OGJ Newsletter

GENERAL INTEREST Quick Takes

IEA: Diesel tensions intensify as embargoes loom

The approaching EU embargoes on imports of Russian crude oil and petroleum products, as well as a ban on seaborne services, will add further pressure to the global oil balance, especially on the already tight diesel markets, the International Energy Agency (IEA) said in its November oil market report. The agency also noted that the proposed oil-price cap may help alleviate tensions, but myriad uncertainties and logistical problems remain.

Diesel prices and cracks (differential to crude oil price) soared to record levels in October 2022 and are now 70% and 425% above year-ago levels, respectively, while benchmark Brent crude prices are up just 11% over the same period. Distillate inventories are at multi-decade lows. French refinery strikes last month, and a looming embargo, pushed diesel prices in Rotterdam, Europe’s main trading hub, to more than $80/bbl above North Sea dated Brent at one point before easing somewhat. Diesel premiums in the US also surged ahead of the winter heating season in the Northeast.

“High diesel prices are fueling inflation, adding pressure on the global economy and world oil demand, which is now expected to contract by 240,000 b/d in fourth-quarter 2022. Demand is forecast to expand by 2.1 million b/d in 2022 before slowing to 1.6 million b/d [of expansion] next year. Growth will come from jet fuel and LPG-ethane for petrochemicals. But global diesel-gasoil growth is forecast to ease from 1.5 million b/d in 2021, to 400,000 b/d in 2022 before posting a small decline in 2023 under the weight of persistently high prices, a slowing economy and despite increased gas-to-oil switching,” IEA said.

“Diesel markets were already in deficit before Russia’s invasion of Ukraine due to the closure of 3.5 million b/d refinery distillation capacity since the start of the Covid-19 pandemic, resulting in a net decline of 1 million b/d. With the post-pandemic recovery in 2021, demand jumped for diesel and gasoil, the main engines of industrial activity and economic growth. Lower Chinese product exports also tightened the market, but a recent change in policy is making more diesel available. A net 2.7 million b/d of new distillation capacity is slated to come online globally from fourth-quarter 2022 to end-2023, which could offset lower exports from Russia following the embargo.”

By October 2022, EU countries had reduced Russian crude oil imports by 1.1 million b/d to 1.4 million b/d, and diesel flows by 50,000 b/d to 560,000 b/d. When the crude and product embargoes come into full force in December and February, respectively, an additional 1.1 million b/d of crude and 1 million b/d of diesel, naphtha, and fuel oil will have to be replaced.

Diamondback signs $1 billion-plus deal for Midland basin assets

Diamondback Energy Inc., Midland, Tex., has agreed to acquire all leasehold interest and related assets of Lario Permian LLC, a wholly owned subsidiary of Lario Oil & Gas Co., and certain associated sellers for a cash and stock exchange valued around $1.5 billion ($850 million cash, 4.18 million common shares).

The deal is a bolt-on to the company’s existing Martin County, Texas position, adding some 25,000 gross (15,000 net) acres (93% operated, average 86% working interest; 92% currently held by production) in the Northern Midland basin with estimated full year 2023 average production of about 18,000 b/d of oil (25,000 boe/d). Actual production based on 11 months of production is expected to be about 16,500 b/d of oil (23,000 boe/d).

Post close, for 2023 development, Diamondback expects to reduce the operated rig count on the assets to “one or less” from the current two. 

The acquired acreage includes 154 estimated gross (132 net) horizontal locations with an average lateral length of over 9,400 ft and includes 20 drilled-but-uncompleted wells. Primary targets are Middle Spraberry, Jo Mill, Lower Spraberry, Wolfcamp A, and Wolfcamp B formations. Diamondback envisions 28 gross upside locations in Wolfcamp D based on recent well results.

The deal is the second in Permian’s Midland basin for Diamondback in just over a month. Mid-October, the company noted a deal to acquire all leasehold interest and related assets of FireBird Energy LLC, Fort Worth, Tex., in another cash and stock deal valued over $1 billion to build scale in the basin.

Diamondback expects to close the deal with Lario on Jan. 31, 2023, subject to customary closing conditions and adjustments.

TotalEnergies, ConocoPhillips increase interests in Libya

TotalEnergies SE and ConocoPhillips Co. have completed joint acquisition of Hess Corp.’s interest in the Waha concessions in Libya, TotalEnergies and Hess said in separate releases Nov. 15.

The two companies will evenly split Hess’s 8.16% interest in the concession, adding to their existing 16.33% shares.

The concessions, in Sirte basin, contain 13 producing fields. Five large oil fields were discovered between 1958 and 1961 and production began in 1962. Following interruptions in recent years due to civil unrest, production resumed in 2017.

To support Waha development, TotalEnergies and Libya’s National Oil Corp. (NOC) are studying solar power to Waha production sites, TotalEnergies said. TotalEnergies, with partner Gecol, has finalized a location and commercial terms to launch a 500-megawatt peak solar plant project South of Misrata. The projects are expected to reduce gas flaring and increase Libya’s renewable electricity supply, the company said.

Waha Oil Co., wholly owned by NOC, serves as operator of the Waha concessions.

 Exploration & Development Quick Takes

bp lets contract for Cypre gas project offshore Trinidad and Tobago

bp Trinidad and Tobago (bpTT) bp has let a tieback contract to Subsea Integration Alliance, a non-incorporated strategic global alliance between Subsea7 and SLB subsidiary OneSubsea, for the Cypre gas development project offshore Trinidad and Tobago.

bpTT confirmed in September that it would proceed with project development, which will include seven wells and subsea trees tied back into bpTT’s existing Juniper platform via two new 14 km flexible flowlines. Drilling is due to begin in 2023 and first gas is expected in 2025.

Cypre gas field lies 78 km off the southeast coast of Trinidad within the East Mayaro block, in water depth of 80 m. At peak, the development is expected to deliver average gas production of 250-300 MMscfd. Production from Cypre will go towards satisfying bpTT’s existing gas supply commitments.

Subsea7’s scope covers concept and design, engineering, procurement, construction, and installation of a two-phase liquid natural gas tieback to the Juniper platform through dual flexible flowlines and a manifold gathering system, along with topside upgrades. OneSubsea will deliver subsea production systems.

Design, engineering, and project management will commence immediately at Subsea7’s offices in the USA, with offshore installation planned for 2024.

The contract’s shared revenue is between $150 million and $300 million, the service provider said in a release Nov. 18.

Cypre is 100% owned by bpTT, which is owned by BP (70%) and Repsol (30%).

Wintershall Dea submits PDO for Maria Phase 2 development

Wintershall Dea and partners submitted an updated plan for development and operation (PDO) to the Norwegian Ministry of Petroleum and Energy for second phase development of Maria field in the Norwegian Sea. This project is expected to add 22 MMboe to total field reserves and extend the field life to 2040.

The $400-million Maria Phase 2 project involves installation of a new six-slot template in the southern part of the field. The template will accommodate two producing wells and one water injector for pressure support. The three spare slots will be available for future development of the field.

Maria field, on Haltenbanken 200 km off the coast of Norway and 25 km east of Kristin field, was discovered in 2010. The original PDO was approved in 2015, and production began in 2017.

The field is developed as a subsea tie-back with two templates. There are five producers and two water injectors on the field. Gas for gas lift is supplied from Åsgard B via Tyrihans field. Water injection is supplied from Heidrun. Production goes to the Kristin platform. Processed oil is sent to Åsgard field for storage and export. Gas is exported via the Åsgard transport system to Kårstø.

Wintershall Dea is operator of Maria field (50%) with partners Petoro AS (30%) and Sval Energi AS (20%).

Bass Oil discovers coal-gas play in South Australia

Bass Oil Ltd. identified a significant prospective gas resource in Cooper basin, South Australia.

Gas from deep coals, lying below 2,500 m, represent a new play in the basin and potential new material source of gas for the domestic market. The company has identified 21 tcf gas-in-place potential in PEL 182 at the basin along with 845 million bbl condensate-oil.

Gas is known to exist in the Permian-aged coals of the Toolachee, Epsilon, and Patchawarra formations and has flowed at potentially commercial rates after fracture stimulation and when comingled with conventional gas produced from sandstones. Bass will conduct further studies to identify the best commercialization strategies.

Bass is operator at PEL 182 (100%).

 Drilling & Production Quick Takes

CNOOC starts production from Jinzhou 31-1 gas field

CNOOC Ltd. has started production from the Jinzhou 31-1 gas field development project.

Jinzhou 31-1 gas field lies in Liaodong Bay of Bohai Sea, with an average water depth of about 30 m. Main production infrastructure includes a subsea production system, a submarine transportation pipeline, and an umbilical cable.

The field will utilize existing processing infrastructure of Jinzhou 25-1 south platform and apply the first shallow-water Christmas tree independently developed in China. The project is expected to reach peak production of about 14.8 MMcfd of natural gas in 2023.

CNOOC Ltd. is operator of the field with 100% interest.

ExxonMobil Canada lets drilling contract for Hercules semisubmersible

ExxonMobil Canada Ltd. has let a drilling contract to SFL Corporation Ltd. for the Odfjell Drilling sixth-generation semisubmersible Hercules drillship for a harsh environment drilling program offshore eastern Canada.

The contract is expected to start second-quarter 2023 and has a firm duration of about 135 days, with an extension option for about 60 days.

Odfjell Drilling agreed with SFL in May 2022 to provide marketing and management services for Hercules. This contract is the first to be signed since entering the agreement with SFL.

OKEA reduces 2023 production outlook on Nova report

OKEA ASA has reduced its production outlook for 2023 to 22,000-25,000 boe/d from 25,000-27,000 due to issues with water injectors on Wintershall Dea Norge-operated Nova field, in which OKEA holds 6% interest.

Wintershall notified OKEA that the issues may impact production from the field until end-2023, the company said in a release Nov. 16.

Total volume production guidance for 2022 is unchanged at 15,900-17,200 boe/d including compensation volumes as production from assets acquired from Wintershall Dea earlier this year were excluded from the 2022 guidance.

There is no indication that the issues will impact recoverable reserves from the field, which are estimated at 90 MMboe, of which the majority will be oil, the company said.

Nova—which began production in August—lies in the Norwegian North Sea in license 418, about 120 km northwest of Bergen and 17 km southwest of Gjøa in 370 m of water. It consists of two subsea templates, one with three oil producers and one with three water injectors, tied back to the Neptune Energy-operated Gjøa platform. The host platform provides gas lift and water injection to the field and receives Nova hydrocarbons (OGJ Online, Aug 1, 2022).

Wintershall Dea is operator of the field with 39% interest. Partners are Sval Energi AS (45%), and Pandion Energy Norge (10%), and OKEA (6%).

 PROCESSING Quick Takes

CPChem, QatarEnergy take FID for USGC petrochemical complex

Chevron Phillips Chemical Co. LLC (CPChem)—a joint venture of Chevron Corp. and Phillips 66—and QatarEnergy have reached positive final investment decision (FID) to move forward with construction of the partners’ previously delayed grassroots petrochemical complex along the Texas Gulf Coast in Orange, Tex., about 113 miles east of Houston (OGJ Online, July 15, 2019).

To be named Golden Triangle Polymers Co. LLC—a newly formed joint-venture partnership of CPChem (51%) and QatarEnergy (49%)—the proposed $8.5-billion integrated polymers complex will include a 2.08-million tonne/year (tpy) ethylene cracker and two 1-million tpy high-density polyethylene (HDPE) units for production of proprietary Marlex polyethylene pellets for sale primarily to manufacturers in the Asia Pacific, Europe, and Latin America, the partners said upon announcing FID on Nov. 16.

Targeting 25% lower greenhouse gas (GHG) emissions than similar US and European plants in support of CPChem and QatarEnergies’ commitments to enabling a reduced-carbon future, the complex comes as part of the companies’ aim of meeting increased global demand for polymers, as well as the next phase of QatarEnergies’ downstream growth strategy, which includes major investments in ethylene, ethylene derivatives, and general polymers, said Saad Sherida Al-Kaabi, QatarEnergy’s president and chief executive officer.

Scheduled for immediate start of construction, the Golden Triangle Polymers complex is slated for commissioning in 2026, the companies said.

Earlier this year, CPChem and QatarEnergy confirmed they also are moving forward with a previously announced plan to jointly build and operate the proposed Ras Laffan petrochemical project (RLPP) in Ras Laffan Industrial City, Qatar. The RLPP, too, will feature a 2.08-million tpy ethane cracker and two HDPE units.

CPChem and QatarEnergy already serve as JV partners in Ras Laffan Olefins Co. and Qatar Chemical Co. Ltd., which respectively operate petrochemical production complexes in Ras Laffan and Mesaieed, Qatar.

Acting as manager of engineering, procurement, and construction (EPC) activities on behalf of the Golden Triangle Polymers JV, CPChem—which also will operate the complex upon startup—confirmed awarding the following contracts for the project:

• ZDJV—a joint venture of Zachry Industrial Inc. and DL USA Inc.—will deliver EPC on the two HDPE units.
• T.EN Stone & Weber Process Technology will provide engineering and procurement for the furnace portion of the ethane cracker.
• PCL Industrial Construction will provide construction-related services for the ethane cracker furnace.
• JKJV—a joint venture of JGC America and Kiewit Energy Group—will deliver EPC on additional but unspecified sections of the ethane cracker.
• BMZ Third Coast Partners—a joint venture of Burns & McDonnell Engineering Co. Inc. and Zachry Group—will execute works related to utilities and infrastructure at the complex.

Emerson Process Management will serve as the project’s main automation contractor.

W.T. Byler Co. Inc. will manage heavy civil work for the entire site and deliver EPC for the project’s planned rail and storage-in-transit yard.

Petrobras ends Regap refinery-deal talks with no sale

Petróleo Brasileiro SA (Petrobras) closed the process for the sale of Gabriel Passos refinery (REGAP) at Betim, Minas Gerais, Brazil, and will evaluate when to start a new process after receiving a binding proposal that was below the operator’s economic and financial evaluation, the company said in a release Nov. 17.

Details about who made the offer were not disclosed.

The company had initiated the binding phase related to the sale of the 166,000-b/d REGAP refinery and associated logistical assets in December 2019.

Assets associated with the Regap refinery—which makes up 7% of Brazil’s total refining capacity—include over 720 km of pipelines, according to the operator.

Iron Horse Midstream to expand natural gas processing plant in Oklahoma

Iron Horse Midstream, Dallas, Tex., plans to construct a new, 200 MMcfd natural gas cryogenic processing plant on its existing 120-acre complex in Grady County, Oklahoma, in the SCOOP/STACK/Merge play in Anadarko basin.

The plant, which is expected to be operational in late 2023, will increase Iron Horse’s total natural gas processing capacity in the region to 425 MMcfd, with the capability for further expansion as driven by customer needs, the company said in a release Nov. 16.

Iron Horse Midstream’s existing natural gas gathering and processing asset, includes about 300 miles of high- and low-pressure natural gas gathering pipelines, multiple compressor stations, and the 225 MMcfd Iron Horse cryogenic gas processing plant.

 TRANSPORTATION Quick Takes

Nord Stream explosions “gross sabotage”

Swedish investigators have confirmed that the Sept. 28, 2022, explosions at the Nord Stream 1 and 2 pipelines were “gross sabotage.” The Swedish Prosecution Authority’s (SPA) conclusion followed what were described as “extensive seizures” from and “careful documentation” of the Baltic Sea site at which the detonations occurred.

SPA said that traces of explosives were present on “several” of the recovered objects and that its investigation would now focus on determining whether a responsible party can be identified.

Earlier this month, initial data gathered by Nord Stream AG revealed technogenic craters with a depth of 3-5 m on the seabed about 248 m apart from each other. The section of the pipe between the craters was destroyed, with fragments dispersed at least 250 m from the blast site. Analysis of the survey data continues.

Nord Stream 1 and 2 run roughly parallel to one another crossing the Baltic Sea from the Russian coast to Greifswald, Germany. Each has a design capacity of 55 billion cu m/year.

QatarEnergy to sell Sinopec 4 million tpy of LNG for 27 years

QatarEnergy has agreed to sell China Petroleum & Chemical Corp. (Sinopec) 4 million tonnes/year (tpy) of LNG for 27 years. The contracted LNG will be supplied from QatarEnergy’s North Field East (NFE) expansion project and will be delivered to Sinopec terminals in China.

The two companies signed a 10-year agreement in March 2021 for the supply of 2 million tpy to China.

QatarEnergy describes the deal as the first long-term LNG offtake agreement from the NFE expansion project. The company has formed eight international partnerships for the North Field East and North Field South (NFS) projects, expected to come online in 2026 and 2027, respectively (OGJ Online, Oct. 31, 2022).

QatarEnergy has also concluded construction contracts and long-term time charter agreements for 60 LNG carriers and says it expects that number to grow to almost 100.

Williams, Sempra implement Haynesville infrastructure development plan

Williams Cos. and Sempra Infrastructure have entered a non-binding heads of agreement (HoA) under which 500 MMcfd of natural gas will be sold on a delivered basis to a receipt point near Gillis, La., and 3 million tonnes/year (tpy) of LNG will be lifted in aggregate under separate offtake agreements from Sempra’s proposed 6.75-million tpy Cameron LNG Phase 2 and 13-million tpy Port Arthur LNG liquefaction projects. The companies described the HOA as establishing “the elements of an integrated platform” to connect Haynesville shale production to Gulf Coast and global natural gas markets.

Sempra and Williams plan to form a strategic joint venture to own, expand, and operate the 2.35-bcfd Cameron Interstate pipeline to deliver gas to Cameron LNG Phase 2 in Hackberry, La. Additional pipelines expected to be owned by the joint venture include the 2-bcfd Louisiana Connector pipeline to supply Port Arthur LNG in Port Arthur, Tex.

Louisiana Connector will use 72 miles of 42-in. OD pipe and a compressor station in Beauregard Parish, La. The US Federal Energy Regulatory Commission approved the pipeline in April 2019 and approved an extended timeline for implementation 3 years later (OGJ Online, Apr. 8, 2022).

These proposed transactions are intended to complement Williams’ recently sanctioned Louisiana Energy Gateway (LEG) 1.8-bcfd Haynesville gathering project, expected to go into service late 2024. LEG will use “real-time emissions monitoring and emissions reduction strategies,” according to Williams and also may incorporate carbon capture and storage (OGJ Online, June 29, 2022).