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Global Intelligence Report – 27th March 2019

Saudi Arabia

- Turkish Treasury Ministry official
- Turkish Interior Ministry official
- American intelligence contractor based in London
- British former diplomat in Saudi Arabia

ISIS may be on the run, but financially, it’s extremely adaptable. Its money is just as mobile, too. True, it may not be able to capitalize on Syria oilfields any longer, or tax Syrians unlucky enough to have lived on ISIS terrain, but holding that territory also cost ISIS a lot. It’s money lost and money gained at the same time. ISIS isn’t a state--it’s fluid, and it’s got other channels of revenues, including some very mainstream ones such as investments and even stocks. ISIS doesn’t need to own an oilfield to make money off of it--they simply switch back to extortion of supply lines. And then there’s Turkey, a major “bank” of sorts for ISIS revenues. It’s not a state-sponsored endeavor, of course--it’s Turkish individuals operating as ISIS accountants and holding money earned for them. But still, this slips by Turkish officialdom with rather too much ease.

According to our source in the Turkish Interior Ministry, there are Turkish citizens who have benefitted from ISIS oil revenues for a certain period of time. "But these people were locals who were formerly smuggling goods, like cigarettes. When ISIS offered them a share, they turned to oil smuggling. We stopped these schemes as soon as we formed an intelligence pool with our Western allies," he said.

So, similarly for now, Turkish authorities believe that some ISIS money could have leaked into Turkey and turned into gold or other assets mostly through Syrians posing as refugees. "But the volume should be really low. It can't be billions or something because we continue to crack down on them as soon as we discover leads for raids," the source added. In the past three months, Turkey arrested dozens of ISIS suspects in large cities like Istanbul, Izmir and Adana. A man who was among the 22 suspects arrested in Istanbul in February, for instance, is both a fundraiser for ISIS and was also responsible for actions of militants who go to or come from Syria.

Saudi Crown Prince Isn’t Being Sidelined

When high-profile mainstream publications such as the Guardian start reporting on speculation that the Crown Prince is being sidelined by the King due to his absence at key meetings, and that he has been stripped of duties, of an economic/financial nature, we urge caution in interpretation. What we do know from our sources is that the Guardian’s sources are a very specific type: dissidents who tend to say what they would like to be true but that are not true. In other words, it’s wishful thinking at best. The Guardian’s sources are not well-informed and not currently plugged into circles in Riyadh that matter. Our sources have regular access to the inner circle and see no signs of MBS being sidelined. His advisors are busy right now trying to blame the Qataris for connecting MBS to the Khashoggi murder through multi-million-dollar lobbying campaigns. The Qataris may not have organized this campaign against MBS, but they are trying to take advantage of it right now, using a line-up of very influential lobbyists and journalists, not to mention intelligence officials. The Qataris are bent on doing more damage to MBS and they excel at this and will likely succeed to some extent. They will definitely succeed in making sure the issue does not go away.

Golan Heights: The Oil You Should Keep An Eye On

Trump has done the unthinkable and recognized the Golan Heights as sovereign Israeli territory, despite the fact that the Israelis effectively occupied and annexed this Syrian territory (in the same way that the Russians annexed Crimea and then faced sanctions). Though Israel’s occupation of the Golan Heights since 1967 violates international law in a very clear way, the Trump administration wished to give this diplomatic victory to a beleaguered Israeli PM Netanyahu ahead of elections.

But what you might not know is that there is an interesting oil play in the Golan Heights that Trump’s recognition might boost somewhat. Genie Energy (board of advisors, Dick Cheney, Rupert Murdoch, and faces from the Foundation for the Defense of Democracies who have been advising Trump to recognize Golan as Israel’s, among other notables) was granted permission to drill for oil on the Golan Heights in 2013. They have exclusive rights, but “occupation” status was getting in the way. But there is also some suggestion that Genie has made a sizable find in Golan, and that drilling has been quite successful. The drilling is being done by Genie’s Israeli subsidiary, Afek, which was given approval in 2016 to conduct more drilling in the disputed territory based on the discovery of an oil reservoir.

No Activity at Venezuela’s Main Oil Port

On Sunday, vessel tracking data shows that a large crude oil tanker left Venezuela’s key port, Jose, but by Monday, all activity had ground to a halt due to electricity blackouts. Operations had not yet resumed at the port as of Wednesday, though Madura said power had been restored.

Global Oil & Gas Playbook

Deals, Mergers & Acquisitions

- Murphy Oil has agreed to sell its oil and gas assets in Malaysia to Thailand’s state energy company, PTTEP, as it seeks to refocus on its domestic operations and shrunk its debt load. The deal is worth $2.1 billion plus an additional $100 million of certain new projects yield the expected results before October next year.

- The Saudi Fund for Development has struck a $300-million financing deal with the national Oil and Gas Authority of Bahrain. The money will be used for export credit and insurance for Saudi oil and gas equipment manufacturers in a bid to liven up this segment of exports.

- Venezuela’s PDVSA is looking to hire tankers as U.S. sanctions have cost it the loss of vessels. Right now, the company is in urgent need of three LPG tankers, two Aframaxes, two Panamaxes, and one long-range tanker, a source from the company has told media.

- Kinder Morgan has sold its holding in a planned offshore crude oil terminal in Texas. The buyer is Enbridge but the size of the deal remained undisclosed. The COLT terminal will be built to accommodate Very Large Crude Carriers, which only the Louisiana offshore oil port can currently handle.

Tenders, Auctions & Contracts

- Petrobras will spend $320 million on put options on part of its crude oil output to hedge the output at a price of $60 per barrel in a bid to take advantage of the recent improvement in international benchmark prices. The hedge will help Petrobras protect its operational cash flow.

- South Sudan and Qatar are in oil and gas cooperation talks, including with respect to enhanced oil recovery technology and new resource exploration. Africa’s newest country has been struggling to restart its oil and gas industry in the wake of a devastating civil war that has still not really ended. At the same time, Qatar has been looking for expansion opportunities abroad. Now South Sudan hopes to boost production to 270,000 bpd from the current 180,000 bpd and eventually reach a peak of 350,000 bpd.

- Shell and Energy Transfer Partners have settled their differences regarding the planned Lake Charles LNG project and now the companies could continue working on the project. The final investment decision has been scheduled for the first half of 2020. The project will have a processing capacity of 2 billion cu ft daily.

- For investors waiting to hear about Tellurian’s $30-billion Driftwood LNG export project in Louisiana, the company is expected to make an FDI in the first half of this year. Tellurian recently noted that it would “likely” launch the first phase of the project with “half a dozen” customers/partners.

Discovery & Development

- Petrobras has launched production from a fourth floating production, storage and offloading vessel at the Buzios field. The vessel has a daily oil processing capacity of 150,000 barrels and natural gas compression capacity of up to six million cubic meters. The recoverable reserves of Buzios are estimated at more than 3 billion barrels of oil equivalent. Petrobras also said this week that it was planning to spend $320 million on put options to hedge its Brent oil output.

- Venezuela’s oil production slumped by another 142,000 bpd in January following the introduction of more severe U.S. sanctions targeting specifically the country’s oil industry. As a result, the country was producing around 1 million bpd in February, down from more than 1.2 million bpd just five months earlier.

- A 3.6 MW solar farm made up of 10,000 panels is planned to turn a Dutch village into a carbon-neutral community by 2030. Construction work on the facility is scheduled to begin this June, at an old landfill site. When completed, the farm will produce enough electricity to power 900 households.

- Crude oil production in the North Sea could see a decline in May and June, to the tune of more than 400,000 when fields in the Greater Ekofisk Area close for maintenance. That’s according to Rystad Energy, which added the production decline will be temporary.

- China’s Sinopec--the country’s largest refiner and one of top two oil and gas producers--has essentially been ordered to increase production at any cost. To that end, Sinopec has announced a fourfold increase in capital spending for this year, intending to drop a lot of cash on old wells and expensive new exploration (unlike global oil majors who are pursuing buybacks and bigger shareholder dividends).

- Citing a “marginal” improvement in rail economics, Canadian Imperial Oil has resumed crude oil shipping from its Alberta terminal after having cut shipments from 170,000 bpd in December to almost nothing in February. The resumed shipments are small, and the latest data on total Canadian rail shipments of crude are now only around 175,000 bpd--half of what they should be.

Politics, Geopolitics & Conflict

- Brazil’s former president Michel Temer has been arrested on charges of leading a “criminal organization” that participated in a corruption ring.

- Sudan has accused Egypt of holding an oil and gas auction in waters that belong to its territory and has asked it to suspend the auction.

- Media reports say the Israeli Defense Forces are preparing for a ground operation in Gaza, and will be buoyed by Trump’s recognition of the Golan Heights.

- The US has cut a deal with a strategic port in Oman to reduce dependence on the Strait of Hormuz, which can in theory be cut off by Iran. This is a military deal, even if Oman doesn’t see it that way. It is using this fund economic development, but the fact is that this is a way for the US military to access the Gulf without going through the Strait of Hormuz.

- Keep a close eye on developments in oil-and-gas major Algeria as the opposition comes closer to the end game of getting rid of President Bouteflika, whose days are now clearly numbered. The political unrest and what is to come in a transition should have oil watchers worried. The opposition did agree to a transition deal this week that would install a transitional government for six months, comprised of individuals who would not be able to run for president or back any candidate. Oil and gas production and exports have not been affected by the unrest, but are more likely to be affected by what comes next. Already, key figures have abandoned Bouteflika, hedging their bets that he has lost this game.

- Saudi Arabia’s King Salman has met with Libya’s General Haftar in a move that adds to Haftar’s alliance list ahead of his bit to take Tripoli. That leaves only Qatar on the sidelines.

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