Blockchain platform goes live for North Sea crude oil trading
Oil majors and trading firms can start finalising crude oil deals on a live blockchain-based platform for the first time, in a move that could revolutionise the market. Commodities trading firms have piloted similar schemes in recent years as blockchain technology has the potential to drastically cut costs in an environment of razor-thin profit margins. London-based platform Vakt is the first of these to go live, with shareholder Gunvor Group saying it was rolled out on Wednesday, although no trades took place that day. Blockchain, the platform behind cryptocurrency Bitcoin, is viewed by many as a solution to trade and settlement inefficiencies, as well as a way to improve transparency and reduce the risk of fraud. Vakt was created in 2017 by a consortium that includes oil majors BP and Royal Dutch Shell, Norway’s Equinor, global energy trading firms Mercuria Energy Group and Koch Supply and Trading, as well as Gunvor. These firms will initially be the only users of Vakt but access will be opened up in January next year. Banks ABN Amro, ING and Societe Generale are other shareholders. Vakt digitises and centralises what was previously a mountain of a paperwork shared between all the parties involved in each deal. It will be linked to another platform launched earlier this year, Geneva-based komgo, which will provide financing including digital letters of credit. “Vakt is the logistical arm…Once a deal is executed through our book of records, it gets pushed through Vakt. The next leg is the financing and the link-up with komgo gives access to several banks,” said Eren Zekioglu, Chief Operations and IT Officer at Gunvor Group. komgo, which is due to go live before the year end, is backed by a consortium including 10 global banks and most of the Vakt shareholders. The financing platform will target the full spectrum of commodities trading, from oil to wheat. Use of Vakt will at first be limited to contracts for the five North Sea crude grades that are used to set dated Brent, a benchmark used to price most of the world’s crude oil. In early 2019, the platform plans to include U.S. crude pipelines and barges of refined products like gasoline in northern Europe. “It’s an exciting time,” Andrew Smith, Shell’s head of trading, said. “Collaboration with our peers and some of the industry’s key players is the best way to combine market expertise and achieve the scale necessary to launch a digital transaction platform that could transform the way we all do business.”
BP sees Brazil’s new biofuels policy boosting investment
Brazil’s latest policy to boost biofuels use has improved the outlook for ethanol production and should attract new investment in plants, BP Plc’s chief executive for biofuels, Mario Lindenhayn, said on Wednesday. Brazil is advancing with additional regulation for the policy, called RenovaBio and expected to be enacted in 2020, Lindenhayn said, adding that he does not see signs that the government of President-elect Jair Bolsonaro, which kicks off in January, would put up obstacles. “We are very positive. This is a very important signal the country is giving, creating a stable regulatory environment that will allow companies to invest,” Lindenhayn told Reuters on the sidelines of an energy presentation at the company’s corporate office in Sao Paulo. RenovaBio will mandate fuel distributors to gradually increase the amount of biofuels they sell. The program aims to double the use of ethanol by 2030 from around 26 billion liters currently. The program also targets increases for other renewables such as biodiesel. BP has three ethanol mills in Brazil, crushing 10 million tonnes of sugar cane per year. It formed a venture last year with Brazil’s Copersucar, a leading global ethanol seller, to jointly operate one of the largest fuel terminals in the country located in Paulinia, in Sao Paulo state. Lindenhayn said the program provides an opportunity for mills in Brazil, which have experienced stagnation caused by years of low sugar prices and a long period of subsidized gasoline prices that led to the closure of many firms. “If the program advances as planned, it will be a large opportunity. There are no greenfield projects around, and the country is a net fuel importer,” he said. Asked if BP would be interested in increasing ethanol capacity via acquisitions, since there are several assets being offered in Brazil by companies with financial difficulties, Lindenhayn said: “We will see, we will consider.” On Wednesday, Brazilian oil and fuels regulator ANP published in the official gazette another part of RenovaBio complementary legislation, with rules for biofuel companies to obtain certification. With that, the plants will be able to issue and trade emissions reductions credits, called CBios, that fuel distributors could buy to comply with targets in case they fall short. It would be Brazil’s first emissions reductions market, although limited to the fuels industry.
Three Reasons Why LNG Prices In Asia Are Plunging
Prices for liquefied natural gas (LNG) remain weak going into what forecasters are claiming will be a warmer than usual winter season in the Northern Hemisphere. In fact, last week spot prices for the super-cooled fuel in Asian tumbled some 10 percent, hitting three month lows, an uncharacteristic development for this time of year. Reuters, citing traders, said that LNG spot prices for January delivery in North Asia LNG-AS were estimated at $10 per million British thermal units (MMBtu), 90 cents lower than last week. Factors continuing to put downward pressure on prices include warmer temperatures, LNG storage levels in the world’s top three LNG importers (Japan, China and South Korea) remaining high and plunging Brent oil prices which long term LNG contracts are mostly linked to. Though spot purchases are not usually linked to oil prices, they often follow either oil prices upward or downward trajectory. A Singapore-based trader said that “the big question mark right now is how the weather will pan out as the market will quickly turn once it starts to get cold. But until then, it’s tank-top (inventory levels) right now in many places.” LNG doldrums Japan’s weather bureau earlier this month said the El Niño weather pattern appears to have formed and that there was a 70 percent chance it would continue into the Northern Hemisphere for spring. Meanwhile, a U.S. government forecast predicted a 80 percent chance of El Nino lasting in the Northern Hemisphere unto spring. El Niño is a climate cycle in the Pacific Ocean that occurs every five years or more which has a global impact on weather patterns. The cycle begins when warm water in the western tropical Pacific Ocean shifts eastward along the equator toward the coast of South America. Global oil prices are also putting downward pressure on LNG prices as oil prices have pivoted in just a little more than a month after hitting the mid $80s per barrel price point for global benchmark Brent crude and the mid $70s price point for U.S. benchmark, NYMEX-traded West Texas Intermediate Crude (WTI) crude futures. Prices are now 30 percent off recent highs amid concerns of a growing supply glut widening from record oil output in the U.S., Russia and Saudi Arabia and after Washington issued sanctions waivers to several countries for their Iranian oil imports. This extra supply comes as demand growth is projected to dampen amid economic downturn from the ongoing trade war between Washington and Beijing and continued sluggish economic growth in emerging economies. A robust U.S. dollar is also eating into demand for oil since oil is traded in dollars and a strong greenback adds to the cost of oil imports, hitting particularly hard countries like India, the Philippines, Indonesia and others. However, weaker oil prices over the last month has offered some respite for oil import dependent countries. The third reason that LNG spot prices in Asia are tumbling is that storage levels, as already mentioned, are full – particularly in China as energy planners in Beijing try to avert a repeat of last year’s fiasco when the government sought to replace coal with cleaner burning natural gas during the winter too quickly, resulting in a shortage of natural gas and the diversion of the cleaner burning fuel from industrial end users to residential users. As far back as August, China began filling underground gas storage tanks, including state energy giant PetroChina, operator of the Xiangguosi storage facility, injecting gas from Myanmar to fill the vast chambers 3,000 meters (9,900 ft) under the mountaintop. Reports said at the time that China was aiming to turn hundreds of tapped and some still producing wells into storage facilities after a severe winter supply crunch left it short of the clean-burning fuel.
Iran halts gas exports to Iraq for pipeline repairs: Ministry
Gas exports from Iran to Iraq were halted late on Tuesday for several days, as Iranian authorities work to repair damages caused to the pipeline during a recent earthquake. The cuts deprive Iraq’s power grid of 2,500 megawatts (MW), Iraq’s electricity ministry said in a statement, as Iraq relies heavily on Iranian gas to feed its power stations. Iranian authorities informed the electricity ministry in Baghdad that the flow of gas exports will be resumed “during next few days” after maintenance on the pipeline inside Iranian territory are completed. The pipeline supplies several major power stations, including two in Eastern Baghdad and one in Eastern Diyala province near the Iranian border, the ministry said. The oil ministry will supply the power stations which have been affected by the halt with fuel to keep operations going, the ministry said. However, both provinces can expect power cuts as a result, the ministry said. Iran, which has large gas reserves alongside its oil resources, exports small amounts of gas to Turkey but production has struggled to keep pace with rising domestic consumption. The United States said earlier this month that Iraq can continue to import natural gas and energy supplies from Iran for a period of 45 days, as long as Iraq does not pay Iran in U.S. dollars. Sanctions on Tehran’s oil sector took effect on Nov. 5. Baghdad is seeking to renew and extend the exemption as it needs more time to find an alternative source, Iraqi officials said.