South Africa establishes new sources

The visit by South African President Jacob Zuma to Algeria a week ago gave a glimpse of an ongoing shift in the country’s oil relations with other countries. For the past decade or so, the focus has increasingly been to lessen dependency on traditional sources, while engaging new sources in Africa and elsewhere. Other considerations regarding the country’s fuel security have also come into play as oil in South Africa is fast becoming a whole new ball game.

Historically, South Africa has imported most of its crude oil from the Middle East, with a number of major multinationals such as BP, Shell, Caltex, and Total maintaining a dominant presence in the country.

Engen is another player that emerged as a domestic company when Mobil disinvested during the apartheid sanctions years. Engen has since been taken over by Malaysia’s national oil company, Petronas, with which the South African government has a close relationship.

Sasol developed into a major South African oil company in the 1960s, and in recent years into a global player. It supplies fuel-from-gas for the domestic market.
By 2001, Mossgas and Soekor were merged into state oil and gas company PetroSA in a rationalisation of the state's commercial interests in this sector.

PetroSA is involved worldwide in oil and gas exploration, while both Sasol and PetroSA are involved in importing gas and producing liquid fuels from gas.

PetroSA, alongside the Strategic Fuel Fund Association, the Central Energy Fund, and the Petroleum Agency South Africa, all play various roles relating to oil procurement, storage, exploration, marketing and distribution.

This includes managing the Saldanha Bay oil storage facility, one of the largest of its kind in the world, built in the apartheid era to counter sanctions.

Apart from exploration, PetroSA operates two offshore oil fields near Mossel Bay as well as various gas fields along the southern African coast. Multinational oil companies in South Africa also operate a well-developed refining and downstream oil industry. However, their refineries at Cape Town and Durban are ageing and becoming less competitive.

In recent years – because of geopolitical volatility in the Middle East – South Africa has worked toward reducing dependence on oil from Iran by increasing imports from Yemen, Qatar, Iraq, Kuwait, United Arab Emirates, Egypt and Saudi Arabia. At the same time, it has tried to lessen overall Middle Eastern imports and spread its sourcing increasingly to non-Middle Eastern countries.

Imports now come from African countries, South America, Russia and others.
This shift in focus has seen a number of significant oil deals being concluded recently. The first major, and controversial, was in September 2008 when President Hugo Chavez of Venezuela visited South Africa. The two countries agreed to co-operate in oil and gas exploration in Venezuela, refining Venezuelan oil at South Africa’s proposed new refinery at Coega in the Eastern Cape, investment by Venezuela’s state oil company in a local refinery and storage facilities, PetroSA sharing its gas-to-liquids technology with Venezuela, and more.

The announcement heralded another important step toward lessening South African reliance on oil from the Middle East. And there were distinct advantages for South Africa relating to the government’s concerns regarding security of oil supply as outlined in its Energy Security Master Plan for Liquid Fuels that had been released shortly before.

The South African government at the time also believed that Venezuelan oil processed by PetroSA for local consumption would help reduce domestic fuel prices.
In August 2009, during bilateral trade talks, South Africa and Angola signed a number of trade agreements, including co-operation in the oil sector. The oil agreement would allow Petro SA and Angola's Sonangol to work together in oil projects, said Angolan President Jose Eduardo dos Santos at the time.

The state-owned oil companies would work together in the areas of exploration, refining and distribution of oil, it was announced.

With Angola already challenging Nigeria as Africa's largest producer of crude oil, and having enormous hydroelectricity potential, energy was said to have been a key area of discussion. And Brazil and China, two countries with which South Africa has recently been enjoying beneficial and vastly increased trade relations, are already involved in the reconstruction of Angola, including its oil interests.

Shortly after the Angola agreement was signed, it was announced by the Industrial Development Corporation (IDC) in an economic report that South Africa’s trade with the world's four largest emerging markets - Brazil, Russia, India and China (BRIC countries) – had increased from $20.3 billion in 2001 to about $162bn in 2008. Among the bulk of these imports, excluding China, were crude oil and non-crude petroleum products.

During President Zuma’s visit to Algeria last week, he signed, among other things, a memorandum of understanding involving increased trade and co-operation between PetroSA and Algeria's Sonatrach.

PetroSA has been involved in oil production in Nigeria since 2004 and it was said some time ago that the company would be pursuing an interest in two oil blocks in the Democratic Republic of Congo (DRC).

In April, President of the Republic of Congo (Congo-Brazzaville) Denis Sassou-Nguesso announced in Pretoria that the South African company would be given oil production rights in his country.

Equatorial Guinea is another African country with which South Africa has in recent years been stepping up its trade relations, believed to also involve oil.
In addition, PetroSA and Sasol are already importing gas, mainly with a view to boosting the local gas-to-liquid fuel production. These imports will assist to extend the life of PetroSA’s gas-to-liquid refinery at Mossel Bay.

Apart from that, PetroSA has focused its natural gas exploration activities in southern Africa, and exploring for oil in Egypt, Sudan and Equatorial Guinea.
Sasol Synfuels and Qatar Petroleum (QP) signed an agreement to jointly construct an $800-million gas-to-liquids plant.

A development that is symptomatic of the changes taking place in South Africa’s oil supplies is the fact that, after years of secrecy, overriding political and security considerations and protected monopolist practices, the fuel industry in South Africa is heading for a new showdown as competing players variously promote and resist new options in a changed global and local environment.

While state-owned PetroSA wants the government to invest billions of taxpayers’ rands in a new 400 000 barrels-per-day refinery at Coega, known as the Mthombo Project, one of the largest petroleum groups active in South Africa, BP Africa, is cautioning the government against approving the refinery project of more than R77bn.

In fact, BP chief economist Christof Rëhl recently visited South Africa to promote BP’s argument that the proposed refinery would cost a great deal of money for relatively little employment and would not improve anything.

BP also argues that the costs are likely to be much more than envisaged, and that there is a surplus refinery capacity worldwide at present which is likely to be the case beyond 2020.

A new refinery now would be an unfair burden for taxpayers, the company argues, and calls for a comprehensive review of all supply-side options that could have far-reaching implications for the industry. It maintains that the surplus capacity is such that a new refinery would hardly improve South African fuel security.

But the government has so far rejected objections from oil companies such as BP. Last month, Energy Minister Dipuo Peters said the project was key to providing a solution to domestic liquid fuel challenges. According to her, it would address the gap between demand and supply, further reduce the dependence on imported finished product, and promote new standards for clean fuels.

PetroSA has also maintained that building the Coega refinery is the most sustainable solution for meeting the country's need for supply-side security and improved fuel quality. Of course, PetroSA is also concerned about the fact that it has already spent more than R250m on the project, with a further pending investment of R2.4bn to complete the front-end engineering design of the project.

On the other hand, it is widely suspected in industry circles that BP and the other large oil companies operating in South Africa have every reason to resist the competition from a new player which could cut heavily into their super profits, particularly as their conventional refineries are ageing, uncompetitive and not living up to the latest emissions standards.

Mthombo, some say, could threaten the very existence of the oil multinationals in South Africa.

On the local oil exploration front, after years of showing no interest it, it seems Petro SA’s activities, along with new foreign partners, may have prompted the oil giants into action. It has just been announced that Shell hopes to explore for oil and natural gas over an extensive area of South Africa's West Coast. With seawater depth in the proposed region ranging from 150m to about 4 000m, this is likely to be the deepest that Shell has ever prospected for oil.
Indeed, when it comes to South Africa’s oil interests, the time
s they are a changing.

Leadership http://www.leadershiponline.co.za/

http://www.leadershiponline.co.za/reports/617-oil-supply-full-report

US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/

Oil Income Offsets GCC Liquidity Crunch

A worsening global credit crunch will not have a major impact on Gulf oil producers as they soak in mammoth crude exports liquidity that allows their governments to more than offset funding for development projects.

Despite a slide of nearly 50 per cent in oil prices over the past few weeks, the six Gulf Co-operation Council (GCC) countries are expected to net their highest ever budget surplus in 2008 while they continue to lavish funds on development, tempted by rapidly accumulating overseas funds.

Four GCC members in Opec – the UAE, Kuwait, Saudi Arabia and Qatar – netted a staggering $423 billion (Dh1,554bn) in the first nine months of 2008, more than double what they projected in their budgets for the whole of the year.

Figures released yesterday by the Energy Information Administration (EIA) of the US Department of Energy showed the UAE's oil export earnings of $78bn during January-September surpassed its income of $63bn through 2007.

Saudi Arabia earned a staggering $244bn in the first three quarters of 2008, far higher than its record oil income of $194bn in 2007. 

The oil revenues of Kuwait and Qatar were estimated at $69bn and $32bn, also higher than their 2007 income of $55bn and $26bn. 

EIA gave no figures for non-Opec GCC members Oman and Bahrain. However, other sources estimated them at $29bn and $8bn during this year. 

Besides high oil revenues this year, a surge in crude prices over the past few years has enabled the GCC nations to sharply boost their foreign assets, which peaked at $1.8trn at the end of 2007 and are expected to top $2trn this year, according to the Emirates Industrial Bank (EIB) and other sources.

Strong liquidity

Acknowledging the windfall, GCC officials have reassured their citizens that a deteriorating global financial crisis would not affect the liquidity situation in the region on the grounds public spending is still the wheel of economic activity in member states and the level of expenditure has remained high.

"Development projects in Saudi Arabia will not be affected by the present global financial crisis. We, in Saudi Arabia, have built up massive financial reserves over the past period and now control enough surpluses to finance those projects," Saudi Finance Minister Ibrahim Al-Assaf said yesterday.

"As you know, a large part of domestic liquidity is made available through public expenditure, which is still a key element in general spending. Based on this, there will be no liquidity shortages nor will there be any cut in public spending on development projects in the coming period. We currently enjoy a strong financial position and any shortage will be offset through our high oil revenues," he said.

High surplus

Despite the large increase, the GCC's budgets are projected to record their highest ever combined surplus during 2008 given the fact that growth in their income would far outrun that in actual expenditure.

"The actual forecast surplus in the budgets of the GCC states which assumed surpluses will multiply this year because of the surge in oil prices, although Bahrain and Oman projected a deficit of around $1.1bn each, this deficit will turn into a large surplus at year-end," EIB said. "The surplus will be achieved despite a sharp rise in forecast expenditure and an expected growth in actual expenditure. 

"This is because oil prices have sharply increased and GCC states have overcome all the negative repercussions of the low-price period as they began to record large surpluses in 2003."

In 2007, GCC states projected a combined budget surplus of around $33bn but the actual balance shot up to nearly $110bn, half of which was recorded in Saudi Arabia, the world's largest crude exporter. 

The balance was slightly lower than the 2006 surplus of around $121bn. 

The combined surplus was forecast at around $39bn in 2008 as spending was projected at nearly $200bn and revenues at $239bn. 

The figures included only the federal budget of the UAE as it has not yet released details of its 2007 and 2008consolidated finance account (CFA), which covers the federal spending and the budget of each of its seven emirates.

But official figures showed the UAE basked in a record budget surplus of nearly 30 per cent of its gross domestic product in 2007 because of strong oil prices.

The 2007 balance was far higher than the 2006 budget surplus of around 12 per cent of the GDP and was in sharp contrast with previous years, when the country's fiscal balance reeled under heavy deficits.

The figures by the Arab League's Inter-Arab Investment Guarantee Corporation (IAIGC), citing official UAE estimates, showed the 2007 budget surplus of 30.5 per cent was the highest actual fiscal surplus ever recorded by the UAE.

It did not specify the size of the surplus but it could be as high as Dh219bn considering that the GDP was officially estimated at Dh729.7bn in 2007.

At that level, the surplus was as high as triple the 2006 surplus of Dh72.4bn and more than five times the 2005 surplus of around Dh39.4bn. 

In another report this week, the Saudi American Bank (Samba) expected the UAE budget surplus to be around 29 per cent of the GDP this year.

It did not specify the size of the surplus but based on a projected GDP of around Dh800bn this year, the surplus could be in excess of Dh200bn. 

In Saudi Arabia, the world's oil powerhouse which controls a quarter of the global crude resources, the budget has reverted to gigantic surpluses over the past few years following years of painful deficits during 1990s.

The surplus hit a record SR280 billion in 2006 before easing to SR179 billion last year because of lower oil production. But it is expected to jump SR500 billion this year due to a sharp rise in crude prices and the Kingdom's oil output.

According to the National Commercial Bank (NCB), the largest Saudi bank, the Kingdom's crude production is expected to rise by 600,000 bpd to 9.3 million bpd this year and Saudi crude prices to an average $100 from $68 a barrel in 2007.

"Higher oil revenues will sharply lift the budget surplus in 2008. We expect the surplus to surge to around SR565bn (Dh553bn) this year, by far, larger than the SR40bn that was released in the 2008 government budget," NCB said.

In Kuwait, official figures released last week showed the emirate posted a $27.18bn surplus in the first five months of its 2008/09 fiscal year on higher than expected oil export earnings.

In Oman, higher oil prices and production boosted the country's total revenues to RO3.35bn (Dh31.9bn) in the first five months of this year in the same period of last year. Oil export earnings, which account for more than 60 per cent of Oman's total income, leaped by 24 per cent to RO2.18bn from RO1.76bn.

The surge apparently tempted the government to overshoot budgeted spending by around 10 per cent while actual expenditure soared by nearly 15 per cent to RO2.53bn in the first five months of 2008 from RO2.20bn in the same period of last year.

Despite higher spending, the budget recorded a bigger surplus of around RO813.8m compared with RO777.2m. 

Qatar has not released actual budget estimates this year but experts expect it to record a massive surplus although it forecast its largest ever budget of around QR95bn. 

Its actual income is expected to leap by more than 50 per cent this year due to higher oil prices and production and a surge in its LNG output.

Bahrain is not a net oil exporter but its income from domestic crude sales is expected to soar by more than 30 per cent to a record $eight billion this year. At the end of 2007, the tiny island nation also controlled nearly $25bn in foreign assets, according to the Institute of International Finance (IIF).

Nadim Kawach News 24-7.ae

US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMP  press Ctrl with: B = Bold, I = Italic, P = Publish, D = Draft more

PUBLISH 

ANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/

Occidental Petroleum to Invest $500 million in UAE Oil Deal

Abu Dhabi: US-based Occidental Petroleum Corporation has said it will invest about $500 million over the next three to four years to appraise and develop Jarn Yaphour and Ramhan oil and natural gas fields in Abu Dhabi, according to a statement the company made available on its website.

Occidental said it had signed a preliminary agreement with the Abu Dhabi National Oil Company (Adnoc) to appraise and develop the fields.

An official for Adnoc reached by Gulf News on Thursday declined to comment.

Under the terms of the agreement, Occidental said it will operate both fields and hold a 100 per cent interest in the newly created concessi

---

Dr Ray R. Irani, chairman and CEO of Occidental, said: "This is an important step in the implementation of our growth strategy and in our relationship with the emirate of Abu Dhabi. The development of these two fields provides an exciting opportunity to create value for the people of Abu Dhabi and for our stockholders."

---

The Jarn Yaphour field is located onshore near Abu Dhabi city. Occidental said development activities at the field will commence immediately and first production is expected next year.

"Gross production from the initial development is anticipated to be around 10,000 barrels of oil equivalent per day," said the US company.

Appraisal activities at the Ramhan field will commence immediately and, if technically and commercially successful, production from the Ramhan initial development is also expected to be in the 10,000 barrels of oil equivalent per day range, Occidental added.

"First production from the field could commence as early as 2011," it said.

Abu Dhabi's production accounts for nearly 94 per cent of the UAE's crude output.

The country's oil will last 92 years at current production levels, recent estimates by global energy major BP show.

The UAE's output currently is about 2.66 million barrels per day.

Its proven oil reserves of 97.8 billion barrels make up 7.9 per cent of the world's total.

US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/

Four Companies in bid to build Iranian Pipeline

Four companies, two from Iran and one each from Europe and Asia, are bidding for the contract to build the 1,800km pipeline by 2014 under a Build-Own-Operate deal, Kasaeizadeh said.

A Build-Own-Operate contract gives rights to develop, finance, design, build, own, operate and maintain the project.

"Two Iranian contractors are ready to do it as a Build-Own-Operate deal and two foreign companies. This is new, for a foreign company to do a Build-Own-Operate contract for gas pipelines," Kasaeizadeh said in his last interview as head of NIGC before taking up the top post at National Iranian Gas Export Company (NIGEC).

The contract will be awarded to one Iranian company and one foreign company or the two Iranian bidders may form a consortium with one of the international firms, he added, speaking at the NIGC headquarters in Tehran.

Iran is moving ahead with the plan to export some of its vast gas resources to Europe via pipeline.

The new, Iranian Gas Trunkline 9, or IGAT-9, would be part of the planned 'Persian pipeline' project that aims to transport gas from South Pars to the city of Bazargan at the border with Turkey and on to Italy, Austria and Switzerland, according to Kasaeizadeh.

The South Pars field, which has an estimated 436tn cu ft in gas reserves, is located offshore Assaluyeh, a port town in Iran's southern Bushehr province, in the Persian Gulf.

Alternatively, Iran may pump the gas to Europe via the 3,300km Nabucco pipeline, which aims to pipe 31bn cu m a year of gas from the Caspian region, the Middle East and Egypt to Europe through Turkey, Bulgaria, Hungary, Romania and Austria.

Talks about Iran's participation in the scheme are still ongoing. But potential Iranian involvement in Nabucco and alternative plans for gas exports to Europe are facing stiff resistance from the US, which is seeking to curb international business with Tehran.

Iran, which sits on the world's second largest reserves of both oil and gas, is facing US sanctions over its civilian nuclear program.

Iranian officials have dismissed US sanctions as inefficient, saying that they are finding Asian partners instead. Several Chinese and other Asian firms are negotiating or signing up to oil and gas deals.

Following US pressures on companies to stop business with Tehran, many western companies decided to do a balancing act. They tried to maintain their presence in Iran, which is rich in oil and gas, but not getting into big deals that could endanger their interests in the US.

Yet, after oil giants in the West witnessed that their absence in big deals has provided Chinese, Indian and Russian companies with excellent opportunities to signing up to an increasing number of energy projects and earn billions of dollars, many western firms are slowly losing reluctance to invest or expand work in Iran.

Iran is seeking the participation of foreign firms in its IGAT-9 scheme in a bid to secure partial funding for the project due to its exorbitant cost, Kasaeizadeh said.

"The reason we want help from them is more to obtain financing. For this pipeline, we have 17 compressor stations. Each compressor station has around 4 turbo compressors. The cost of each station is around $100mln," he said.

The cost of the pipeline is also driven up by the difficult territory it's crossing, notably mountainous areas, Kasaeizadeh added.

The Iranian companies that will be involved in building the pipeline will be able to tap the country's Foreign Currency Reserve Fund, Iran's version of an oil stabilization fund, for funding, he said.

The fund "does not give loans to the Iranian government but they give loans to the private sector. It means that the Iranian private sector can get loans and build the lines," Kasaeizadeh said.

Kasaeizadeh said sanctions won't hinder Iran's plans. "Sanctions have not had any effect on our work. It is possible that it affects work in other places, but it has not had any effect on our work."

NIGC has already secured access to raw materials required to build its pipelines, having signed import contracts before a set of stricter sanctions was imposed on the country, he said.

"We have a long-term contract with European companies. Because our contract was already signed and just now we are working on it together, we have had no problem because it was before the sanctions," Kasaeizadeh said.

"We manufacture the pipeline in Iran. We only have to bring the raw materials from outside. Large pipes are carbon steel for which we get the raw materials from abroad," he added.

NIGC also has contracts with European companies for the supply of turbines and compressors, needed to pump the gas over long distances through the pipeline.

"One contract we have got is with Siemens. Another contract is with Ukrainian companies such as Zorya Mashproekt and Sumy Frunze NPO," he said.

Some European countries have also recently voiced interest in investment in Iran's energy sector after a gas deal was signed between Iran and Switzerland regardless of US sanctions.

The National Iranian Gas Export Company and Switzerland's Elektrizitaetsgesellschaft Laufenburg signed a 25-year deal in March for the delivery of 5.5 billion cubic meters of gas per year.

The biggest recent deal, worth €100m ($147m, £80m), was signed by Steiner Prematechnik Gastec, the German engineering company, this month to build equipment for three gas conversion plants in Iran. This is at a time when France's Total, Royal/Dutch Shell and Norway's Statoil have put on hold their shares in multi-billion dollar contracts.

Washington and its Western allies accuse Iran of trying to develop nuclear weapons under the cover of a civilian nuclear program, while they have never presented any corroborative document to substantiate their allegations. Iran denies the charges and insists that its nuclear program is for peaceful purposes only.

Tehran stresses that the country has always pursued a civilian path to provide power to the growing number of Iranian population, whose fossil fuel would eventually run dry.

Despite the rules enshrined in the Non-Proliferation Treaty (NPT) entitling every member state, including Iran, to the right of uranium enrichment, Tehran is now under three rounds of UN Security Council sanctions for turning down West's illegitimate calls to give up its right of uranium enrichment.

Tehran has dismissed West's demands as politically tainted and illogical, stressing that sanctions and pressures merely consolidate Iranians' national resolve to continue the path.

The UN sanctions address individuals and companies involved in nuclear- and arms-related activities without banning daily trade and non-nuclear investment.

But the US has imposed unilateral restrictions in particular on financial transactions and big investments.

####

US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/

Global Financial Problems and Oil Price Volatility

US crude dived below the US$100 per barrel mark for the first time since 27th Feb 2008 to settle at US$91.49 per barrel on 16th Sep 2008, before recovering to US$104.55 per barrel on 19th Sep 2008. US crude fell 8.6% during the review period (Aug 19-Sep 19, 2008).Worldwide credit crunch in the aftermath of subprime crisis, appreciation of the US dollar to a one-year high against the Euro, minimal damage from Hurricane Gustav overwhelmed the geo-political risk arising from conflict in the Caucuses and potential damage by Hurricane Ike to pull down crude prices to a seven month low on 16th Sep 2008. OPEC basket and Kuwait export crude price followed the same pattern declining by 15.3% and 13.9% during the review period. Both OPEC basket and Kuwait crude settled at US$91.72 per barrel.

World oil demand is expected to grow by 0.9mn bopd to average 86.8mn bopd in 2008 (OPEC). Decline in demand from OECD countries was offset by increase in summer demand from China, Middle East and the rest of Asia by 4.0%. The decline in OECD demand is largely attributed to decline in US demand as a result of higher retail prices and worsening economic indicators. Forming of dark clouds over Wall Street with the fall of giant financial sector firms has further intensified fears of a global financial crisis which might lead to revisions in the World demand outlook.
World Oil supply was 86.3mn bopd, a rise of 3% YoY in August. Non-OPEC supply is expected to average 49.9mn bopd during 2008. (OPEC). This estimate is subject to revisions as the assessment of damage caused by Hurricane Ike in the Gulf of Mexico, where all the major oil facilities of the US are located, is still in an early stage. On the other side of the Atlantic OPEC decided to shed 520,000 bopd to 28.8mn bopd in the recently concluded meeting in Vienna citing sufficient oil supply in the markets.

The refining saw contrasting fortunes across the globe. Refining margins for WTI crude at US gulf surged by US$2.93 per barrel to US$6.16 per barrel from US$3.23 per barrel last month. (OPEC). Annual maintenance and disruptions by hurricanes is increasing crack margins despite a slowdown in product demand. Banking on the surge in US refining margins, Brent crude oil margins at Rotterdam increased to US$4.13 per barrel from US$1.39 per barrel in July. Refining margins in Asia saw a beating due to lower imports by China and higher regional output. Refining margin for Dubai crude oil in Singapore declined by US$1.93 per barrel to reach a negative US$0.25 per barrel in August.
Total US commercial stocks stood at 983.3mn barrels at the end of August 2008 compared to 988.8mn barrels at the end of July 2008 (OPEC) with Gasoline stocks declining the most by 14.8% during August 2008 to 194mn barrels from the July 2008 levels. Western European total oil stocks witnessed a decline of 10.8% during August 2008 to 1,110.6mn barrels from July 2008 levels largely due to a 15.9% decline in crude oil stocks to 469.mn barrels during the same period.

Crude Oil Prices
US crude oil lost US$5.67 (5.6%) on 15th Sep 2008 as news of Lehman Brothers bankruptcy and sale of Merrill Lynch swept the financial markets. With American international Group (AIG), North America’s largest insurer saved from a similar fate after an US$85bn bail out from the US government, the indications are clear that the impact of the sub-prime mortgage crisis hasn’t bottomed out yet. The credit crunch situation is likely to worsen which is sending down shivers in the commodities markets.
US crude oil prices have lost 28% in two month since it reached an all time high of US$145.16 per barrel on 14th Jul 2008. Strengthening of the US$, decline in demand in the OECD countries due to higher retail prices and phased removal of subsidies in the developing countries is also playing its part in pulling down the prices.

During the first week of the review period (Aug 19-Sep19 08) the crude oil prices settled slightly upward with the prices rising by 5.0% on 21 Aug 2008 amid potential supply shortfall in the wake of tension in the Caucuses and possible production disruption from the Hurricanes in the Gulf of Mexico. However since 27th Aug 2008 the markets witnessed a sustained decline of 19.0% to reach US$91.49 per barrel on 16th Sep 2008. Subsequently, the prices recovered to US$104.55 per barrel on 19th Sep 2008 as investors turned back towards the commodities to shield themselves against a possible devaluation of the US$ in the backdrop of the financial crisis and falling equity values worldwide. OPEC basket and Kuwait export crude price followed the same pattern declining by 15.3% and 13.9% during the review period. Both OPEC basket and Kuwait crude settled at US$91.72 per barrel.
In the futures market profit-taking was witnessed amid sufficient supply of oil, strengthening of the US dollar and signs of slower world economic growth. During the month of August 2008, the weekly average net positions fell to 4,300 contracts from 11,800 in July, which is the lowest level since Feb 2007.
Crude Oil Price Movements in the Middle East
An across-the-board decline was witnessed in August in the crudes in the Middle East with Bonny Light declining the most by 20.7% and BCF-17 declining the least by 14.0%. WTI/Brent differential increased from US$0.63 per barrel in July to US$3.55 per barrel in August. Brent/OPEC Reference Basket difference narrowed down from US$1.97 per barrel in July to US$0.62 per barrel in August. The difference between various crude oil prices is based on quality which in return is determined by the sulphur content present and other properties. Typically the WTI has traded at a premium of US$1 per barrel over Brent and US$2 per barrel over OPEC basket price. The variation in prices is caused by other market factors.

World Oil Demand
According to OPEC, forecast the world demand growth in 2008 will be 0.9mn bopd to average 86.8mn bopd. There has been a downward revision of 0.1mn bopd arising from a decline in OECD demand. The US, which is the largest consumer accounting for approximately 25.0% of the total world demand, witnessed a decline in demand amid worsening economic indicators and high retail prices. The US demand is projected to decline by 2.0% in 2008. Demand growth from Western European countries is expected to remain slack at 0.5% due to higher retail prices and shrinking pool of gasoline engine vehicles.
Demand growth is being led by Non-OECD countries particularly China and the Middle East and rest of Asia. With the financial markets going through turmoil in the aftermath of the sub-prime crisis, these figures are vulnerable to downward revisions as credit crunch might lead to a slowdown in economic activities world over.
World Oil Supply
According to OPEC, non-OPEC supply is expected to average 49.94mn bopd in 2008, a growth of 510,000 bopd over the previous year. There was a downward estimate of 70,000 bopd to the earlier estimates due to the BTC pipeline explosion and impact of Hurricane Gustav and Ike. Hurricane Ike appeared to have caused widespread damage in the US Gulf of Mexico. Though it is still early to assess the damage that it might have caused, it may lead to downward revision in supply.

OPEC Production
OPEC oil production averaged 32.5mn bopd in August, a decline of 20,000 bopd according to OPEC Sep 2008 monthly report. OPEC production not including Iraq was 30.12mn bopd. In the recently concluded meeting in Vienna, OPEC decided to cut its output to 28.8mn bopd (excl Iraq, Indonesia incl. Angola and Ecuador). The member countries in the conference agreed to strictly comply with the September 2007 production allocations. Anglola and Ecuador are the new members of OPEC while Indonesia’s request for withdrawal from the organisation was accepted in the meeting..
Refinery Margins and Utlisation
The refining margins have received a boost due to declining crude oil price, precautionary shutdowns in the US Gulf coast and more US draw downs of stocks. Refining margins for WTI crude at US gulf surged by US$2.93 per barrel to US$6.16 per barrel from US$3.23 per barrel last month. Banking on the surge in US refining margins, Brent crude oil margins at Rotterdam increased to US$4.13 from US$1.39. Refining margins in Asia saw a beating due to lower imports by China and higher regional output. Refining margin for Dubai crude oil in Singapore slid by US$1.93 to reach a negative US$0.25 in June.
Historically the throughput has increased during the driving season. However this time around decline in demand due to higher prices have led to lower throughput as can be seen in the table below. Throughput declined for all the countries with the exception of Japan and the UK which witnessed an increase of 0.19mn bopd and 0.02mn bopd respectively in August 2008 compared to July 2008. Similarly refinery utilization rates witnessed a declined with the exception of Japan and the UK . The utilization rate in US is likely to come down further as Hurricane Ike appears to have caused widespread damage. Low utilization rates will maintain its upward pressure on crack margins.

Refinery Product Prices
In absolute terms, the prices of all the major products witnessed a decline with Gasoil/diesel declining by at least US$25 per barrel in all the major markets. However the crack spread for gasoil for the WTI crude at the US Gulf coast surged to US$21.75 per barrel in the first week of September from US$10.75 per barrel in the corresponding period last month as hurricanes disrupted activities over there. Jet/kerosene oil prices registered a decline of around US$26 per barrel. Naphta prices declined US$17 per barrel in the Asian market and by US$16.75 per barrel in the European market.
World Oil Stocks
Total US commercial stocks stood at 983.3mn barrels at the end of Aug 2008 compared to 988.8mn barrels at the end of July 2008 with Gasoline stocks declining the most by 14.8% to 194mn barrels in Aug 2008 as compared to July 2008. The steep decline in gasoline stocks was due to lower imports and lower production from refineries. Commercial stocks in general fell in the first week of Sep 2008 to 974.6mn barrels from 983.3mn at the end of August 2008 due to production disruptions from hurricane activity.
Western European total oil stocks witnessed a decline of 10.8% in August 2008 to 1,110.6mn barrels from the July 2008 levels largely due to a 15.9% decline in crude oil stocks to 469.9mn barrels during the same period. Crude oil stocks declined amid lower production from North Sea and lower imports from BTC pipeline. In contrast distillates witnessed an increase of 6.9% in August 2008 as compared to July 2008.

Oil Production Plans in GCC
The major expansion plans are being executed by Saudi Arabia. Saudi Arabia is planning to raise production capacity to 12.5mn bopd by the end of the decade. Aramco is undertaking the major expansion plans with the largest expansion plan in place through Aramco Khurais development project which is expected to yield 1.2mn bopd by 3Q2009.
Other major expansions are coming in the UAE which is looking to expand its production capacity by 650,000 bopd by 2010. The major expansion work is being undertaken by Abu Dhabi Company for Onshore Oil Operations (ADCO) which is looking to expand its capacity to 1.8mn bopd from the current 1.4mn bopd by executing a US$3bn project ADCO phase 1 project which is expected to come online by 2010.
Kuwait Oil Company (KOC) is planning to increase oil production to 4mn bopd by 2020. The early production facility phase 1 and phase 2 are a part of this plan. Phase 2 is expected to process about 120,000 bopd of wet sour crude and 2mn cm per day of Liquefied Petroleum Gas (LPG) from Ratqa and Abdali fileds. Phase 2 will be located close to the EPF Phase1. The project is expected to come online by 2012.

The other major expansion will come online till 2030 which will be undertaken by Kuwait petroleum corporation (KPC). The Ministry of Energy and KPC plans to expand oil production in the northern fields from the current 550,000-600,000 bopd to 900,000 bopd, and sustain it over a 20-30 year period. The venture was initially proposed in 1992. The venture which is also known as Project Kuwait has a vision of a consortium of International Oil Companies (IOCs) providing the investment and technology needed to exploit reserves in the diffcult terrain in the northern fields in order to expand production

Oman is in the process of increasing its capacity by 200,000 bopd per day by 2011. PDO - Harweel Cluster Development Phase- 2A/B is expected to add 100,000 bopd by 2010.
In Qatar Maersk, which operates Al Shaheen under a production sharing deal with Qatar Petroleum, is carrying out US$5bn expansion at the Al-Shaheen Block-5, an offshore block, to raise production to 525,000 bopd by 2009 from the current 240,000 bopd.

September 26, 2008

By Global Investment House

Shell, Iraq Oil Ministry seal US$4 billion gas deal

Royal Dutch Shell has signed a gas joint venture with the Iraqi state-owned company estimated to be worth four billion dollars, a senior government oil official said today.

The Iraqi Ministry of Oil and a wholly owned affiliate of Royal Dutch Shell plc (“Shell”) signed a Heads of Agreement that sets the commercial principles to establish an incorporated joint venture (the “JV”) between the South Gas Company and Shell for the processing and marketing of all associated natural gas produced in the Governorate of Basra in southern Iraq, an area covering some 19,000 square kilometers. 

The signature follows the approval of the Iraqi Council of Ministers on 7th September 2008. 
Some 700 million standard cubic feet per day of natural gas, which is produced by upstream suppliers in association with oil, is currently being flared in southern Iraq. By capturing and processing this natural gas, the JV should create an important and reliable supply of domestic energy, reduce greenhouse gas emissions, and create significant value for Iraq. 

The JV will purchase associated natural gas from upstream operations; own and operate existing gas gathering, treating and processing facilities; and invest to repair non-functioning assets and develop new facilities. The JV will be focused initially on creating reliable sources of domestic energy, including liquefied petroleum gas, natural gas liquids, natural gas supply for power generators, and deliveries to local distribution networks. In the future, the JV could develop a liquefied natural gas facility to export natural gas not needed for local domestic use. 

The JV structure is the model chosen by the Ministry of Oil as the vehicle to create a world-class natural gas industry in Iraq. South Gas Company will be the 51 percent majority shareholder in the JV, with Shell holding 49 percent. 

Speaking at the signing ceremony in Baghdad, Linda Cook, Executive Director for Royal Dutch Shell, said today: “Shell is an industry leader in the global natural gas sector. Iraq has one of the world’s largest natural gas resource bases and I am delighted that the Iraqi Government including the Ministry of Oil have supported Shell as the partner for joint venture with the South Gas Company. We look forward to moving jointly to implement the JV and begin investing in the energy infrastructure in Iraq.” 

_______________________________________________________________________ 
CEO Forum 15th-17th March 2009  - Jumeirah Beach Congress Center, Dubai, UAE 
The Business Forum that brings together executives from the United States and around the world, to meet key principals in the region to explore and expand business opportunities and access Gulf capital.  For Information about this opportunity for your company:  E mail: usexportcouncil@gmail.com

# # #

US Export Council provides assistance to American firms seeking access to international markets in the Gulf States, Middle East and Africa. http://www.usexportcouncil.com