June 2009 Archives

Sinopec's acquisition of Addax Petroleum has provided a major boost for exploration activities in the Joint Development Zone, offshore Nigeria and Sao Tome and Principe, where so far results have been disappointing.

Efforts to speed up exploration in Block 2 came as state-owned Sinopec sought to clinch a C$8 billion takeover of Addax Petroleum Ltd., one of its partners in the JDZ.

Earlier this month, Royal Dutch Shell agreed to a $15.5 million settlement to resolve a lawsuit alleging that the company and its Nigerian subsidiary were complicit in human rights abuses against the Ogoni people who were protesting the environmental devastation of its lands from oil development, and the execution of poet and protest leader Ken Saro-Wiwa and other activists in 1995 by the regime of General Sani Abacha.

Shell agreed to settle the 1996 law suit shortly after a trial date was set in May. Shell has always maintained its innocence, and the agreement required no acknowledgment of wrongdoing. However, without a trial the truth about the allegations or Shell's protestations of innocence will never be fully settled.

Development of the promising Bakken Shale formation is reshuffling the deck for US states with bragging rights on oil production, boosting North Dakota now into the top tier of oilpatch jurisdictions.

Thanks to the Bakken, North Dakota, has drilled past New Mexico, Wyoming and the venerable Oklahoma to claim fifth place among US oil producing states with average daily output of 202,000 b/d, according to EIA data at the end of last year, before activity slowed for the latest recession.

Since the early 1980s, the US has imposed a tariff on imported ethanol, but recent dynamics may call into question the need to maintain one at all. Brazilian imports to the US have dried up in recent months.

For March, total US imports of fuel ethanol were 78,000 barrels, following 51,000 barrels in February, according the latest available Energy Information Administration data on the topic. To be clear, those figures are monthly totals, not barrel/day stats. So, in a grand scheme with a US Renewable Fuel Standard calling for 11.1 billion gallons of renewable transportation fuels in the mix this year, Brazilian imports have fallen to nearly zilch.

Calling all oil companies! Wanna be able to rent a drilling rig for free?

One of the most underreported E&P stories of recent months is the apparent discovery at the Blackbeard West well in the geologically deep Gulf of Mexico Continental Shelf, made by a tiny operator which has probed depths its mammoth predecessor failed to attain.

Oil prices have risen from $33.20/barrel on January 15, to all the way up to the 2009-high of $73.23/b about six months later on June 11. As oil prices continue to rise, price expectations continue to increase.

"Boone Pickens told a standing room audience he expected prices to rise to $85 per barrel by year's end," Philip Verleger said in his widely-read weekly analysis, 'Notes at the Margin.' "OPEC ministers also see higher prices, as does Goldman Sachs. Pessimists are few and far between."

The latest Platts' survey on Chinese demand, put together by our Hong Kong bureau chief Winnie Lee, is the most bullish change in the supply/demand balance that has appeared in several months.

With things such as the dollar and the (now-stalled) rise in the equities market given much of the credit for the increase in the price of oil in recent months, there wasn't a tremendous amount of data to support the idea that the market had undergone a fundamental change that would call for rising prices. But the reports out of China would constitute that sort of news.

ENI Paolo Scaroni pulled together a group of New York-based reporters Wednesday to push the Italian company's proposal that both consumers and producers find a way to form a new entity that could eliminate some of the wildest, widest swings in the price of oil.

It was a proposal first rolled out by ENI in Rome before a May meeting of the energy ministers of the Group of Eight. At the gathering in New York, Scaroni suggested a price range he saw representing solid equilibrium: somewhere "$70, $80, maybe $90....not higher than that."

There was not a great deal new in the report on climate change released Tuesday by the White House. This is not surprising since the report, "Global Climate Change Impact in the United States," drew on a large body of available scientific information, and a set of previously released assessment reports from government agencies released by the US Global Change Research Program.

What is unique is that the report was presented on a White House stage (well, next door at the Eisenhower Executive Office Building), to ensure maximum press coverage -- in sharp contrast to the way many of the previous reports were quietly slipped out the back door by the Bush administration. (Early in its tenure, the Bush administration's climate reports were also vetted by a former oil industry lobbyist with no scientific training who, according to a House panel, systematically weakened the governmen's conclusions on global warming).

Ethanol production has depressed national wholesale gasoline prices in the US by 14 cents/gal and US refinery profit margins by $1.33/bbl over the period of January 1995 to March 2008, according to work by economics researchers at Iowa State University.

Those figures correspond to an 8% reduction in the case of gasoline prices, and a 10.6% reduction for refinery margins.

This is not going to be a steady "dump on Bernie Sanders" blog, though this is the second time in days that we have written about him. But a second proposal that the senator from Vermont made this week, if looked at through the prism of something written this week by one of the better market analysts out there, brings home how crazy it is for government to try to control markets by fiat.

To sell or not to sell? That seems to be the $64,000 question lately.

Six months ago the market looked like it wanted to find any sort of bearish sentiment to sell on. Not quite the case anymore.

"Instead of losing momentum the market seems to [be] gaining steam leading to one of the hardest questions a trader has to ask," Alaron energy analyst Phil Flynn said in his daily energy report. "We are seeing more bullish signs such as a dollar that continues to slip into oblivion. (The dollar has fallen as much as 1,129 points since March 4) No signs of fiscal responsibility in Washington and no exit strategy from the Fed on its policy of printing money."

When Interior Secretary Ken Salazar announced in February that he was canceling oil and gas leases for 77 parcels in Utah that were auctioned in December 2008 by the Bush administration, the American Petroleum Institute went into full crisis mode.

"We hope," API President Jack Gerard said at the time, that the decision "does not signal the [Obama] administration is returning to the failed policies of the past, leaving much of America's vast energy resources locked up."

Vermont Senator Bernard Sanders, an independent who votes with the Democrats, introduced legislation this week that would require a somewhat vague category of "traders" to disclose their inventories held in floating storage. There are many specifics that appear unanswered in the bill, but floating storage certainly is a vital part of the overall inventory picture, and adding it to the weekly Energy Information Agency report makes some sense.

What doesn't make any sense is the senator's rationale for doing this. Sen. Sanders, or more likely his staff, need a lesson in inventory economics and the forward curve.

Earlier this year, Luc Bouchard, the Roman Catholic bishop of St. Paul in Alberta, Canada, issued a pastoral letter in which he wrote that the environmental threat posed by the proposed future development of oil sands "constitutes a serious moral problem."

A recent report from the Council on Foreign Relations doesn't address the morality of oil sands development. It concludes that greenhouse gas emissions related to development will pose no climate threat. (Bishop Bouchard addressed a much wider range of environmental concerns, including climate change). However, neither will expanded development be the energy security godsend that its advocates claim. The report, written by Michael Levi, a senior fellow at the Council, concludes that oil sands are "neither critical to US energy security nor catastrophic for climate change."

We recently reported in this space and in Platts Oilgram News about the heightened interest in the hydrocarbon resources of the Arctic that are becoming potentially more accessible with the retreat of the of the polar ice under the assault of global warming.

It's been assumed that a great deal of oil and natural gas is beneath floor of the Arctic Ocean. The first-ever comprehensive resource assessment, undertaken by the US Geological Survey, suggests that's a reasonable assumption. The USGS concluded that about 30% of the world's undiscovered gas and 13% of undiscovered oil may be found in the area north of the Arctic Circle, mostly offshore under less than 500 meters of water.

It's probably wise to lower expectations about how much the Obama administration can bring to the table at UN negotiations on an agreement to succeed the Kyoto Climate Change Treaty.

Expectations were raised with the departure of the Bush administration which opposed mandatory controls on US greenhouse gas emissions and stiff-armed the UN process. The Obama administration supports GHG emissions controls and has fully embraced UN efforts to reach a post-Kyoto agreement. But it will be a challenge for the Obama administration to be ready with a fully developed and politically supported proposal by December, the UN's self-imposed deadline for reaching a deal in Copenhagen.

With the market for distillates such as diesel and jet back to their normal place in petroleum economics -- below the price of gasoline -- it was sobering to hear a speech last week in Malta, at Axelrod Energy Partners' World Fuel Oil Summit.

Carlos Cuervo, senior vice president for supply and trading at World Fuel Services, addressed the issue of what would happen to the bunker market in the coming years, as International Maritime Organization regulations on sulfur in bunker fuel begins to take hold.