US tries oil diplomacy to ease sanctions fears

Spanish Market: Crude oil
04/10/18

The US administration is publicly urging Mideast Gulf Arab partners to increase oil output to reinforce its narrative that US sanctions on Iran will not leave the world short of crude.

The State Department says it is encouraging Opec countries to utilize spare capacity to ensure world oil supply meets the demand. Opec and its partners in the Vienna output cut agreement "continue to withhold oil production," the State Department said. It said that Opec "is not deploying" its spare capacity of 1.42mn b/d" — an estimate provided by the Energy Information Administration (EIA) in its latest report on the effects of Iran oil sanctions. The US will reimpose oil sector sanctions on Iran on 5 November, but exports from that country already are falling sharply.

US energy secretary Rick Perry said last week that Saudi Arabia and Kuwait plan to re-activate production in their shared Neutral Zone, possibly adding 250,000-300,000 b/d. Washington is also pushing Iraq's central government to resolve a dispute with the Kurdistan Regional Government over northern Iraqi oil fields that could add another 250,000 b/d.

And it is eager to highlight the US' own growth in production. The EIA projects US crude output rising to 11.5mn b/d in 2019 from 10.66mn b/d in 2018. "A lot of inside estimates in the agencies in our government are suggesting 15mn b/d in 2020," White House chief economic adviser Larry Kudlow said today. The yet-unsubstantiated projection would require a 30pc jump in production.

President Donald Trump, with an eye on the mid-term elections on 6 November, is himself contributing to the effort with trademark attacks on Opec and its key producers. Trump in political rallies in West Virginia, Pennsylvania and Tennessee earlier this week said he asked Saudi King Salman bin Abdulaziz in a phone conversation on 29 September, "why are we subsidizing the Saudi military?" Trump says the Mideast Gulf countries should heed Washington's requests to bring down oil prices in exchange for continued US military protection.

The US efforts may have yielded some results. Saudi Arabia is currently producing 10.7mn b/d, and its output will go slightly higher in November, oil minister Khalid al-Falih said yesterday at the Russian Energy Week conference in Moscow. That compares with 10.4mn b/d in August.

"My position on the price is that it is left to the markets," al-Falih said. "What we can influence is fundamentals, and the fundamentals today are extremely healthy. Inventories are actually building counter-seasonally." Saudi Arabia and Russia together have added 1mn b/d of supply since June, in addition to higher volumes from the UAE and Iraq, he said. "We have to assume that geopolitical tension and speculation will ultimately ebb and we will see stability back in the market."

The recent increase in oil prices has nothing to do with the Opec/non-Opec agreement, Russian president Vladimir Putin said at the conference in Moscow. "Let us be frank — the high prices today are substantially the result of the US administration's policies" targeting Iran, Venezuela and Libya, Putin said. "I had a good summit with the US president in Helsinki. If we had discussed this subject, I would have told Donald to look in the mirror if he was looking for a culprit behind the oil price hike."

Russia in recent months increased output by 400,000 b/d and can add another 200,000-300,000 b/d "if necessary," Putin said.

Russia stands to gain market share and tax revenue as a result of curbs on Iran's exports, even though it opposes Trump's decision to exit the Iran nuclear deal and re-impose sanctions on exports of oil from that country.

Putin said the EU plan to bypass US financial sanctions on Iran was a belated move, "but better late than never."

Russia also is considering payment mechanisms to bypass the US dollar because of the risk of additional US sanctions, Russian energy minister Alexander Novak said today.

Surgutneftegaz, a major Russian oil and gas producer whose general director Vladimir Bogdanov is on the US sanctions list, already is demanding its overseas crude buyers sign agreements to potentially pay in euros instead of US dollars.

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30/04/24

G7 countries put timeframe on 'unabated' coal phase-out

London, 30 April (Argus) — G7 countries today committed to phasing out "unabated coal power generation" by 2035 — putting a timeframe on a coal phase-out for the first time. The communique, from a meeting of G7 climate, energy and environment ministers in Turin, northern Italy, represents "an historic agreement" on coal, Canadian environment minister Steven Guilbeault said. Although most G7 nations have set a deadline for phasing out coal-fired power, the agreement marks a step forward for Japan in particular, which had previously not made the commitment, and is a "milestone moment", senior policy advisor at think-tank E3G Katrine Petersen said. The G7 countries are Italy — this year's host — Canada, France, Germany, Japan, the UK and the US. The EU is a non-enumerated member. But the pledge contains a caveat in its reference to "unabated" coal-fired power — suggesting that abatement technologies such as carbon capture and storage could justify its use, while some of the wording around a deadline is less clear. The communique sets a timeframe of "the first half of [the] 2030s or in a timeline consistent with keeping a limit of 1.5°C temperature rise within reach, in line with countries' net-zero pathways". OECD countries should end coal use by 2030 and the rest of the world by 2040, in order to align with the global warming limit of 1.5°C above pre-industrial levels set out in the Paris Agreement, according to research institute Climate Analytics. The countries welcomed the outcomes of the UN Cop 28 climate summit , pledging to "accelerate the phase out of unabated fossil fuels so as to achieve net zero in energy systems by 2050". It backed the Cop 28 goal to triple renewable energy capacity by 2030 and added support for a global target for energy storage in the power sector of 1.5TW by 2030. The group committed to submit climate plans — known as nationally determined contributions (NDCs) — with "the highest possible ambition" from late this year or in early 2025. And it also called on the IEA to "provide recommendations" next year on how to implement a transition away from fossil fuels. The G7 also reiterated its commitment to a "fully or predominantly decarbonised power sector by 2035" — first made in May 2022 and highlighted roles for carbon management, carbon markets, hydrogen and biofuels. Simon Stiell, head of UN climate body the UNFCCC, urged the G7 and G20 countries to lead on climate action, in a recent speech . The group noted in today's outcome that "further actions from all countries, especially major economies, are required". The communique broadly reaffirmed existing positions on climate finance, although any concrete steps are not likely to be taken ahead of Cop 29 in November. The group underlined its pledge to end "inefficient fossil fuel subsidies" by 2025 or earlier, but added a new promise to "promote a common definition" of the term, which is likely to increase countries' accountability. The group will report on its progress towards ending those subsidies next year, it added. Fostering energy security The communique placed a strong focus on the need for "diverse, resilient, and responsible energy technology supply chains, including manufacturing and critical minerals". It noted the important of "guarding against possible weaponisation of economic dependencies on critical minerals and critical raw materials" — many of which are mined and processed outside the G7 group. Energy security held sway on the group's take on natural gas. It reiterated its stance that gas investments "can be appropriate… if implemented in a manner consistent with our climate objectives" and noted that increased LNG deliveries could play a key role. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US commends China's Middle East mediation

29/04/24

US commends China's Middle East mediation

Washington, 29 April (Argus) — The US hopes China will continue using its diplomatic influence in the Middle East after the two countries cooperated earlier this month to de-escalate tensions between Israel and Iran, US secretary of state Tony Blinken said today. "We did come very close to an escalation, a spread of the conflict," after Israel and Iran exchanged aerial attacks on each other's territory, Blinken said at a special meeting of the World Economic Forum in the Saudi Arabia capital Riyadh. The US saw that China used its influence in Iran to prevent an outbreak of a broader regional conflict "and that's a positive thing," Blinken said. Beijing stepped in last year to mediate an agreement between Tehran and Riyadh to normalize relations, playing a mediation role that the US could not carry out on its own. The US supported Chinese efforts to normalize Saudi-Iranian relations "because, if we can find through diplomacy ways to ease tensions and to avoid any conflict, that's a good thing," Blinken said. China has "a clear, obvious interest in stability in the Middle East," he said. "They obviously depend on the region for energy resources. There are many vital trading partners here." China provides a critical economic lifeline to Iran by absorbing nearly all of Iranian crude exports, "which is another challenge," Blinken said. But the US sees China as acting in its self-interest to help bolster stability in the Middle East. Finding some common ground on Iran was a rare positive spot during Blinken's visit to China last week. Blinken pushed his Chinese counterparts to put an end to private Chinese companies' supplies for Russia's military industry, while President Xi Jinping accused the US of undermining China's economic growth. "China and the US should be partners rather than rivals," Xi told Blinken during their meeting in Beijing on 26 April. The two countries should find common ground "rather than engage in vicious competition," Xi said. The US contends that Chinese companies supply 70pc of the machine tools and 90pc of the microelectronics for the Russian military industry, allowing Moscow to significantly increase weapons output in the past year. It remains to be seen whether the US threat of sanctions against Chinese companies accused of helping Russia's military industry will work, Blinken said. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Service firms talk up long-term gas prospects

29/04/24

Service firms talk up long-term gas prospects

New York, 29 April (Argus) — Leading oil field service firms are bullish on the outlook for natural gas demand in coming years even though the fuel remains stuck in the doldrums for now, with US prices near pandemic lows amid oversupply after a mild winter. "This is the age of gas," Baker Hughes chief executive Lorenzo Simonelli says, adding that global demand for the power plant and heating fuel is due to climb by almost 20pc through 2040. "Gas is abundant, lower emission, low cost, and the speed to scale is unrivalled," he says. Halliburton also sees natural gas as the "next big leg of growth" in North America, driven by demand for LNG expansion projects, although its current plans do not envisage any comeback this year. Given a shrinking fracking fleet and lack of new equipment being built, the stage is set for an "incredibly tight market" in future, chief executive Jeff Miller says. A recovery in natural gas activity in the US may not happen until the end of this year or even 2025, Liberty Energy chief executive Chris Wright says. "Customers need to see that prices have firmed, that export volume demand actually is pulling upward at a meaningful rate," he says. On recent first-quarter earnings calls, service firms were upbeat about international growth prospects in the face of escalating geopolitical tensions in the Middle East. The backdrop remains one of growing demand for oil and gas and an "even deeper focus" on energy security, according to Olivier Le Peuch, chief executive of SLB, the world's biggest oil field service company. SLB, formerly known as Schlumberger, expects overseas growth momentum to make up for a slowdown in North America this year. "The relevance of oil and gas in the energy mix continues to support further investments in capacity expansion, particularly in the Middle East and in long-cycle projects across global offshore markets," Le Peuch says. But results in North America will be depressed by the combination of low gas prices, capital discipline and producer consolidation. International rescue Halliburton expects international revenue growth in the "low double-digits" for the full year, with some margin expansion given the tight market for equipment and labour. Steady activity levels are seen in North America after land completion activity bottomed out in the fourth quarter of 2023 and rebounded in the first quarter. "The world requires more energy, not less, and I'm more convinced than ever that oil and gas will fill a critical role in the global energy mix for decades to come," Miller says. The positive outlook is reinforced by customers' multi-year activity plans across markets and assets. Baker Hughes forecasts "high single-digit growth" when it comes to the outlook for international drilling and completion spending this year. But customer spending in North America is expected to fall in a "low to mid-single-digit range" when compared with 2023. "We continue to anticipate declining activity in the US gas basins, partially offsetting modest improvement in oil activity during the second half of the year," Simonelli says. Beyond 2024, upstream spending is seen growing further across international markets, albeit at a "more moderate" pace than seen in recent years, according to Baker Hughes. SLB paced a decline among oil service stocks at the end of January when state-controlled Saudi Aramco scrapped plans to increase crude output capacity to 13mn b/d from 12mn b/d. But Saudi Arabia has stepped up its plans to boost gas output, by 60pc by 2030. This new energy mix was not anticipated six months ago, but it will "not have a natural impact on our ambition for growth" in Saudi Arabia, Le Peuch says. And Saudi gas plans will require substantial investment in gas infrastructure, which is a "long-term net positive" for Baker Hughes, Simonelli says. By Stephen Cunningham Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Production, patience driving Canada’s oil sands profits

29/04/24

Production, patience driving Canada’s oil sands profits

Calgary, 29 April (Argus) — Canadian oil sands operators enjoying firm profits on strong production are getting ready for a major boost when a new export pipeline to the Pacific coast goes into commercial service this week. The federally owned 590,000 b/d Trans Mountain Expansion (TMX) remains on track to start operations on 1 May, and the line has already started to bear fruit. More than 4mn bl of Canadian crude is being pushed into the C$34bn ($25bn) expansion for linefill, helping to work down inventory levels in Alberta while lifting local prices relative to international benchmarks, as intended. The largest four oil sands companies — Canadian Natural Resources (CNRL), Cenovus, Suncor, and Imperial Oil — are all shippers on the expansion. They closed 2023 with a new production record of 3.6mn b/d of oil equivalent (boe/d) combined in the fourth quarter, and are targeting further increases as they plan to fill the new pipeline. About 80pc of their output comes from their core oil sands businesses, with the balance from natural gas and offshore projects. The higher output compensated for a slight dip in prices, helping to push profits higher. First-quarter 2024 results are likely to be a similar story, but it is the second quarter when producers look ready to shine as prices climb to multi-month highs. A combined profit of C$26bn in 2023 was a stellar result for the big four oil sands operators, despite a 25pc decline from the record C$34bn set the previous year. Their massive projects are agnostic to daily price swings, instead focused on uptime, long-term fundamentals and capitalising on key step-changes such as the one TMX presents. Patience in the oil sands is key. TMX will cater largely to heavy crude producers, which saw diluted bitumen prices in Alberta rise only slightly quarter on quarter to $58/bl in the first quarter. But climbing global benchmarks in April and a shrinking heavy sour discount with the help of TMX linefill now has the outright price for the crude approaching $70/bl. This is above guidance given in 2024 corporate budgets, and far above oil sands operating costs that for some are as low as $12/bl. The TMX factor TMX will nearly triple the existing 300,000 b/d Trans Mountain system that connects oil-rich Alberta to the docks in Burnaby, British Columbia. The expansion was first conceived more than a decade ago with the intention of being operational by late-2017, but cost overruns and repeated delays put the project in jeopardy. Canadian producers that sought growth during that period of frustration are poised to take advantage of this new era of excess export capacity. CNRL, Cenovus and Suncor have been significant buyers in the oil sands in recent years, doubling down on the world's third-largest deposit of oil while many international companies fled amid regulatory uncertainty. The government itself enabled a foreign operator to leave Canada, buying the Trans Mountain system from Kinder Morgan in 2018. But as Prime Minister Justin Trudeau's Liberal party sees TMX to completion, and then the line's planned sale, it is also readying legislation towards something more on-brand for climate-concerned Ottawa: carbon capture. A carbon capture and storage (CCS) project spearheaded by Pathways Alliance — a consortium of the six largest oil sands producers — is awaiting federal and provincial help to push their proposal forward. Federal incentives are soon to become law, the Trudeau government said this month, with the expectation that tax credits will advance the massive C$16.5bn project and start to offset oil sands greenhouse gas emissions to meet net zero pledges for all parties involved. TMX represents a new era for Canadian crude producers, but so too does CCS, as it could attract even more investment into Alberta's oil sands region. By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

S Korea’s SK Innovation sees firm 2Q refining margins

29/04/24

S Korea’s SK Innovation sees firm 2Q refining margins

Singapore, 29 April (Argus) — South Korean refiner SK Innovation expects refining margins to remain elevated in this year's second quarter because of continuing firm demand, after achieving higher operating profits in the first quarter. SK expects demand to remain solid in the second quarter given a strong real economy, expectations of higher demand in emerging markets and continuing low official selling price (OSP) levels. This is despite the US Federal Reserve's high interest rate policy and oil price rallies, which are weighing on crude demand. The company's sales revenue dropped to 18.9 trillion won ($13.7bn) in the first quarter, down by 3.5pc on the previous quarter. Its energy and chemical sales accounted for 91pc of total revenue, while battery and material sales accounted for the remaining 9pc. But SK's operating profit increased to W624.7bn in January-March from W72.6bn the previous quarter. This came as its refining business flipped from an operating loss of W165bn in October-December to an operating profit of W591.1bn in the first quarter. SK attributed this increase to elevated refining margins because of higher oil prices, as well as Opec+ production cut agreements and OSP reductions. First-quarter gasoline refining margins almost doubled on the previous quarter from $7.60/bl to $13.30/bl, although diesel and kerosine edged down to $23.10/bl and $21.10/bl respectively. SK Innovation's 840,000 b/d Ulsan refinery operated at 85pc of its capacity in the fourth quarter, steady from 85pc in the previous quarter but higher than 82pc for all of 2023. The refiner's 275,000 b/d Incheon refinery's operating rate was at 88pc, up from 84pc in the fourth quarter and from 82pc in 2023. SK plans to carry out turnarounds at its 240,000 b/d No.4 crude distillation unit and No.1 residual hydrodesulphuriser, both at Ulsan, in the second quarter. Its No.2 paraxylene unit in Ulsan will have a turnaround in the same quarter. By Tng Yong Li Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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