OGJ Newsletter

March 31, 2014
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

China exceeds US as largest net petroleum importer

In September 2013, China's net imports of petroleum and other liquids exceeded those of the US on a monthly basis, making it the world's largest net importer of crude oil and other liquids, according to the US Energy Information Administration.

Rapidly increasing Chinese petroleum demand driven by steady economic development outpaces domestic production growth, pushing up the country's net imports of petroleum and other liquids.

Chinese petroleum and other liquids production is expected to rise 5% between 2011 and 2014 compared with a growth rate of 31% in the US over this period. Chinese production is estimated to be only a third of US production in 2014.

On the demand side, China's liquid fuels consumption is expected to reach more than 11 million b/d in 2014. In the meantime, US consumption in 2014 is estimated at 18.9 million b/d, down 9% from the peak consumption in 2005. US refined petroleum product exports increased by more than 173% between 2005 and 2013.

"China has been diversifying the sources of its crude oil imports in recent years as a result of robust oil demand growth and recent geopolitical uncertainties," EIA said.

Saudi Arabia continues to be the largest supplier of crude oil to China, providing 19% of China's 5.6 million b/d in 2013. Because production levels from Iran, Libya, and Sudan and South Sudan dropped since 2011, China replaced the lost shares of crude oil and other liquids imports from these countries with imports from Oman, Iraq, the UAE, Angola, Venezuela, and Russia, according to EIA.

Judge bars e-mails as evidence in Macondo hearing

A federal district judge in New Orleans refused to accept e-mails between Anadarko Petroleum Corp. and BP PLC as evidence in a hearing to determine liability of companies involved in drilling the ill-fated Macondo deepwater well in 2010.

The Houston independent producer, which held a 25% interest in the well that BP operated, has maintained that it was a passive investor who was not involved in day-to-day decisions involving the project.

A fire and explosion after the well blew out on Apr. 20, 2010, killed 11 people and destroyed the Deepwater Horizon semisubmersible drilling rig. As the rig sank, it triggered a leak that spilled more than 4 million bbl of crude oil into the Gulf of Mexico that took months to contain and cap.

Judge Carl J. Barbier, who previously ruled that Anadarko was not negligent in the accident, told the US Department of Justice it could not use the e-mails to make the upstream independent face hefty penalties for the accident and spill.

"I don't think this argument is going to get you anywhere," said Barbier of US District Court for Eastern Louisiana. "It's pretty clear to me, once I ruled that Anadarko had no legal duty to intervene in the well and could not be negligent."

The court held the hearing to consider evidentiary and discovery issues as companies involved in the accident and spill prepare for the federal trial's Clean Water Act penalty phase.

Reacting to Barbier's latest ruling, Anadarko Chief Executive Officer Al Walker said it was consistent with previous court determinations that the company was not at fault for the accident and spill. "We look forward to seeing the [CWA] portion of the trial resolved soon."

OMV acquires West of Shetland licenses from Hess

OMV AG has reached an agreement with Hess Corp. to acquire four licenses in West of Shetland, UK, including Cambo field and the Blackrock prospect, for $50 million. Depending on future developments, a contingent payment of as much as $35 million is possible, OMV said.

With the transaction, OMV will acquire 60 million boe of recoverable hydrocarbons, most of which lie in Cambo, currently under appraisal.

OMV will become operator of Cambo in place of Hess, increasing its stake in the P1028 and P1189 licenses to 47.5% from 15%. In license P1830, which includes Blackrock, the company's share will jump to 75% from 25%. OMV will also take on 75% of license P1831.

OMV UK operates the adjacent Tornado discovery, the Suilven discovery, along with further prospects with tie-back potential to develop Cambo as an area hub (OGJ, Mar. 10, 1997, p. 31; OGJ Online, Oct. 19, 2009).

The company said the Blackrock prospect is between the Rosebank and Cambo discoveries and expected to be drilled in 2015. OMV holds interests in 22 licenses in West of Shetland—including Rosebank, Schiehallion, Tornado, and Suilven—and additional four licenses in the adjacent Faroe Islands.

MOL closes purchase of North Sea assets

MOL Group, Budapest, has completed its transaction with Wintershall, Kassell, Germany, in which MOL acquires offshore assets with 14 licenses in the North Sea for $375 million (OGJ Online, Dec. 13, 2013).

MOL said it has also established a new office in Aberdeen to support its operations and its future expansion in the region.

"The North Sea is a very attractive area, and MOL will continue to develop its presence in the region. We intend to take part in upcoming licensing bid rounds and aim to become operators ourselves," said Alexander Dodds, MOL Group executive vice-president, E&P.

Exploration & DevelopmentQuick Takes

Statoil makes gas find on flank of Visund field

Statoil Petroleum AS has made a natural gas discovery on the northeast flank of Visund field in the northern part of the North Sea, the Norwegian Petroleum Directorate reported.

The 34/8-17 S wildcat well reached a vertical depth of 3,187 m subsea in production license 120. Water depth is 378 m.

NPD said the well encountered a 31-m gross gas column in the Tarbert, Ness, and Etive formations in the Middle Jurassic. About 20 m were in sandstones with very good reservoir quality, NPD noted.

In the underlying Rannoch formation, the well encountered a 21-m petroleum column in sandstones with poor reservoir quality.

The well, which will be plugged and abandoned, was not formation tested.

Statoil started production from Visund North oil and gas field late in 2013. The project is the sixth of the 12 fast-track projects that Statoil has brought on production (OGJ Online, Nov. 6, 2013).

CNOOC makes natural gas discovery in Bohai Bay

CNOOC Ltd. has made what it describes as a "mid-sized" natural gas discovery in the Bozhong 22-1 structure in the south-central region of Bohai Bay.

The discovery well, drilled in 25 m of water, was completed at a depth of 4,611 m, encountering a gas reservoir with a total thickness of 92 m. Gas production of the well tested at 14.2 MMcfd.

CNOOC said the Bozhong 22-1 discovery "demonstrates the good prospects of buried hills for future gas exploration of south slope in Bozhong Sag."

The company in 2013 discovered oil and gas with the Bozhong 8-4 well and oil with the Kenli 10-4 discovery wells in Bohai Bay (OGJ Online, July 30, 2013).

Last week, CNOOC made a gas discovery in the east Lingshui Sag of the deepwater area in the South China Sea's Qiongdongnan basin (OGJ Online, Mar. 19, 2014).

Kansas-Missouri heavy oil area draws new operator

Worthington Energy Inc., San Francisco, said it will attempt to recover heavy oil on the Barr Cattle Co. lease near Chetopa in southeastern Kansas.

A press release issued by Worthington provided no field details about the proposed project but said it will be conducted in collaboration with American Dynamic Resources Inc. (ADR). It was not clear when field work might start.

Worthington signed a definitive agreement on Mar. 12 to acquire the oil and gas assets of ADR and heavy oil technology and intellectual property from ADR Pres. and Chief Executive Officer Charles Adams.

As part of that acquisition, Worthington said it will utilize the Levia oil recovery process developed by ADR to begin recovering heavy oil in Kansas and Missouri. Worthington said ADR has integrated surfactant formulations for enhanced oil recovery developed by chemists with Oil-Chem Technologies LLC, Sugar Land, Tex.

State geological organizations in Kansas, Missouri, and Oklahoma have identified a resource of billions of barrels of viscous oil trapped in relatively shallow formations that underlie several counties mostly along the Kansas-Missouri and Kansas-Oklahoma state lines. Various thermal field projects have met with uneconomic rates of recovery.

Drilling & ProductionQuick Takes

Sinopec reveals Fuling field production capacity goals

Sinopec plans to develop Fuling shale gas field in southwestern China to a production capacity of 10 billion cu m (bcm)/year by 2017, the company said.

The company expects capacity to reach 1.8 bcm/year by yearend and 5 bcm/year by 2015. Current capacity is 0.6 bcm/year. The shale gas demonstration area has 21 wells.

Sinopec said the work signifies an "earlier-than-expected entry" into a large-scale development phase.

The field has reserves of 2.1 trillion cu m located at depths less than 4,500 m.

Sinopec said its Jiaoye 1HF discovery well in Chongqing in November 2012 marked "a significant breakthrough in shale gas exploration."

Santos brings Peluang gas development on stream

Santos Ltd., Adelaide, has started natural gas production from its Peluang development offshore the Indonesian island of Java.

The field, in the Madura Offshore production-sharing contract area offshore east Java, has been brought on stream ahead of schedule and on budget.

Sanctioned in February 2013, Peluang has been developed as a tie-back to existing facilities at Maleo gas field. It is expected to reach a gross peak production of 25 MMcfd. Gas will be used to supply East Java.

Peluang is the fourth operated asset for Santos in Southeast Asia. The company already has gas production from Oyong and Wortel fields in the nearby Sampang PSC to the west and Maleo field northeast of Peluang in the Madura PSC offshore East Java.

The company has a 67.5% interest in the Madura PSC. Other joint venturers are PC Madura Ltd. and PT Petrogas Pantai Madura.

US drilling rig count drops to 1,803

After consecutive weeks of significant gains, the US drilling rig count lost 6 units to 1,803 rigs working during the week ended Mar. 21, Baker Hughes Inc. reported.

Land-based rigs lost 7 units to 1,730 total as offshore rigs gained 1 unit to 55. Rigs drilling in inland waters were unchanged from a week ago at 18.

Rigs targeting gas took the largest hit, falling 18 units to 326. This overshadowed a 12-unit jump in oil rigs to 1,473. Rigs considered unclassified were unchanged at 4.

Directional drilling rigs rose 9 units to 213 while horizontal drilling rigs fell 6 units to 1,206.

Canada's rig count took a steep dive, plummeting 133 units to a total of 389. Of those, 117 were oil rigs, bringing that total to 210, and 16 were gas rigs, bringing that total to 179. However, despite this decrease, Canada has 52 more rigs that the comparable week a year ago.

More of the major oil- and gas-producing states reported gains than losses, headlined by Louisiana's 5-unit rise to 108. California increased 3 units 43. North Dakota tallied 2 units to 179. Up 1 unit apiece were New Mexico and Utah, at respective counts of 86 and 28.

Unchanged from a week ago were Colorado at 61, Wyoming at 53, Kansas at 29, Arkansas at 12, and Alaska at 11.

Ohio and West Virginia each dropped 2 units to 39 and 23, respectively. Oklahoma fell 3 units to 183.

In the major US basins, the Mississippian led all with a 3-unit addition to reach 73. The Granite Wash collected 2 units to 54. Meanwhile, The Cana Woodford declined 3 units to 32. The Eagle Ford saw the steepest decline, falling 5 units to 219.

PROCESSINGQuick Takes

US poised to lead world exports of LPG

US shale gas development has the country poised to become a major global supplier of LPG, mainly to Asia, during 2015-20 with US exports outdistancing other global suppliers by the end of the forecast period.

By 2020, the US could be exporting as much as 0.8 million b/d of LPG, exceeding all other suppliers, according to IHS Senior Director of NGL Research Walt Hart in his opening address to the IHS International LPG Seminar in Houston on Mar. 24.

US growth in waterborne LPG exports through 2013, said Hart, had reached about 0.3 million b/d, more than or equal to major exporters Saudi Arabia and UAE but still less than leader Qatar.

Asian demand by 2020, he said, will reach nearly 1.8 million b/d, from more than 1.2 million b/d last year, a projected growth of about 8.5%/year. Hart expects most of that growth to be in Northeast Asia, which includes China. Demand in the region will reach nearly 1.1 million b/d in 2020, outpacing demand growth for Southeast China and the Indian subcontinent.

Global production of LPG for both domestic use and exports will reach more than 10 million b/d by 2020, from about 8.5 million b/d in 2013, said Hart. Production growth will be strongest in North America, Asia, and the Middle East. Supply growth from nonassociated gas will outstrip growth in LPG derived from associated gas and refining, IHS data show.

Hart said projected supply growth among Middle East countries represents a "wild card," including uncertainties around production from Iran and Iraq. Similar uncertainty surrounds LPG production in the countries of the Confederation of Independent States, mainly Russia.

Second diesel refinery planned for North Dakota

Quantum Energy Inc. (QEI), Tempe, Ariz., said it has secured land for the construction of a 20,000-b/d grassroots hydroskimming refinery in North Dakota's Williston basin Bakken shale region.

QEI signed a purchase and sale agreement with Northstar Transloading LLC to purchase 80 acres of land adjacent to Northstar's transloading terminal in East Fairview, ND, for the plant's construction, the company reported.

The planned Fairview plant, which is to be called the Mondak plant, will process crude oil from the Bakken shale region and will operate as a topping plant to produce about 7,000 b/d of diesel for local use, QEI said.

"We anticipate further announcements soon on funding for the expected $250 million investment," said QEI Pres. Stan Wilson.

According to project documents, the Mondak plant will include a crude distillation unit, naphtha stabilizer, mid-distillate hydrotreater, sour water stripper, amine unit, LO-CAT sulfur recovery unit, and hydrogen generator unit.

When constructed, the Mondak plant would become North Dakota's second topping plant for Bakken crude oil after Dakota Prairie Refining LLC's new 20,000-b/d plant (OGJ Online, Feb. 7, 2013).

A joint venture of Calumet Specialty Products Partners LP, Indianapolis, and MDU Resources Group Inc., Bismarck, ND, the $300-milllion, 20,000-b/d Dakota Prairie plant also will produce mostly diesel for regional use (OGJ Online, Dec. 11, 2013; Mar. 27, 2013).

"The Dakota Prairie refinery in Dickinson has served as the model for our proposed Fairview refinery and helped demonstrate to our funding sources the feasibility for our project as well," said Wilson.

While Calumet recently said it expects the Dakota Prairie plant to be commissioned during this year's fourth quarter (OGJ Online, Feb. 21, 2014), QEI has yet to issue a firm timeline for its Mondak plant.

Idemitsu Kosan restarts ethylene unit

Idemitsu Kosan Co. Ltd. has restarted operations at its Tokuyama petrochemical complex in Japan after an earthquake off the island of Kyushu resulted in the shutdown of all units at the facility on Mar. 14 (OGJ Online, Mar. 14, 2014).

Operations resumed at the complex's 623,000-tonnes/year ethylene unit on Mar. 23, with other units at the plant scheduled to continue to come on line in sequence, the company said.

But the company will not restart crude oil processing operations at the complex following the earthquake, including the refinery's 120,000-b/d crude unit and associated equipment, Idemitsu Kosan said.

The company said its decision to not resume Tokuyama's crude oil operations follows Idemitsu Kosan's previously announced plans to permanently shutter Tokuyama's crude unit on Mar. 31 (OGJ Online, Dec. 3, 2012).

TonenGeneral slashes capacity at Chiba refinery

TonenGeneral Sekiyu KK said it plans to cut crude oil processing capacity at its 175,000-b/d Chiba refinery at Keiyo, Japan, to comply with a 2010 ordinance enacted by Japan's Ministry of Economy, Trade, and Industry (METI) requiring Japanese refiners to raise their mandatory cracking-to-crude distillation capacity ratio to 13% or higher from 10% by March 2014 (OGJ Online, Dec. 3, 2012).

The company will slash crude processing capacity by the end of this month at subsidiary Kyokuto Petroleum Industries Ltd.'s Chiba refinery by 23,000 b/d to 152,000 b/d, according to TonenGeneral.

Earlier this month, TonenGeneral told investors it also would be decommissioning a 67,000-b/d crude distillation unit at the Kawasaki refinery as well as a 38,000-b/d CDU at its Wakayama refinery to comply with METI's ordinance (OGJ Online, Mar. 3, 2014).

TRANSPORTATIONQuick Takes

Lake Charles LNG partners file FERC application

Trunkline LNG Co. LLC and Trunkline LNG Export LLC, both wholly owned subsidiaries of Energy Transfer Equity LP and Energy Transfer Partners LP, have submitted an application with the US Federal Energy Regulatory Commission seeking its authorization for the siting, construction, ownership, and operation of the proposed Lake Charles LNG export project.

The FERC filing represents the culmination of significant front-end engineering and design (FEED) work and pre-filing consultations with FERC and other federal, state, and local agencies that have been under way since mid-2012, said BG Group, which will oversee the construction and operation of the proposed facility under a long-term agreement with Energy Transfer.

Pending final investment decisions and the receipt of all necessary approvals expected in 2015, construction is planned to start shortly afterwards, with first LNG exports expected in second-quarter 2019.

The US Department of Energy in August 2013 conditionally granted authorization to export as much as 2 bcfd of LNG from the existing Trunkline LNG import terminal to non-free trade agreement nations (OGJ Online, Aug. 8, 2013).

The proposed project will include the construction of three liquefaction trains and use the existing LNG storage and marine berthing facilities owned by Trunkline LNG Co. LLC. Energy Transfer has secured all property rights required for the site of the proposed liquefaction facility.

Energy Transfer will own and finance the proposed facility while BG Group will be responsible for the offtake. Trunkline Gas will provide pipeline transportation services to supply gas to the proposed facility.

Total, CNOOC sign LNG cooperation agreement

Total SA and China National Offshore Oil Corp. (CNOOC) have reached an LNG cooperation agreement that will expand upon the companies' existing 15-year contract in which Total has been supplying China with as much as 1 million tonnes/year of LNG since 2010.

The companies have agreed to a price review concerning the existing supply, set a framework for an additional LNG supply of 1 million tpy, and further cooperation throughout the LNG value chain.

Total already supplies more than 8% of the Chinese market, delivering 5 million tonnes of LNG during 2010-14. The company said it plans to respond to China's growing demand by taking advantage of additional supply sources in Australia, Russia, and the US, along with existing Middle East and African sources.

CNOOC is the third-largest LNG importer in the world with 13 million tonnes of LNG imported in 2013. CNOOC currently operates six LNG receiving terminals in Guangdong, Fujian, Zhejiang, Shanghai, and Tianjin, with additional terminals under construction.

KMEP to build Permian carbon dioxide pipeline

Kinder Morgan Energy Partners LP will build and operate a 213-mile, 16-in. OD pipeline to transport carbon dioxide from its St. Johns source field in Apache County, Ariz., to the KMEP-operated Cortez Pipeline in Torrance County, NM. The Lobos Pipeline will have an initial capacity of 300 MMcfd, supporting current and future enhanced oil recovery projects owned by KMEP and other operators in the Permian basin of West Texas and eastern New Mexico.

In addition the pipeline, KMEP plans to drill wells and build field gathering, treatment, and compression facilities at the St. Johns field. The company is targeting a third-quarter 2016 in-service date, pending regulatory approvals.

The $300 million Lobos Pipeline will follow existing utility rights-of-way wherever possible. KMEP will spend an additional $700 million preparing St. Johns.

KMEP bought the St. Johns dome CO2 and helium holdings from Enhanced Oil Resources Inc. in 2011 (OGJ Online, Nov. 17, 2011).