Archive for 'March 2011'

    Statoil halts North Sea oil projects

    March 31, 2011 5:08 PM by Eric Watkins
    The recent boost in UK taxes on oil and gas companies continues to rankle, with reports now saying that leading producers are reconsidering their activities in the North Sea. The latest report comes from the UK’s Daily Telegraph newspaper which says that one of the world's biggest oil companies, Norway's Statoil, has halted work on two North Sea projects because of the huge tax hit. It comes after smaller companies such as Valiant Petroleum warned that they are re-evaluating new projects, since Chancellor of the Exchequer George Osborne increased tax by 12% to more than 62%. There have also been reports that oil majors have withdrawn plans to sell billions of pounds in North Sea fields nearing the end of their lives, leading to fears they will be abandoned with oil still in the ground. Statoil, the Norwegian state-run company, said on Mar. 30 that it will "pause and reflect" on the future of its Mariner and Bressay fields to the south east of Shetland. Statoil was meant to start producing from the fields from around 2017, with the two holding an estimated 640 million bbl of oil. "The proposed tax change has significant impact on the project economics of Mariner,” Statoil said. “We have to pause and reflect to evaluate what impact this will have and consider how to proceed after this,” Statoil said. “This is a project about to be developed. With this tax increase, there is a substantial impact," Statoil said. All of this comes after the head of the UK’s Officie for Budget responsibility said that the added tax on North Sea oil and gas producers would have “no significant effect.” "We're assuming that there's no significant effect on the investment and production profile," Chote told members of parliament on the Treasury Committee. Graham Parker, also of the OBR, said the watchdog had concluded that the move was "very much a profits tax" and that companies would still press ahead with plans, given the high oil price. George Osborne, defending his policy to the select committee, argued that with oil prices high it is still "very profitable to invest to exploit these resources". Uh huh. Tell that to the investors. Contact Eric Watkins at hippalus@yahoo.com

    Saudi Aramco seeks more JV's inChina

    March 24, 2011 2:20 PM by Eric Watkins
    Saudi Aramco president and chief executive officer Khalid Al-Falih said his firm is seeking additional opportunities to invest in China to expand on its joint ventures and strengthen relations with the world’s biggest energy consumer.

    “We continue to pursue prospects for other future investments in China,” said Al-Falih in a speech following his firm’s agreement last week to jointly develop two refineries together with Chinese partners.

    “The model of integrated investments which extend across the value chain has proven to be a success in our Fujian joint venture,” said Al-Falih, adding that “Saudi Aramco is looking to replicate the right ingredients for similar profitable JV opportunities in China.”

    Production began 18 months ago at the Fujian Integrated Refining and Ethylene Joint Venture Project, whose partners include Fujian Petrochemical Co Ltd, 50%, ExxonMobil China Petroleum and Petrochemical Co Ltd 25% and Saudi Aramco Sino Co Ltd, 25%, (OGJ Online, Nov. 11, 2009).

    Aramco Overseas Co. BV and PetroChina Co. Ltd. signed a memorandum of understanding for joint development of a 200,000-b/d grassroots refinery in Yunnan Province, which will process Arabian crude oil supplied by Aramco, and yield products including ultralow-sulfur gasoline and diesel meeting Chinese specifications (OGJ, Mar. 23, 2010).

    In addition, Saudi Aramco and China Petrochemical Corp (Sinopec) signed a Memorandum of Understanding related to the ongoing development of the Red Sea Refining Co (RSRC), a world-class, full-conversion refinery at Yanbu, on the west coast of Saudi Arabia.

    Saudi Aramco and Sinopec have agreed to initially subscribe to equity interests of 62.5% (Saudi Aramco) and 37.5% (Sinopec) in RSRC should they proceed to formally participate in a joint venture.

    Al-Falih told listeners that oil satisfies nearly 20% of China’s energy needs, and accounts for virtually all the energy used in transportation and petrochemicals.

    “Therefore, oil will remain a significant part of China’s energy mix,” said Al-Falih, who cited China’s National Development and Reform Council that the country’s oil demand will approach 12 million b/d by the end of 2020, up 33% from the current 9 million b/d.

    Al-Falih took exception to analysts who like to single out the impact of China’s demand on world oil markets, saying that “increased Chinese demand offsets declining consumption in the OECD nations.”

    More to the point, he said that increased Chinese demand “is essential to encouraging necessary investment in exploration as well as oil production, refining and transportation capacity, which ultimately benefits all petroleum consumers.”

    “Our relationship is founded on the provision of steadily growing volumes of crude oil—currently about 1 million b/d, making Saudi Aramco China’s largest and most reliable supplier,” said Al-Falih.

    In a passing reference to current problems in North Africa, Al-Falih noted that Saudi Arabia “has been and will continue to be a calming influence in global oil markets—particularly in times of market turbulence, when it can tap its substantial spare capacity to make up supply shortfalls elsewhere.”

    “Since I come to you from Saudi Arabia, an island of calm amid the turmoil sweeping the Middle East and North Africa, I can tell you that much of that turbulence is grounded in economic factors and a lack of opportunity, especially among young people,” Al-Falih said.

    Contact Eric Watkins at hippalus@yahoo.com

    It's time to regulate the oil speculators...

    March 14, 2011 4:07 PM by Eric Watkins
    Oil speculators get the jab this week from John Sfakianakis, chief economist at the Banque Saudi Fransi and Noé van Hulst, secretary-general of the International Energy Forum. That’s the jab, not the job.

    Writing in the Saudi Arabia-based Arab News, Sfakianakis and van Hulst note that since political turmoil started in the region less than two months ago, oil prices have increased by more than $20/bbl.

    “If sustained over several months,” they say, “this may drive up inflation and threaten global economic recovery efforts.”

    In their view, the dominant sentiment in the oil market is “the fear that political turmoil will spread to major oil-producing countries in the region, with the risk of substantial loss of oil supply.”

    The two writers acknowledge that more needs to be done to improve matters in the global oil market.

    They say, for example, that there is a need for more transparency and better oversight to reduce excessive price volatility which helps much needed investment in future capacity expansion.

    But they also take issue with what they call “the paper oil market.”

    Regarding the paper oil market, they say, regulators like CFTC, FSA and the EC are currently developing concrete regulation to increase transparency in and oversight of trading in oil derivatives including the still opaque OTC market.

    Sfakianakis and van Hulst acknowledge that the paper oil market does play a useful role where it helps airlines, e.g., to hedge their fuel price risks.

    “But where it is used as a channel of massive speculative momentum trading and causing violent over- and undershooting of oil prices, this should be reined in by position limits,” they argue.

    “Regulators should also seek ways to expose institutions that make wild price predictions while simultaneously taking market positions,” they say, adding that “analysts should be more self-restrained in making panic calls of ‘spiking’ oil prices as self-fulfilling prophecies.”

    Finally, it is important to ensure that current regulation under way will be internationally coordinated in order to avoid regulatory loopholes.

    “In reality,” they say, “the Middle East has been a reliable supplier of oil for many decades and its future share in global oil supply is set to increase.”

    Longer term, it will always be in the interest of the region's governments to sell oil and use the revenues to provide a young and growing population with education, jobs, and higher standards of living.

    As a final point, Sfakianakis and van Hulst say it is necessary to acknowledge significant differences within the region, drawing attention to the fact that “Saudi Arabia's global systemic role as the largest oil producing country is now evidenced.”

    In the view of Sfakianakis and van Hulst, speculators need to understand such differences between countries in the region.

    Instead, they say, many are taking advantage of markets’ “ill information, lack of differentiation and broad statements that do not provide stability for the global economic recovery.”

    Contact Eric Watkins at hippalus@yahoo.com

    Who dines with the Devil...

    March 9, 2011 1:15 PM by Eric Watkins
    It was bound to happen sooner or later. The blame game, that is. With war now raging in the deserts of North Africa, the question arises as to who is to blame for bringing Libya’s leader Moammar Gadhafi in from the cold.

    In this week’s Newsweek, Christopher Dickey lays blame at the feet of current and former US, UK and Italian leaders who, he alleges, were blinded by their desire for oil, among other things, into rehabilitating the Libyan leader.

    “The tale is a sordid one,” says Dickey. “But let’s at least begin in relatively pleasant surroundings, among the leather armchairs of the Travellers Club in London.”

    The Travellers Club, for those who don’t know it, is located on Pall Mall right next door to the Reform Club – the setting for Jules Verne’s wonderful fiction, Around the World in Eighty Days.

    Anyway, its there in The Travellers Club, Dickey claims, that Libya’s “urbane, white-haired spymaster, Musa Kusa, met with representatives of the British and American intelligence services in December 2003.”

    According to Dickey, “Their purpose was to hammer out a deal to bring Kusa’s boss, Moammar Gadhafi, in from the cold.” And, at the heart of the deal, he says, was oil.

    “It was a deal none of them could resist,” says Dickey. “Libya’s oilfields would be fully opened up to the West, and US and European banks and corporations could resume tapping the country’s revenue stream.”

    Dickey continues: “Big oil prospered. The American firm Occidental wound up with more acreage than any other corporation in Libya, but the big winners were BP and the Italian national oil company ENI. Italy buys some 80% of Libya’s petroleum.”

    We all get Dickey’s drift...

    All, that is, all except Peter Mandelson. A cabinet member in the UK government under Prime Minister Tony Blair, Mandelson has launched a spirited defense of that government’s ties to Libya.

    Mandelson’s remarks were directly largely at people like the UK’s current Prime Minister David Cameron who recently tried to score political points by criticizing the Labour Party’s “dodgy deals with dictators in the desert.”

    But Mandelson may just as well have been directing his comments towards Dickey.

    Writing in the Financial Times, Mandelson said the “denunciation” of those involved with Moammar Gadhafi’s regime has been taken to “ridiculous lengths.”

    He went on to warn that the “stigmatizing of every business leader, academic, politician and public servant” linked with Libya will only serve to harm British interests.

    Mandelson said Tony Blair had been right to do business in Libya, and he added that the attacks on those who had been involved with the Gadhafi regime could backfire.

    “If, as a result of this pressure, British businesses in future shy away from international investment for fear of risking similar opprobrium, Britain’s relative decline in the global economy can only worsen.”

    To be sure, Mandelson did admit that, “There are lessons to be learnt.”

    Those lessons, however, “are not on the principle of bringing people like Gadhafi in from the cold, but the degree of warmth we appear to show them afterwards, before they start to reform their domestic ways and methods.”

    Well said.

    And while we’re at it, we might also point out that critics like Dickey and Cameron fail to understand what most oil and gas companies operating around the world have to understand as a matter of survival: that extracting oil and gas requires more than technical know-how.

    Sometimes it also means doing business with people whose ethics are, to say the least, more than a little suspect. That’s why we have the expression, “Who dines with the Devil must sup with a long spoon.”

    If we don’t want those deals done, though, we do have an alternative: we can all stop using oil and gas right now.

    Will you be first in line, Mr Dickey?

    Contact Eric Watkins at hippalus@yahoo.com
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