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Global Energy Advisory 1st September, 2017

Gasoline

Hurricane Harvey has taken out about a quarter of the United States’ crude oil refining capacity, after the country’s biggest refinery, Motiva’s Port Arthur facility, began shutting down Wednesday. This has caused gas prices at the pump to soar - and the soaring is far from over. Investment bank analysts are warning that the effects of the disaster will continue to be felt for at least two months.

Daily gasoline demand in the U.S. is about 9.7 million barrels, while refinery output of the most popular fuel has dropped to less than 8 million bpd. Fortunately, there is about 230 million barrels of gasoline in stock, so a large-scale shortage is unlikely. Temporary shortages, however, might occur in certain parts of the country as a number of pipelines carrying fuels from the Gulf Coast refineries to other parts of the U.S. shut down or operate at reduced capacity as a result of damage from the storm.

Heavy rains continue, which will slow down the recession of the floods that were one big reason for the refinery shutdowns, meaning the adverse effects of the hurricane will be felt for longer before everything goes back to normal. For plants in the Houston area, for example, it may take more than two weeks to resume normal operations and that’s with minimal damage from the storm. The good news is that some refiners, namely Valero and Citgo, said they are already trying to restart operations.

Deals, Mergers & Acquisitions

• Australian Santos Energy may buy sector player Quadrant, which is estimated to be worth around $3 billion. Quadrant Energy is majority-owned by Macquarie Capital and Brookfield and has hired Goldman Sachs to find a buyer. Santos is tipped to be a good suitor as shareholders have been pressuring the company to secure its future growth. While Santos may be wary of major deals, some market sources argue that it couldn’t go wrong with Quadrant – the company is the largest gas producer in Western Australia.

• Petrofac has sold its stake in Mexican Petro-SPM Integrated Services SA de CV to Schlumberger. The 50% interest was sold at book value, although this value was not disclosed. Schlumberger will pay for the interest with cash, including a deferred consideration contingent on the move from an Integrated Service Contract to another contractual form.

• Exxon has finalized the acquisition of a Singapore-based aromatics plant, one of the largest such facilities in the world. The facility has a daily crude oil processing capacity of 592,000 barrels, with an annual ethylene output capacity of 1.9 million tons. The deal will expand Exxon’s aromatics output to over 3.5 million tons annually.

Tenders, Auctions & Contracts

• Egypt has inked six contracts with Shell, Apex, Apache, and Merlon, for the development of oil and gas fields in the Western Desert. The combined value of the deals is over $160 million, with Apache making the biggest commitment, of $73 million for the development of two deposits in the desert, and Shell committing $35.5 million for the development of the Oum Baraka area.

• Mexico’s state-owned major Pemex is seeking partners for the development of the $10.7-billion Nobilis-Maximino offshore oil and gas field. A tender will be scheduled for early January next year, and the winner will receive the farm-out rights to the field. The contract, according to the head of Mexico’s energy regulator, will be the same as the one Pemex inked with BHP Billiton for the exploitation of another offshore field, Trion.

Discovery & Development

• Pemex has been granted a two-year extension to start developing 101 oil and gas blocks it was awarded three years ago as part of a wide-reaching energy industry reform. The leases on the blocks expired at the start of the week, but the energy ministry renewed them, giving Pemex another chance to perform the minimum work on the deposits envisaged in the documents.

• CNOOC has received its first crude oil cargo from Saudi Aramco. The upstream project developer was surprisingly not among Aramco’s Chinese clients but the company recently upgraded the daily processing capacity of its biggest refinery, Houzhou, and now the plant can process 440,000 bpd. Aramco’s Arab Medium blend is a preferred feedstock for the refinery.

• BP has resumed operations at the Shah Deniz field in the Caspian Sea, after two weeks of preventive works on the Alfa platform. Shah Deniz is the largest natural gas and condensate field in Azerbaijan, with reserves estimated at 1.2 trillion cubic meters of gas.

• Chevron has drilled 22 of 36 wells under a project worth $1.2 billion. The project, in Nigeria’s Niger Delta, was funded by a consortium of Nigerian and international banks led by Standard Chartered and UBA. Maximum production from the 36 wells is seen at 41,000 bpd plus gas output of 127 million cubic feet.

Company News

• Sinopec, China’s biggest oil refiner, reported a 40% jump in profits over the first half of the year on the back of higher crude oil prices and growing demand for oil products on the domestic market as the economy continues to expand. The company is upbeat about the second half as well, expecting further increases in the demand for its production.

• Equatorial Guinea has demanded 73 million euros from French Total for alleged fraud in oil product sales made between 2010 and 2012. Meanwhile, France is prosecuting Equatorial Guinea’s Vice President in absentia, seeking to impose a fine of 30 million euros for embezzlement. Equatorial Guinea is Africa’s third-largest oil producer.

Regulatory Updates

• The Federal Energy Regulatory Commission has given the green light to the NEXUS gas pipeline project that will carry natural gas from the Appalachia shale formations to Michigan and Canada. The decision comes despite vocal opposition from residents of areas along the route of the $2-billion pipeline that can carry up to 1.5 billion cubic feet of gas daily.

• Brazil’s environmental regulator Ibama has rejected a drilling application from Total and BP for exploration near a coral reef 120 km from the mouth of the Amazon River. Total, which is the leader of the project, has one more chance to win drilling rights for the Foz do Amazonas Basin, if it revises its application in a way that addresses environmental threats identified by the watchdog using oil dispersion modeling.

Politics, Geopolitics & Conflict

• Nigeria has seized $21 million from accounts that have been linked to former oil minister Diezani Alison-Madueke. Alison-Madueke is under investigation for corruption.

• Libya has lost 360,000 bpd in daily crude oil production as a result of renewed militant attacks on oil infrastructure that led to the shutdown of at least two fields.

• Australia’s Prime Minister Malcolm Turnbull has called on China to cut off crude oil supply to North Korea as it has “by far the greatest leverage” over the Korean regime.

• A Massachusetts senator has urged President Trump to start selling gasoline from the Strategic Petroleum Reserve to prevent the further increase of prices at the pump in the wake of Hurricane Harvey.

• Venezuela’s Constituent Assembly has unanimously approved a proposal to put opposition leaders on trial for treason.

• North Korea fired a ballistic missile that flew over Japan earlier this week, which prompted a show-of-force response from the U.S. in the shape of two B-1B supersonic bombers and four F-35 stealth fighters that flew in South Korea as part of a bilateral drill.





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