Shell announces an agreement to sell a 23% interest in the Parque das Conchas (BC-10) project offshore Brazil to Qatar Petroleum International for approximately US $1 billion, subject to closing

The transaction is subject to approval by the National Petroleum and Gas Agency (ANP, Brazil's Oil and Gas regulator) and the Administrative Council for Economic Defense (CADE, Brazil's anti-trust authority).

Shell will continue to operate BC-10 with a 50% working interest and retains a significant upstream presence in Brazil. In addition to the recent entry into the Libra oil discovery, Shell is currently operating two floating, production, storage and offloading (FPSO) vessels in Brazil's offshore – the Espírito Santo at Parque das Conchas and the Fluminense at the Bijupirá/Salema fields.

Currently, BC-10 is producing approximately 50,000 boe/d. Since coming on-stream in 2009, BC-10 has produced more than 80 million barrels of oil equivalent (boe). Phase 2 of the project, to tie-in the Argonauta O-North field, came online on October 1st 2013, with an expected peak production of 35,000 boe per day. The final investment decision for Phase 3 of the BC-10 project was taken in July 2013 and once online is expected to reach a peak production of 28,000 boe.

Shell has also other interests in Brazil, particularly our Lubricants business and our joint venture Raízen, the leading sugar cane ethanol producer.

New report reveals optimism in the sector but caution over rising costs and oil prices

Amid a positive outlook for the industry in 2014, senior oil and gas professionals have forecasted tighter monitoring of capital expenditure (capex) this year, according to new research published today by DNV GL, the leading technical advisor to the oil and gas industry. While nine in 10 (88%) respondents to the research are confident about the sector, concerns over rising operational costs, a shortage of skilled professionals and competition from international rivals are causing professionals to focus spending on the projects that will provide the greatest return on investment.

According to the report, the proportion of companies planning to increase investment in new projects has declined by 18 percentage points over the past three years, from a high of 63% in 2012 to just 45% in 2014. For the first time since 2011 and the aftermath of Macondo, overall confidence in the oil and gas sector has fallen – albeit only by one percentage point – signaling a shift in sentiment.

The findings come from a new research report, Challenging Climates: The outlook for the oil and gas industry in 2014, which was undertaken on behalf of DNV GL. The research provides a snapshot of industry sentiment about the year ahead and is based on a survey of more than 430 senior oil and gas professionals and in-depth interviews with more than 20 industry executives.

Key findings include:

•    Despite some signs of caution, the overall outlook for 2014 is confident among industry professionals: around nine in 10 (88%) are optimistic about the outlook for 2014

•    Respondents expect to keep a closer watch on costs: six in 10 (62%) intend to pressure suppliers to curb cost increases next year, especially across Asia

•    Uncertainty over oil and gas prices will be more prevalent in 2014: nearly one in four (23%) of industry professionals thinks oil and gas prices will weaken this year, while 36% remain unsure

The report revealed a number of other findings including the skills issue and related to various regions. More about this here:

Shortage of key skills will be greatest barrier to oil and gas industry growth, new research reveals
 

North Sea oil and gas investment softens

New report reveals confidence among Asia Pacific oil and gas professionals 


New report reveals: North America and Brazil to hold greatest growth opportunities for oil and gas industry in 2014
 

Elisabeth Tørstad, CEO of DNV GL – Oil & Gas, says: “Oil and gas industry projects are becoming increasingly complex as the industry continues to operate in more challenging environments. The cost of exploration and production is rising, the industry’s pool of skilled professionals is decreasing and companies are feeling greater pressure on their overheads. This is all leading to great focus and a degree of ‘belt tightening’ across the industry with a view to keeping a tighter rein on capital expenditure. Although confidence is still high, for the first time since 2011 and the aftermath of Macondo, overall confidence in the oil and gas sector has fallen marginally, signaling a slight shift in sentiment.

“We’re also starting to see signs of greater consolidation across the oil and gas industry supply chain. Our research gives clear signs that pressure will be put on suppliers to become more innovative, to reduce costs and to show value in 2014 by providing access to scarce, in-demand skills and by demonstrating real quality in the products and services they deliver.”
 

Greater consolidation 


In response to rising costs, operators will seek to rely on larger supply chain partners which are more capable of providing a consistent global service, according to the report. About one in five (22%) survey respondents says that their company will increase its work with larger partners, compared with just 6% in 2012.
Furthermore, more than a third (37%) of operators say that their companies intend to acquire partners with the specialist knowledge and skills they need as they move into tougher exploration and production sites, with almost half (49%) saying they will need to increase alliances with others to share knowledge in order to cope with more challenging environments.

In turn, DNV GL’s research affirms that operators will focus on controlling risks and costs by seeking greater standardization in their procurement approaches. This gives rise to greater interest in oil companies centralizing, standardizing and streamlining their supply chain to avoid costs in creating new solutions.
Future investment

The report also reveals that the US, Brazil and Australia are the top investment destinations for 2014, with larger operators seeking to expand into challenging new environments such as deepwater sites in East Africa and the Arctic.
 

Download a complimentary copy of Challenging Climates from: http://www2.dnvgl.com/2014-challenging-climates.pdf
 

A bill for what is arguably the most liberal energy reform in Mexico to date presents an opportunity for ending an inertia situation that has surrounded the region's oil and gas industry for longer than necessary; however, a number of clarifications are required in the secondary laws that are due to be drafted and negotiated later in 2014, says an analyst with research and consulting firm GlobalData.

Adrian Lara, GlobalData's Lead Analyst covering Upstream Oil & Gas, states that while Mexico's energy reform introduces new arrangements, such as profit-sharing contracts, production-sharing contracts and licenses, the most ground-breaking aspect is the change in the Constitution that will allow private companies to participate in exploration and production (E&P) activities under specific contracting schemes.

However, as Lara says: "The changed law does not specify which type of contract will be applicable to the different types of hydrocarbon E&P. Industry observers and participants will therefore have to wait for the so-called secondary laws that will frame the fiscal terms for the new contracts.

"This additional information will allow for a more rigorous test in assessing the effectiveness of the 2013 energy reform. While it is still not decided when this fine print will be drafted and voted on, the second half of 2014 could be viewed as the best-case scenario."

Progress towards the current reforms began in August 2012, when a proposal for reforming Mexico's energy sector was submitted to Congress. This argued that the bulk of the region's remaining hydrocarbon reserves are located in challenging areas, both from geological and engineering perspectives, and that sophisticated and expensive technology is required to recover these reserves.

Furthermore, while Mexico's Petroleos Mexicanos (Pemex) possesses ample expertise in shallow waters, it lacks the experience needed for entering more complex projects located in offshore deep waters or onshore shale plays.

Lara continues: "Pemex's necessities, in a way, indicate ideal opportunities for private investment. Deepwater, shale and even shallow-water areas can benefit from different combinations of technology transfer, capital expenditure in E&P and managerial expertise."

A crucial test of Mexico's reforms will be the reaction of international oil companies when the first new opportunities are offered, which will depend to a great extent on what exactly is offered. In any case, Lara believes there is a long way to go before the approved reform materializes in new production, or has a significant effect on the wider Mexican economy through lower energy prices.

The analyst concludes: "For the time being, this reform seems to bring about the opportunity for ending Mexico's inertia situation. The most important point is that the bill's passage removes the barrier of the Constitution from a wide range of future reforms, allowing Mexico's energy sector to adapt to prevailing conditions in the future."

Comments to be attributed to Adrian Lara, GlobalData’s Lead Analyst covering Upstream Oil & Gas.

Business Monitor has just released its latest findings on Indonesia's oil and gas sector in its newly-published Indonesia Oil & Gas Report.

Business Monitor believes that the outlook for Indonesia's oil and gas sector is becoming increasingly uncertain. They forecast a long-term decline in total liquids production and a stagnation of gas production. This is mainly a result of the slow pace of exploration and development, exacerbated by an increasingly uncertain regulatory environment as resource nationalism creeps into the government's policy towards the sector. Opportunities for exports will be further compromised by the domestic market's increasing energy demand. Hence, falling oil and gas exports is another key trend identified for Indonesian oil and gas.

Key Trends and Developments discussed in the report:

■ Business Monitor forecast that oil and gas reserves will most likely be on a downward trend in the coming decade: oil reserves are expected to decrease from an estimate of 4.0bn barrels (bbl) of oil at the beginning of 2013 to 3.7bn bbl in 2017, falling further still to 3.4bn bbl by 2022. For gas, they expect reserves levels to be stagnant as addition from exploration successes in East Kalimantan cancels out natural depletion from existing fields. Reserves are forecast to fall from 3.07tcm in 2013 to 2.80tcm in 2017, and fall further to 2.51tcm unless the pace of drilling activity picks up.

■ Despite this outlook, Indonesia is a country where much below-ground potential continues to exist. If the country relaxes its nationalist stance on resources, there is considerable upside potential for both oil and gas reserves - greater drilling of its unexplored deepwater areas and its unconventional resources - coalbed methane and shale gas.

Business Monitor expect total liquids production (excluding refinery processing gains) to rise from an estimate of 919,670b/d in 2013 to 926,180b/d in 2014 and 932,260b/d in 2015, owing to major fields finally coming on-stream or ramping up to their full production capacity. Thereafter, in the longer term Business Monitor see oil output trending downwards to 884,840b/d in 2017 and hitting a low of 808,280b/d by 2022.

Despite grand plans to expand the country's refining capacity, difficulty in financing greenfield projects on top of modernising old plants in a unfavourable policy environment will see limited change to Indonesia's downstream landscape. Business Monitor expects refining capacity to stay stagnant at around 1.12mn b/d from 2015 through to the end of their forecast period. Total refined oil product output is expected to rise initially from an estimate of 981,840b/d in 2012 to 990,600b/d in 2016 - a result of an increase in output from modernised Cilacap and Balikpapan. However, growing inefficiencies in older plants could reverse this uptrend as utilisation rate falls, thereby leading to a slide in production downwards to 973,840b/d by 2022.

Owing to production problems, Business Monitor expect total gas production to have fallen to 71.3bn cubic metres (bcm) in 2012. Major gas projects expected on-stream in the next five years should support a slight rise in production, which they forecast at 77.0bcm in 2017 as declining production rates from existing fields will be cancelled out by new gas developments. Thus Business Monitor expect production levels to stay relative stagnant at 76.7bcm by 2022. Regulatory risks remain great and policy uncertainty underpins their sombre outlook of Indonesia's gas production within their 10-year forecast period. The country's gas consumption is estimated at 39.1bcm in 2012. With an increasing amount of new gas from projects reserved for the domestic market, this allows room for domestic gas demand to grow to about 48.0bcm in 2017 and hit 55.7bcm by 2022.

Greater confidence in Indonesia could be inspired if there is a more consistent policy towards the oil and gas industry; for one, the permanent establishment of a new upstream regulator to replace BPMigas. Temporary regulator (at time of writing), SKKMigas, has yet to be made permanent. Given the corruption scandal plaguing the make-shift regulator, it is unlikely to receive full regulatory authority anytime soon in the future. Moreover, proposed plans could see SKKMigas assume the identity of a stateowned firm - renamed as the National Upstream Oil and Gas Development Company (PPMN) - which could take a participating interest in projects it jointly signs with contractors.

At the time of writing Business Monitor assumed an OPEC basket oil price for 2014 of US$101.80 per barrel (bbl), falling to US$100/bbl in 2015. Global GDP in 2014 is forecast at 3.1%, up from an assumed 2.6% in 2012. For 2015, growth is estimated at 3.3%.

NYC-based PIRA Energy Group reports that Brent crude prices have stayed strong this month. On the week, U.S. products draw while crude stocks build, while in Japan crude stocks jumped. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Brent Prices Strong This Month

Brent crude prices have stayed strong this month supported by relatively tight global supply-demand balances and low inventories but will trend lower later this quarter as refinery maintenance cuts crude demand, crude supply continues its unrelenting growth in the United States, and supply disruptions elsewhere directionally ease. 

U.S. Products Draw While Crude Stocks Build

Surprisingly low crude runs were largely responsible for the first crude inventory increase in eight weeks. They also contributed to a larger product stock draw versus the week earlier. A reported demand increase and increased product imports were also factors in the week-on-week product stock change. This past week's overall inventory change was 1.3 million barrels larger than the inventory decline for the same week last year, thereby widening the year-on-year stock deficit. U.S. commercial oil inventories are declining significantly this January and this has happened just once in the last ten years.

Another Jump In Japanese Crude Stocks

Another relatively high crude import rate produced a crude stock build on slightly lower runs. Modestly higher stock builds were registered on all the major products (mogas, gasoil, naphtha, jet, and fuel oil), though kerosene stocks drew seasonally. Margins were slightly softer with weaker light product cracks overshadowing higher fuel oil cracks. 

U.S. Propane Is Continuing To Exert Price Leadership

U.S. Propane is continuing to exert price leadership although developments in the mid-continent are certainly in a state of disequilibrium given high demand for tight supplies. The wide gap to the Gulf Coast is certainly encouraging flows north with the price level leading to demand destruction. 

Ethanol Prices and Margins Decline

U.S. ethanol prices resumed their downward trend the week ending January 17 as improving weather in the Midwest led to higher operating rates and reduced transportation problems. Manufacturing cash margins fell as a result of the decrease in ethanol and co-product values. 

China Quarterly Oil Demand Monitor

China’s apparent oil demand disappointed in 2013, as growth slowed meaningfully from 2012. Reasons for the slowing were not immediately apparent. The pace of GDP growth did not change between the two years, and physical indicators that can directly be tied to oil demand (such as vehicle sales, ethylene production, and air travel) recorded healthy increases last year. Looking to 2014, the key story for China is an ongoing push for structural reform. 

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets. 

NYC-based PIRA Energy Group believes that oil prices strongly supported by tight oil supply/demand balances. On the week, U.S. Stock Draw Led by Crude Oil, while Japanese Crude Stocks jumped. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Oil Prices Strongly Supported By Tight Oil Supply/Demand Balances (Asian Outlook)

Oil prices have been strongly supported by relatively tight oil market supply/demand balances that have lasted through the early part of 2014. As oil markets progress through the first quarter, supply/demand balances will soften and prices will likely weaken from today's levels but the erosion should be limited in scope. OPEC and Saudi Arabia, in particular, have the means to limit declines as output remains in their comfort zone and can be adjusted as needed. 

Massive U.S. Stock Draw Led by Crude Oil

This past week's inventory decline is the largest ever recorded for this particular week and drove the year-on-year stock deficit to 57.2 million barrels, or 5.2%. With reported (four week average) demand running 4.2%, or 780 MB/D above year ago levels, days' supply forward inventory cover is quite low, although not as low as in 2007/2008.

Big Jump in Japanese Crude Stocks

Of note on the week was a huge surge in crude stocks of 10.8 MMBbls as crude imports rose from 3 MMB/D to 5.5 MMB/D. Finished product stocks drew 1.2 MMBbls. While gasoline stocks built slightly, all the other major products drew. Gasoil demand rebounded from abnormally low levels. Kerosene stock draws resumed after a one week increase.

Fracking Policy Monitor

The BLM rules regarding fracking on federal lands remain without a finalization date and the diesel guidance has been mired at OMB for over 115 days. The Congressionally mandated study on drinking water safety – likely to inform regulations post-2016 – also faces issues that may bolster attacks on its legitimacy. PIRA believes that given President Obama’s support of fracking, we are unlikely to see new federal regulations or stepped-up enforcement before November 2014 elections.

U.S. Continues to Show LPG Price Strength

Propane continues to see upward price moves as storage is pulled to record lows, particularly in the Midwest. With the cold returning, and exports and feedstock use on-going, prices will remain relatively firm. Just as the U.S. was strengthening, international markets were relatively weaker, narrowing export arb opportunities.

U.S. Ethanol Production Drops

Ethanol production plummeted to a fourteen-week low 868 MB/D from 919 MB/D the week ending January 10 as frigid weather conditions in the Midwest negatively affected operations at several plants. PADD II stocks rose for the fifth consecutive week, bringing them to the highest level since the end of April 2013.  

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets. 

NYC-based PIRA Energy Group reports that Aramco formula crude prices for February cut for Asia and Europe, but U.S. raised. In the U.S., crude leads stocks lower. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Aramco Formula Crude Prices for February Cut for Asia and Europe, but U.S. Raised

Saudi Arabia's formula prices for February were recently released. Pricing adjustments for the key markers were lowered for the Asian and European destinations. The reductions for Asia were greatest on the lighter grades, though there was also a reduction in the Arab Heavy differential. European pricing while also reduced, was generally less aggressive than for Asia while the largest reduction was on the heaviest grades.

Crude Leads Stocks Lower

Total U.S. commercial inventories fell this past week with the entire decline occurring in crude oil. Product inventories increased marginally as crude runs stayed at an extremely high rate while reported demand fell on the week in large part because of the Christmas Holiday. For the same week last year, stocks fell so the year-on-year stock deficit narrowed.

U.S. Refinery Turnarounds, January

The first six months of 2014 are expected to experience above average turnaround related refinery downtime. This compares survey results from previous years and does not take into account the high level of unplanned events which occurred over the past several years and are quite likely to be experienced in the new year as well. For example, PIRA's U.S. Refinery Turnarounds survey published on December 31, 2012 expected an average planned crude unit downtime for the first half of 2013 of about 1.6 MMB/D, also the highest level for the five year period from 2009 to 2013. Actual outages turned out to be closer to 2.3 MMB/D.

Tanker Markets Exited 2013 On a High Note

Tanker markets exited 2013 on a high note, with rates in most crude trades hitting new highs for the year in December while exceeding earlier expectations by a wide margin. The recent seasonal improvement in tanker rates is a reflection of higher global refinery runs, which rebounded strongly from autumn maintenance, increasing by 3.8 MMB/D from October to December, with 2.4 MMB/D of the increase in the Atlantic Basin. Tanker markets in the Atlantic Basin also benefited from weather, and strike-related delays in December.

Tight U.S. Propane Market and Looser Overseas Conditions

U.S. propane storage continues to fall to record low levels, with PADD II especially low.  The extremely cold weather is causing production and logistical bottlenecks as well, and, of course pulling demand higher.  The relatively warm weather overseas, especially in Europe, falling crude prices and the arrival of cargoes from the USGC and West Africa have been pulling international LPG prices lower.

U.S. Ethanol-Blended Gasoline Reaches a Record High

U.S. ethanol-blended gasoline production reached an all-time high during the week ending December 20. Ethanol prices were mostly higher in the holiday-shortened week ending December 27, and manufacturing margins rose for the first time in three weeks.

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

NYC-based PIRA Energy Group reports that the global economy continues to improve. On the week, the U.S. stock decline moderated. In Japan, runs continue rising, key product demands are stronger. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Global Economy Continues to Improve

The global economy continues to improve, setting the stage for relatively strong oil demand growth next year. Fourth quarter global balances are tight and support ongoing price strength. Bearish supply darkens the 2014 price outlook, but PIRA reckons the downside will be limited with Saudi Arabia able to balance the market. The weakness will be felt mostly in the first half 2014 because of seasonal demand weakness and crude inventory builds.

U.S. Stock Decline Moderates

Overall commercial inventories fell slightly this past week, after four prior weeks of declines averaging 8.0 million barrels per week. Crude stocks built as crude imports stayed stubbornly high, especially from the Middle East. Product stocks drew as higher product supply and lower reported demand reduced the week-on-week product inventory decline. The year-on-year inventory excess remained modest, with the excess mostly in crude, largely related to new infrastructure associated with rapidly expanding North American production. 

Japanese Runs Continue Rising Post Turnaround, Key Product Demands Stronger

Runs continued rising post-turnaround but crude imports moved strongly higher and stocks built 3.1 MMBbls. Both gasoline and gasoil demand displayed decent gains and inventories of both drew. Kerosene demand remained strong and stocks continued drawing. Refinery margins, again, moved slightly higher. 

Scramble for LPG Supply Continues

U.S. propane stocks continue to draw at a rapid pace and are expected to end the year well behind last year's level.  International LPG prices are reaching record levels amidst significant supply disruptions. 

Ethanol Output Matches Yearly High

U.S. ethanol production rebounded the week ending November 22, equaling its annual high of 927 MB/D, which had been reached two weeks earlier.  Inventories declined by 61 thousand barrels to 15.02 million barrels, only slightly higher than the three-year low of 14.96 million barrels reported near the end of October. 

Ethanol Prices and Margins Spike in November

In November, U.S. ethanol prices and manufacturing margins skyrocketed to the highest level in two years, but gave back some of the gains last week. Very low inventories and a shortage of railcars to take ethanol to the blenders drove the market up. Companies are reluctant to hold stocks with the market in severe backwardation.

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets. 

Liftboats have come a long way. Since breaking out of the Gulf of Mexico the global fleet of these self-propelled, self-elevating vessels has grown by over a third and now stands at more than 300 units worldwide. They are now tried and trusted in West Africa, the Persian Gulf and the North Sea. In South East Asia, they are finally gaining a foothold with key operators. Unlike immobile jack-up barges, liftboats offer more, typically performing well intervention, maintenance and installation workscopes. They are now being used for offshore EOR campaigns and we would not be surprised to see a growth in such deployments. The concept is also making a big impact in the offshore wind turbine installation business.

Here at DW, we have been monitoring the oil and gas liftboat markets and as a conservative forecast, we expect the demand for liftboats outside the Gulf of Mexico to increase by more than 3,500 days over 2014-2018. A number of factors will contribute to this, the two most important being their improved specifications and the increased recognition from operators of the value liftboats represent.

With the latest generation of liftboats offering increased water depth capabilities they are able to access an increasing proportion of existing fixed platforms. The increased deck space they offer enables them to carry more equipment, such as coiled tubing or chemicals for well intervention work – here their value is underlined by Halliburton's decision to invest in a fleet of five for its Gulf of Mexico slickline services. But arguably the biggest factor behind the increase in demand will be the attitude of E&P operators who are renowned for their conservatism; their aim in the race for new approaches is usually to finish second. However, despite this, liftboats have broken through. And demand is growing.

Douglas-Westwood

Business Monitor has just released its latest findings on Ghana’s burgeoning Oil & Gas sector in its newly-published Ghana Oil & Gas Report.

As the Jubilee field, which secured Ghana's place as a West African oil exporter, approaches peak output of 120,000 barrels per day following a series of technical problems, the nascent producer is increasingly looking to continue the boom as interest in the region's untapped deepwater potential remains high. Approval of the TEN project will see Ghana's second major oil development come online from late 2016; however, Business Monitor see risks that without a positive investment decision on a number of promising new discoveries under appraisal and/or new finds, the country's overall output will begin to gradually slip from the end of the decade. Although the Jubilee gas project now seems on track, tensions between Eni and the government over the Sankofa project will result in delays to Ghana's push to bring online more gas. This could see the government turn to liquefied natural gas to meet the shortfall in the wake of a precarious outlook for imported gas via pipeline from Nigeria.

Examples of the main trends and developments discussed in the report:

■ After a troubled start, output from the Tullow Oil-operated Jubilee field is on track to reach the target production rate of 120,000 barrels per day (b/d) by the end of 2013. According to Tullow's H213 operational update, output was averaging 110,000b/d and remained on track to reach the plateau rate of 120,000b/d the end of the year. With operators Tullow and Kosmos noting that current well deliverability at Jubilee exceeds the current capacity of existing infrastructure, further development may be required to allow for maximum monetisation of the field. Further development of Jubilee poses upside risk to Business Monitor’s forecasts, with plans designed to extend the fields plateau.

■ In another sign of strength for Ghana's oil sector, regulatory approval was given to the Tullow-led Tweneboa-Enyerna-Ntomme project (TEN), which will see peak output of 80,000b/d (less than the 100,000b/d initially planned) and is due to come online by late-2016. Tullow is in the process of seeking a buyer for up to 20% stake by Q114 in order to fund the US$4.9bn project.

■ This increased upstream activity will support rising production, which Business Monitor expect will grow from around 110,000b/d in 2013 to 243,000b/d by the end of their forecast period in 2022. However, these volumes assume the contribution of new supplies beyond fields currently approved, namely liquids from Eni's Sankofa development. With the introduction of new supplies from fields under appraisal such as the Mahogany, Teak, Akasa and Banda (MTAB) or the Cape Three Points Block, Business Monitor see risks that output will begin to fall from the end of the decade. There is added downside risk to this view from the prospect of a faster-than-expected rate of decline at the Jubilee field.

■ New production will be important, in line with a strong macroeconomic picture; oil demand is expected to rise, which will in turn reduce the amount of oil available for export, hitting earnings. However, with added supplies, should Ghana fail to invest in its downstream, it will continue to rely on expensive imports of refined products from abroad as the ageing refinery at Port Tema falls short of domestic demand.

■ A deal announced in late September would see Tema upgrade aging equipment in order to increase capacity from 45,000b/d currently to 60,000b/d by 2015. Current utilisation is 60% according to Tema officials, but the facility has struggle in the past given financing and equipment woes since 2009. Ghana continues to seek private investment, with the government acknowledging it alone will be unable to finance operations. There is a chance capacity could rise to as much as 245,000b/d over the long term if new facilities come online toward 2018. An absence of firm plans prevents inclusion of new capacity in Business Monitor’s current forecast.

■ Business Monitor see that the outlook for gas is promising, but as indicated by recent delays to the US$700mn project to capture gas from the Jubilee field, there are a number of risks to developing the necessary infrastructure to monetise gas, given the primary target for operators is liquids. After Sinopec halted work and threatened to completely pull-out of the Jubilee gas project following a row over missed financial obligations by the Ghanaian government, Business Monitor pushed back first gas to 2014. While the project is likely to come online next year, they see risks to future phases from both a lack of funds and the prospect that greater volumes of gas will be directed to increasing recovery rates from the Jubilee oil field as output plateaus.

■ While Business Monitor see scope for Ghana to eliminate its reliance on imported gas, uncertainty regarding supply and demand calls leads them to maintain a small import requirement fed by the WAGP for the duration of their 10-year forecast period.

To find out more about this report please click here.

Offshore blocks offered in Bangladesh's Bay of Bengal have attracted a disappointing level of interest from license-holders; however, anticipated improvements to the terms governing the country's oil and gas industry could entice investors, says research and consulting firm GlobalData.

According to the company's latest report*, only one extra bid is thought to have been received for the shallow-water blocks during the extension of Bangladesh's 2012 bidding round, adding to the three already received. As a result, more attractive fiscal terms are likely to be implemented in upcoming rounds, although the next one is unlikely to commence until 2015.
The fiscal terms for Bangladesh's deepwater blocks were amended significantly, with a number of new incentives, mid-round in 2013; however, no such improvements were applied to the terms for the shallow-water area, despite increasing demand for natural gas.

Jonathan Lacouture, GlobalData's Lead Analyst for the Asia-Pacific region, cites this lack of incentives as a reason for the low number of bids.

Bangladesh faces fierce competition from India and Myanmar for exploration investment in the Bay of Bengal,says the analyst. Incentives are needed to make the Bangladeshi blocks stand out, especially considering the substantial turnout which Myanmar recently experienced in its own licensing round."

Indeed, Bangladesh's upstream oil and gas sector is further clouded by ongoing uncertainty over the status of certain blocks in the shallow-water area. Following a clash with Myanmar over maritime boundaries, a similar dispute with India now remains unresolved, and arbitration on this dispute is not expected until June 2014.

Lacouture continues: If the ruling on this issue favors India, then it would threaten the integrity of the six offshore blocks on the western edge of the exclusive economic zone, which are currently claimed by Bangladesh. This arbitration means that the next bidding round will probably not happen until 2015 and the delay will only increase authorities urgency to attract investors."
Will Scargill, Fiscal Analyst for GlobalData, suggests that future incentives are most likely to be offered through either a higher-cost recovery limit, or an improved gas-pricing framework.
He says: "

Given the level of domestic demand, export provisions are unlikely to be offered. The 2008 model contract permitted exports, and it was precisely for this reason that there was a lot of political opposition to the contract."

Saltire Energy, supplier of drilling tools to the offshore oil & gas industry, has posted its annual results (year end to June 30, 2013) with turnover up more than 50% from £21.5million to £32.9million.

Operating profit for the year has also risen from £14.1million to £18.5million.

Mike Loggie, Chief Executive of Saltire Energy, said: "The last 12 months has seen steady growth in our business in the UK and across our international operations.

"As a company, our focus is on delivering high quality equipment and services for our clients and we have seen a significant rise in our activities in the Middle East, Africa, Asia Pacific, the UK and North Sea. This has supported growth in our turnover across the company.

"Over the coming months, we plan to increase our footprint in Aberdeen with the expansion of our facilities in Portlethen and expand our presence in Europe with the opening of a further base.

"Developing our equipment inventory has been a strong focus and last year we invested £10million back into the business, which we have done again in 2013 to extend our suite of industry accredited drilling tools and pipe. This allows us to continue to meet the needs of our clients and fuel further growth of the business."

Since the company was established in 1986, it has developed a strong reputation for delivering high quality customer service and flexibility, increasing its global presence through strong industry networks and agent partnerships.

Mike continued: "The company would not be where it is today without the skills, expertise and commitment of our team. Earlier in the year we further strengthened our management structure with the appointment of Craig Mitchell as a director. We have bolstered our staff numbers with the addition of 10 new personnel, taking our workforce to 52, with plans to grow this further in the next 12 months."

Saltire Energy has also maintained its commitment to the community with support for local charity Befriend a Child and has financially supported the Saltire Sports for Schools initiative to date, contributing £500,000 to the project, with this figure likely to rise year on year by approximately £50,000. This has enabled approximately 2,000 children from five local primary schools, some of which are located in the city's designated regeneration areas, to develop their sporting and interpersonal skills at Aberdeen Sports Village's state-of-the-art sporting environment.

The company is also a major funder of the Aquatics Centre, one of only two Olympic standard facilities in Scotland, which is set to open in early 2014.

Saltire Energy is also a strong supporter of the university scholarship programmes and sponsorship of Open Champion and Ryder Cup hero Paul Lawrie.

Coastal Energy Company ("Coastal") (TSX:CEN) (AIM:CEO) announces the successful completion of the previously announced merger (the "Merger") with Condor Acquisition (Cayman) Limited (the "Purchaser"), a newly-incorporated entity controlled by Compañía Española de Petróleos, S.A.U. ("CEPSA") and in which Strategic Resources (Global) Limited ("SRG") is an investor. Pursuant to the Merger, the Purchaser acquired all of Coastal's issued and outstanding shares (the "Common Shares") for consideration of C$19.00 per Common Share with effect from January 17, 2014.

With the completion of the Merger, the Common Shares are expected to be delisted from the Toronto Stock Exchange ("TSX") 2 to 4 business days following closing. In addition, the depositary interests representing Common Shares will be delisted from the AIM market operated by the London Stock Exchange plc ("AIM") with effect from 7:00 am (UK time) on January 21, 2014. Coastal intends to apply to the relevant securities regulatory authorities to cease to be a reporting issuer in the applicable jurisdictions in Canada.
Advisors and Legal Counsel

Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC acted as financial advisors to Coastal. Stikeman Elliott LLP, Cleary Gottlieb Steen & Hamilton LLP and Walkers acted as legal advisors to Coastal. Goldman Sachs International acted as financial advisor to CEPSA. PriceWaterhouseCoopers acted as a financial advisor to CEPSA and SRG. Freshfields Bruckhaus Deringer acted as legal advisor to CEPSA. Blake, Cassels & Graydon LLP, Baker & McKenzie International and Conyers Dill & Pearman acted as legal advisors to CEPSA and SRG.

NYC-based PIRA Energy Group reports that midcontinent fundamentals improve as weather turns cold.  In the U.S., product stocks build while crude draws.  In Japan, there is a big crude stock draw, but weaker product demands. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Midcontinent Fundamentals Improve as Weather Turns Cold

Crude oil fundamentals improved throughout the Midcontinent in December, with stocks declining at least modestly at Cushing, Patoka, West Texas, the Rockies, Western Canada and the Gulf Coast. Winter has begun with a vengeance in the Midcontinent – from ice storms in Texas and Oklahoma to subzero temperatures in the Far North. Production impacts are likely to be most pronounced in the oil sands of Alberta and rural areas of North Dakota. Weather is also affecting truck and rail deliveries, with the latter exacerbated by yet another crude-by-rail accident.

U.S. Product Stocks Build while Crude Draws

Total commercial inventories increased this past week with a decline in crude oil more than offset by an increase in products. Crude runs remained very high. Reported demand was down largely due to the New Year’s Holiday as well as severe winter weather impacts (less travel, power outages, people hunkered down in many areas). For the same week last year, stocks built, so the year-on-year stock deficit widened.

A Big Japanese Crude Stock Draw, but Weaker Product Demands

The most notable items were a sharp drop in crude stocks for the latest week (1/4) and the relatively weak demands to begin 2014, which strongly built finished product stocks. The overall balance in total commercial stocks, however, rose only 1.1 MMBbls from the data that had last been reported on 12/21. We expect the data to normalize in the next week or so, with demand rebounding for all the major products.

U.S. Propane – Market Leader

U.S. propane continues to provide market leadership as stocks ended the year at a historically quite low level. The warming this coming week will provide some relief to end-users, and enable more resupply downstream, but cold will likely resume thereafter, keeping propane as the leader of the NGL complex. International markets have been generally pressured lower by the arrival of cargoes from the USGC and West Africa, in addition to milder weather especially in Europe. The arb has shifted to favor USGC exports to Europe over Asia, although Latin America will certainly remain the prime outlet for US product.

U.S. Ethanol Prices Decline

Ethanol prices fell the week ending December 27 due to reduced demand for gasoline blending. In addition, inventories in PADD II were the highest since May. Shortages of rail car space supported prices on the coasts.

Ethanol Production Increases

U.S. ethanol production started the year by rising to 919 MB/D from 913 MB/D during the prior week. The manufacture of ethanol-blended gasoline tumbled for the second consecutive week after having reached a record 8,856 MB/D during the week ending December 20. 

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets. 

NYC-based PIRA Energy Group reports that the midcontinent fundamentals weakened in November. The U.S. is in a much tighter stock position than last year. In Japan, Japanese low crude imports draw stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Midcontinent Fundamentals Weaken in November

High crude stocks on the Gulf Coast led to a further disconnect between U.S. and foreign markets in November, with the Brent-LLS differential rising to a record $10/Bbl. Meanwhile, continuing surplus stocks in the western Canada corridor further depressed Canadian differentials. And with West Texas now pipeline-connected to the Gulf Coast, the weak LLS-WTI spread allowed Midland differentials to slip lower. However, by late November and early December fundamentals were improving and all differentials had strengthened, with LLS and Mars moving from contango into backwardation.

U.S. in Much Tighter Stock Position than Last Year

For the first time this year U.S. commercial oil inventories have fallen below last year. Crude stocks are 14 million barrels above last year, although from a commercially available stock position crude inventories are really comparable to last year because of new infrastructure. Overall product stocks are 16 million barrels below last year. The inventory deficit to last year should further widen next week. While there is a small stock deficit to last year, adjusted petroleum product demand (four week average) is running a huge 1.57 MMB/D, or 8.5%, higher than last year.

Japanese Low Crude Imports Draw Stocks

Runs continued rising post-turnaround, but crude imports moved lower resulting in a strong crude stock draw. Both gasoline and gasoil demand eased back with minor stock changes for both. Kerosene stocks posted strong build rate, but the kerosene yield relative to jet yield does not fall within expected norms, suggesting a data revision down the road.

Increased Saudi Formula Crude Prices for January Directionally Discourage Liftings

Saudi Arabia's formula prices for January were recently released. Many of the differentials against the key pricing benchmarks were raised for movements to the U.S, Europe, and Asia, though Asian premiums on Arab Heavy and Medium were lowered slightly. For the U.S. market, the higher January differentials for Arab Light/Medium/Heavy are the strongest ever seen since the adoption of ASCI as a marker in 2010. The overall changes to formula pricing for January will directionally discourage liftings.

Refinery Outages and Atlantic Basin Products

While growing product exports from high runs in the United States have received much of the attention recently, there has also been an ongoing need for more light product imports into Latin America and Africa. That import requirement is driven by growing demand but stagnant refinery capacity. It has been compounded by refinery outages at times. Last year disastrous fires in Venezuelan refineries cut refinery output. More recently there was a fire in the Brazilian 190 MB/D REPAR refinery on November 28. Although it was originally thought to come back on line by mid-December, reports are now suggesting that it will take longer, perhaps by end-month.

Atlantic Basin Surplus Crude

The growth in crude production in the Atlantic Basin will have a profound impact on regional crude supply/ demand balances. Crude production growth is being driven by the shale “revolution” in the United States and increased oil sands development in Canada. The Atlantic Basin is broadly defined as including the Americas, Europe, and Africa. Refinery runs in these countries have declined somewhat in recent years after peaking in 2005-2007, but they are expected to slowly resume growth with increases in the U.S. and Latin America more than offsetting declines in Europe. However, the projected growth in crude production is much greater than the increase in refinery runs. As a result a sizeable crude surplus will develop within the region and crude will be forced to seek markets elsewhere, primarily in the rapidly growing countries in Asia. 

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets. 

NYC-based PIRA Energy Group reports that improving VMT and trucking trends confirm better highway fuel demand growth. On the week, U.S. product stocks declined again, while in Japan crude stocks built. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

 Improving VMT and Trucking Trends Confirm Better Highway Fuel Demand Growth

The Federal Highway Administration recently released vehicle miles traveled (VMT) data for August, while the American Trucking Association released its Truck Tonnage Index for September.  Both indicators showed improvements versus year-ago, and this confirms the improvement in both gasoline and estimated on-highway diesel demand growth.  PIRA's forecast through year-end, for both gasoline and diesel, suggests that both these indicators from FHA and ATA should continue their improving trend. 

Another Huge U.S. Product Inventory Decline

Overall commercial oil inventories in the United States fell almost 6 million barrels for the week ending November 8, with a product inventory decline more than offsetting a crude stock increase. Product inventories have declined for nine consecutive weeks, falling over 42 million barrels but are expected to moderate over the next few weeks. With crude runs strongly moving up, this should translate into crude stock declines, particularly at the Gulf Coast. The stock excess to last year narrowed this past week. 

In Japan, Runs Continue Rising, Crude Stocks Build

Runs continued rising post-turnaround and crude imports stayed sufficiently high to produce another large crude stock build. Gasoline and gasoil demands eased but their yields were notably lower so stocks of both were only modestly changed. Kerosene demand eased slightly but yield jumped such that stocks resumed building. Refinery margins moved slightly higher as light and heavy cracks showed modest improvement. 

Tight LPG Markets

U.S. propane markets remain quite tight as crop drying, exports, petchem feed use and meeting winter needs combine to pull stocks lower. Propane has reached its highest value relative to WTI so far this year. Various supply limitations are helping pressure international prices higher just as winter weather is approaching. LPG has been priced out of the chemical feedstock pool.

U.S. Ethanol Prices Decline

Most ethanol prices declined early the week ending November 8 before advancing thereafter due to strong domestic and export demand, as well as higher corn prices. Cash margins for ethanol manufacture fell to the lowest level in 11 weeks.

EPA Proposes Biofuel Requirements for 2014

Friday afternoon, the EPA issued a regulatory announcement that proposes to substantially reduce the 2014 biofuel requirements set forth in the Renewable Fuel Standard (RFS2). The Agency proposed specific volumes and is soliciting comments for selecting a value from specified ranges for total, advanced and cellulosic biofuels. 

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets.