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27 September 2014

Press review 27-09-2014 - Bombs away

The US and France have started bombing Syria in addition to Iraq this week, now directly targeting petroleum infrastructure, hitting extraction and refining compounds. Britain is soon to join. The recent decline of petroleum prices in international markets certainly eased the decision. The main justification to strike the various Sunni factions acting in the region is a series of public executions of foreigners. This seems common practice in Sunni states, but the western media only condemns such actions in Syria.

This region may not be that relevant at the scale of the global petroleum market, but it now seems shut off for any foreseeable future.
The Guardian
US aims to wipe out Isis funding with air strikes on oil wells in Syria
Luke Harding, 25-09-2014

The latest US air strikes in Syria targeted oil facilities controlled by Islamic State (Isis) in a deliberate attempt to wipe out a lucrative source of income for the rapidly expanding jihadist group.

US central command said 13 air strikes were launched against refineries in the east of the country. They included at least four oil installations and three oil fields around the town of Mayadeen. Also hit were targets near Al Hasakah, Abu Kamail and Deir el-Zour, on the Euphrates river.

The US said that these “small-scale refineries” provided fuel for Isis’s military operations as well as money to finance “continued attacks throughout Iraq and Syria”. According to the Syrian Observatory for Human Rights, at least 14 Islamic state militants were killed in Wednesday’s attacks. Another five people who lived near one of the refineries in Hasakah province also died. The Observatory said that they were probably the wives and children of the militants.
Here in Europe various actors in the Ukrainian conflict are slowly coming to their senses. Peace seems to be holding and negotiations progress. One of the remaining open questions is the status of the russophone regions: will they accept autonomy within Ukraine or will they form a new country? In any event, the option to join the Russian Federation seems discarded, a development that flies in the face of those touting the "invasion" thesis.
Washington's blog
Russia’s Leader Putin Rejects Ukrainian Separatists’ Aim to Become Part of Russia
Eric Zuesse, 19-09-2014

Russia’s Government has thus made clear that it is not seeking to add to its territory. While Russia has accepted the approximately million refugees who have fled to Russia from Ukraine’s civil war, Russia does not want any part of Ukraine’s territory. Crimea was traditionally part of Russia, throughout the period 1783-1954, until the leader of the Soviet Union gifted Crimea to Ukraine (the nation that was called the Ukrainian Soviet Socialist Republic) in 1954, but the residents of Crimea never accepted that, and they overwhelmingly considered themselves still to be Russians. Furthermore, the Russian Navy’s lease on the Crimean port of Sebastopol for its Black Sea Fleet extended till 2042, and the February 2014 coup-installed Ukrainian Government wanted to cancel it, which threatened crucial Russian national defense. Furthermore, many of those new Ukrainian leaders wanted a nuclear war against Russia. So, Putin accepted Crimea back into Russia, but he will not admit more than that as being added to Russian territory.
The European Union also realises that this conflict cannot drag much longer, irrespective of the official rhetoric. A new agreement is being pressed ahead of winter in order to guarantee regular gas supplies.
Europe wants Russia, Ukraine to sign interim gas deal in Berlin

The European Commission (EC) will propose that Russia and Ukraine sign an interim gas agreement in Berlin as a step towards resolving their long-standing row over gas prices, Energy Commissioner Guenther Oettinger said on Tuesday.

Russian, Ukrainian and EC officials are meeting on Sept. 26.

Ukraine's military, reporting progress on a ceasefire called by President Petro Poroshenko, said on Tuesday all firing stopped overnight in a conflict with pro-Russian separatists that has killed more than 3,000 people and sent relations between the two countries to an all-time low.

Oettinger said the gas agreement should fix an interim price for a specified amount of gas to be shipped to Ukraine.
Economic sanctions remain in place however. Preliminary economic data for the third quarter looks ugly for Europe, with large swathes of the industry and agriculture hit badly. Russia is suffering too, but it seems to have far more room to manoeuvre.
Asian firms to replace Western energy majors if they leave Russia -minister
Polina Devitt, 22-09-2014

Asian companies will replace Western majors if they quit energy projects in Russia due to sanctions over Moscow's role in Ukraine, Natural Resources Minister Sergei Donskoi said.

Donskoi told Reuters that Asian companies had signalled their interest as the United States targeted cooperation with Russia in exploring or producing oil from the Arctic offshore, deep water or shale projects. Those companies affected by the sanctions have until Sept. 26 to stop work.

"They (Asian companies) have showed their interest," Donskoi said in an interview at the Reuters Russia Investment Summit.

"We have many companies, not only from the developed countries, but also from developing markets, which are ready to work with us," the minister said.

"They have resources and, in some cases, technologies, which can be adapted and developed here. That's why we have ways to solve the issues and problems related to sanctions."
As highlighted various times before, the economic sanctions on Russia are bringing the BRICS ever tighter together and accelerating the trend towards a larger role from this block in the global trade and politics.
Moscow’s ‘Mr. Yuan’ Builds China Link as Putin Tilts East
Evgenia Pismennaya, 24-09-2014

The yuan-ruble trade on the Moscow Exchange, where Marich runs money markets, has jumped 10-fold this year to $749 million in August, though still a sliver of the $367 billion in dollar-for-ruble sales. Yuan buying hit a then-peak of 666 million yuan ($109 million) on July 31, when the European Union penalized Russia’s largest banks, OAO Sberbank (SBER), VTB Group and OAO Gazprombank, over Putin’s support for Ukraine’s insurgency. With EU and U.S. sanctions in place and ties with China deepening, daily trading will soon reach 1 billion yuan, Marich said.

“I believe we can see this result within a year,” the 40-year-old sports enthusiast said in an interview at the exchange in central Moscow, where he started working in 2000, the same year Putin became president.

Marich’s goal may come sooner than he thinks. Russia is considering accepting yuan for gas under the $400 billion, 30-year supply deal that China signed during Putin’s visit to Beijing in May, according to four senior Russian officials and executives who asked not to be identified because a final decision hasn’t been made.
The Ukranian conflicting is also producing a interesting rapprochement with Iran. Various member states had old economic ties with the Persian republic (notably France) that where severed with the sanctions enacted over its Nuclear programme. While it is doubtful Iran may ever replace Russia in terms of volumes and geographic reach, its return to the international market at a moment of political openness can only be welcome.
EU plans for Iran gas imports if sanctions go
Jonathan Saul and Henning Gloystein, 24-09-2014

The European Union is quietly increasing the urgency of a plan to import natural gas from Iran, as relations with Tehran thaw while those with top gas supplier Russia grow chillier.

Two "ifs" - the removal of sanctions on Iran and the addition of some pipeline infrastructure - are not preventing EU planners preparing, a European Commission source involved in developing EU energy strategy told Reuters.

"Iran is far towards the top of our priorities for mid-term measures that will help reduce our reliance on Russian gas supplies," the source said. "Iran's gas could come to Europe quite easily and politically there is a clear rapprochement between Tehran and the West."
President Rouhani was in New York this week, distributing various sound-bites to the media; the gas supply to Europe was also part of it. The controversial Nuclear programme in Iran dates back to the time of President Katami, when it was intended as a way to free gas from electricity generation to export.
Iran ready for European gas role
Daniel J. Graeber, 25-09-2014

Iran can play a central role in the energy security strategy for Europe if it's met with open arms, the Iranian president said from New York.

Iranian President Hassan Rouhani is in the United States to attend a meeting of the U.N. General Assembly. During a meeting with Austrian President Hans Fischer, the Iranian leader said gas installations in western Iran could link to Europe.

"Iran can be a secure energy center for Europe," the Iranian president said.
The news out of the region formerly known as Lybia get ever more awkward. There were more mysterious air strikes, but this time hitting the capital of Cyrenaica. And now there is even an alternative petroleum ministry in Tripolitana.
Fighting close to Libyan oilfield and refinery as rival "oil minister" appears
Ayman al-Warfalli and Feras Bosalum, 22-09-2014

Soldiers and police have clashed in the last few days near Libya's biggest El Sharara oilfield in the south, while separate fighting erupted in the west not far from the Zawiya refinery, residents and medics said.

The violence came as video emerged on social media purportedly showing a rival oil minister appointed by an armed opposition group controlling the capital Tripoli giving a speech at the oil ministry.

If confirmed this could mean the central government has lost control of the oil ministry, potentially paralysing vital oil exports over questions of ownership.
Petroleum infrastructure remains a target in the various conflicts in the region. As in Syria, these petroleum assets will likely remain shut off for the foreseeable future.
Libyan Oil Production Down 30% Following Rocket Attack
Andy Tully, 18-09-2014

Libya’s decision to shut down its most productive oil field after a rocket attack on a related refinery has cut the North African nation’s output by nearly 30 percent and helped boost sagging global oil prices.

Mansur Abdallah, the director of oil shipments at the damaged refinery, told Bloomberg News that the Sharara field had been producing about 250,000 barrels of oil per day before the Sept. 15 attack. Libya had been producing about 870,000 barrels of oil per day before that, according to National Oil Corp. spokesman Mohamed Elharari.

The refinery is in Zawiya, on Libya’s coast along the Bay of Sidra, roughly 25 miles west of Tripoli. It is connected by an oil pipeline to Sharara, about 450 miles to the south. Elharari said one of several militias involved in Libya’s civil war fired a rocket that exploded near a crude oil storage tank near the refinery.
The petroleum market is definitely into a supply destruction phase, with various resources and operations clearly yielding costs above the clearing price. Remarkably, it happens with what are still unprecedented prices at a decadal scale. Out of the daily sound-bite steam-roll, some wonder what this may actually mean.
U.S. oil and gas production is indeed up, but at great cost
Eric Teegarden, 21-09-2014

Robert Bryce, a fellow at the Manhattan Institute, suggests that fossil fuels are here to stay (The Herald, Viewpoints, Sept. 7) because “innovation in the oil and gas sector … has resulted in faster and cheaper drilling, which, in turn, has turbocharged the growth in hydrocarbon production.”

Mr. Bryce's views were shared by most conventional energy analysts until very recently. When I completed my bachelor's degree in geophysics at Texas A&M University in the early 1990s, none of my geology professors ever mentioned the topic of depletion. Instead the focus of my coursework was on advanced methods of seismology including three-dimensional imaging and horizontal drilling as a means to extract more oil at a lower cost. These methods have indeed been successful in extracting more oil but only at a much higher cost: at the pump and more insidiously to people's health, the welfare of communities and to our environment.

A Shell Oil geophysicist, M. King Hubbert, was the first to take a serious look at the boom-and-bust cycle of conventional oil extraction for his doctoral thesis in the 1950s. The result of his painstaking survey of thousands of Oklahoma and Texas oil well production data was to observe a bell-shaped curve now known as the Hubbert curve. All extracted resources behave this way.
Hints of contraction in the petroleum industry keep flowing. It becomes ever more apparent that the exploration cycle triggered by petroleum prices over 100 $ for three straight years was largely a failure.
Total to sell more assets, cuts oil output target
Dmitry Zhdannikov, 22-09-2014

Total will step up asset sales and overhaul exploration after cutting its oil output targets and the French oil company also said it was seeking European funds to deliver a Russian gas project on time despite international sanctions.

Total, which has struggled with production outages in Libya, Kazakhstan and Nigeria, on Monday cut its 2017 output goal to 2.8 million barrels of oil equivalent per day from a previous 3 million.

France's biggest company by market value and the West's fourth biggest oil and gas group launched a "high-risk, high-reward" drilling strategy two years ago. But this has had disappointing results as high-cost investments did not lead to large discoveries.
And the heavy petroleums, like those mixed in Canadian sands, are those to get hit first.
Statoil calls off 40,000 bpd Canada oil sand development

Norwegian energy company Statoil ASA said on Thursday it will postpone development of its 40,000 barrel per day Corner oil sands project in Alberta, Canada, for at least three years, cutting about 70 jobs at its Canadian unit, because of rising costs and limited pipeline space.

The company is the first oil sands operator to defer a project as weak world oil prices cut profits and push returns in the high-cost oil sands close to the break-even point. Rising production from the region is also squeezing available pipeline space while companies await U.S. approval for the contentious Keystone XL pipeline.

[...] "Costs for labour and materials have continued to rise in recent years and are working against the economics of new projects," Staale Tungesvik, Statoil's country manager for Canada, said in a statement. "Market access issues also play a role, including limited pipeline access, which weighs on prices for Alberta oil, squeezing margins and making it difficult for sustainable financial returns."
On alternative energy news there was a remarkable deal signed between South Africa and Russia on the development of a Nuclear park for the former. In first place this deal highlights the tightening economic ties between the BRICS (and that Russia is anything but isolated). But it also sends the message that outside Europe Nuclear power is still developing and certainly wont be dismissed in the short to medium term.
S.Africa signs 9.6 GW nuclear power deal with Russia

South Africa signed a $10 billion nuclear power cooperation deal with Russia on Monday that paves the way for the building of up to 9.6 GW of nuclear power based on Russian technology by 2030, both sides said.

The surprise announcement from the sidelines of a International Atomic Energy conference in Vienna suggests Pretoria is moving ahead with its plans for nuclear power, despite concerns over funding.

"This agreement opens up the door for South Africa to access Russian technologies, funding, infrastructure, and provides proper and solid platform for future extensive collaboration," South African energy minister Tina Joemat-Pettersson said in the statement.
Featured many times before in this review is the drive of Saudi Arabia also towards Nuclear and renewables. The country consumed a new record amount of petroleum for electricity generation this summer, in what is clearly an economically unsustainable trend.
Saudi Arabia using more crude oil than ever
Daniel J. Graeber, 24-09-2014

Saudi Arabia aims to use more renewable energy, but for now it burns more crude oil directly than any other nation in the Middle East, a Wednesday report found.

[...] A report for the U.S. Energy Information Administration, a branch of the Energy Department, found Saudi Arabia burned 900,000 barrels of oil per day in July, the highest ever recorded for that month.

"Saudi Arabia used an average of 700,000 bpd of crude oil for power generation during the summers from 2009 to 2013," EIA said. "During that same period, Iraq and Kuwait, the next two largest users of crude oil for power generation in the Middle East, each averaged roughly 80,000 bpd of crude burn."
Meanwhile, optimism grows on renewable energy among investors. The numbers look indeed very favourable and slowly the awareness expands that these technologies will keep penetrating the market without feed-in tariffs. Naturally, this optimism relies on such technologies remaining feasible either on legal or taxing grounds. So far the experience in Europe points otherwise.
IEEE Spectrum
"Someday" is Now for Solar and Wind Power, says Lazard
Peter Fairley, 19-09-2014

The results appear in the eighth annual update of Lazard's Levelized Cost of Energy Analysis [pdf], which compares the combined cost of financing, building, and operating power generating plants using a variety of energy technologies. Lazard projects that new utility-scale solar plants will deliver energy at US $72-86 per megawatt-hour, and wind turbines beat that with a cost of $37-81/MWh.

Those renewable energy options compare well against the cost of the most cost-effective natural gas-fired technology—combined cycle plants—which delivers at a projected $61-127/MWh (depending on whether the plant captures its carbon dioxide emissions). The renewables look even better against coal in Lazard's analysis, which prices new coal-fired generation at $66-171/MWh.
Have a pleasant weekend.

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