21 WPC Moscow: Who is here & said what so far

The Oilholic finds himself in Moscow for the 21st World Petroleum Congress, following on from the last one in Doha three years ago. However, what's different here is that while the Congress is a global event – often dubbed the Olympics of the oil & gas business – the 2014 host government Russia is involved in a face-off with the West over Ukraine.

There were whispers on Sunday that some governments and corporates alike would boycott the Congress. However, based on evidence here on the ground over the first day and half, the gossip seems to be unfounded.

At the mammoth Crocus Expo Centre, mingling with some 5,000 delegates are IOC and NOC bosses of every colour, stripe or nationality. Government representatives from around the world seem to be in solid attendance too. For instance, India's new Petroleum and Natural Gas Minister Dharmendra Pradhan seems to be a popular man with delegates doubtless wishing to gain insights into Prime Minister Narendra Modi's energy policy.

On the other hand, the US government has sent no high level representative and while the Canadians are here, the all important oil producing province of Alberta has decided, as one source says "not to participate." That aside, doing a like-for-like comparison with Doha, this blogger sees no reduced levels of participation.

Those who are here saw ExxonMobil chief executive Rex Tillerson, attending (and addressing) his fourth WPC. Tillerson called for a push on unconventional including Arctic drilling accompanied by "wise environmental stewardship."

"We must recognise the global need for energy is projected to grow, and grow significantly," he added. Close on Tillerson's heels, OPEC Secretary General Abdalla Salem El-Badri told the Congress: "In a global energy future, and with connected markets, no one party can act alone. We need shared solutions for market stability."

Acknowledging his hosts, El-Badri added that there were healthy partnerships between Russian oil companies and OPEC member NOCs choosing to flag-up the global footprint of Lukoil as an example."Russia a key partner in the global energy supply equation as the world's second-largest oil exporter," El-Badri said further.

This morning, BP's boss Bob Dudley said the US shale bonanza had to be taken into context before jumping to global conclusions.

"Not all shale is good from a commercial standpoint," he said sharing the stage with Daniel Yergin (Pulitzer Prize winning author and IHS Vice chairman) and Jose Alcides Santoro Martins (Director of energy & gas and board member of Petrobras).

Dudley also said oil & gas sector project investment these days was driven by much better capital discipline. The industry had learnt and there was ever greater ROCE (return on capital employed) scrutiny.

Earlier, Dudley's PR boys managed a bit of a coup by timing the release of the company's latest Statistical Review of World Energy, one of the industry's most recognised annual research reports, on the first day of the Congress. BP's 63rd annual statistical trend update since 1952 noted that last year China, USA and Russia were the three largest consumers of oil and gas.

US and China collectively accounted for 70% of global crude oil demand. More generally, non-OECD demand for 2013 came in below average, while OECD demand, propped up by the US was above average, according to BP Chief Economist Christof Ruhl, soon to be Abu Dhabi Investment Authority's inaugural global head of research.

Tight oil plays edged US production up by over 1 million barrels per day (bpd) to 10 million bpd; the country's highest production rate since 1996. Ruhl opined that this was largely behind relatively stable global oil prices as North American output matched each supply disruption in the Middle East and North Africa virtually "barrel for barrel."

Finally, general analyst consensus here about Iraq is that the trouble itself is not as worrying as the speed with which it has unfolded, raising serious questions about the territorial integrity of the country. Additionally, there could be some long term implications for the oil price.

Alex Griffiths, head of natural resources and commodities at Fitch Ratings, acknowledges that the seizure of Mosul and attacks on Tikrit by ISIS are not an immediate threat to Iraq's oil production, or the ratings of Western investment-grade oil companies.

The areas under attack are not in Iraq's key oil-producing regions in the south or the additional fields in the northeast as discussed earlier on this blog.

"However, if conflict spreads and the market begins to doubt whether Iraq can increase its output in line with forecasts there could be a sharp rise in world oil prices because Iraqi oil production expansion is a major contributor to the long-term growth in global oil output," Griffiths added. That's all from Moscow for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2014. Photo 1: Logo of the 21st World Petroleum Congress, Moscow, Russia. Photo 2: (Left to Right) Jose Alcides Santoro Martins (Petrobras), Daniel Yergin (IHS) and Bob Dudley (BP) © Gaurav Sharma, June 2014.

A Syrian muddle, Barclays on Brent & more

The Brent forward month futures contract for August spiked above US$106 per barrel in intraday trading on Friday at one point. Most analysts cited an escalation of the Syrian situation and the possibility of it morphing into a wider regional conflict as a reason for the 1%-plus spike. The trigger was Obama administration’s reluctant acknowledgement the previous evening of usage of chemical weapons in Syria. The Oilholic’s feedback suggests that more Europe-based supply-side market analysts regard a proactive US involvement in the Syrian muddle as a geopolitical game-changer than their American counterparts. There is already talk of Syria become as US-Russia proxy war.

Add to that Israel’s nervousness about securing its border, jumpiness in Jordon and behind the scenes manipulation of the Assad regime and Syria by Iran. In an investment note, analysts at Barclays have forecasted Brent to climb back to the Nelson figure of 111. Yet a deeper examination of what the bank’s analysts are saying would tell you that their take is not a reactive response to Syria.

In fact, Barclays cites supply constriction between OPEC members as a causative agent, specifically mentioning on-going problems in Nigeria, Libya and shipment concerns in Iraq. For what its worth, and appalling as it might well be, Syria's conflict is only being priced in by traders in passing in anticipation of a wider regional geopolitical explosion, which or may not happen.

Away from OPEC and Syria, the Sudan-South Sudan dispute reared its ugly head again this week. A BBC World Service report on Thursday said Sudan had alleged that rebels based in South Sudan attacked an oil pipeline and Diffra oilfield in the disputed Abyei region. The charge was denied by South Sudan and the rebels.

 

The news follows Sudan’s call for a blockade of South Sudan's oil from going through the former’s pipelines to export terminals to take effect within 60 days. The flow of oil only resumed in April. Both Sudan and the South are reliant on oil revenue, which accounted for 98% of South Sudan's budget. However, the two countries cannot agree how to divide the oil wealth of the former united state. Some 75% of the oil lies in the South, but all the pipelines…well run north.

 

As the geopolitical analysts get plenty of food for thought, BP’s latest Statistical Review of World Energy noted that global energy consumption grew by 1.8% in 2012, with China and India accounting for almost 90% of that growth. Saudi Arabia remained the world’s top producer with its output at 11.5 million barrels of oil equivalent per day (boepd) followed by Russia at 10.6 million boepd. However, the US in third at 8.9 million boepd gave the “All hail shale” brigade plenty of thought. Especially, as BP noted that 2012 saw the largest single-year increase in US oil production ever in the history of the survey.

 

Moving on to corporate news, Fitch Ratings said Repsol's voluntary offer to re-purchase €3 billion of preference shares will increase the group's leverage, partially offsetting any benefit from the proceeds of its recent LNG assets divestment (revealed in March). This reduces the potential for an upgrade or Positive Outlook on the group's 'BBB-' rating in the near term, the agency added. Repsol's board voted in May to repurchase the preference shares partly with cash and partly with new debt.

 

Finally, Tullow Oil has won its legal battle, dating back to 2010, over tax payable on the sale of oilfields in Uganda. On Friday, the company said a UK court had ruled in favour of its indemnity claim for $313 million in its entirety (when the Uganda’s government demanded over $400 million in capital gains tax after Heritage Oil sold assets in the country to Tullow in a $1.45 billion deal).

 

Heritage said it would now evaluate its legal options and could launch an appeal. When the original deal between Heritage and Tullow was concluded, Tullow paid the Ugandan Revenue Authority $121.5 million – a third of the original $405 million tax demand – and put the remaining $283.5 million into an escrow account.

 

That’s all for the moment folks! The Oilholic has arrived in Belfast ahead of 2013 G8 Summit in Northern Ireland under the UK’s presidency, where Syria, despite the meeting being an economic forum, is bound to creep up on the World leaders’ agenda. As will energy-related matters. So keep reading, keep it ‘crude’!

 

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To email: gaurav.sharma@oilholicssynonymous.com

 

© Gaurav Sharma 2013. Photo: Veneco Oil Platform, California, USA © Rich Reid / National Geographic.

No consensus at OPEC; quota unchanged

In a surprising announcement here in Vienna, OPEC ministers decided not to change the cartel’s production quota contrary to market expectations. At the conclusion of the meeting, OPEC Secretary General Abdalla Salem el-Badri said the cartel will wait another three months at least before revisiting the subject.

El-Badri also said the crude market was “not in any crisis” and that no extraordinary meeting had been planned. Instead, the ministers would meet as scheduled in December. However, he admitted that there was no consensus at the meeting table with some members in favour of a production hike while some even suggested a cut.

“Waiting (at least) another three months for a review was not to everyone’s liking but the environment around the table was cordial even though it was a difficult decision,” he said after the meeting. However, as expected, he did not reveal which member nations were for or against a decision to hold production at current levels.

El-Badri put OPEC's April production at about 29 million b/d and refused to answer many or rather any questions on Libya except for the conjecture that while Libyan production was not taking place, others can and will make up for the shortfall within and outside of OPEC.

The surprising stalemate at OPEC HQ has seen a near immediate impact on the market. ICE Brent crude oil futures rose to US$118.33, up US$1.55 or 1.3% while WTI futures rose US$1.30 to 100.61 up 1.3% less than 20 minutes after el-Badri spoke.

He added that the environment was cordial, but many suggested that it was anything but. The Saudis left the building in a huff with minister Ali al-Naimi describing it as the "worst meeting they have attended."

The analyst community is surprised but only mildly with many opining that the Saudis may well go it alone. Jason Schenker, President & Chief Economist of Prestige Economics says, “I think that what we have witnessed today is very similar to the group’s quota suspensions in the past. High volatility in the markets is clearly visible and there was no consensus at the meeting table about how to respond. At the end of the day, most OPEC member countries are going to react to what we have seen today as they see fit. Atop the list are the Saudis – the OPEC heavyweights - who will react as they always do and go it alone.”

Ehsan Ul-Haq, an analyst with KBC Energy Economics agrees with Jason. “Quite simply, if the Saudis want more oil on the market, they don’t need the Iranians, they don’t need the Venezuelans; they can and now probably will do it alone."

No wonder the new man at the table – the meeting’s President Mohammad Aliabadi of Iran spoke of a “nervous” two quarters for the oil market. The Oilholic felt this 159th ordinary meeting would be ‘extraordinary’ and so it has turned out to be. Venezuela, Iran and Algeria reportedly refused to raise production with a Gaddafi-leaning Libyan delegation backing their calls.

Meanwhile, the latest Statistical Review of World Energy published by BP earlier today with an impeccable sense of timing, noted that consumption of oil appreciated on an annualised basis at the highest rate seen since 2004. Christof Ruhl, BP group's chief economist, puts the latest growth rate at 3.1%.

According to BP, much of the increased demand for oil continued to come from China where consumption rose by over 10% or 860,000 b/d. The report also notes the continued decline of the North Sea with Norway, followed by the UK, topping the production dip charts. The take hike announced in the recent UK budget is not going to help stem the decline.

© Gaurav Sharma 2011. Photo: OPEC logo © Gaurav Sharma 2008