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Hess chief warns on falling deepwater investments

  • Spanish Market: Crude oil
  • 02/12/16

The collapse of investments in deepwater and offshore oil projects is a key market risk, US independent producer Hess chief executive John Hess said.

"At these prices offshore and deepwater investment has been shut down and it will start showing its head in 2018-20," Hess said. US shale production will stay flat at $50/bl and will start growing if prices climb over $60/bl, he said during a discussion at the Washington-based think tank Center for Strategic and International Studies (CSIS).

Even though US shale output can recover quickly, "you are going to need Opec, you are going to need one cycle projects" to meet the future oil demand, Hess said. "Investment is not made in [the offshore and deepwater] business. That is the real risk we have."

Hess still is investing in its Stampede complex in the US Gulf of Mexico which is slated for completion in 2018. And BP just approved the second phase of its Mad Dog oil field project in the US Gulf after slashing costs by more than half to $9bn.

But the effect of delayed or cancelled investments from 2014-16 is expected to take a toll on the US Gulf production, according to the US Energy Information Administration's 2016 Annual Energy Outlook. The lower-48 offshore production is expected to peak at 1.98mn b/d in 2020-21 and decline at a 2pc/yr rate in the following decade.

The price of oil is not the only factor deterring deepwater projects globally, former Schlumberger chief executive and former BG Group chairman Andrew Gould said.

"Deepwater is only economic where there is critical mass, [such as] the Gulf of Mexico and Brazil," he said. at the CSIS event. Shell, which acquired BG, and Statoil are developing offshore gas projects in Tanzania but the political and legal uncertainty is a major deterrent for investors despite the resource potential, Gould said. The LNG project under development is based on total estimated offshore gas resources of 55 Tcf (1.6 trillion m³).

Hess and Gould were in Washington to moderate a discussion with former Saudi oil minister Ali Naimi, who is on a worldwide tour promoting his memoir.

Naimi's strategy to force high-cost oil producers globally to "find a way to lower their costs, borrow cash or liquidate" has succeeded because the market is getting into balance, Hess said. "Producers now have to compete on costs," he said, citing the success of US shale producers in dramatically slashing services and operational costs. US shale breakeven costs as a result dropped to about $50/bl, he said.

There are hugely divergent cost estimates for US shale breakeven costs, Gould said. "Even in the Permian, shale will not be viable at $50/bl. The service industry has been so decimated in the US that any increase in rigs is going to push up costs."

Naimi largely steered clear of discussing current oil market dynamics. But he offered a word of caution on the 30 November Opec agreement to cut output for a six-month period starting 1 January.

"If they make a concerted effort to get everyone, that can be done. But it remains to be seen," he said.

The agreement depends on Russia's cooperation, which was elusive in the past, he said.

"The only tool Opec has is to constrain production and the unfortunate part is we tend to cheat," Naimi said. "There is not much you can do if there is no maximum cooperation between the producers."


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18/09/24

Citgo auction result delayed amid last-minute motions

Citgo auction result delayed amid last-minute motions

Houston, 18 September (Argus) — The US court-appointed special master overseeing the auction of US refiner Citgo plans to object to a last-minute motion from the Venezuelan government to delay the sale process by four months. The Republic of Venezuela and state-owned oil company PdV filed a motion on Tuesday seeking a four-month pause in the sale of its refining subsidiary Citgo, which is being auctioned off to satisfy debts owed by PdV. Special master Robert Pincus said in a court filing today that he intends to object to Venezuela's motion for a pause. The last-minute motion from Venezuela comes days after the US District Court for the District of Delaware was expected to announce results of the winning bidder. The court asked for a second extension to the auction process in August, delaying announcing a successful bidder to on or about 16 September with a sale hearing on 7 November. But Pincus is now dealing with last-minute legal challenges filed last week outside of the Delaware courts by so-called "alter ego" claimants seeking to "circumvent" the Delaware court's sales process and "jump the line" for enforcing claims against PdV, the special master said in a filing last week. Bidders for Citgo's 804,000 b/d of refining capacity, terminals, retail fuel stations and other plants expect the assets to be sold free and clear of future claims by PdV creditors. Unresolved legal liabilities could lower the value bidders are willing to pay for Citgo, decreasing the pool of money available to those owed by PdV. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US seeks to purchase 6mn bl for SPR


18/09/24
18/09/24

US seeks to purchase 6mn bl for SPR

Washington, 18 September (Argus) — President Joe Biden's administration is trying to purchase 6mn bl of sour crude for delivery to the US Strategic Petroleum Reserve (SPR) as part of a plan to issue solicitations when prices are "favorable for taxpayers." The US Department of Energy (DOE) today released a solicitation to purchase up to 6mn bl of sour crude for delivery in February-May to the SPR's Bayou Choctaw site in Louisiana. If the purchase is successful, it would be the largest single purchase since the Biden administration launched its crude purchase program in early 2023. The solicitation offers a chance for the administration to buy crude for the SPR at a lower price than earlier purchases. Nymex WTI crude futures for delivery in February settled at $68.41/bl on Tuesday. The lowest-priced crude purchase under Biden was a 1.7mn purchase at a price of $72/bl in June 2023, and the average purchase price is about $76/bl. Bids for the solicitation are due by noon ET on 25 September. DOE has already purchased more than 50mn bl of sour crude for the SPR, of which 30mn bl have already been delivered. On 9 September, DOE said it purchased 3.42mn bl of sour crude for the SPR's Bryan Mound storage site at a price of $72.46/bl from the trading firm Macquarie Commodities Trading. The crude will be delivered in January-March, adding to an earlier purchase of nearly 2.5mn bl that will be delivered to the Bryan Mound site over the same time frame. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

TMX is a fossil fuel subsidy of at least C$8.7bn: IISD


18/09/24
18/09/24

TMX is a fossil fuel subsidy of at least C$8.7bn: IISD

Calgary, 18 September (Argus) — Canada's newest crude pipeline to the country's west coast amounts to a fossil fuel subsidy of at least C$8.7bn ($6.4bn), a research and policy think-tank said. The federal government is unlikely to recover its C$34bn investment to construct the 590,000 b/d Trans Mountain Expansion (TMX) connecting oil producers in Alberta to the Pacific coast, qualifying the project as a major subsidy for the fossil fuel industry, according to the International Institute for Sustainable Development (IISD) on Wednesday. This runs contrary to the government's policy to eliminate direct support for the oil and gas sector , a goal Justin Trudeau's Liberals said was achieved in 2023. The government was the first G20 country to hit this milestone, following a 2009 commitment by the group to reach the goal by 2025. The subsidy as it relates to TMX could be as high as C$18.7bn, the Canadian non-profit said, but noted the entire amount could still be recovered by increasing tolls and/or implementing a levy. This levy could be against either all producers, or all shippers, of crude in the Western Canadian Sedimentary Basin (WCSB), whether they use TMX or not, the IISD suggested. About 90pc of Canada's crude production comes from western Canada, with much of that derived from Alberta's oil sands region. "A levy in the range of C$1-2/bl . . . over a 10-year period would be sufficient to recover the entire cost of the subsidy and the loss to the Canadian taxpayer," according to the IISD. Alternatively, fixed tolls on TMX would need to be more than doubled to C$24.53/bl from C$11.37/bl to recover all capital costs for the line that went into service on 1 May this year, according to IISD's figures. Variable tolls would be added to this. The terms in the original contracts signed between shippers and then-owner Kinder Morgan were no longer appropriate as they did not reflect the rising risks of the project, said the IISD. Kinder Morgan suspended the project in 2018, which led to the Canadian government buying both the expansion project and the original 300,000 b/d Trans Mountain line from US midstream company that same year. The federal government has maintained its plan to sell the pipeline once operational, but the final tolls are yet to be determined. Whether the operator or shippers will bear the brunt of the massive cost overruns is also still unknown. Tolls, representing cash flows for any prospective buyer, will help dictate the price that the expanded Trans Mountain system will fetch. The IISD suggests a sale price is likely to be between C$17.6bn-26.6bn, resulting in a net loss to the government of between C$8.9bn-18bn assuming its cost of investment climbs to nearly C$36bn before a sale is reached. But despite warnings by opponents it would go underused, TMX has been as advertised, opening a new frontier for oil sands operators and disrupting trade flows throughout the Pacific Rim. By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Indian windfall tax on domestic crude output at zero


18/09/24
18/09/24

Indian windfall tax on domestic crude output at zero

Mumbai, 18 September (Argus) — India has reduced the windfall tax on domestic crude production to zero from a previous 1,850 rupees/t ($3/bl), in line with a fall in global oil prices. The new rate is effective from 18 September. The rate was last revised on 31 August when it was cut by 12pc . The rate is revised every two weeks. Global crude prices fell nearly 9pc during 1-18 September. The windfall tax was cut to zero during 4-19 April and 16 May-15 July 2023. The Indian government first imposed the windfall tax in July 2022 because of a sharp increase in crude prices that led to domestic crude producers making windfall gains. Indian producers sell crude to domestic refineries at international parity prices. India's crude production in August fell by 4pc from a year earlier to 520,000 b/d, oil ministry data show. Crude imports in August fell by 8pc from July and by nearly 1pc against a year earlier to 4.22m b/d in August, Vortexa data show. India has again extended a deadline to 21 September for submitting bids for the ninth bidding round under the Hydrocarbon Exploration and Licensing Policy's Open Acreage Licensing Programme, as it attempts to boost investment to lift domestic upstream output. By Roshni Devi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Indonesia issues regulation to build energy reserves


17/09/24
17/09/24

Indonesia issues regulation to build energy reserves

A strategic energy reserve comprising stocks of LPG, oil and gasoline could be ready by 2035 under a presidential decree, writes Prethika Nair Singapore, 17 September (Argus) — Indonesia's government has issued a presidential decree outlining plans to build strategic energy reserves, including LPG, by 2035. The decree sets out the goal of establishing stockpiles amounting to 9.64mn bl of gasoline, 10.17mn bl of oil and 525,800t of LPG within the next 11 years. "The government is aware of the importance of having sufficient energy reserves to handle risks such as global oil price fluctuations, natural disasters, or supply disruptions," Indonesian agency the National Energy Council's (NEC) secretary general, Djoko Siswanto, said on 6 September. "The provision of the [reserves] will be carried out in stages until 2035, according to the country's financial capabilities." Funds for establishing the reserves will come from the state budget and other legitimate resources, he said. The NEC will oversee the regulations while the energy ministry and companies with permits in the energy sector will manage the reserves, according to Djoko. Management includes procurement of supplies from domestic production or imports, as well as investment in infrastructure and maintenance, and the use and recovery of the reserves. The location of the reserves will be based on local geology, ease of distribution, spatial planning, supporting infrastructure and the potential for crises or emergencies, and where infrastructure is not sufficient, new facilities will be built, Djoko said. Indonesia aims to reach 1mn b/d of oil production and 12bn ft³/d (124bn m³/yr) of gas production by 2030. But its oil output fell to 606,000 b/d in 2023 from 612,000 b/d in 2022, energy ministry data show. The country's LPG imports amounted to about 6mn t in 2023, energy minister Bahlil Lahadalia says. This contrasts with imports of just over 7mn t, relatively unchanged from a year earlier, Kpler data show. The country imported around 369,000 b/d of gasoline and 29,000 b/d of crude. The energy ministry in August announced plans to boost oil and gas output by reactivating up to 1,500 idle wells, drilling more than 1,000 new wells a year and increasing recovery rates at existing wells to 50pc from 30pc. Indonesia gas production Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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