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14 May 2016

Press review 14-05-2016 - Nigeria's descent to hell

This was another hectic week in the petroleum market, with huge price movements reacting to the sightliest hinting news. If Brent opened Tuesday just over 43 $/b, by Thursday it was trading over 48 $/b - that is an 11% hike in less than three days. Friday Brent closed at what is the highest weekly price for more than six months. Nevertheless, these encouraging prices are still too far from comfort for the petroleum industry. Fundamentally, nothing has yet changed.

That is the reason why petroleum exporting economies are facing ever deeper economic difficulties. And for Nigeria in particular, this week looks to have been a turning point - downwards. The euphemistically called "social unrest" conveying the economic and environmental impacts of an at least partially unprofitable industry is overwhelming petroleum production. It is a descent to hell, from which it will be hard to return.

Attacks put Nigeria oil output at 22-year low

A series of attacks on oil infrastructure in the Niger Delta has pushed Nigeria’s output of crude close to a 22-year low, according to Reuters data, putting intense pressure on the country’s finances.

Shell workers at Nigeria’s Bonga oilfield in the southern Niger Delta were evacuated following a militant threat, a senior labour union official said yesterday. Attacks late last week forced Chevron to shut its Okan offshore facility, taking out 35,000 barrels per day (bpd).

Shell said the unrest had not yet impacted production, but its Forcados field is still closed and under force majeure following a February subsea pipeline attack, taking out 250,000 bpd.

The violence has depressed production in Africa’s largest producer to roughly 1.69 million bpd this month, the lowest since at least June 2007, when production fell to 1.68 million bpd, according to International Energy Agency data.
There have been multiple attacks by armed forces to petroleum facilities and from what I understand not everything is being reported in the western mainstream media. The haste with which petroleum companies are abandoning their operations attests nonetheless to an highly insecure situation.
Shell Evacuates Oil Personnel After Chevron Platform Bombing
James Burgess, 09-05-2016

Shell has evacuated nearly 100 essential oil personnel from a major production facility in the Niger Delta, following a series of attacks from a newly formed militant group that has vowed to renew the fight abandoned after a 2009 amnesty deal.

Some 98 Shell personnel were airlifted from the Shell-operated Eja Oml 79 oil production facility in the Niger Delta over the weekend, bringing into question the facility’s 90,000 barrel-per-day production capacity. The facility is run by Shell’s Nigerian subsidiary, SPDC (Shell Petroleum Development Corporation).

The evacuations come after militants of the Niger Delta Avengers attacked an offline oil platform in the Okan field facility run by Chevron late Wednesday.

"Approximately 35,000 barrels per day (bpd) of Chevron's net crude oil production in Nigeria are impacted," company spokeswoman Isabel Ordonez said in a statement late Friday.
An explained pipeline leak brought offline a further 400 kb/d this week. Extraction numbers should therefore be down to 1.3 Mb/d by now.
Nigeria loses 400,000bpd as Shell declares force majeure
Femi Asu, 12-05-2016

With the declaration of force majeure on Bonny Light exports by Shell Petroleum Development Company of Nigeria Limited, about 400,000 barrels per day of Nigeria’s production has now been shut in.

Force majeure is a legal clause that allows an oil firm to stop shipments without breaching contracts.

The oil major said in a statement signed by its spokesperson, Mr. Bamidele Odugbesan, on Wednesday that the force majeure took effect from Tuesday, May 10, 2016.

It said the decision came as a result of a leak that led to the closure of the Nembe Creek Trunk line for repairs by the operator, Aiteo Eastern E & P Company Limited.
And then came the ultimatum, which might mean the violence against petroleum infrastructure has just started. Nigeria is looking like a repeat of the Libya story, at least to what petroleum extraction is concerned.
Nigerian Militants: Oil Companies Have 2 Weeks To Evacuate Or Else…
Charles Kennedy, 12-05-2016

The Niger Delta Avengers (NDA), the group behind the string of attacks that have halted major operations in the oil-rich Niger Delta, have issued a threat to all oil companies in the region to shut down and leave or face stepped up attacks.

The ultimatum was issued on Thursday, and signed by spokesman Mudoch Agbinibo.

“The Niger Delta Avengers is giving two weeks [sic] ultimatum to all oil companies in our region to shut down and evacuates their staff,” the statement, carried by Nigerian media, allegedly read.

The group said that failure to comply would result in bloody attacks that the Nigerian military would be incapable of stopping.
It is also important to understand the deep economic problems the country is facing, that are naturally fostering the "unrest". This is what could be called a snowball effect, with economic strains producing social upheaval that leads to further economic losses.
Associated Press
Nigeria lifts gas subsidy, nearly doubling the price of fuel
Michelle Faul, 11-05-2016

Nigeria's government announced Wednesday it is lifting a controversial subsidy on gas, nearly doubling the price amid a massive fuel shortage and militant attacks on oil installations in Africa's biggest petroleum producer.

Previous attempts to end the subsidy have provoked riots and, in 2012, the biggest demonstrations ever seen, forcing the government to retract.

The 4-million-strong Nigeria Labour Congress immediately announced that it and its civil society allies will fight the "most audacious and cruel" move that will "make life more miserable" for Nigerians struggling with spiraling inflation and increases in electricity tariffs despite more blackouts.
The Nigeria story largely overlapped with the fires raging in Alberta. Monday the press was showing incredible images of destruction, indicating that a good part of those evacuated no longer have a home to return to. The recovery from this disaster is likely to be measured in months rather than weeks.
Seeking Alpha
Big One-Week Drop In U.S. Crude Production; Canadian Fire Shutting-In Significant Output
Robert Boslego, 08-05-2016

The Energy Information Administration (EIA) reported that domestic production had dropped by 113,000 b/d in the last week of April. Market observers, who follow the weekly production stats, despite the fact that they are estimates of EIA's flawed model that produces them, point to them as evidence that production is dropping quickly.

But last week's drop is not implying that. A closer look reveals that the drop was primarily due to a temporary decline in Alaskan output. In addition, several companies have raised their guidance for their production in 2016. And I believe that hedging will ultimately keep production above market expectations for 2016. Therefore, I caution against taking the past 4-week trend in output declines and projecting them forwards.

Meanwhile, as of May 7th, as much as one-quarter (1.15 million barrels per day) of Canada's oil production (4.6 million barrels of oil per day) is off-line due to the fire in the heart of Canada's oil sands area in Alberta. The fire is projected to double in size today and could last for weeks.
Interesting how valuable information can emerge from the most askew ways. The so called "Arctic oil", which was supposed to adjourn Peak Oil indefinitely, comes out as another white elephant for the petroleum industry.
Oceana sees imminent end to Arctic drilling
Daniel J. Graeber, 10-05-2016

With energy companies relinquishing their holdings, advocacy group Oceana said the end may be near for drilling in the Arctic waters offshore Alaska.

Oceana said it's found through a Freedom of Information Act request that companies ranging from ConocoPhillips to Italy's Eni have released their leases in the Chukchi Sea. Shell, which Oceana said is holding on to one lease, has a problematic track record offshore Alaska. A drillship suffered mechanical issues in 2012 and, in July, a breach was discovered in the hull of a vessel meant to carry the safety equipment to the region.

Michael LeVine, the senior regional counsel for the group, said that, after spending "billions of dollars" on Arctic campaigns, energy companies may be realizing the risks aren't worth the reward.
Looking at the big picture: petroleum discoveries in 2015 amounted to less than 10% of what was consumed that year. More important than the numbers themselves is the trend, that is naturally being reinforced by the present depressed market.
Financial Times
Oil discoveries slump to 60-year low
Ed Crooks, 08-05-2016

Discoveries of new oil reserves have dropped to their lowest level for more than 60 years, pointing to potential supply shortages in the next decade.

Oil explorers found 2.8bn barrels of crude and related liquids last year, according to IHS, a consultancy. This is the lowest annual volume recorded since 1954, reflecting a slowdown in exploration activity as hard-pressed oil companies seek to conserve cash.

Most of the new reserves that have been found are offshore in deep water, where oilfields take an of average seven years to bring into production, so the declining rate of exploration success points to reduced supplies from the mid-2020s.

[...] Paal Kibsgaard, chief executive of Schlumberger, the world’s largest oil services company, told analysts last month: “The magnitude of the E&P [exploration and production] investment cuts are now so severe that it can only accelerate production decline and the consequent upward movement in [the] oil price.”
Following is an act of contrition by someone whom has been dismissing Peak Oil for years but now feels the floor slipping under his feet. There will be many articles of the like in the coming years.
Financial Times
Crude soothsayers should recall cautionary tale of ‘Peak Oil’
John Authers, 13-05-2016

We view the world in stories. But the story does not always precede the fact. In markets, we often adjust our story, and our view of the world, to fit the fact of a move in the price. And no market lends itself to grand narratives as much as oil.

This week at the annual conference in Montreal of the CFA Institute, a professional body for investors, there were some grand narratives about the future of oil. They should be taken seriously. But the last time the conference visited Canada, in Vancouver in May 2008, there was also a grand oil story. How did that work out?

Back then, crude prices were at a record, on their way to an insane peak of $150 per barrel two months later. That spike sparked a narrative: Peak Oil.
These days I am reading "The Oracle Of Oil" an extensive biography of M. King Hubbert authored by Mason Inman. It has kept me from going to sleep at normal hours and will certainly deserve some sort of review once I am through with it. In the meantime you may have a few impressions from Mason Inman himself.

On the possibly bright side of things, the focus this week is on self driving vehicles. This is one of the aspects of the coming Fourth Industrial Revolution and another consequence of the incredible downsize and cost reduction of micro-chips in recent years.
BMW plans self-driving car launch by 2021
Danny Palmer, 13-05-2016

BMW wants to have its first fully driverless vehicle on the roads within five years, the German auto manufacturer's CEO Harald Krueger has revealed.

Krueger voiced his ambition for BMW to launch its first autonomous vehicle at the company's annual shareholder meeting in Munich. BMW is currently focusing very much on its 'i' electric car range and the Krueger sees the move into fully autonomous vehicles as a natural extension of this strategy.

"In 2018, we will launch a BMW i8 Roadster. This will be followed in 2021 by the BMW i Next, our new innovation driver, with autonomous driving, digital connectivity, intelligent lightweight design, a totally new interior and ultimately bringing the next generation of electro-mobility to the road," he told shareholders.
A self driving vehicle promises upfront relevant gains in efficiency that are in themselves reason enough for their introduction. However, they can bring about a far more relevant shift: that can definitely deal away with car ownership in urban areas. Mobility evolves into a service and vehicle ownership brought down to a few driving enthusiasts and collectors.
Ford: Self-driving cars are five years away from changing the world
Steve Ranger, 11-05-2016

The self-driving car is one of the most hotly contested areas of tech development right now, with tech companies like Google (and soon maybe Apple), as well as established car makers like Ford and Volvo each trying to overtake the competition.

Earlier this year Ford said it will triple the size of its autonomous Ford Fusion Hybrid test vehicles, announcing plans to test 30 vehicles on roads in Arizona, California, and Michigan.

ZDNet recently spoke to Jim McBride, technical leader in Ford's autonomous vehicles team, about the future of driving.

[...]How big a deal are autonomous cars going to be, really?

I would say it's a paradigm shift that's not terribly dissimilar from [the shift from] horses and carriages going to cars. We're going to have cars driving without you -- without the occupant -- having to do anything. That's a huge paradigm shift and it opens up a whole variety of new business models that weren't previously available.
And that is it for this time. Have a good weekend.

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