ADIPEC Day II: Oil & Gas 4.0 sessions & more

Day two of ADIPEC 2019 has just concluded in Abu Dhabi, UAE and as expected it was another action packed one with half a dozen CEOs, dignitaries and ministers in town. As part of the proceedings, the Oilholic moderated a downstream panel under the event's Oil and Gas 4.0 strategic dialogues programme.

The subject under discussion - Sustaining industry momentum in downstream: how will companies build an agile and resilient business model capable of withstanding the inevitable cyclical highs and lows in the years ahead? 

The panel included Abdulaziz Alhajri, Executive Director Downstream Directorate at ADNOC, Thomas Gangl, Chief Downstream Operations Officer at OMV, Philippe Boisseau, CEO of CEPSA, François Good, Senior Vice President Refining & Petrochemicals Orient at Total and Catherine MacGregor, CEO-elect at TechnipFMC. 

The panelists touched on a host of slants under the topic including the crucial issue of long-term objectives underpinned by technology, corporate patience on the return on investment front, tech-enabled throughput improvements and the need to invest in talent, not just hardware and software. 

Of course, lurking around ADIPEC corridors is the subject of the oil price direction and what OPEC will or won't do when it meets in Vienna, Austria on December 5-6, 2019. Here is one's take via Forbes, with soundbites and analysis aplenty, and the central conclusion that OPEC is damned if it cuts production or rolls existing cuts over further, and damned if it opens the taps. 

Away from the oil price and to the exhibition floor where industry vendors made deal announcements with customary aplomb. ABB announced it had won a project to install its extended automation system at a greenfield pilot plant for SABIC in Jubail, Saudi Arabia, supporting the Saudi company's broader vision to digitalise its operations. 

Under the contract, ABB's Ability System will apply integrated automation, control and safety solutions to the company's Utilities Park and Pilot project. The park is part of the SABIC Technology Centre (STC), which marks the company’s biggest global investment in innovation, and the largest of its 21 technology centers worldwide.

Not to be outdone, Honeywell Process Solutions (HPS), the global software industrials' automation unit, announced that Kuwait Integrated Petroleum Industries Company (KIPIC) has selected it as the main automation contractor for its new Petrochemicals and Refinery Integration Al Zour Project (PRIZe). 

Under the agreement, HPS will provide KIPIC with front-end engineering design and advanced process control technology for the complex, which will help KIPIC expedite production start-up and assist with reaching production targets faster and more efficiently. 

The PRIZe project will become the first integrated refining and petrochemicals complex in Kuwait.

The new facility – developed as part of the Al-Zour Complex – will significantly enhance Kuwait’s domestic petrochemicals, aromatics and gasoline manufacturing capabilities.

Customarily, neither ABB nor Honeywell provided any details on financials of the contract in a fiercely competitive industry in which demand for Industry 4.0 solutions is growing by the minute. Finally, out on the exhibition floor, this blogger spotted another hydrogen powered

Toyota Mirai, this time at Saudi Aramco's stand, following one yesterday at Shell's stand.

What do you know - an IOC and a NOC flagging an alternative fuel - now the Oilholic has really seen it all. 

That's all for the moment folks, more from here over the coming days  as the event gathers further momentum. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2019. Photo I: Gaurav Sharma (left) at ADIPEC 2019 Oil and Gas 4.0 strategic dialogue in Abu Dhabi, UAE © DMG Events. Photo II &III: Toyota Mirai cars at ADIPEC 2019 exhibition © Gaurav Sharma 2019. 

Two WPC days, umpteen 'crude' angles

In typical fashion, two packed days have zipped by at the 22nd World Petroleum Congress in Istanbul, Turkey and the Oilholic could count at least a dozen talking points, few of which are duly noted here. 

Let's start with Total's boss Patrick Poyanne, whom this blogger has not had the pleasure of listening to since the International Petroleum Week in London.

Pouyanne told WPC delegates that Brazil's mammoth offshore deepwater fields could one fine day be "as profitable as US shale". That's providing operators and consortium partners keep a tight handle on break-even costs.

"Maybe they are long-cycle, and shale is short-cycle, but in terms of profitability, in the giant deepwater fields it is easy to make money, provided a handle is kept on the break-even," he quipped. 

Another industry captain - Shell's CEO Ben van Beurden - correctly opined that discussions over the global energy mix and the transition to a low carbon global economy should not only focus on Western perspectives.

van Beurden also said energy transition is regularly portrayed in terms that compare it to a revolution; a moment in time when everything changes. "In truth, different countries and different sectors will advance at different speeds. In truth, we are not talking about a moment in time, but of change that will take place over generations." (For IBTimes UK report, click here)

Meanwhile, murmurs in the Congress background suggest Abu Dhabi National Oil Company may beat Saudi Aramco to a mega stock floatation. The planned IPO would be of ADNOC's distribution business, which manages 460 petrol stations and accompanying convenience stores across the United Arab Emirates.

According to sources, ADNOC's expected valuation for the business is around $14bn, which if realised could net it $1.5bn to $2bn via a 10-15% equity float which many say might be on the immediate horizon. Still early days though. (Read all about it here).

Finally before one takes your leave, it seems 'Crude' history has been made, with India poised to buy its first consignment of US oil. Indian Minister Dharmendra Pradhan told the Oilholic the crude sourced is conventional, but New Delhi might consider going for shale oil too in the future. Here is one's full report for IBTimes UK. Well that's all for the moment from Istanbul folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: Front entrance garden of the Istanbul Congress Center, Turkey - venue of the 22nd World Petroleum Congress © Gaurav Sharma 2017.

The inimitable Mr de Margerie (1951 – 2014)

The Oilholic woke up to the sad news that Total CEO and Chairman Christophe de Margerie had been killed in a plane crash at Moscow’s Vnukovo airport. This tragedy has robbed the wider oil & gas fraternity of arguably its most colourful stalwart.

Held in high regard by the industry, de Margerie had been the CEO of Total since 2007, later assuming both Chairman and CEO roles in 2010. Instantly recognisable by his trademark thick moustache, de Margerie increased the focus of Europe’s third-largest oil and gas company on its proven reserves ratio like never before.

He joined Total in 1974 straight after graduating from the Ecole Superieure de Commerce in Paris and spent his entire professional life at the company. Rising through the ranks to the top of the corporate ladder, de Margerie was instrumental in taking Total into markets the company hadn’t tested and to technologies it hadn’t adopted before. Wider efforts to improve Total’s access to the global hydrocarbon pool often saw de Margerie take actions frowned upon by some if not all. 

For instance, Total went prospecting in Burma and Iran in the face of US sanctions. France has a moratorium on shale oil & gas drilling, but de Margerie recently saw it fit to get Total involved in UK's shale gas exploration. Over the last decade, as this blogger witnessed Total ink deals which could be subjectively described by many as good, bad or ugly, one found many who disagreed with de Margerie, but few who disliked him.

Even in the face of controversy, the man nicknamed “Big Moustache” always kept his cool and more importantly a sense of humour. Each new deal or the conquering of a corporate frontier saw de Margerie raise a spot of Scotch to celebrate. That’s some tipple of choice when it came to a celebration given he was the grandson of Pierre Taittinger, the founder of Taittinger champagne.

The Oilholic’s only direct interaction with the man himself, in December 2011 at the 20th World Petroleum Congress (20th WPC) in Doha, was indeed a memorable one. Jostling for position while the Total CEO was coming down from a podium, this blogger inquired if there was time for one question. To which the man himself said one could ask three provided they could all be squeezed into the time he had between the auditorium and VIP elevator!

In a brief exchange that followed, de Margerie expressed the opinion that exploration and production (E&P) companies would find it imperative to venture into "geologically challenging and geopolitically difficult" hydrocarbon prospects.

“All the easy to extract oil & gas is largely already onstream. We’re at a stage where the next round of E&P would be much more costly,” he added. One could have gone on for hours, but alas a few minutes is all what Qatari security would permit. Earlier at the auditorium he was leaving from, de Margerie had participated in deliberations on Peak Oil, a subject of interest on which he often “updated” his viewpoint (photo above left).

“There will be sufficient oil & gas and energy as a whole to cover global demand…Even using pessimistic assumptions, I cannot see how energy demand will grow less than 25% in twenty years time. Today we have roughly the oil equivalent of 260 million barrels per day (bpd) in total energy production, and our expectation for 2030 is 325 million bpd,” he said.

De Margerie forecast that fossil fuels will continue to make up 76% of the energy supply by 2050.

“We have plenty of resources, the problem is how to extract the resources in an acceptable manner, being accepted by people, because today a lot of things are not acceptable,” the late Total CEO quipped.

He concluded by saying that if unconventional sources of oil, including heavy oil and oil shale, were to be exploited, there will be sufficient oil to meet current consumption for up to 100 years, and for gas up to 135 years. What he astutely observed at the 20th WPC does broadly stack-up today.

In wake of sanctions on Russia following the Ukrainian standoff, de Margerie called for channels of dialogue to remain open between the wider world and country’s energy sector. Total is a major shareholder in Russian gas producer Novatek, something which De Margerie was always comfortable with. He ignored calls for a boycott of industry events in Russia, turning up at both the St Petersburg forum in May and the 21st World Petroleum Congress in Moscow in June this year.

However, the shooting down of Malaysian Airlines MH17 over eastern Ukraine in July prompted him to suspend buying more shares in Novatek. That cast a shadow over Total’s participation in Yamal LNG along with Novatek and CNPC. Nonetheless, de Margerie was bullish about boosting production in Russia. 

According to Vedomosti newspaper, he was in town on Monday to meet Russian Prime Minister Dmitry Medvedev and discuss the climate for foreign direct investment in the energy sector. As events conspired, it turned out to be the last of his many audiences with dignitaries and heads of capital, state and industry.

Later that foggy Monday evening, the private jet carrying de Margerie from Vnukovo airport collided with a snow plough and crashed, killing all on-board including him and three members of the crew. Confirming the news, a shocked Total was left scrambling to name a successor or at least an interim head to replace de Margerie.

In a statement, the company said: “Total’s employees are deeply appreciative of the support and sympathy received, both in France and in the many countries where Christophe de Margerie was admired and respected.

“Mr de Margerie devoted his life to building and promoting Total in France and internationally. He was equally devoted to Total’s 100,000 employees. As he would have wished, the company must continue to move forward. Total is organised to ensure the continuity of both its governance and its business, allowing it to manage the consequences of this tragic loss.”

According to newswire AFP, Total’s third quarter results would be released as scheduled on October 29. Paying tribute, French President Francois Hollande said the country had lost “a patriot” while OPEC Secretary General Abdalla Salem El-Badri said the industry had lost “an extraordinary and charming professional, who will be sorely and sadly missed by all who had the honour of knowing and working with him.” 

In a corporate sense, Total will move on but French commerce and the oil & gas business would be intellectually poorer in wake of de Margerie’s death. His forthright views sparked debates, his stewardship of France’s largest company inspired confidence, his commanding presence at market briefings made them more sought after and his sense of humour lit up forums. But above all, in the Oilholic’s 17 years as a scribe, one has never met a more down-to-earth industry head. Rest in peace sir, you will be sorely missed.

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© Gaurav Sharma 2014. Photo: The late Christophe de Margerie, former CEO and Chairman of Total, addresses the 20th World Petroleum Congress, Doha, Qatar, December 2011 © Gaurav Sharma.

Iraqi situation likely to unleash crude bull runs

Just as the OPEC conference dispersed here in Vienna, the speed with which the situation in Iraq has deteriorated has taken the market by surprise. Can't even blame Friday the 13th; the deterioration started a few days before.

There was not an Iraqi official commentator in sight when the trickle of news turned into a flood announcing the rapid advance of Sunni militants (or the Islamic State in Iraq and the Levant, an al-Qaeda breakaway) across vast swathes of the country to within touching distance of Baghdad.

The market is keeping reasonably calm for now. However, both Brent spot and futures prices did spike above US$113 per barrel at one point or another over the last 72 hours. We're already at the highest levels this far into 2014. The Oilholic has always been critical when paper traders jump to attach instant risk premium to the crude price at the slightest ripple say in Nigeria or Libya. However, this alas is something else and it matters.

For starters, Iraqi production was on a slow and painful recovery run. The trickle of inward investment had started and Kurdish controlled areas weren’t the only ones seeing a revival. This is now under threat. Secondly, a visibly deteriorating situation could draw Iran into the tussle and there are some signs of it already. Thirdly, it has emboldened Kurdish security forces to take over Kirkuk, with unhidden glee. This could dent ethnic calm there in that part of the country.

Fourthly, Iraq despite its troubles remains a key member of OPEC. Finally, if you look at a map of Iraqi oilfields, the areas now held by the insurgents would trouble most geopolitical commentators as they cover quite a few hydrocarbon prospection zones. Add it all together and what's happening in Iraq, should it continue to deteriorate, has the potential of adding at least $10 per barrel to the current price levels, and that’s just a conservative estimate.

If Iraq gets ripped apart along ethnic lines, all projections would be right out of the window and you can near double that premium to $20 and an unpredictable bull run. That tensions were high was public knowledge, that Baghdad would lose its grip in such a dramatic fashion should spook most. There is one but vexing question on a quite a few analysts’ minds – is this the end of unified Iraq? The Oilholic fears that it might well be. 

Away from this depressing saga, a couple of notes from ratings agencies to flag up. Moody's says the outlook for global independent E&P sector remains positive. It expects growth to continue over the coming 12-18 months, with no "obvious catalyst" for a slowdown.

Analyst Stuart Miller reckons unless the price of crude drops below $80 per barrel, investment is unlikely to fall materially for oil and liquids-oriented companies such as Marathon Oil, Whiting Petroleum and Kodiak Oil & Gas.

"The positive outlook reflects our view that industry EBITDA will grow in the mid- to high-single digits year over the next one to two years. Stable oil and natural gas prices will enable E&P companies to continue to invest with confidence, driving production and cash flow higher," Miller added.

However, a lack of gathering, processing and transportation infrastructure will continue to plague the industry, though to a lesser extent than in the past couple of years. The completion of infrastructure improvements will unshackle production growth rates for companies such as Continental Resources and Oasis Petroleum in the Bakken Shale, and Range Resources and Antero Resources in the Marcellus Shale, according to Moody's.

Meanwhile, Fitch Ratings said fracking could help the European Union cut its reliance on Russian Gas. Germany's reported plan to lift a ban on fracking highlights one of several ways that European countries could reduce their reliance on Russian gas, it says.

Out of the major European oil and gas companies, Fitch reckons Total could have a head start over rivals if European shale gas production ramps up, because of the experience it has gained from investment in UK shale.

The group became the first Western oil major to invest in UK shale after agreeing to take a 40% stake in two licenses earlier this year. Total would also be well positioned if France followed Germany and decided to ease restrictions on shale gas production, as its home market is thought to have some of the largest shale gas reserves in Europe.

Jeffrey Woodruff, senior director at Fitch Ratings, said, “If European countries want to cut reliance on Russian gas, other potential routes include greater use of LNG. BG will be one of the first European companies to export LNG from the US, due to its participation in three of the six projects that have been approved by the US Department of Energy to export LNG.”

All of this is well and good, but as the Oilholic noted in a Forbes post earlier this month, Europeans need to be both patient and pragmatic. The US shale bonanza took 30 years to materialise meaningfully, Europe's is likely to take longer. Speaking of shale, here is one's take on why US shale would not hurt OPEC all that much, as legislative impediments prevent the US from exporting crude oil and by default do not give it the feel of a global bonanza. That's all from Vienna folks. Next stop Moscow, for the 21st World Petroleum Congress. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2014. Photo: Exploration site in Kurdistan © Genel Energy

The South Sudan question & other crude matters

Where South Sudan fits in the oil world has troubled ‘crudely’ inclined geopolitical analysts for some time now. The country celebrated the first anniversary of its creation on July 9th. But there is little to cheer about yet for South Sudan which inherited over 75% of parent Sudan’s proven oil reserves but is overtly reliant on the latter’s infrastructure to bring it to market. Sources with expertise as well as anyone with a modicum of interest in current events would agree that South Sudan’s outlook is bleak at best and abysmal at worst following decades of conflict. That’s notwithstanding a prolonged border dispute with the North, 170,000-plus refugees and tension over oil revenues which have only just shown signs of easing.

While it is early days, on August 4th a Reuters’ flash stating that the North and South sides had pulled back from the brink of war and finally agreed on oil transit payments was widely welcomed from trading floors to the Office of US Secretary of State Hillary Clinton. And what has emerged so far is a relief for everyone from Elf to Total, from OMV to CNPC; the Chinese being the biggest players in Sudan. Of the seven exploration blocks, CNPC is majorly involved with four in case you didn’t know.

Yet deep down everyone, not least the Oilholic, is pragmatic enough to acknowledge that the time to uncork the champagne is not here yet. This humble blogger was not in the Ethiopian capital of Addis Ababa where the agreement was reached, but courtesy dispatches from kindred souls in diplomatic circles it is known that South Sudan agreed to pay North Sudan just over US$9.05 per barrel for usage of its transport, supply and logistics infrastructure to move the crude stuff to Port Sudan.

However, nearly a fortnight on from the announcement, we still await an announcement about when the South will resume oil exports which were stopped in January. That said North Sudan will receive US$3 billion as compensation for revenue lost in that period.

The agreement is not the end of South Sudan’s problems. Without even having meaningfully exploited its precious resources, the world's newest nation is already a case study for the resource curse hypothesis. With oil production having only begun in 2005 and anti-graft measures either side of the border being ‘less than worse’, it can be safely concluded that South Sudan is more likely to resemble a 1970s Nigeria than a 2012 Botswana.

If the Americans press South Sudan to act on graft they are labelled as arrogant, the South Africans as patronising, the Brits as colonials and so on in populist circles even if the government is partially listening. The Chinese way to calm the situation either side of the disputed border and improving things is by offering to buy the crude stuff at above existing market rates (as they did in February).

Clue – nothing is going to change meaningfully anytime soon. Alas, with a production peak for existing facilities forecast for 2020, a turnaround is needed and fast! At least a plan to move away from overreliance on the North by building a pipeline to Kenya is a positive if it materialises. Happy Belated Birthday South Sudan!

Away from Sudanese problems, but sticking with the African continent – Nigeria has signed an ‘initial’ agreement with USA’s Vulcan Petroleum Resources Ltd.; a Vulcan Capital Management SPV, to build six new oil refineries worth US$4.5 billion. If ‘initial’ becomes ‘final’ and the deal materialises, it would add to the four refineries Nigeria already has increasing refining capacity by 180,000 barrels per day.

For a country which is Africa’s largest oil exporter but a net importer of refined distillates, the Oilholic has always opined that seeing is believing. So we’ll believe when we see and greet the announcement with cautious optimism.

Moving to some corporate news which also has an African flavour, its emerged that Edinburgh-based independent upstart Melrose Resources has announced a merger with Ireland’s Petroceltic. Both companies will now merge operations in North Africa along with Black Sea and the Mediterranean.

The new company will have Petroceltic’s branding and will be headquartered in Ireland. The merger values Melrose at £165 million with Petroceltic shareholders having a 54% stake in the merged company and Melrose shareholders having the rest. Sounds like a sound move!

Finally, a new computer virus is doing the rounds targeting energy infrastructure being dubbed by the security firms as the “Shamoom” attack. A notice from Symantec (available here) describes the virus as “a destructive malware that corrupts files on a compromised computer and overwrites the MBR (Master Boot Record) in an effort to render a computer unusable.”

On Wednesday, Saudi Aramco said it was subject to a virus attack but did not acknowledge whether it was a Shamoom attack. A spokesperson said Aramco had now isolated its computer networks as a precautionary measure while stressing that the attack had no impact on its production. Virulent times in the crude world. That’s all for the moment folks! Keep reading, keep it 'crude'!

© Gaurav Sharma 2012. Photo: Oil worker © Shell

UK & Norway: A ‘crudely’ special relationship

Unconnected to the current systemic financial malaise in Europe, a recent visit to Oslo by British Prime Minister David Cameron for a meeting with his Norwegian counterpart Jens Stoltenberg went largely unnoticed. However, its ‘crude’ significance cannot be understated and Cameron’s visit was the first by a British Prime Minister since Margaret Thatcher’s in 1986.

Beaming before the cameras, Stoltenberg and Cameron announced an "energy partnership" encompassing oil, gas and renewable energy production. As production from established wells has peaked in the Norwegian and British sectors of the North Sea, a lot has changed since 1986. The two principal proponents of exploration in the area are now prospecting in hostile climes of the hitherto unexplored far North – beyond Shetland Islands and in the Barents Sea.

Reading between PR lines, the crux of what emerged from Oslo last week is that both governments want to make it easier for firms to raise money for projects and to develop new technologies bearing potential benefits in terms of energy security. That Cameron is the first British PM to visit Norway in decades also comes as no surprise in wake of media reports that the Norwegian sector of the North Sea is witnessing a second renaissance. So of the growing amount of oil the UK imports since its own production peaked in 1999 – Norway accounts for over 60% of it. The percentage for British gas imports from Norway is nearly the same.

"I hope that my visit to Oslo will help secure affordable energy supplies for decades to come and enhance investment between our two countries. This will mean more collaboration on affordable long-term gas supply, more reciprocal investment in oil, gas and renewable energies and more commercial deals creating thousands of new jobs and adding billions to our economies," Cameron said.

For their part the Norwegians, who export over five times as much energy as they use domestically, told their guest that they see the UK as a reliable energy partner. We hear you sir(s)!

Meanwhile, UK Office for National Statistics’ (ONS) latest production data released this morning shows that extractive industries output fell by 15% on an annualised basis in April with oil & gas production accounting for a sizeable chunk of the decline.

A further break-up of data suggests oil & gas production came in 18.2% lower in April 2012 when compared with the recorded data for April 2011. Statisticians say production would have been higher in April had it not been for the shutdown of Total’s Elgin platform in the North Sea because of a gas leak.

Elsewhere, farcical scenes ensued at the country’s Manchester airport where the airport authority ran out of aviation fuel causing delays and flight cancellations for hours before supplies were restored. Everyone in the UK is asking the same question – how on earth could this happen? Here’s the BBC’s attempt to answer it.

Finally the Oilholic has found time and information to be in a position to re-examine the feisty tussle for Cove Energy. After Shell’s rather mundane attempt to match Thai company PTTEP’s offer for Cove, the Thais upped the stakes late last month with a £1.22 billion takeover offer for the Mozambique-focused oil & gas offshore company.

PTTEP’s 240 pence/share offer improves upon its last offer of 220 pence or £1.12 billion in valuation which Shell had matched to nods of approval from Cove’s board and the Government of Mozambique. The tussle has been going on since February when Shell first came up with a 195 pence/share offer which PTTEP then bettered.

Yours truly believes Cove’s recommendation to shareholders in favour of PTTEP’s latest offer does not guarantee that the tussle is over. After all, Cove recommended Shell’s last offer too which even had a break clause attached. Chris Searle, corporate finance partner at accountants BDO, feels the tussle for control may end up with someone overpaying.

“I’m not surprised that PTTEP have come back in for Cove since the latter’s gas assets are so attractive. Of course the danger is that we now get into a really competitive auction that in the end will lead to one of the bidders overpaying. It will be interesting to see how far this goes and who blinks first,” he concludes.

Cove’s main asset is an 8.5% stake in the Rovuma Offshore Area 1 off the coast of Mozambique where Anadarko projects recoverable reserves of 30 tcf of natural gas. Someone just might end-up overpaying.

On the pricing front, instead of the Spanish rescue calming the markets, a fresh round of volatility has taken hold. One colleague in the City wonders whether it had actually ever left as confusion prevails over what messages to take from the new development. Instead of the positivity lasting, Spain's benchmark 10-year bond yields rose to 6.65% and Italy's 10-year bond yield rose to 6.19%, not seen since May and January respectively.

Last time yours truly checked, Brent forward month futures contract was resisting US$97 while WTI was resisting US$82. That’s all for the moment folks! The Oilholic is off to Vienna for the 161st OPEC meeting of ministers. More from Austria soon; keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: Oil Rig in the North Sea © Royal Dutch Shell.

We’re nowhere near “Peak oil” er...perhaps!

The 20th World Petroleum Congress could not have possibly gone without a discussion on the Peak Oil hypothesis. In fact, every single day of the Congress saw the topic being discussed in some way, shape or form. So the Oilholic decided to summarise it after the event had ended and before the latest OPEC meeting begins.

Discussing the supply side, starting with the hosts Qatar, Emir Sheikh Hamad bin Khalifa said his country was rising to challenge to secure supplies of oil and gas alongside co-operating with members of the energy organisations to which they were aparty, in order to realise this goal. Close on the Qatari Emir’s heels, Kuwaiti oil minister Mohammed Al-Busairi said his country’s crude production capacity is only expected increase between now and 2015 from the current level of 3 million barrels per day (bpd) to 3.5 million bpd, before rising further to 4 million bpd.

Then came the daddy of all statements from Saudi Aramco chief executive Khalid al-Falih. The top man at the world’s largest oil company by proven reserves of barrel of oil equivalent noted that, “rather than the supply scarcity which many predicted, we have adequate oil and gas supplies, due in large part to the contributions of unconventional resources.”

Rising supplies in al-Falih’s opinion will result in deflating the Peak Oil hypothesis. “In fact, we are on the cusp of what I believe will be a new renaissance for petroleum. This belief emanates from new sweeping realities that are reshaping the world of energy, especially petroleum,” he told WPC delegates.

Meanwhile, in context of the wider debate, Petrobras chief executive Jose Sergio Gabrielli, who knows a thing or two about unconventional told delegates that the speed with which the new sources of oil are entering into production has taken many people by surprise, adding to some of the short-term volatility.

“The productivity of our pre-salt offshore drilling moves is exceeding expectations,” he added. Petrobras now hopes to double its oil production by 2020 to over 6.42 billion barrels of oil equivalent. It seems a veritable who’s-who of the oil and gas business lined up in Doha to implicitly or explicitly suggest that Marion King Hubbert – the patron saint of the Peak Oil hypothesis believers – had always failed to take into account technological advancement in terms of crude prospection and recent developments have proven that to be the case.

But for all that was said and done, there is one inimitable chap who cannot possibly be outdone –Total CEO Christophe de Margerie. When asked if Peak Oil was imminent, de Margerie declared, “There will be sufficient oil and gas and energy as a whole to cover the demand. That’s all! Even using pessimistic assumptions, I cannot see how energy demand will grow less than 25% in twenty years time. Today we have roughly the oil equivalent of 260 million bpd (in total energy production), and our expectation for 2030 is 325 million bpd.”

He forecasts that fossil fuels will continue to make up 76% of the energy supply by 2050. “We have plenty of resources, the problem is how to extract the resources in an acceptable manner, being accepted by people, because today a lot of things are not acceptable,” the Total CEO quipped almost to the point of getting all worked up.

He concluded by saying that if unconventional sources of oil, including heavy oil and oil shale, are exploited, there will be sufficient oil to meet today’s consumption for up to 100 years, and for gas the rough estimate is 135 years. Or enough to make Hubbert stir in his grave.

© Gaurav Sharma 2011. Photo: Total's CEO De Margerie discusses Peak Oil at the 20th World Petroleum Congress © Gaurav Sharma 2011.

Oilholic’s photo clicks @ the 20th WPC venue

The Oilholic is by no means a photojournalist, but there is no harm in pretending to be one armed with a fully automatic Olympus FE-4020 digital camera at such an impressive venue as the Qatar National Convention Centre (QNCC) which was opened to the public for the first time for the 20th World Petroleum Congress when things began here on December 4th.

According to a QNCC spokesperson, the “sheer size (of the building pictured above left), sensational spaces spread over three levels and high-tech solutions have set new standards when it comes to hosting an event as prestigious as the Petroleum Congress.

One supposes that you can brag a little when your venue has 40,000 sq. metres of exhibition space, a conference hall facility for 4,000 delegates, 2,300-seat lyric style theatre, three additional smaller-tiered auditoriums all complete with theatre-style seating, banquet space for up to 10,000 in exhibition halls, 52 meeting rooms, ample space for pre-function logistics, exhibition foyers, lounges, hospitality suites, business centers and more importantly for fellow scribes - impressive media rooms! Phew!

Hope you enjoy the virtual views, as the Oilholic is enjoying them here on the ground.

QNCC entrance lobby

QNCC Interior: lobby level I

QNCC Exhibition floor

QNCC Exhibition floor

Total CEO Christophe de Margerie at QNCC Theatre Hall

© Gaurav Sharma 2011. Photos from the 20th World Petroleum Congress being held at the Qatar National Convention Centre, Doha, Qatar © Gaurav Sharma, Dec 2011.

Eni’s Rating Downgrade & Other News

Moody's Investors Service lowered the long-term senior unsecured ratings of Eni S.p.A. (Eni) and its guaranteed subsidiaries to Aa3 from Aa2 and the senior unsecured rating of Eni USA Inc. to A1 from Aa3. In a note on Monday, it said the outlook for all ratings is stable.

Eni qualifies as a Government-Related Issuer (GRI) under Moody's methodology for such entities, given its 30.3% direct and indirect ownership by the Italian state. The downgrade reflects Moody's expectation that deleveraging process initiated by Eni management and recovery in the group's credit metrics will be gradual and unlikely to restore sufficient headroom to help underpin its business case analysis within the Aa range.

In other news, the U.S. EIA has cut its forecast for global oil demand in light of lower forecasts for global growth. EIA now expects global oil consumption to rise by 1.4 million barrels per day in 2011 against last month's projection of 1.5 million barrels. The consumption growth forecast for 2010 was unchanged at 1.6 million barrels per day.

On the pricing front, the EIA expects spot West Texas Intermediate crude prices to average US$77 a barrel in Q4 2010, down from its previous forecast of US$81. It added that crude prices are likely to climb to US$84 by the end of 2011.

Meanwhile, as you know, BP published its internal report into the Deepwater Horizon rig explosion in the Gulf of Mexico and the resultant oil spill last week. Given the ol’ day job of mine, I wanted to read it cover to cover – all 193 pages of it – before blogging about it. Having finally read it, goes without saying the oil giant is stressing on the fact that a "sequence" of failures caused the tragedy for which a "number of parties" were responsible. (To be read as Transocean and Halliburton)

In the report, conducted by BP's head of safety Mark Bly, the oil giant noted eight key failures that collectively led to the explosion. Most notably, BP said that both its staff as well and Transocean staff interpreted a safety test reading incorrectly "over a 40-minute period" which should have flagged up risks of a blowout and action could have been taken on the influx of hydrocarbons into the well.

BP was also critical of the cementing of the well - carried out by Halliburton - and the well’s blowout preventer. The report also notes that improved engineering rigour, cement testing and communication of risk by Halliburton could have identified flaws in cement design and testing, quality assurance and risk assessment.

It added that a Transocean rig crew and a team working for Halliburton Sperry Sun may have been distracted by "end-of-well activities" and important monitoring was not carried out for more than seven hours as a consequence.

Furthermore, BP said that there were "no indications" Transocean had tested intervention systems at the surface as was required by its company policy before they were deployed on the well. Crew may have had more time to respond before the explosion if they had diverted escaping fluids overboard, the report added.

BP’s outgoing Chief Executive Tony Hayward said, “To put it simply, there was a bad cement job and a failure of the shoe track barrier at the bottom of the well, which let hydrocarbons from the reservoir into the production casing. The negative pressure test was accepted when it should not have been, there were failures in well control procedures and in the blowout preventer; and the rig's fire and gas system did not prevent ignition.”

So there we have it – the oil giant is not absolving itself of the blame, but rather spreading it around. It came as no major surprise that both Halliburton and Transocean criticised and dismissed the report - though not necessarily in that order. The story is unlikely to go away as a national commission is expected to submit a report to President Barack Obama by mid-January 2011 followed by a Congressional investigation. The U.S. Justice department may yet step in as well if evidence of criminal wrongdoing of some sort emerges.

Away from the BP spill saga, French energy giant Total said last week that it could sell its 480 petrol stations in the UK as part of a strategic review of its British downstream operations as it refocuses on its core upstream strength and well something had to give.

© Gaurav Sharma 2010. Photo: US Oil rig © Rich Reid / National Geographic Society

Oil Price, Petroaggressors & a Few Books I've Read

Since last week, the wider commodities market has continued to mirror equities. This trend intensified towards the end of last week and shows no sign of abating. Furthermore, it is worth noting that Brent crude is trading at a premium to its American cousin, a gap which widened over USD$2. On Tuesday (August 31) at 13:00 GMT, the Brent forward month futures contract was trading at US$76.10 a barrel (down 1.1%) versus WTI crude at US$73.83 (down 3.1%) in intraday trading.

This of course is ahead of the US energy department’s supplies update, due for publication on Wednesday. The report is widely tipped to show a rise in crude stockpiles and the US market is seen factoring that in. Overall, the average drop in WTI crude for the month of August is around 8.89% as the month draws to a close.

Having duly noted this, I believe that compared to other asset classes, the slant in oil still seems a more attractively priced hedge than say forex or equities. Nonetheless, with there being much talk of a double-dip recession, many commentators have revised their oil price targets for the second half of 2010.

Last month, the talk in the city of London was that crude might cap US$85 a barrel by the end of the year; maybe even US$90 according to Total’s CEO. Crude prices seen in August have tempered market sentiment. Analysts at BofA Merrill Lynch now believe the oil price should average US$78 per barrel over H2 2010 owing to lower global oil demand growth and higher-than-expected non-OPEC supply.

“Following robust increases in oil demand over the past 12 months on a stimulus-driven rebound, we now see some downside risk as slower growth sets in and OECD oil inventories remain high. Beyond 2011, oil markets should remain tight on solid EM fundamentals and potentially a looser monetary policy stance by EM central banks on the back of the recent crisis in Europe. Curves may flatten further as inventories return to normal levels and seasonal hedging activity picks up,” they wrote in an investment note.

Elsewhere, Russia's largest privately held oil company - Lukoil - reported a 16% drop in quarterly profits with net profit coming at US$1.95 billion for the April-June period. Revenues rose 28% to US$25.9 billion on an annualised basis. In statement to the Moscow stock exchange, Lukoil said it is coping with the difficult macroeconomic situation and securing positive cash flow thanks to implementing measures aimed at higher efficiency which were developed at the beginning of the year.

The company largely blamed production costs for a dip in its profits which rose 24% for the first half of 2010. In July, US oil firm ConocoPhillips, which owns a 20% stake in Lukoil, said it would sell its holdings. However, the Russian oil major issued no comment on whether it would buy-out ConocoPhillips’ holdings.

Reading investment notes and following the fortunes of Lukoil aside, I recently stumbled upon a brilliantly coined term – “petroaggressors” – courtesy of author and journalist Robert Slater. After all, little else can be said of Iran, Venezuela, Russia and others who are seeking to alter the energy security hegemony from the developed world in favour of the Third world.

In his latest book – Seizing Power: the global grab for oil wealth – Slater notes that the ranks of petroaggressors are flanked by countries such as India and China who are desperate to secure the supply of crude oil with very few scruples to fuel their respective economic growth.

It is mighty hard to imagine life without oil; such has been the dominance of the internal combustion engine on life in the developed world over the last six decades. Now the developing world is catching-up fast with the burgeoning economies of China and India leading the pack. End result is every economy, regardless of its scale is suddenly worried about its energy security. Slater opines that a grab for this finite hydrocarbon may and in some cases already is turning ugly.

In fact he writes that the West, led by the US (currently the world's largest consumer of crude oil), largely ignored the initial signs regarding supply and demand permutations. As the star of the major oil companies declines, Slater writes that their market share and place is being taken not by something better - but rather by state-run, unproductive and politics-ridden behemoths dubbed as National Oil Companies (NOCs).

If the peak oil hypothesis, ethical concerns, price speculation and crude price volatility were not enough, geopolitics and NOCs run by despots could make this 'crude' world reach a tipping point. Continuing on the subject of books, journalist Katherine Burton's latest work - Hedge Hunters: How Hedge Fund Masters Survived is a thoroughly decent one.

In it, she examines the fortunes of key players in the much maligned, but still surviving hedge fund industry. In the spirit of a true oilholic, I jumped straight to Chapter 9 on the inimitable Boone Pickens, before immersing myself in the rest of her book.

© Gaurav Sharma 2010. Photo: Oil rig © Cairn Energy Plc

Crude Dips but Total Warns of Year-end Price Spike

Crude prices dipped yet again last week, especially towards the end of the week, as bearish trends witnessed in the wider financial markets clobbered commodities. Additionally, the US Department of Energy reported a 1.9 million barrel peak-to-trough decline of crude oil inventories (gasoline and distillate inventories both rose).

The drawdown was above expectations and NYMEX WTI August contract fell 30 cents to US$75.64 a barrel in New York following publication of the report. In fact, crude prices, instead of being the exception, were following the norm as commodities in general suffered their first negative quarter since 2008, if the past three months are anything to go by.

Problem these days is that higher institutional investor participation in commodities markets has without a shadow of doubt, at least in my mind, increased the connection between forex carry trade and stock market fluctuations with commodity assets. Still, most oil market commentators I have spoken to forecast crude prices as well as commodities prices to reverse last week’s losses as the supply and demand scenario has not been fundamentally altered. In fact, it remains strong.

However, Christophe de Margerie, CEO of oil major Total believes crude prices could spike on account of an entirely different reason – the Gulf of Mexico oil spill. Speaking to the Wall Street Journal, he said that while it remained necessary to drill in deep waters to meet global demand for fuel, tougher safety rules could result in higher crude price.

"Total’s policy is clearly towards zero risk. All this means potential additional costs," de Margerie said, adding that oil prices could reach US$90 a barrel by end-2010.

© Gaurav Sharma 2010. Photo courtesy © Cairn Energy Plc

OPEC 'Comfortable' with Oil Prices

OPEC appears to be comfortable with the current price of oil, presently trading at US$ 75+ per barrel, according to the cartel’s Secretary General Abdalla Salem El-Badri.

Speaking to journalists, prior to a meeting with European Union representatives, he said, “Current prices are comfortable. I don't see any change in the production; I don't see any meeting coming before the set-up meeting in October (viz. 14)."

El-Badri added there was plenty of oil in the supply chain and that and discipline was needed among OPEC member countries when it came to compliance with production quotas. He felt compliance was recently around 53%, and said he doesn't see the level falling below that.

His comments, while noteworthy, hardly come as a surprise. The OPEC secretary general also said that oil giant BP was “too big” to be pushed to a Chapter 11 bankruptcy in the US following the Gulf of Mexico oil spill which is yet to be plugged. However, he added that the oil spill may impact crude prices in the long-term if regulation becomes too strict and projects get cancelled or delayed.

On the sidelines of El-Badri’s arrival in Brussels, news emerged that energy giant Total has stopped petrol deliveries to Iran, bowing to pressure over Iran's nuclear programme. A spokeswoman for Total confirmed the move on Monday evening after the US Congress had earlier proposed unilateral sanctions that could punish companies doing business with Iran.

Additionally, Reuters reported that Repsol had withdrawn from a contract it won with Royal Dutch Shell to develop the South Pars gas field in southern Iran. Despite, being a leading member of OPEC and a major oil exporting country Iran suffers from a severe lack of refinery capacity and depends on petrol imports for over 30% of its domestic consumption according to industry estimates.

© Gaurav Sharma 2010. File Photo © Gaurav Sharma 2008 - OPEC Secretary General Abdalla Salem El-Badri (right) with Former OPEC President Chakib Khelil (left)