Week in Review – March 21 – 28

by Lina Nagell and Zachary Waller

Photo by Jerry Mathes II

New Exports for Russia, Low ruble entices import of Russian goods.

 Deputy PM Says Russian Economy Adjusting to Low Oil Prices, Weak Ruble Will Help Stabilize It

 Russian Deputy Prime Minister Arkady Dvorkovich said Wednesday that Russia’s economy is adjusting to low oil prices and that the weak ruble is helping the economy stabilize, as Russian exports to Europe and China are becoming more attractive. Dvorkovich cited the pharmaceutical and agricultural industries in particular, citing the fact that Russian agricultural exports to China have increased 25% in the last year. Interestingly, he stated that he hopes oil prices remain at about the level they are at today (US$ 41/barrel for Brent crude). He also went on to state that Russia was interested in selling shares of some state-owned companies, including strategic companies in the financial, logistics and oil sectors (although he ruled out any chance of shares being sold in Sberbank).

Cutmore, G., Matthew, A., 2016. Russia growing, low ruble will help: Deputy PM. CNBC, 23 March.


Oversupply Can LNG break even?

Challenges Facing the LNG market, Longer Recovery Than Oil as Spot Prices Crater?

Woodside Petroleum announced Wednesday 23rd of March that it would shelve the US$ 40 bln browse LNG project. Observers are stating that although this is a step in the right direction in trying to decrease future production, it is not able to bring the market into balance. The decision came just days after the first shipment of gas from the Australian Gorgon field set out for Japan, led by Chevron with partners Shell and Exxon Mobil. An IEA analyst warned that $200 bln in Australian LNG projects wouldn’t break even for investors at $60 a-barrel oil prices. Analysts at Citigroup has estimated that the global market will be oversupplied by 28 million mt by 2018, albeit before the news from Woodside – these analysts did not include projects in the U.S. which are still expected to proceed. The issue, however, is not the spot market and crude prices, but long-term contracts signed in flush times, which are now coming under pressure. As the article states: “The energy companies should have seen it coming. Tight conditions earlier this decade enabled owners of reserves to cut some sweet deals on paper. Now, the potent market weapon they wielded is flying back at them”.

Spencer Jakab, 2016. Big Oil’s Next Big Energy Problem. The Wall Street Journal, 23 March. http://www.wsj.com/articles/big-oils-next-big-energy-problem-1458748111

Angela Macdonald-Smith, 2016. Maiden Gorgon LNG cargo sets sail for Chubu Electric in Japan. The Sydney Morning Herald, 21 March. http://www.smh.com.au/business/mining-and-resources/maiden-gorgon-lng-cargo-sets-sail-for-chubu-electric-in-japan-20160321-gnn5bt.html

Bilateral Pipeline Talks Kenyan and Ugandan officials meet.

 Kenya and Uganda Meet to Discuss Possible Oil Export Pipeline Route

 Uhuru Kenyatta, the president of Kenya, and Yoweri Museveni, the president of Uganda, met Monday to discuss the route of a proposed oil export pipeline originating in Uganda. Uganda is currently in the process of deciding what route the country would like the pipeline to take in order to export oil to the world market and has decided the pipeline will run to the Indian Ocean via Kenya or Tanzania. Uganda has given mixed signals on the pipeline, with President Museveni last year calling for the pipeline to be built through Kenya only for the government to state it will be built through Tanzania earlier this year. While no agreement was reached at the meeting on Monday, the pair will meet again in two weeks in Kampala to discuss technical reports experts are currently compiling. France’s Total and Britain’s Tullow Oil both have stakes in Uganda’s oil fields and Total has been vocal about its concerns over the Kenyan route, citing security concerns, specifically over the fact the Kenyan route could run close to the border with Somalia. Tullow Oil on the other hand, has pushed hard for the Kenyan route, stating it would be cheaper due to more producers being involved in construction (it is important to note that Tullow Oil has stakes in Kenya’s oil fields as well).

Nussbaum, A., 2016. Kenya, Uganda discuss rival routes for oil export pipeline. Reuters, 21 March.


New LNG Hub? Singapore makes its move.

Singapore’s Ambition for LNG Trading Hub Presses Forward

It was during last week’s LNG supplies for Asian Markets 2016 Conference in Singapore that Minister for Trade and Industry, S. Iswaran explained that the city state aims to allow domestic gas customers to import up to 10% of their annual LNG intake from the international spot market. Many have regarded this as a brilliant move that could help establish Singapore’s regional gas trading hub ambitions. This is part of a greater effort to increase the flexibility of gas buyers through other initiatives such as the secondary gas trading market launched last October which aims at allowing customers to trade gas on a short time basis. These moves, along with the launch of futures and swaps linked to its own index of spot prices from LNG traded in Asia, is said to indicate that Singapore is pushing not only to become the premier LNG trading hub in Asia (accounting for 2/3 of global LNG demand), but also trying to replace long-held oil indexation. There are, however, some structural weaknesses set out in Singapore’s plans. The new pricing system set out in January (SLInG) is only for spot deals. While the volume of LNG spot trading in Asia will surely increase in the mid-term, spot trades in the short-term will still account for a small percentage of trades. Competition is expected from JERA Co. in price setting. In regards to LNG trading hubs, major competitors are Malaysia, UAE and Qatar. Some analysts are claiming that Singapore holds an advantage (although it currently only has one LNG terminal) due to its leading role in Asian oil pricing and oil trading hub, and therefore has considerable infrastructure in place. Important to note is that numbers this week shows that layoffs in Singapore have hit their highest levels since the global financial crisis, highlighting the adverse impact of sustained low oil prices on the city state.

Tim Daiss, 2016. Singapore’s LNG Trading Hub Ambitions Press Forward. Forbes, March 21. http://www.forbes.com/sites/timdaiss/2016/03/21/singapores-lng-trading-hub-ambitions-press-forward/#745710e773f8

Huileng Tan, 2016. Singapore layoffs in focus ahead of budget as oil flounders. CNBC, 24 March. http://www.cnbc.com/2016/03/23/singapore-layoffs-in-focus-ahead-of-budget-as-oil-flounders.html

Saudi Refining Goes Stateside, Expansion to protect market for refined products.

 Saudi Aramco Wants More U.S. Refining and Chemical Plants

 Amidst the Saudi Aramco-Royal Dutch Shell breakup of joint venture Motiva Enterprises, Saudi Aramco has announced it would like to acquire more refining and chemical plants in the United States. Saudi Aramco and Shell announced last week their plan to end their joint venture and break up Motiva Enterprises, a move which will see Saudi Aramco gain control of the United States’ largest crude oil refinery (in Port Arthur, Texas), a plant that processes 603,000 barrels of oil every day. Shell, on the other hand, will get two Louisiana plants with a combined capacity of 473,000 barrels per day. After making the announcement, Saudi Refining (a downstream division of Saudi Aramco) stated it would buy more refining and chemical assets in the United States. By expanding its operations in the world’s largest energy market, the move is largely seen as a Saudi bid to maintain a market for its products in an increasingly competitive global oil market. That desire is seen to be the cause of the split between Saudi Aramco and Shell, as Saudi Aramco is looking to expand, while Shell is currently pursuing a US$ 30 bln asset sale program.

Reuters, 2016. Saudi Aramco to target US refiners, chemical plants after Shell breakup. CNBC, 19 March.


Struggle to Expand, How to get investment during low prices?

Iran’s Oil ‘Catch-22

Iran can’t boost oil production without investment, but how to attract investment with oil at a low price? It is based on this assumption: “Tehran’s participation in a production freeze talks is not crucial, as it won’t be able to significantly increase output without foreign funding”, by Lukoil’s Vice President Leonid Fedun. This comes along side statements from OPEC delegates stating that Saudi Arabia is prepared to join an oil output freeze next month without Iran taking part – changing the view presented by Gulf officials last month, suggesting that any deal was conditional on Iranian participation. Representatives from the IEA on the other hand, have stated that a deal among some OPEC producers and Russia to freeze production is meaningless, as the only actor with real power to influence the market is Saudi Arabia. Concerns over an increasing Iranian global market share might be exacerbated by numbers published suggesting that South Korea increased imports of crude oil from Iran by over 100% in February, compared to the same month last year.

RT, 2016. Iran’s oil catch 22. RT, 24 March 2016. https://www.rt.com/business/337006-iran-oil-production-prices/

Anjli Raval, 2016. Saudi Arabia will Freeze oil output without Iran, says OPEC delegate. The Financial Times, 22 March. http://www.ft.com/intl/cms/s/0/3e0de9d2-f002-11e5-9f20-c3a047354386.html#axzz43deWwYoh

Press TV, 2016. South Korea boosts imports of Iranian crude. Press TV, 22 March. http://www.presstv.ir/Detail/2016/03/22/457025/Korea-ups-Iran-oil-imports

Reuters, 2016. OPEC, Russia oil output freeze may be ‘meaningless’: IEA. Reuters, 23 March. http://economictimes.indiatimes.com/news/international/business/opec-russia-oil-output-freeze-deal-may-be-meaningless-iea/articleshow/51526052.cms

India Oil, Expanding to Siberia

India Inks Deals with Rosneft for Stakes in Siberia

 State-run Indian companies signed deals with Rosneft last week to boost their stakes in two Siberian oil fields. What is interesting about these fields is they are linked to the East Siberia-Pacific Ocean pipeline, which links the fields to China, which buys the majority of oil in the pipeline. By raising its stakes in the fields, India could redirect its share of oil to its own refineries. This would cause a large change in how oil is shipped in Siberia, as Siberian oil typically ends up nearby in China, Korea and Japan. India is quickly overtaking China as the center of world oil demand and having stakes like this are of strategic importance to India, which imports 80% of its energy. India also appears interested in selling its share on the open market. The deals struck last week give Indian companies a 29.9% stake in Taas-Yuriakh Neftegazodobycha, while negotiations are still underway on a deal that could give Indian companies a 23.9% share in Vankorneft. If the Vankorneft deals go through, Indian companies would hold a 49.9% share in Russia’s second-largest oil development project. Russia is welcoming this investment from India as a way to keep sales up during the currently supply glut and also take market share in South Asia away from Middle Eastern producers.

Chakraborty, D., Sundria S., 2016. Russia Deals Deepen India Hold in China Oil-Buying Backyard. Bloomberg, 22 March.


Shale Development, Funds raised for Karoo Basin project. 

Challenger Energy Ltd (ASX:CEL) Raises Fund to Fuel Shale Gas Project in South Africa.

ASX:CEL announced that it has received commitments from shareholders to raise US$ 900,000 via a private placement at $0.03 each. It is the first explorer to apply for exploration rights in South Africa’s shale gas province Karoo Basin. This news comes along side news that The Council for Geoscience (CGS), in conjunction with other research bodies, is improving the understanding of the stratigraphy and basinal settings of potential shale gas reserves in the Karoo Basin region. The study focuses on two recently drilled deep-cored boreholes in the southern part of the Karoo basin.

Proactive Investors, 2016. Challenger Energy Ltd raises funds to fuel shale gas project in South Africa. Proactive investors Australia, March 21. http://www.proactiveinvestors.com.au/companies/news/67635/challenger-energy-ltd-raises-funds-to-fuel-shale-gas-project-in-south-africa-67635.html

Jlan Solomons, 2016. New Study aimed at improving understanding of potential Karoo shale gas reserves. Creamers Media’s mining weekly, 24 March. http://www.miningweekly.com/article/drilled-deep-cored-boreholes-advance-shale-gas-research-in-karoo-2016-03-25
After Export Ban, Venezuela imports American crude.

Venezuela to Import Millions of Barrels of American Crude After U.S. Lifts Oil Export Ban

 Venezuela has purchased more than 6 million barrels of American crude since the U.S. export ban on oil was lifted last year. Possessing the world’s largest oil reserves, Venezuela imports a lighter oil to mix with its heavier oil in preparation for export. Last year, Venezuela imported 40,000 barrels a day from countries like Russia, Nigeria and Angola to meet that need, but now the United States looks poised to become a major supplier to the South American country, with Venezuela receiving its first shipment of West Texas Intermediate at its refinery in Curacao in January. While relations between the United States and Venezuela remain strained, Petroleos de Venezuela SA, the state oil company, has always been interested in purchasing American crude, even before the export ban was lifted. Simply put, it is much cheaper for Venezuela to purchase and import American crude than ship oil from Russia and Africa. With the oil export ban lifted, practicality is trumping politics in Venezuela’s decision to purchase so much American crude.

Nussbaum, A., Global Oil Power Venezuela Suddenly Has a Thirst for U.S. Crude. Bloomberg, 31 March.


Nationalist Pressure, Political agenda sinks offshore project.

 Giant Indonesia Offshore Gas Project Sunk by Nationalist Economic Pressure.

Indonesia’s rejection of a US$ 15 bln gas project by Inpex Corp. and Royal Dutch Shell PLC. bodes ill for the revival of the flagging petroleum industry and highlights the nationalist pressures facing foreign investment in Southeast Asia’s largest economy, energy analysts say. Inpex and Shell suffered a blow Wednesday in their joint bid to develop one of Southeast Asia’s largest known deep-water gas blocks. President Joko Widodo rejected their plan to use a giant floating refinery in the country’s remote east, calling instead for onshore facilities to help develop the region in the Arafura Sea. Energy experts say Mr. Widodo’s rejection is a sign of nationalist pressures in an industry led by foreign players like Chevron Corp. and Total SA, at a time when exploration and new petroleum projects have fallen drastically. While the country was the world’s largest exporter of liquefied natural gas a decade ago it is now set to become a net importer in the coming years. The recent decision casts doubt on the major hopes of growth in the country’s oil and gas output.

Ben Otto, 2016. Giant Indonesia offshore Gas Project Sunk by Nationalist Economic Pressure. The Wall Street Journal, 24 March. http://www.wsj.com/articles/giant-indonesia-offshore-gas-project-sunk-by-nationalist-economic-pressure-1458808044


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