsterdam and Frankfurt. Koch is a subsidiary of Koch Industries Inc., Wichita, Kan. A Statoil internal inquiry blamed inadequate planning and insufficient communications during preparations for a valve change as the cause of the fire at the Mongstad refinery near Bergen July 12 that injured two workers and closed the refinery for 2 weeks (OGJ Online July 23, 2004). The cost of lost production and damage was roughly 100 million kroner. Statoil said the wrong valve was closed, maintaining pressure in the system and allowing hot oil to flow into a steam hose. The hose cracked, enabling the oil to come into contact with the air where it ignited. Investigators found no evidence of technical failure. ENAP Refinerías SA, a subsidiary of National Chilean Oil Co., awarded a $70 million, 15 year hydrogen supply contract to AGA SA, the Chilean subsidiary of Wiesbaden, Germany-based Linde AG. AGA will finance, construct, and operate a hydrogen plant at Chile's largest refinery in Concón near Valparaíso and a hydrogen trailer filling station and carbon dioxide plant. The hydrogen plant, which has a capacity of 50,000 cu m/day of hydrogen and 100 tonnes/day of liquid CO2, is scheduled to begin initial operation in mid-2006. ENAP will use the hydrogen to produce low-sulfur diesel, enabling the application of modern catalyst technologies.
US DRILLING ACTIVITY took a plunge the week ended Sept. 10, down by 9 units with 1,240 rotary rigs working, Baker Hughes Inc. reported. The decline is a reversal of the previous week's climb to 1,252 rigs total—the largest weekly rig count since the same period in 2001. Losses in US land operations accounted for most of the decline, down by 7 units to 1,130 rigs working. Offshore operations decreased by 2 rigs to 87 in the Gulf of Mexico and 92 in US waters as a whole. Drilling in US inland waters remained the same at 18 rigs working. Canada showed a decrease of 34 units with 261 rotary rigs working that week, which was down from 378 units the same time a year ago.
CONOCOPHILLIPS and Anadarko Petroleum Corp. have successfully appraised the 2001 Spark discovery in the National Petroleum Reserve-Alaska on Alaska's North Slope with two appraisal wells. The Carbon No. 1 well encountered an Upper Jurassic reservoir and tested on flow at a maximum 24 MMcfd of gas and 1,250 b/d of 59° gravity condensate at a flowing tubing pressure of 905 psi. Operator ConocoPhillips did not test the Spark No. 4 appraisal well, which penetrated a similar hydrocarbon-bearing reservoir interval. The Spark accumulation is adjacent the 2001 Lookout discovery, which was successfully appraised in 2002. Spark and Lookout are located 15 and 24 miles, respectively, southwest of Alpine oil field.
ChevronTexaco reported a deepwater Gulf of Mexico oil discovery on Walker Ridge Block 759, which lies on the Jack prospect 270 miles southwest of New Orleans. The Jack No. 1 discovery well, in 6,965 ft of water, was drilled to 29,000 ft TD on July 29 and encountered more than 350 ft of net pay oil sands. Further appraisal drilling is planned to further define the extent of the discovery. ChevronTexaco, which operates the block, owns a 50% working interest in Jack. Partners are Oklahoma City-based independent Devon Energy Corp. and EnCana Gulf of Mexico LLC, with 25% each. Chesapeake Energy Corp., Oklahoma City, has built what it believes is the largest onshore US inventories of leasehold and 3D seismic data in the industry—covering more than 3 million acres and 8 million acres, respectively. The independent said it has identified more than 5,000 undrilled locations that could contain as much as 4 tcfe of probable and possible undeveloped reserves. Three acquisitions—from Bravo Natural Resources Inc., Tulsa; Legend Natural Gas LP, Houston; and Tilford Pinson Exploration LLC, Oklahoma City—are adding 310 bcfe of proved reserves, 50,000 net acres of leases, and 60 MMcfed of production, 92% of which is natural gas, for a combined $590 million. Chesapeake said it believes it can hike the roperties' production to at least 90 MMcfed by yearend 2005 and to at least 120 MMcfed by yearend 2006. Chevron Offshore (Thailand) Ltd. has farmed out a 25% stake in Block G4/43, in the northern Gulf of Thailand, to Mitsui Oil Exploration Co. of Japan. Two discovery wells have already been drilled on the block (OGJ Online, July 22, 2004). The deal, endorsed by the Thai government, reduces COTL's interest in the tract to 60% from 85%. PTT Exploration & Production PLC, the Thai state-controlled firm and original partner in G4/43, retains its 15% holding.
ALTAGAS INCOME TRUST, Calgary, plans to expand its Saskatchewan operations by constructing a $5.5 million sour gas processing plant and 37 km of natural gas pipeline near Shaunavon, Sask. The plant, slated to begin operations by mid-November, initially will process 1 MMcfd of solution gas from two oil batteries. Facilities will include amine and liquids recovery equipment and plant and booster compression. In exchange for processing the gas, AltaGas will share in the proceeds from sales of the gas and associated liquids. AltaGas said it would "pursue similar infrastructure development opportunities in Saskatchewan" as producers develop more acreage in the region.
FOUR COMPANIES are preparing an investment program to develop and expand Brazil's natural gas market, beginning with the expansion of a pipeline network in the state of Minas Gerais. The gas distribution concessionaire there, Cia. de Gás de Minas Gerais (Gasmig), will be jointly managed by Cia. Energética de Minas Gerais and its new 40% partner Petrobras Gás SA, a subsidiary of fourth partner Petróleo Brasileiro SA. Their objective is to increase gas volumes distributed by Gasmig to 4.5 million cu m/day (MMcmd) by the end of 2006 and 11.1 MMcmd by 2023 from the current 3.5 MMcmd, officials said.
FRANCE plans to launch bids before spring 2005 for construction of four 200,000 tonne/year biofuels production units to be built by 2007, trebling its annual production capacity to more than 1 billion tonnes. The four units, expected to cost 8 million euros, will complement eight existing facilities that produce primarily diester, a mix of 30% rapeseed or sunflower oil derivative and 70% diesel oil. Ethanol also is being considered. France plans to increase its biofuels use to 5.75% from 1% of the 42 million tonnes/year of motor fuels currently consumed. The country, which gives tax rebates for biofuels, expects such fuels to attain a 2% share by 2005. Talisman Energy (UK) Ltd., Calgary, and UK-based partner Scottish & Southern Energy PLC will construct a $58 million (Can.) deepwater wind farm demonstrator project adjacent Beatrice field 25 km off Scotland to test the feasibility of wind farms in water 35-45 m deep. Two turbines will provide electric power for the Beatrice platform, and if the pilot is successful, Talisman will evaluate a commercial project. Turbine construction is expected later this year, with first electricity to be generated late in 2006. The Scottish Executive and UK Department of Trade and Industry each will provide $7 million (Can.) in funding and the European Commission, $10 million (Can.). Talisman and Scottish & Southern will contribute more than $17 million (Can.) each.
null
American Bureau of Shipping surveyors, on site at Junoverken AB yard in Uddevalla, Sweden, monitor and inspect the fabrication of industry's first offshore LNG deepwater port buoy, designed by Advanced Production & Loading AS (APL) of Norway. Classed as an A1 single-point mooring buoy, APL's submerged turret-loading (STL) system will be part of the Energy Bridge Deepwater Port, which will be installed in the Gulf of Mexico 116 miles off Louisiana (OGJ, Apr. 12, 2004, p. 73). The buoy will be transported in November to West Cameron Block 603, where it will be installed. The STL unit will allow LNG carriers fitted with onboard regasification equipment to transfer gas through the buoy, which will connect to a pipeline end manifold on the seafloor. The port will have a base load delivery capacity of more than 500 MMcfd of gas. The first cargo is scheduled for January 2005.
