REPOST: Drilling in the dark

Who will have the permit to explore the bulk of Myanmar's offshore oil and gas reserves? This Economist.com article has the details.

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AFTER a long wait, and several delays, Myanmar’s government will soon announce which companies have won the right to explore the bulk of its offshore oil and gas reserves. The outcome of the bidding for the 19 deep- and 11 shallow-water blocks is one of the most eagerly awaited events in the hydrocarbons industry. The competition attracted almost all the global giants, including Total, Shell, Statoil and Chevron. The winners expect to explore some of the most promising waters left in Asia, and possibly the world.

Just how promising, however, is a subject of intense speculation, and not a little guesswork. Because of the long-running economic sanctions against Myanmar, introduced in the mid-1990s and only relaxed two years ago, almost no work has been done to determine the capacity of the country’s oil and gas fields, so estimates vary widely. The proven energy reserves are modest: 50m barrels of oil and 283 billion cubic metres of natural gas, the latter worth about $75 billion at today’s prices.

It is the unofficial estimates that have lured the Shells and Chevrons. Myanmar Oil and Gas Enterprise, which is state-owned, has put the reserves at 226m barrels of oil and 457 billion cubic metres of gas. Foreign oilmen agree that this could well be true. Those figures would put the Myanmar fields on a par with Britain’s North Sea before it was exploited, or Brazil’s reserves now. They might even underestimate the bounty.

Even by the uncertain standards of the oil industry, therefore, the winners of the bidding process will be drilling in the dark. The way that the contracts are being structured reflects that. Companies awarded deepwater blocks will initially have two years to study and survey them, after which they can walk away if they find nothing worth exploiting. If they think they have found oil or gas, they then have a further three-year exploration period, followed by another three years to start production. The timescale is slightly shorter for the more-manageable shallow-water blocks. Either way, Myanmar is unlikely to see any oil or gas from the offshore fields for at least seven or eight years.

The exact terms of the production-sharing contracts between the government and the winning companies will only be thrashed out after the blocks are awarded, another source of uncertainty. The impecunious and previously reclusive government, anxious to make the most of a possible windfall, is likely to drive a hard bargain. It will probably try to secure 80-85% of total revenues for itself, which is high by international standards. Since only about one-third of Myanmar’s citizens have access to electricity from the mains, the government is also demanding that the country’s domestic needs be met first. Its top priority is to provide fuel for new gas-fired power stations.

All this is not unreasonable. However, there are grounds for worry about the integrity of people involved in the bidding process who are in the government and close to it. The bidding—and its outcome—is being viewed as a test of the quasi-military regime’s commitment to political and economic reform. Is it really turning its back on the crony capitalism of the past, from which the generals profited so handsomely? Outside experts oversaw last year’s auction of mobile-telecoms licences, which was hailed as a model of openness and fairness. The bidding process for the oil and gas licenses, by contrast, is not facing such scrutiny. The risk is that decision-making will be as murky as the depths where Myanmar’s reserves lie.

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REPOST: US surprises market with sale from SPR

Oil prices hit their lowest levels after the news of the test sale of Strategic Petroleum Reserve (SPR) broke out. Is this why the government's holding off the test sale? Read about it from this article.

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The US will hold the first test sale of crude from its emergency oil stockpile - Strategic Petroleum Reserve (SPR) – since 1990, offering a modest 5 million barrels in what some observers saw as a subtle message to Russia from the Obama administration.

The Energy Department said the test sale had been planned for months, timed to meet demand from refiners coming out of annual maintenance cycles. But oil traders noted that Russia’s effort to take over the Crimea region from Ukraine has prompted calls for use of booming US energy resources to relieve dependence on Russian natural gas by Europe and Ukraine.

 

Oil prices dipped to their lowest levels in a month after news of the test sale.

Officials said the release would ensure that oil stored in vast salt caverns could still reach local refiners affected by recent changes in pipeline infrastructure.

“Due to the recent dramatic increase in domestic crude oil production, significant changes in the system have occurred,” department spokesman Bill Gibbons said. The test sale was needed to “appropriately assess the system’s capabilities in the event of a disruption,” he added.

Surging US shale oil production has upended the logistics of US crude markets. Major pipelines that traditionally moved oil from the Gulf to the Midwest have reversed course, moving a glut of shale oil from places like North Dakota to points south.

Analysts say President Barack Obama has been more willing than his predecessors to tap the strategic reserve, noting that he did so in 2011 as part of an international response to civil war in Libya. While that 2011 sale was an emergency release, the Energy Department has said the latest sale is a test of the reserve’s operations. Many questioned whether the US SPR was large enough to send a meaningful political message to Russia, especially since US law still bans most exports of US crude oil. The SPR holds enough oil to cover US crude oil imports for about 80 days.

“It could be a message from Obama that says, ‘Russia, we can impact the price of oil if we want to.’ But I think that’s giving the administration too much credit at this stage,” said Dominick Chirichella, senior partner at Energy Management Institute in New York. Republican lawmakers concerned about Crimea have stepped up calls for the administration to approve natural gas exports more quickly to pressure Moscow. But a dearth of US terminals to export liquefied natural gas (LNG) means significant exports are years away, limiting the immediate use of gas as a geopolitical tool.

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REPOST: Despite Shale, Middle East Remains Key to Oil Demand

Oil production in Middle East is still vital in meeting the demands in Asia. Know more about this news from this Rigzone.com article.

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The U.S. shale revolution has helped reshape the global energy market, but Middle Eastern oil will remain vital for meeting future Asian energy demand, Fatih Birol, chief economist for the International Energy Agency (IEA), told attendees Feb. 21 at an event at Rice University in Houston.

The significant growth that has occurred in recent years in U.S. unconventional oil production surpassed initial estimates by the IEA, which initially forecast that the United States would overtake Saudi Arabia as the world’s largest oil producer in 2017. This shift is now expected to occur next year, according IEA’s 2013 World Energy Outlook.

Despite this growth, Middle East oil will still be needed to meet global oil demand in Asia, said Birol, adding that the IEA’s findings have been misinterpreted.

“This message could have unintended consequences for global oil markets if it continues,” Birol commented.

These consequences include waning investment in Middle East oil development, which will be needed to meet future demand.

The surge in unconventional oil could enable the United States to wean itself off Middle East oil imports or imports altogether while meeting U.S. oil demand.

However, “there is a whole world outside the United States in terms of consumption needs,” Birol commented. “We need to understand that the world beyond the United States will need reasonably priced oil. If we keep sending the wrong signal, we may not have as much oil as we’ll need.”

U.S. shale oil production is expected to keep rising until the 2020s, but will then plateau. A slowdown in production is expected to occur in the following decade. In order to meet global oil demand growth, oil from the Middle East as well as new sources such as Brazil, Canada and Russia, will be needed to satisfy Asia oil demand, Birol said.

Image Source: rigzone.com

SHALE, NUCLEAR POLICIES REWRITING ENERGY PLAY

The shale revolution, changes in nuclear energy policies in a number of countries following Japan’s Fukushima disaster, and specific pricing policies that give advantages or disadvantages to renewables and fossil fuels, are reshaping long-held tenets of the energy sector.

The roles and identities of actors in the global energy sector theater are also changing, with countries such as the United States and Brazil emerging as potential energy exporters. At the same time, some countries that have historically acted as energy exporters are seeing domestic energy demand rising at home, to the point that they are impacting the global energy market as well consumers as well as exporters. Over the past four to five years, consumption of not only oil but other fuels in the Middle East ranked only second behind China, Birol noted.

Trade patterns also are changing for countries such as Canada. In the past, Canadian oil and gas was imported to the United States, but the U.S. shale gas and oil boom has cut into Canadian imports. The Canadian government, in its search for a new market for its resources, has made a huge turn towards Asian countries. Over the past 24 months, Canadian government officials have made a number of visits to Asia.

Russia is also eying Asia as it seeks a new destination for its oil and gas as its previously loyal client Europe looks for new energy resources.

“Countries that can read the changes in trade patterns will be able to position themselves at an advantage,” said Birol.

China, India and the Middle East will also create much of the new demand for oil compared with Organisation of Economic and Cooperative Development (OECD) countries. Oil demand growth will primarily occur in transportation, including personal cars and freight, and the petrochemical industries of these nations, Birol said. IEA forecasts Asian trucks will comprise one-third of global oil demand, due to the anticipated growth in diesel and gasoline demand in Asian countries.

“This is an important signal for the oil companies and refineries,” Birol noted.

Asia and non-OECD countries will play the main actors driving future energy demand growth, while OECD member countries such as the United States, Canada, Europe and Japan will have a negligible role in future demand growth.

IEA successfully forecast the role that China would play in new energy demand growth. However, India may overtake China in this role in the 2020s. Birol attributes this future shift to China’s major focuses on energy efficiency and rebalancing its economy from heavy to light industry, as well the significant slowdown in China’s population growth.

Middle Eastern countries’ consumption of oil will growth in less than 20 years’ time from 6.6 million barrels of oil per day (MMbopd) to 10 MMbopd, or the same level as current Chinese oil consumption. Electric power demand in the region also will grow, with the amount of electric power capacity and transmission and distribution lines on par with capacity in Japan and Korea, Birol noted.

US SHALE REDEFINES ECONOMIC COMPETITIVENESS

The U.S. shale revolution has defined the economic competitiveness of the United States, Europe and other countries in terms of energy-intensive industries. Prior to the shale revolution, global gas prices were more or less on par with each. Today, European gas prices are three times higher than the United States, and Asian gas prices are five times higher than that of the United States.

“We believe the price differential may narrow a bit, but it will remain with us for some years to go,” Birol said.

IEA also forecasts a wide differential to remain between gas and electricity prices for some time.

Lower gas prices mean that energy-intensive industries that are sensitive to higher prices such as petrochemical and iron in the United States have a competitive advantage over countries with higher gas prices. The U.S. and emerging countries will emerge as winners in the new market, while Europe and Japan will be among the losers.

This cost difference between the United States and its economic competitors will remain for some time, and Birol believes this difference could give a strong boost to the United States economy in 2015 through a renaissance of manufacturing and balance of trade.

The United States and other countries should use this time wisely to see how much they can make out of this opportunity.

“Competitiveness is a life and death” problem in Europe, said Birol, noting that not one speech in recent time by a European leader has not touched on competitiveness.

While Europe’s competitiveness has been hurt by the price differential between U.S. and European gas prices, Birol said liquefaction, transportation and regasification costs to bring U.S. gas to other markets makes it impossible that the world will see one gas price anytime soon.

“We may see some increase in U.S. gas prices and some decline in Europe, but the difference will remain for years to come,” Birol noted.

Oil prices will likely continue to trade at the $100 benchmark, barring a major economic downturn in certain parts of world.

Changes that Birol would like to see include a reduction in CO2 emissions, the continued rise of which has put the world on an unsustainable path. With more than two-thirds of emissions that lead to climate change coming from the energy sector, Birol noted that this a trend that needs to change. In many countries – particularly emerging economies in the Middle East and Asia – the consumption of fossil fuels is heavily subsidized.

Birol also would like to see the 1.3 billion people that currently have no access to electricity – mainly in sub-Saharan Africa – to be connected to the world’s electric grid. No electricity means no refrigerators or other electrical appliances commonly found in the homes of developed countries. Given current policies, however, over 1 billion people will still not have access to electric power over the next two decades. 

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REPOST: California fracking foes see drought as new weapon in heated battle

Fracking opponents came up with a new argument to stop the development of massive state oil reserves. Read more from this article:

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SAN FRANCISCO, Feb 10 (Reuters) - California fracking opponents aiming to stop development of massive state oil reserves are focusing their drive this year around the state's record-breaking drought, arguing oil production would suck sorely needed water from farms and homes.

California assemblyman Marc Levine told Reuters last week that he will co-author an upcoming bill that would place a moratorium on hydraulic fracturing in the state, and said he will use the drought, which could be the state's worst ever, to bolster his position.

"The drought is a game changer on fracking," Levine said. "We have to decide what our most precious commodity is - water or oil? This is the year to make the case that it's water."

A moratorium bill failed last year on a vote of 37 to 24, although another bill requiring greater disclosure on fracking, including water use, passed.

State Senator Holly Mitchell, Levine's co-sponsor on the bill, is not planning to focus on the drought, but environmentalists already are capitalizing on it, picketing Governor Jerry Brown at events including his announcement of the drought.

"Fracking uses water we just can't spare," said Dan Jacobson, legislative director for environmental lobby group Environment California.

Fracking has created an energy boom in the U.S. and has the potential to drastically increase oil production in California Monterey Shale deposit, which federal officials have estimated holds up to 15 billion gallons of oil, more than most estimates for Alaska's Arctic National Wildlife Refuge and twice the reserves of North Dakota's Bakken shale oil deposit.

Fracking works by injecting pressurized water and some chemicals deep underground to break up rock and release oil and natural gas. Opponents to the practice have mostly centered their arguments around the idea that it could contaminate below-ground drinking water supplies and that the fossil fuels it produces will accelerate climate change.

California does not do much fracking, yet, and it is not clear how much water the oil industry uses for each well.

State figures suggest the whole industry used about as much as 300 households in 2013 - about 300 acre-feet or nearly 1 million gallons, according to the Department of Conservation.

Regulations requiring oil companies to report fracking went into place on Jan. 1, but experts believe it will continue or pick up this year.

The eastern United States has a different geology which allows horizontal drilling that can go for miles underground, using millions gallons of water during a single frack job in a process that may take days or weeks.

In California, much less water is used and the period of pressuring the reservoir rock is much shorter, Department of Conservation chief deputy director Jason Marshall said.

"Hydraulic fracturing in California uses very small amounts of water," said Dave Quast California Director for Energy Indepth, an oil industry-backed group. "However, oil producers are very sensitive to the competing demands for water resources and will make whatever adjustments are necessary to adapt to drought conditions."

Environmentalists say state figures are based on voluntary submission and not are verified. "We just don't how much water fracking has used or will use," said Zack Malitz of San Francisco-based progressive group Credo, whose group has helped organize dozens of rallies against fracking in California.

In any case, the industry would have to increase fracking and water use substantially to develop the shale oil in a significant way.

Governor Brown opposed a moratorium on fracking last year, arguing it was best for California to produce the oil it uses, and his spokesman Evan Westrup declined to comment on whether the drought had changed the governor's mind.

Environmentalists concede that getting the bill through the state legislature this year will be difficult given the wide margin it failed by in the state Assembly last year, but they plan to keep pressing the issue.

"If Governor Brown wants to be a climate leader, he is going to have to walk the walk and stop fracking in California, which would dramatically increase carbon pollution and lead to more severe droughts," said Credo's Malitz.

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REPOST: UPDATE 7-Brent oil rises, U.S. jobs, gasoline futures support

"Brent's premium to the U.S. benchmark widened back near $10 a barrel after narrowing to $7.94 on Wednesday, the tightest since Oct. 10." Read more about this news from this CNBC.com article:

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NEW YORK, Feb 7 (Reuters) - Brent crude oil rose by more than $1 to a one-week high on Friday on tighter North Sea supplies and rising heating oil and gasoline prices, which were supported by continued cold and a decline in the U.S. jobless rate.

U.S. oil also rose, but by less, pressured by the onset of U.S. refinery maintenance season that will curb demand for crude oil.

Persistently cold weather across the United States continued to fuel demand for heating oil while a declining U.S. jobless rate supported gasoline futures prices, said Oliver Sloup, director of managed futures with iitrader.com in Chicago.

"At the end of the day this has been an extraordinary winter. The cold weather is going to continue to support heating oil demand," he said.

Analysts said Brent was also supported by evidence that North Sea crude supply could be lower than expected in the next few months.

Brent crude oil futures were last trading $1.16 higher at $108.35 at 11:47 a.m. EST (1647 GMT). The contract breached the 200-day moving average of $107.89 for the first time in five sessions.

U.S. crude was up 43 cents at $98.27, after trading at a low of $97.11. The contract made a solid run above the 100-day moving average of $97.69.

Brent's premium to the U.S. benchmark <CL-LCO1=R> widened back near $10 a barrel after narrowing to $7.94 on Wednesday, the tightest since Oct. 10.

U.S. heating oil futures were trading 1.4 percent higher at $3.0362 per gallon. U.S. gasoline futures were up 1.5 percent at $2.7237.

The U.S. unemployment rate hit a new five-year low of 6.6 percent in January, down from 6.7 percent in December, the Labor Department said. U.S. nonfarm payrolls rose only 113,000, a lower-than-expected gain that initially forced oil prices lower.

Gains in U.S. crude on the jobs report were capped as refiners entered maintenance season, which will cut demand for oil.

Citgo Petroleum Corp began a shutdown of both plants at its refinery in Corpus Christi, Texas on Wednesday and Motiva Enterprises LLC said it began maintenance at its 235,000 barrel-per-day refinery in Convent, Louisiana, on Thursday.

The market was keeping a wary eye on Saturday's talks between Iran and the United Nations' International Atomic Energy Agency in Tehran.

The U.N. nuclear watchdog hopes to persuade the Islamic state to start addressing long-held suspicions it has worked on designing a nuclear bomb.

Tough international sanctions over the past two years have cut Iran's oil exports in half.

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REPOST: U.S. Oil Production Keeps Rising Beyond the Forecasts

 Oil production in the U.S. continues to rise. New York Times has the report:

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OIL production in the United States rose by a record 992,000 barrels a day in 2013, the International Energy Agency estimated this week.

“We keep raising our forecasts, and we keep underestimating production,” said Lejla Alic, a Paris-based analyst with the agency.

The increase left United States production at 7.5 million barrels a day, with both November and December production estimated to have been over eight million barrels a day.

American consumption of oil also rose last year, by 390,000 barrels a day, or 2.1 percent, to 18.9 million barrels a day. The agency increased its estimate of American oil use in the final quarter of the year, although it lowered its estimate of the increase in some other countries, including China. Over all, world consumption rose 1.4 percent, making 2013 the first year since 1999 that the use of oil in the United States rose more rapidly than in the rest of the world.

The agency said that demand was strong in the petrochemical industry in the United States, which has benefited from the fact that rising supply has left American crude oil prices lower than those in many other countries. The agency estimated that demand for gasoline in the United States rose as a result of increasing consumer confidence and more sales of sport utility vehicles.

Despite the 2013 increases, oil use in most developed countries remains well below the levels of 2007, the last pre-recession year. The United States is estimated to have used 8.5 percent less oil in 2013 than it did in 2007, while demand is down by about 25 percent in Italy and Spain, European countries that were hard hit by the euro area’s problems. Germany stands out, with 2013 usage equal to that of 2007.

In the developing world, oil use has been rising steadily. Demand in China and Brazil is up more than 30 percent since 2007, and India’s consumption is 17 percent higher.

The agency estimates that in 2014, the 34 mostly rich countries in the Organization for Economic Cooperation and Development will consume less than half the oil used in the world. That would be a first: As recently as 2004, their share was over 60 percent, and in 2013, it was estimated to be 50.5 percent.

Over the same period, the United States’ share of the market fell to 21 percent from 25 percent, while China’s share rose to 11 percent from less than 8 percent. But the American share was estimated to have risen slightly in 2013, the first annual increase since 1999.

The increase in United States production in 2013 exceeded the increase of 836,000 barrels a day in 2012. The largest increase before that, of 751,000 barrels, was in 1951, according to the United States Energy Information Administration.

In percentage terms, the 15.3 percent increase in 2013 was the largest since an 18.9 percent gain in 1940.

American oil production fell steadily from the early 1990s through 2008, but has since risen for five consecutive years, largely because of increased production of shale oil. Not since the late 1960s, when production in Texas was peaking and Alaska oil was beginning to come on stream, has there been such a string of annual increases.

As a result, United States oil production climbed to the highest level since 1989, although it remains well below the record production of 9.6 million barrels a day, set in 1970.

The agency forecast that American production would continue to rise in 2014, adding 782,000 barrels, to 8.3 million barrels a day.

If that forecast proves to be accurate, United States oil production will have increased 46 percent over the three years from 2011 to 2014. There has not been a three-year increase that large since the years 1921-24, exactly nine decades earlier.

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REPOST: Partners gets West Seahorse field reserves confirmed

"A final investment decision for West Seahorse is expected in the next few months." Continue reading about this topic here:

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Oil reserves in the West Seahorse field in Bass Strait offshore Victoria have been confirmed by an independent appraisal. The assessment has provided greater certainty for the development project financing and the letting of major contracts (OGJ Online, Nov. 14, 2013).

Carnarvon Hibiscus holds 51.1% in the field and is operator; 3D Oil Ltd. holds 49.9% interest.

Gaffney, Cline & Associates estimated that, as of Dec. 31, 2013, the field’s proved and probable reserves are 6.5 million bbl. Oil in place has been put at 10.3 million bbl plus an estimated 1.5 million bbl potential in secondary reservoirs.

Four wells have been drilled in West Seahorse, including the 1981 discovery well by a group led by Beach Energy. Three wells have encountered the oil reservoir, while the fourth intersected the reservoir below the oil-water contact.

Front-end engineering and design for the development began in April 2013. The development concept centres on production via a leased mobile offshore production unit (a jack up) feeding oil at 12,000 b/d through a 1.5-km, 4-in. flexible flow line to a catenary anchor leg moored buoy. This in turn will be connected to a leased tanker serving as a floating storage and offtake facility.

Commercial life of the field is expected to be 5-6 years, but the group is also looking at the nearby exploration prospect named Sea Lion. If it too contains oil, it could be quickly tied into the planned facilities to extend production and increase the value of the project.

A final investment decision for West Seahorse is expected in the next few months. The schedule calls for the field to be brought on stream in early 2015.

West Seahorse lies in 39 m of water 14 km off the Ninety Mile Beach near Loch Sport. It lies 2 km west of ExxonMobil Corp.-BHP Billiton’s Seahorse field in the adjoining permit.

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REPOST: GE Rides Oil and Gas, Aircraft to Higher 4Q Profit

General Electric Co. has stronger global sales of aircraft engines and oil and gas drilling equipment. Continue reading this news from this article:

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General Electric Co. posted increased revenue and profit for the fourth quarter on rising sales in emerging markets, higher banking profit, and stronger global sales of aircraft engines and oil and gas drilling equipment.

The company's shares fell 2.3 percent Friday, though, because GE failed to increase its profit margin as much as it had predicted.

The company's profit for all of 2013 rose, though revenue fell slightly, as GE continues its transformation from a sprawling conglomerate to a more focused industrial company that builds and services complex equipment such as CT-scanners, locomotives and gas-fired turbines.

GE reported that its net income rose 5 percent to $4.2 billion, or 41 cents per share, for the October-December period on revenue of $40.38 billion. That's up from $4.01 billion, or 38 cents per share, on revenue of $39.16 billion in the fourth quarter of 2012.

Adjusted to remove the effects of one-time items and discontinued operations, GE earned 53 cents per share in the latest period. That matches what analysts polled by FactSet expected, on average.

But a manufacturing problem that has affected the quality of some wind turbine blades and poor performance by the company's small energy management division prevented the company from meeting its goal of improving profit margin in its industrial divisions by 0.7 percent. Instead, it improved 0.66 percent.

Christian Mayes, an analyst at Edward Jones, said that failing to hit the profit margin target unsettled investors even though the company hit its earnings and revenue targets. Mayes said GE had implied that the target would be easily hit, and that even if things didn't go perfectly at the end of the year, they'd still be able to reach it.

"They've been telling everyone that was an important target for them and they missed it," said Christian Mayes, an analyst at Edward Jones.

GE shares fell 62 cents, or 2.3 percent, to close at $26.58 Friday.

GE CFO Jeffrey Bornstein said in an interview Friday that the company's biggest goal is to improve industrial profit margins during company's transformation. The target is 17 percent or higher by 2016, up from 15.7 percent in 2013.

"The piece we need to deliver on is world-class operating margins that reflect the fact that we have world-class products and world-class distribution," he said. "This is what we've got the whole company laser-focused on."

For the year, GE net income rose 3 percent to $14.06 billion and revenue slipped less than 1 percent to $146.05 billion. GE has been scaling back its financial division, called GE Capital, and it has shed non-industrial divisions such as NBC Universal. It plans to spin off its large consumer credit card business this year.

GE Capital profit surged 38 percent in the quarter to $2.49 billion, helped in part by the sale of assets in Switzerland.

GE's fourth quarter results were also helped by profit growth of 20 percent or more in its aviation, oil and gas, and appliances divisions.

"We saw good conditions in growth markets, strength in the U.S., and a mixed environment in Europe," GE CEO Jeff Immelt said in a statement.

GE said its backlog — a measure of orders taken but not yet filled — grew to a record $244 billion in the fourth quarter, up $15 billion from the third quarter.

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