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01 November 2014

Press review 01-11-2014 - Nationalism is great in Summer

This was a busy a week, with many points of interest emerging throughout. Commodities in general kept falling in price against the US$, but the Brent index remained essentially flat.

Sunday, two thirds of Ukraine elected a new Parliament, guaranteeing the permanence of nationalist forces in power. The russophone separatist regions of Luhansk and Donetsk should held their own elections in short order, in spite of having one million refugees in Russia.

The gas supply pre-agreement drafted last week was finally confirmed. Russia dragged negotiations trying to force the EU into a parallel agreement guaranteeing payment on behalf of Ukraine. Such formality did not come to fruition, but it is clear it will be European tax payers largely paying for the gas consumed by Ukraine for the foreseeable future.

'No one to stay cold', as Russia and Ukraine clinch winter gas deal
Andrew Rettman, 31-10-2014

Ukraine and Russia have agreed terms on winter gas supplies in a deal the EU says will contribute to “de-escalation” of the military conflict.

The breakthrough was sealed at a signing ceremony and press conference in Brussels on Thursday (30 October) evening after six months of EU-brokered talks in various locations around Europe.

The EU’s energy commissioner, Gunther Oettinger, Russian energy minister Alexander Novak, and his Ukrainian counterpart, Yuriy Prodan signed a “binding protocol” on the broad outlines of the deal.

The CEOs of Russian supplier Gazprom and Ukrainian distributor Naftogaz also signed an “addendum” to their 2009 gas contract on technical issues.

[...] The EU’s Oettinger noted that Ukraine, which is near-bankrupt, will use EU and International Monetary Fund assistance, on top of whatever Naftogaz can chip in, to cover the winter-time fees.

He was short on detail of the financing structure, even though Russia had previously insisted on signing a third document - on EU financing - which never came to be.
This agreement is certainly good news, but it does not mean Ukraine will make it comfortably through this winter solely on nationalism. The industrial regions have been widely devastated and electricity supply is becoming problematic. Most disturbing of all are news that Ukraine has been running its nuclear park at full steam, possibly increasing operational risks in dated reactors.
Ukraine Facing Harsh Winter Due To Coal Shortages
Wojciech Kononczuk, 28-10-2014

On 22 October, Prime Minister Arseniy Yatsenyuk said that by the end of this year Ukraine will be 4 million tons short of coal. The deficit stems from the fact that 88 of the 93 Ukrainian mines operating in Luhansk and Donetsk oblasts, which together account for 70% of domestic production, are located in areas controlled by the militants. As a result of the war, 69 mines in the Donbas have ceased activity, and several have been destroyed. Even those mines still operating are having problems making deliveries to Ukrainian power plants due to damaged railway lines. As a result, coal production in September fell by 51% compared to the same month last year, and Ukrainian power stations are starting to feel the lack of fuel more acutely. In September, electricity production fell by 13.7%. An even greater decrease in power is being prevented by stockpiles of coal at the power stations, but these are shrinking rapidly. At the beginning of October they amounted to 1.93 million tons, including 0.49 million tons of high-grade coal, while in the same period last year stocks amounted to 4.37 million tonnes.
A major development related to the gas transit through Ukraine is the arrival of a large floating NGL terminal to Lithuania. The Baltic states are now virtually gas independent from Russia - if they can find appropriate suppliers at an appropriate price. Diversification can only be a security strategy if it does not imply a widening of the trade balance.
Lithuania to see energy independence as liquid gas terminal arrives
Peter Teffer, 28-10-2014

A floating liquified natural gas (LNG) terminal arrived at the Lithuanian city Klaipeda on Monday (27 October) where it was greeted by locals as the guarantor of the Baltic region's energy supply.

The vessel, called The Independence, is expected to reduce the Baltic states' dependence on Russian gas.

[...] According to the Lithuanian president's press service, “the Klaipeda LNG terminal can serve and fulfill about 90 percent of the gas supply needs of Lithuania, Latvia, and Estonia”.

The terminal should be operational before the end of 2014. Lithuanian gas company Litgas has signed a five-year agreement with Norwegian Statoil to import 540 million cubic metres of gas annually from 2015.
The blogosphere has been abuzz with the latest report from Post Carbon Institute on source rocks, authored by David Hughes. I am yet to find the time to read it, but the various digests available point in the same direction that has been presented in this review: the real potential of these resources is considerably smaller than that touted by the media. More débâcles like the retraction of reserve figures for California will follow.
Drilling Deeper: New Report Casts Doubt on Fracking Production Numbers
Steve Horn, 26-10-2014

Post Carbon Institute has published a report and multiple related resources calling into question the production statistics touted by promoters of hydraulic fracturing (“fracking”).

By calculating the production numbers on a well-by-well basis for shale gas and tight oil fields throughout the U.S., Post Carbon concludes that the future of fracking is not nearly as bright as industry cheerleaders suggest. The report, “Drilling Deeper: A Reality Check on U.S. Government Forecasts for a Lasting Tight Oil & Shale Gas Boom,” authored by Post Carbon fellow J. David Hughes, updates an earlier report he authored for Post Carbon in 2012.

Hughes analyzed the production stats for seven tight oil basins and seven gas basins, which account for 88-percent and 89-percent of current shale gas production.
Under 100 $/b petroleum prices keep spreading negative outlooks on the industry. Throughout October there were cancellations or delays to report on the Arctic every week, and this one was no exception.
Low oil prices threaten Norway's Arctic, UK's mature fields
Balazs Koranyi and Gwladys Fouche, 28-10-2014

Big oil and gas finds in waters along Europe's northern edge may remain undeveloped now that oil prices have dropped, keeping potential supply of over a billion barrels of oil equivalent out of the market for the foreseeable future.

Discoveries in Arctic Norway could stay dormant, while mature British fields could face early closure and frontier exploration in areas such as Greenland could be called off as oil companies cut capital spending by up to a fifth.

Projects such as Statoil's $15.5 billion Johan Castberg in the Barents Sea and smaller finds by Shell, OMV and others were once expected to open new oil provinces.

They now face delays, cancellations or a radical redesign as oil prices at $85 per barrel make them unprofitable.
In Mexico the petroleum extraction decline seems relentless, and 85 $/b petroleum certainly does not help. Some temporary inversion may come later this decade as the sector opens to private companies that will certainly be more willing to explore smaller and riskier resources. But the peak past last decade seems set in stone.
Pemex Posts Quarterly Loss as Oil Output Fall Continues

Petroleos Mexicanos posted its eighth consecutive quarterly loss as declining output from its Cantarell oilfield pushed production at the state-owned oil monopoly to its lowest level in 24 years.

The Mexico City-based company’s net loss of 59.7 billion pesos ($4.4 billion) widened from a 39.2 billion-peso loss a year ago, the producer known as Pemex said today in a statement. Sales for the quarter fell 0.7 percent to 406.5 billion pesos from a year earlier.

Pemex is counting on Mexico’s landmark 2013 law that opens the country’s energy industry to private competition for the first time since 1938 to help stem declining output. Some projects planned for the energy overhaul, which is forecast by the government to bring in $50 billion of private investment by 2018, could be delayed as international oil prices fall, according to Rodolfo Campos, Pemex’s treasurer.
On the other side of Atlantic hope is vanishing on Libya. Battles rage in the two largest cities among at least three major factions; Egypt regularly intervenes. Petroleum flows irregularly but the deepening war is not auspicious. Libya was Khadafi and Khadafi was Libya, petroleum extraction in the region may one day recover but not the country.
Libya near 'point of no return', U.N. says as fighting toll rises

Factional warfare in Libya is pushing the oil producer "very close to the point of no return", the U.N. special envoy to the country said on Tuesday with efforts to bring about a ceasefire and political dialogue showing no result.

The death toll from two weeks of street fighting between pro-government forces and Islamist armed groups in the eastern city of Benghazi has risen to 170, medics said. Seven people were killed alone on Tuesday, 15 on Monday.

The North African country has had two governments and parliaments since a militia group from the western city of Misrata seized the capital Tripoli in August, setting up its own cabinet and assembly.
Further east Iran seems on good track to get international sanctions lifted later this month. Various European companies are sharpening their teeth for a range of new contracts that should become viable thereafter. The stamp from the US seems all that is missing at this stage, which is not guaranteed. However, that might not mean Iran will remain isolated. Perhaps because you can not isolate everyone at the same time?
Iran mulling currency side step
Daniel J. Graeber, 27-10-2014

Using national currencies for trade deals between Iran and Russian is high on the list of items to be discussed during upcoming talks, an Iranian lawmaker said.

[...] "Replacing (the U.S.) dollar with ruble in bilateral and multilateral transactions between Iran and Russia tops the agenda of the upcoming visit of an Iranian delegation to Russia," he said Saturday.

Iran has long been searching for a way around the U.S. dollar to circumvent sanctions imposed by Western powers in response to its controversial nuclear program. Russia now has sanctions pressure of its own issued in response to Western frustration over Moscow's stance on Ukraine.
Following an interesting and detailed article on Turkey, a country that rarely makes it into this review. Galloping electricity consumption is creating all sorts of challenges, that are not certain to be tackled.
Turkish Weekly
Is Turkey entering an energy bottleneck?
Haluk Direskeneli, 24-10-2014

In the coming days, we will be seeing new developments in our energy markets and should therefore make upfront predictions to develop appropriate strategies. We have very serious problems in our natural gas supply. Even if we do not have any political friction with Ukraine or Russia, in the days when temperatures drop below -5 °C our natural gas demand will not be met. There are optimistic expectations that this shortage may be made up by gas being supplied from Azerbaijan’s Shah Deniz-2, Israeli offshore fields, or Northern Iraq, however these prospects have not yet been secured with contracts. In these difficult times, in an overly complicated geography, these optimistic expectations represent nothing more than “wishful thinking”, as we cannot plan for the future based on such loose conditions.
In other news, various mainstream media outlets reported a copper squeeze at the London market. This sort of squeezes in metal markets are not uncommon, especially in the US, but are rarely reported by the media.
The Times
Tory donor Michael Farmer’s fund in copper ‘squeeze’
Marcus Leroux, 28-10-2014

A hedge fund run by a prominent Conservative donor is believed to control more than 80 per cent of the copper in London Metal Exchange warehouses.

Information at the LME, the world’s largest exchange for metals and whose prices are used as benchmarks in contracts around the world, showed that on Tuesday and Wednesday last week a single owner held between 80 and 90 per cent of the copper in stock in its system.

Red Kite Group, a hedge fund led by Michael Farmer, has been identified by brokers and traders as the dominant holder of copper, according to The [sic]
Finishing off some food for thought. In recent months the mainstream media has been hectic with the execution of foreigners held by the Islamic State. Just this week, the execution of a woman convicted of murder in Iran made it to many home pages. Sadly, death penalty is still common practice in many countries, even among many of those Europeans may perceive as friendly. In Sunni lead countries executions are especially brutal, with beheadings and dilapidations regularly taking place in public. Such is the case with Saudi Arabia, where noticeably, the executed are increasingly foreign citizens. Ever wondered why executions in Saudi Arabia never make it to front pages?
Saudi Arabia carries out 61st execution of 2014

Saudi Arabia beheaded a Pakistani convicted of heroin smuggling Tuesday, the interior ministry said, bringing the number executed in two weeks to four.

It said a Saudi national was also executed in a separate case, raising to 61 the number of death sentences carried out in the kingdom this year, according to an AFP tally.

Mohammed Gul Rahma of Pakistan was executed in Qatif in the kingdom's oil-rich Eastern Province, the official Saudi Press Agency (SPA) reported, citing the interior ministry.
Enjoy the weekend and Saint Martin's weather.

1 comment:

  1. Thanks a lot for these weekly reviews Luis, you follow many "files" !