OGJ Newsletter

July 16, 2018
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Trump: NS2 gas line would give Russia ‘control’

The proposed Nord Stream 2 natural gas pipeline would leave Germany “totally controlled by Russia,” US President Donald Trump warned during a July 11 breakfast with European leaders at the North Atlantic Treaty Organization summit in Brussels.

“You tell me if that’s appropriate, because I think it’s not. It’s a very bad thing for NATO, and I don’t think it should have happened. I think we have to talk to Germany about it,” he said in remarks captured by ABC News.

Critics challenged Trump’s assertion that the proposed pipeline, which would extend beneath the Baltic Sea alongside one which is operating already, would leave Germany importing 60-70% of its energy from Russia. But his statement confirmed that his administration does not want to see heavy reliance on Russian gas grow further in some parts of Europe.

Sandra Oudkirk, deputy assistant secretary for energy diplomacy at the US Department of State, previously confirmed that the Trump administration has received several requests to sanction the proposed Gazprom-sponsored 746-mile pipeline (OGJ Online, June 26, 2018).

“But we believe there are still significant tools within the [European Union] which can be used and should be considered,” she continued. “I think people ask for US sanctions because they think Nord Stream 2 is a done deal. It’s not. There are still levers available to the EU.”

Trump met with German Chancellor Angela Merkel soon after his breakfast statement on July 11, but the two leaders did not mention Nord Stream 2 during a joint appearance with reporters afterward.

API warns of denying steel import tariff exemption

The Trump administration’s latest decision to deny exemptions from tariffs on imported steel used in domestic oil and gas operations could undermine domestic energy production and jobs, the American Petroleum Institute warned on July 13.

“Further, the administration’s arbitrary process to determine these exclusions lacks transparency as it’s not clear how and why certain exclusion petitions are granted or denied,” API Vice-Pres. for Regulatory and Economic Policy Kyle Isakower said.

“What is clear, though, is that implementation of tariffs on imported steel undermines domestic energy production and the future of our nation’s energy infrastructure which is critical to bringing American energy to market. Further, increasing the costs of American energy production will hurt America’s national security,” he maintained.

Global gas flaring declined in 2017, data show

Flaring of gas at crude-oil production sites worldwide went down in 2017 despite a 0.5% increase in production, the World Bank’s Global Gas Flaring Reduction Partnership reported. The nearly 5% year-to-year decline began to reverse years of increases that began in 2010, it said.

Satellite measurements by GGFR showed that flaring globally totaled a rounded 140.6 billion cu m (bcm) last year, 4.7% less than 2016’s 147.6 bcm. The 2017 amount was the lowest total since 2013’s 139.6 bcm.

Russia flared the largest single amount, 19.9 bcm, in 2017, 2.5% less than the 22.4 bcm which was measured there a year earlier and equal to the amount measured in 2013. Iraq came in second last year at 17.8 bcm, followed by Iran at 17.7 bcm, the US at 9.5 bcm, and Algeria at 8.8 bcm.

“The latest global gas flaring data are encouraging, but we will have to wait a few more years to know whether it represents a much-needed turning point,” said Riccardo Puliti, a World Bank senior director who heads its energy and extractives global practice. “Ending routine gas flaring is a key component of our climate change mitigation agenda, and the global flaring reduction Initiative we launched just 3 years ago now has 77 endorsers, covering about 60% of the total gas flared around the world,” he indicated.

The US National Oceanic and Atmospheric Administration and GGFR have developed the flaring estimates in cooperation with the University of Colorado, based on observations from advanced sensors in a satellite launched in 2012, the World Bank organization comprised of governments, oil companies, and international institutions said.

US House passage of worker ID credential bill cheered

The American Fuel & Petrochemical Manufacturers Association welcomed the US House of Representatives’ unanimous approval of legislation that would delay implementation of a US Department of Homeland Security requirement for use of biometric identification card readers for transportation workers at high-risk domestic ports.

H.R. 5729, which Rep. John Katko (R-NY) introduced on May 9, would defer implementation of a requirement developed following the Sept. 11, 2001, terrorist attacks that Transportation Worker Identification Card (TWIC) readers be used at such facilities until a congressional study of its effectiveness can be completed.

Industries have awaited guidance from DHS regarding the TWIC “reader rule” as the Aug. 23 deadline for compliance approaches, Katko said following the House’s July 11 action.

“Delaying the implementation of the TWIC reader rule until completion of a congressionally required assessment of the program will provide the much-needed certainty to AFPM member facilities working to comply with the rule and ensure these sites are as secure as possible,” AFPM said in its statement. It urged the US Senate to move quickly and pass the bill.

Exploration & DevelopmentQuick Takes

BOEM announces Gulf of Mexico lease sale

The US Bureau of Ocean Energy Management plans an Aug. 15 oil and gas lease sale in the Gulf of Mexico. The sale will include all available unleased areas in federal waters, which is about 78 million acres offshore Texas, Louisiana, Mississippi, Alabama, and Florida.

Lease Sale 251 will include 14,622 blocks 3-231 miles offshore across all three of the gulf’s planning areas. The blocks are in 9-11,115 ft of water.

This will be the third sale in BOEM’s Outer Continental Shelf 2017-22 program, which plans a total of 10 sales.

BOEM estimates the upcoming sale contains about 48 billion bbl of undiscovered technically recoverable oil and 141 tcf of undiscovered technically recoverable gas.

Report: Myanmar plans offshore tender round

Myanmar will invite tenders for open offshore blocks by the end of the year, according to Daw Khin Htay, director of state-owned Myanmar Oil & Gas (MOGE).

She told a July 13 press conference the Ministry of Electricity and Energy, of which MOGE is a department, will invite tenders for 13 offshore areas not currently under license, according to a Myanmar Times report.

A block map on the ministry website shows 12 open offshore blocks and 38 offshore areas under license.

In a change from past practice, oil and gas companies from outside Myanmar will be encouraged but not required to form joint ventures with local companies, the director said.

Myanmar’s last tender round was in 2011.

Savannah logs third Niger oil discovery

Results of Savannah Petroleum PLC’s third indicated oil discovery in the productive Agadem Rift basin of Niger support plans for an early production system, says Chief Executive Officer Andrew Knott.

Savannah is exercising a drilling contract option for a fourth exploration well after logging 9 m of net oil-bearing sandstone in its Kunama-1 well in the R3 part of its R3/R4 production sharing contract area.

Pay is in the E1 and E5 reservoir units of the primary Eocene Sokor Alternances objective. Wireline logs indicated good reservoir quality.

Oil appears to be light, equivalent to oil sampled in the second exploratory well, Amdigh-1 (OGJ Online, June 6, 2018).

The Great Wall Drilling Co. Niger SARL GW 215 rig drilled the Kunama well, which is northeast of both the Amdigh-1 and initial discovery well, Bushiya-1, to 2,460 m TMD.

Savannah, of London, has suspended the wells for extended production testing later in the year.

The rig will drill the Eridal-1 well between the Amdigh and Kunama wells, targeting Sokor Alternances and Upper Sokor.

Savannah has options for five more wells.

API: Quarterly exploratory gas well completions surge

The American Petroleum Institute released its quarterly well completion report for this year’s second quarter showing a 265% increase in estimated exploratory gas well completions compared with second-quarter 2017.

“Today’s report shows the continued growth and strength of US energy production,” said API Chief Economist Dean Foreman. “Right now, the US production is supplying substantially all the growth in oil demand throughout the world. For this growth and dominance to continue, our energy infrastructure must keep pace with production especially in areas like the Permian basin in Texas and the Bakken in North Dakota that have experienced major growth in natural gas and oil production.”

Cuadrilla drills second shale-gas well

Private Cuadrilla has drilled what it says is the UK’s second horizontal shale-gas well on its prospect at Preston New Road, Lancashire, UK. The well penetrated the Carboniferous Upper Bowland shale at about 2,100 m with a 750-m lateral.

Cuadrilla drilled its first horizontal well in April. That well penetrated the Lower Bowland shale at deeper than 2,300 m and extended laterally about 800 m.

The company, based in Bamber Bridge, Lancashire, awaits government approval to hydraulically fracture the wells.

It plans initial flow tests of about 6 months for both wells.

Cuadrilla said it based locations on data from a vertical pilot well it drilled to deeper than 2,700 m last year to test the target shales.

Drilling & ProductionQuick Takes

ESAI: Russian crude ready to expand above 500,000 b/d

Russian oil producers are ready and willing to expand output beyond the 200,000 b/d implicit in Russia’s recent agreement to relax production limits, according to ESAI Energy.

Between new projects and mature fields where producers have made cuts to cap production, Russian producers have more than 500,000 b/d of spare capacity.

According to ESAI Energy’s CIS Watch, there are nine projects that alone have 360,000 b/d of spare capacity. These nine projects span East Siberian fields operated by Rosneft, West Arctic fields being developed by Gazprom Neft and Lukoil’s Caspian fields, among others.

For example, the third of the Vankor cluster’s fields, Tagulskoe, is now ramping up output, Rosneft has the option of raising output there. Meanwhile, Rosneft and Slavneft are preparing to ramp up production at the neighboring Yurubcheno-Tokhoskoe and Kuyumba fields, for which a special pipeline has been built to connect this new supply to the ESPO Pipeline.

In addition to spare capacity added by new projects, a comparison of current and recent production rates at selected mature fields reveals at least another 160,000 b/d of spare capacity. This means a potential increase of more than 500,000 b/d.

“In some cases, producers are already ramping up production, creating the momentum for higher production that was already evident in June, when there was a 96,000 b/d month-on-month increase in output,” said ESAI Energy Principal Andrew Reed. “In response to production losses and uncertainty in other key countries, the Arab Gulf will not be the only region to provide more crude when and if Iranian exports fall.”

Global decommissioning to cost $32 billion

Wood Mackenzie Ltd. estimates $32 billion will be spent on decommissioning worldwide during 2018-22. Governments determine who pays for decommissioning, and decommissioning laws and regulations remain incomplete or untested in many countries.

The various decommissioning approaches were outlined in the report, authored by Ross Millan, director of global fiscal research, and Graham Kellas, senior vice-president of global fiscal research.

Decommissioning is most mature in the US Gulf of Mexico where an average of more than 100 platforms/year have been removed since about 1985.

“The maturity of the North Sea was brought into sharp focus by the latest oil price drop,” the report said. “The UK accounted for 16% of the estimated 472 fields that ceased production in 2013-17. It will spend almost $30 billion on decommissioning in the next 10 years because its upstream business is almost entirely located offshore.”

WoodMac forecast another 700 fields worldwide could cease production during the next 5 years depending upon oil prices.

Governments having high tax rates or profit share in production-sharing contracts effectively can be liable for most of the decommissioning expenses if costs are fully deductible.

Norwegian oil strike set to expand

A strike by workers in Norway’s offshore oil and gas industry was set to expand July 16 when labor unions and ship owners said they planned no talks to settle a dispute over wages and pension benefits (OGJ Online, July 11, 2018).

So far, the only production affected by the labor action is from Knarr oil field, where workers suspended operation of a floating production, storage, and offloading vessel.

According to Reuters, the unions were preparing to idle more workers, most of them on drilling rigs.

Transocean announces rig contracts

ConocoPhillips has let a 13-well contract to Transocean Ltd. for the Transocean 712 semisubmersible drilling rig in the UK North Sea. Separately, Chevron Corp. signed an 11-well contract for Transocean’s GSF Development Driller I ultradeepwater semisubmersible drilling rig for work offshore Australia.

The ConocoPhillips’ contract for the midwater Transocean 712 is expected to begin in March 2019 and run about 580 days. The contract includes a one-well option.

Chevron’s contract for the GSF Development Driller I is expected to start in the first half 2019 and run about 955 days. The contract includes four single-well options, Transocean said.

Egyptian appraisal tests 30.4 MMscfd of gas

The SDX Energy Inc. SD-4X appraisal well in Egypt flowed as much as 30.4 MMscfd during an 8-hr clean-up and showed no pressure decline when shut in for 8 hr.

It then flowed at averages of 5.4 MMscfd and 8.6 MMscfd on various-sized chokes during successive 12-hr tests.

The well flowed 10.5 MMscfd during a 24-hr test.

The operator, based in London, is appraising its Ibn Yunus 1-X discovery on the South Disouq concession north of Cairo (OGJ Online, May 18, 2018).

PROCESSINGQuick Takes

SOCAR Polymer commissions polypropylene plant

SOCAR Polymer LLC, a subsidiary of state-owned State Oil Co. of Azerbaijan Republic (SOCAR), started up the country’s first polypropylene (PP) plant in the Sumgait Chemical Industrial Park (SCIP), about 30 km north of Baku (OGJ Online, Oct. 26, 2015; Apr. 7, 2015).

The 180,000-tonne/year PP plant, which officially opened on July 18, will enable Azerbaijan to produce technological polymers with reduced environmental impacts to help diversify Azeri economy as well as attract foreign investments in high-tech sectors, said Maire Tecnimont SPA, Milan, whose subsidiaries Tecnimont SPA and KT-Kinetics Technology SPA delivered engineering, procurement, and construction services for the project.

Tecnimont and KT-Kinetics Technology also are currently completing a 120,000-tpy high-density polyethylene (PE) plant at SCIP for SOCAR Polymer that will be equipped with Ineos Technologies Ltd.’s proprietary Innovene S slurry technology for production of mono and bimodal high-density PE (OGJ Online, Feb. 5, 2016). Maire Tecnimont estimated overall value of the PP and PE projects at about $500 million.

Official startup of the PP plant follows introduction of propylene feedstock from SOCAR subsidiary Azerikimya Production Union’s Sumgait naphtha steam cracking plant into the new production line on May 20, SOCAR Polymer said.

Marathon renews, expands hydrogen-supply contract

Marathon Petroleum Corp. has renewed and expanded a long-term contract with Praxair Inc., Danbury, Conn., for supply of hydrogen to Marathon’s 571,000-b/d Galveston Bay refinery in Texas City, Tex.

The newly renewed and expanded contract entails long-term delivery of reliable hydrogen supplies to support production of clean fuels at the refinery, to which Praxair has been supplying industrial gases since 1985, the service provider said.

Marathon’s Galveston Bay refinery recently reached substantial engineering completion for the Tier 3 gasoline sulfur standard reconfiguration project at the site that, upon completion in 2019, will enable the refinery to achieve updated US Environmental Protection Agency Tier 3 gasoline sulfur standards by 2020 and provide cleaner fuel to US markets (OGJ Online, June 20, 2018).

Blue Mountain starts up Merge-SCOOP-STACK gas plant

Blue Mountain Midstream LLC, a subsidiary of Houston-based Linn Energy Inc., has commissioned its Chisholm Trail III cryogenic gas plant in the heart of the liquids-rich Merge-SCOOP-STACK play in central Oklahoma (OGJ Online, July 14, 2017).

Located near Tuttle, Okla., on Blue Mountain’s 80-acre site in Grady County, the nameplate 250-MMcfd plant along with 62,000 hp of compression and 108 miles of gathering pipe entered service at the end of this year’s second quarter, Linn Energy said.

Currently processing more than 100 MMcfd, the Chisholm Trail plant will be capable of processing up to initial-capacity level of 150 MMcfd in the coming weeks to meet producer demands, with the full 250 MMcfd to become available by fourth-quarter 2018 after installation of an additional 25,000 hp of compression, the operator said.

In response to rising throughput forecasts for the area, including existing producer commitments and anticipated production growth from Roan Resources LLC and other regional upstream producers, Blue Mountain is evaluating another expansion of the Chisholm Trail system that would include addition of a second 250-MMcfd train to increase total processing capacity at the site to 500 MMcfd by late 2019.

Future expansion plans also could entail 55,000 hp of new compression, more than 130 miles of high and low-pressure gathering line extensions, and additional delivery interconnects in operation by yearend 2020, the company said.

Supported by a dedicated acreage position of more than 80,000 net acres under long-term contracts with natural gas producers in central Oklahoma, the Chisholm Trail system currently includes interconnections into the Southern Star Central, Enable Gas Transmission, and Oneok Gas Transportation gas pipelines, with Oneok Hydrocarbon also providing NGL transportation from the site.

TRANSPORTATIONQuick Takes

EPP to build crude export terminal off Texas

Enterprise Products Partners LP (EPP) plans to develop a crude oil export terminal off the Texas Gulf Coast. The terminal would be capable of fully loading very large crude carriers with capacities of about 2 million bbl. EPP has started front-end engineering and design and preparing applications for permitting.

Based on initial designs, the project could include roughly 80 miles of 42-in. OD pipeline to an offshore terminal capable of loading and exporting crude oil at about 85,000 bbl/hr.

EPP on July 17 completed the second partial loading of a VLCC at its jointly owned (with Enbridge Inc.) Seaway marine terminal in Texas City. The EagleVictoria loaded 1.1 million bbl of crude at the terminal, with the balance loaded offshore in a lightering zone. EPP loaded a similar amount of crude June 22-24 onto the FPMC C Melody, chartered by Vitol Inc.

The Texas City terminal features two docks, a 45-ft draft, an overall length of 1,125 ft, a 220-ft beam, and can load crude at a rate of 35,000 bbl/hr.

EPP said it’s crude oil supply aggregation capabilities of more than 4 million b/d—from the Permian basin, Cushing hub, Eagle Ford shale, and numerous third-party connections—provide it with “unmatched diversification, supply, and quality optionality for international markets.”

Total closes acquisition of Engie’s LNG business

Total SA has closed on its acquisition of LNG assets from Engie SA for an overall value of $1.5 billion with possible further payments of $550 million if oil markets improve in the coming years. The deal includes interests in liquefaction plants, long-term LNG sales and purchase agreements, an LNG tanker fleet, and access to regasification capacities.

Total is acquiring 2.5 million tonnes/year (tpy) of liquefaction capacity with 16.6% interest in the Cameron LNG liquefaction plant in Louisiana—where three trains are currently under construction and expected to enter service in 2019 and two more can be added—as well as 5% stake in the first train of the Idku LNG project in Egypt.

The deal will give Total a liquefaction portfolio of 23 million tpy by 2020, with interests in the Middle East, Australia, Russia, and the US. It will also have a worldwide LNG trading portfolio of 28 million tpy and European regasification capacity of 18 million tpy. Total’s 2020 fleet will include 16 LNG carriers and two floating storage and regasification units, one to be stationed off Ivory Coast and the other off Myanmar.

Combining its overall interests in liquefaction plants and portfolio of third-party supply contracts, Total will manage 40 million tpy of global LNG volume by 2020, making it “the second-largest global player among the majors with a worldwide market share of 10%,” commented Patrick Pouyanne, Total chairman and chief executive officer.