June 2011 Archives

If "news" is something that someone, somewhere, does not want to see in print, then an article questioning the commercial basis of US shale gas production was certainly news.

The June 26 edition of The New York Times -- which more or less said that shale gas was an Enronesque accounting tool--drove Chesapeake into a frenzy

The claims were mostly familiar -- Platts has been covering the issues for quite some years -- and they will have struck a chord on the other side of the Atlantic as well.

What a nice way to put it. A US energy regulator, talking about forward capacity markets for power in regional transmission organizations: "I think it's fair to say that our capacity markets are still in their toddler stage -- some would say in the terrible twos -- and we still have a lot to work out."

This is Cheryl LaFleur of the Federal Energy Regulatory Commission, speaking in Hershey, Pennsylvania, to the organization of utility regulators from Mid-Atlantic states.

This week's US Energy Information Administration report contained a couple of bullish surprises. Not only did US crude stocks tumble 4.375 million barrels, but gasoline stocks fell 1.428 million barrels, the EIA data showed, as imports for both commodities slipped. 

You can see Linda Rafield's analysis here.

Now that the May special election is history, the way seems clear for the West Virginia Legislature to set policy on how the state will regulate its rapidly developing Marcellus Gas play.

What constitutes having gas? If you want to build a pipeline, this is obviously one of the most crucial questions to ask. But it's not usually asked in quite that form.

The point is that it is worth considering what constitutes availability. In theory, of course, there's lots of gas that can be made available for a pipeline, as the rival stories of efforts to develop the South Stream and Southern Corridor pipelines to Europe show.

The Barrel recently discussed the possibility that the unique characteristics of Eagle Ford crude may mean its most profitable home is outside US refineries. 

But ongoing developments in Texas could result in the US becoming an exporter of light sweet crudes as early as the second half of 2012.

The hours will probably be long, the work is likely to be heavily scrutinized, criticized and, possibly, challenged in court, and the pay is, comparatively, bad.

But résumés have been pouring in to the US Commodity Futures Trading Commission as the agency moves to nearly triple its staffing levels from levels under the Bush administration.

Recently, The Financial Times' Energy Source website wrote a piece about Shell's new Floating LNG technology. It talked about how FLNG was just one more piece in a possible natural gas revolution, and how Shell was investing significant sums in the project.

One problem: the piece on the web didn't tell you where it was. It's the Prelude LNG project, and if you want to know all about it, Platts' Christine Forster in Australia has written about it extensively. You can read all about it here and here. 

A few thoughts on this week's IEA decision to release strategic oil stocks around the world:

Since the 112th Congress convened in January, more than 20 bills and amendments to repeal, delay and even speed up financial reform efforts have been introduced. But how many of them have a legitimate shot at becoming law?

Here's a guide to the proposed legislation that could have the biggest reach in energy trading, how they might impact the new rules being developed Dodd-Frank Wall Street Reform and Consumer Protection Act, and some very unofficial odds on whether they'll ever get signed by President Obama.

Worldwide tightening of bunker specifications was by far the most widely discussed topic at Platts 8th Annual Bunker and Residual Fuel Oil Conference in Houston this week. (Internally, we call this event BOTB...the bottom of the barrel.)

As background, the new International Maritime Organization regulations, effective July 1 of this year Emission Control Areas in Europe ships operating in those waters can burn no higher sulfur than 1%,down from 1.5%S. Those areas affected are the Baltic Sea, North Sea and the English Channel.

The North American ECA is slated to move sulfur fuel levels in most of North America to 1% sulfur from 3.5%-4.5% beginning August 2012, within 230 miles of a port. California has already implemented a 24-mile ECA zone of 1% sulfur.

At the end of last week, the InterContinental Exchange confirmed what many in the industry had long expected: there's a change coming to its preeminent ICE gasoil contract.

While virtually all accept that Europe's drive to eradicate sulfur from its oil products has claimed another scalp, the precise nature of the change and what exactly will come next remains a topic of some debate.

In this month's Platts' analysis of Chinese oil demand, our calculations put together by Singapore editor Calvin Lee show that May demand slipped a bit relative to April. It also was another month where annual growth was less than double digits.

There's been a great deal of speculation in all markets about a great Chinese slowdown coming. These numbers give a hint that it might be slower, but at more than 8% annual growth in Chinese oil demand, the economy is hardly grinding to a halt.

You can read our analysis here.

Could last year's Deepwater Horizon disaster have been anticipated months in advance?

That's a central question being asked by the US Chemical Safety and Hazard Investigation Board, one of the several groups investigating last year's blowout and oil spill in the Gulf of Mexico that killed 11 workers.

Whatever it is the market is going to call the product coming out of the new Pearl Gas-to-Liquids project in Qatar, it may prove to be the energy market's ultimate arbitrage play.

Reporting this week by Platts staff members Tim Worledge, Jonty Rushforth and Hengtky H this week, just days after Shell commissioned Pearl, shows just how many different prices and market trends are going to buffet the output from Pearl--by far the world's largest commercial GTL project--and determine where it's going to end up.

The Pakistan Economic Survey crowed this month that it had more natural gas vehicles in  use--2.5 million--than any other country in the world as a result of the government's policy to move away from petroleum-based fuels.

In an age of extreme safety-consciousness following the Macondo oil spill in the Gulf of Mexico, minimizing hazards is a top industry priority.

Accordingly, the International Association of Drilling Contractors' World Drilling 2011 conference prominently featured a segment on its first day of the two-day annual gathering on what it called "human-free drilling": automation of as many routine drilling tasks as possible.

It wasn't the EIA statistics that sent oil into a freefall today -- there are lots of other issues that drove that decline, a stronger dollar among them -- but there were some bearish factors in this week's report: weaker demand and a continuing rise in total product stocks. You can read Linda Rafield's analysis of the numbers here.

The power of eminent domain to site transmission lines isn't going to be make-or-break in the 2012 US presidential race. It could play a tiny role in the always-critical New Hampshire primary, though, where a power line is a big issue right now. Since CNN's Monday night Republican candidate debate was in that state, the subject did come up for two mystifying minutes.

It showed that if Ron Paul and Mitt Romney were New Hampshire lawmakers, they would probably have voted for a bill (though one can't be sure) that would block a big new transmission line proposed to run through the state from Quebec to Massachusetts. But mainly it reminded us how empty and frustrating candidate Q&A sessions can be.

The double whammy of the loss of Libyan crude and the demands of the second half of the year are posing two big hurdles for OPEC's stated aim of supplying the market with the oil it needs. Throw in the organization's split, evidenced last week in Vienna, and it's an even more challenging time for the organization.

For now, here's Platts estimate on how much the group produced in May. If it's going to be a 30 million b/d world in the second half of the year, there's work to be done.

Jeff Sprecher, CEO and President of IntercontinentalExchange, rarely turns down a chance to talk up the advantages ICE's Brent crude oil contract has over the NYMEX WTI crude oil contract, the prized energy contract of ICE rival CME Group.

That seemed to be his message Friday during a presentation at the Global Exchange and Brokerage conference in New York, where a parade of CEOs from 13 separate exchanges got the chance to tout their trading volume growth and surging revenues to shareholders.

In this week's Platts Oilgram News Petrodollars column, Beth Evans discusses the hot new money flowing into second-generation biofuels, though profits don't exist yet and may not be imminent.

"We are not in crisis," said OPEC secretary general Abdalla el Badri after the oil producer group's June 8 Vienna meeting broke up in disarray and Saudi Arabia said it and its fellow Gulf producers would open the taps to provide as much oil as world oil markets might need.

Badri was, in fact, referring to the world oil market which he said had adequate supply and ample stocks.

The US could resume exporting some of its domestic crude oil production in 2012 when the output from Eagle Ford Shale in Texas ramps up.

Eagle Ford shale crude's gravity ranges from 42 API to 60 API with very low sulfur content, which in the US Gulf Coast refining terminology is considered a super light crude.

But that's the problem for US refiners: they aren't built to process that type of crude. So the highest value for it may be outside the country.

Here is the deal about Joe Kennedy. He has been carrying around the weight of being the oldest son of Bobby Kennedy ever since his father was slain by an assassin in Los Angeles on June 6, 1968. That was 43 years ago. 

Joe, now 59, has been doing what he does for a long time: starting energy-related businesses that operate in a non-traditional way in order to allow him to donate money to the poor.  Kennedy's has been a career of causes, so to speak, that have melded into a legend all his own. And, he firmly believes he owes no explanation to anyone.

Journalists covering OPEC meetings tend to listen particularly closely to each and every utterance made by Ali Naimi, the oil minister of Saudi Arabia. If, at the start of an OPEC meeting, he talks about world oil markets being in balance, we interpret this as an indication that the cartel's most powerful oil producer doesn't see a need for extra crude.

The Saudi minister likes to take an early morning walk and occasionally talks about his view of the oil market and oil prices, so journalists put on their walking shoes too. But today's walk, following Naimi's arrival in Vienna yesterday, produced no public insights into Saudi thinking ahead of Wednesday's key meeting. He wasn't in a talkative mood.

There's a funny scene in the 1983 Chevy Chase movie Vacation, where the irrepressible ex-"Saturday Night Live" star, as the beleaguered Clark Griswold, is driving his family from Chicago to a prominent southern California amusement park while taking (willingly or unwillingly) the scenic route.

It can't feel good to be Potomac Electric Power today. It's the second full day of a Pepco hot-weather outage in Washington that has shut down not only a few local DC government departments but also the Federal Energy Regulatory Commission. Oww.

For years natural gas and renewables were billed as the perfect energy parters. Variable renewable resources like solar and wind power, according to conventional wisdom, could be balanced by baseload gas supplies, which would produce half the CO2 emissions of other conventional fossil fuels.

What's more, many renewables supporters viewed natural gas as a so-called bridge technology that would sustain electricity and heat supplies for several decades as renewables steadily increased their shares in the world's energy mix.

Yet recent events show that these seemingly ideal teammates today are working less hand in hand and more fist to fist.

(As this story has unfolded, we've added a bit of analysis. You can see it below in italics.)

The CFTC this week did something big. Very big.

You can skip this part if you are already aware of the case of CFTC vs. Parnon Energy Inc., Arcadia Petroleum Ltd., Arcadia Energy Suisse SA, Nicholas J. Wildgoose and James T. Dyer. If not, the background is that the CFTC charged those entities this week with manipulation -- its term -- of the WTI market back in the first half of 2008, when prices were on their way to the all-time WTI high of $147. It's complicated, but the complaint filed in the US District Court for the Southern District of New York says the trading companies and traders loaded up on physical oil at the NYMEX delivery point of Cushing, Oklahoma, took positions in month-to-month spreads further down the curve, and dumped physical oil on pipeline scheduling day -- the 25th of the month, or the last business day closest to it -- to affect those month-to-month spreads. The charge is that they did it twice, in January and March 2008, were thwarted by credit issues from doing it in February 2008, and called it off in April 2008 when the CFTC came knocking. Alleged profits: $50 million, offset by $15 million in losses in other part of the trading program.

So...(with contributions from Platts staff members Jeff Mower, Alison Ciaccio, Brian Scheid, Matthew Cook and Linda Rafield.)

Japanese Prime Minister Naoto Kan's request May 6 to Chubu Electric to shut all operations at its sole Hamaoka nuclear power plant is causing waves of aftershocks at multiple levels, at the prospect of further worsening power shortages across the country.

Kan's request, which was the first of its kind and not legally binding, was made in the belief that the Hamaoka nuclear plant may not be sufficiently earthquake- and tsunami-proof and a forecast of an 87% probability that an earthquake of magnitude 8 will likely strike near the plant in the next 30 years.