Who really influences the price of oil?
Opec, the Organization of the Petroleum Exporting Countries, has certainly had its share of criticism over many years. President Trump recently accused the group of “ripping off the rest of the world” and keeping oil prices “artificially high”. It has sometimes been charged with holding the world to ransom – notably in the mid-1970s when it cut supplies and the price tripled. But as Opec energy ministers meet in Vienna, does the group really wield that much influence any more? Controlling production They are being joined by some non-member oil-producing countries, notably Russia. The group wants to stabilise or increase crude oil prices, which turned sharply downwards in early October. The main tool it has is to manage its own production levels – either by cutting if it wants prices to rise or increasing supplies if it wants them to fall, at least to a point that would not cause prices to collapse. Opec’s presence in the market is certainly big enough to make an impact. It accounts for more than 40% of global crude oil production. It was higher – more than half in the early 1970s – but the current figure is still a substantial share. But the other 60% of the industry also matters. Two non-Opec countries are especially important in different ways: Russia and the United States. Russia’s influence Russia has contributed to Opec’s current effort to move prices higher. It began in 2016 with an Opec decision “to implement a production adjustment”, which means a cut of 1.2 million barrels a day. Crucially, Russia and a number of other non-Opec members joined in the effort with their own commitments to restrain production. Following that, prices did gain with the main international price, Brent Crude, reaching $86 (£67) a barrel in early October – it was below $50 a barrel in the period before that decision. That is not to say the decision by Opec and partners was the only factor. Political turmoil in Opec countries Venezuela, Libya and Nigeria has made it impossible for them to produce the amount of oil that in theory they could. Iran sanctions Iran has been hit by the reimposition of US sanctions over its nuclear programme. The possibility that Iran’s oil might be unavailable to the global market – or that there would be less of it – has been an important factor pushing prices higher this year. But some of Iran’s biggest customers – China, India and Japan – have been given temporary exemptions and can continue to buy Iranian oil for now without being hit by US action. As a result, prices actually turned down as there was less demand for oil from other producers than had been expected. That said, the rise in prices since late 2016 did owe something to the agreement between Opec, Russia and others. Within Opec, Saudi Arabia has been key. According to estimates from the International Energy Agency, Saudi Arabia accounts for more than a third of Opec’s total production capacity and more than half of the group’s spare capacity. That is an indicator of the extent to which production is being restrained. Important though Saudi Arabia is, it was reluctant to act alone over prices. So it expected, as it generally does, other Opec members to make some sacrifice, but it also wanted Russia involved. US largest producer There is a third very large player in the global business; the United States, currently the biggest producer of all. The US is a very different beast from the others. Oil is produced by private industry making decisions on the basis of what is profitable. Russia’s big oil companies are close to the government and the dominant firm in Saudi Arabia – Saudi Aramco – is state-owned. American oil producers do not co-operate with Opec to manage prices, because that would be illegal under US anti-trust or competition law. But something has happened in the US in the last decade or so that has transformed the global industry – the rise of shale oil. There are two important aspects to this. Shale oil impact The exploitation of a relatively new type of resource has reversed a long-term decline in US oil output. The country still has to import oil. But now it can meet two-thirds of its own needs whereas just over a decade ago, it was one-third. Also shale can respond more quickly to a changing market. It does not need such large-scale investment as conventional oil. The investor can get their money back much more quickly, so shale output can be boosted more rapidly when prices start to rise. Shale was one of the reasons that oil prices fell sharply after mid-2014. One possible reason Opec did not respond sooner than it did was a desire on the part of some members, notably Saudi Arabia, to see US shale producers squeezed by lower prices. Opec does still matter, but it is far from being fully in charge of the global oil market. And in the longer term, if global efforts to address climate change mean we become less reliant on oil – a big if perhaps – then Opec will matter a great deal less.
U.S. LNG export capacity to more than double by end of 2019
The United States will be able to export more than double the amount of liquefied natural gas by the end of next year, a new report from the Energy Information Administration shows. LNG producers currently have the ability to export 3.6 billion cubic feet of natural gas per day. But with at least 18 LNG production units coming expected to come into service over the next 12 months, export capacity is expected to grow to 8.9 billion cubic feet per day by the end of 2019. At that level, the U.S. will be the third-largest LNG exporter in the world behind Australia and Qatar. The United States began exporting LNG from the Lower 48 states in early 2016 when Houston-based Cheniere Energy shipped its first cargo from its Sabine Pass LNG terminal in Louisiana. Virginia-based Dominion Resources became the the second company to do so after shipping its first cargo from the company’s Cove Point LNG export terminal in Maryland in March. Four companies are expected to bring at least 18 LNG production units known as trains into service over the next 12 months. Cheniere accounts for three of them. The first train at the company’s Corpus Christi LNG facility reported its first shipment on Tuesday morning, while the fifth train at its Sabine Pass facility is expected send its first shipment by month’s end. The second train at the company’s Corpus Christi facility is expected to come into service during 2019’s second quarter. LNG DEAL: Tellurian scores first LNG customer for $15B export terminal Meanwhile, all three trains at Sempra Energy’s Cameron LNG in Louisiana are expected to be in service by the end of next year. Houston-based Kinder Morgan is expected to bring 10 small and modular production units at its Elba Island LNG facility near Savannah, Ga., into service over the next 12 months. The first two trains at the Freeport LNG facility near Houston are expected to be in service by the end of next year. And there are still more projects in the pipeline. Freeport LNG and Corpus Christi LNG are expected to have their third trains in production by 2020 and 2021 respectively. There are also several LNG export terminal projects moving through the federal approval process.
Iraq lifts oil production at Halfaya oilfield to 370,000 bpd
Iraq has increased production at its southern Halfaya oilfield by 100,000 barrels per day (bpd) to a total of 370,000 bpd, an oil official told Reuters on Wednesday. Halfaya, operated by PetroChina, is Maysan province’s largest field. Production rose after the completion of a new oil processing facility, Adnan Noshi, head of Maysan Oil Co which oversees oilfields in Maysan province, told Reuters on the sidelines of a ceremony to launch a new installation in Halfaya. Noshi said increasing production from Halfaya had raised the company’s overall output to around 510,000 bpd. The new crude facility, which has a capacity to process 200,000 bpd of crude oil, will help further boost output from Halfaya to reach 470,000 bpd in the first quarter of 2019, Noshi said. The expansion at Halfaya also includes launching a gas project to process around 300 million standard cubic feet of natural gas extracted alongside crude oil at the field. Iraq’s oil ministry is studying offers submitted by several foreign energy companies for the Halfaya gas project, including China Petroleum Engineering & Construction Corporation (CPECC) which is the frontrunner to win the deal, Noshi said. “CPECC submitted the best offer comparing to other companies,” said Noshi “We will pick up the best offer in two months and the work at the Halfaya gas project should start in April 2019,”. Iraq said last year it planned to increase its oil output capacity to 5 million bpd. The country is the second largest producer in the Organization of the Petroleum Exporting Countries (OPEC), after Saudi Arabia, with a total output of about 4.55 million bpd.
India’s falling oil and gas production is a concern: Minister Pradhan
India’s falling oil and gas production is a matter of concern, Oil Minister Dharmendra Pradhan said, adding the government will soon set up a gas trading hub. India’s crude oil production in October dropped 5 percent from a year earlier to about 2.89 million tonnes, while natural gas output was down 0.4 percent at 2.80 billion cubic metres, provisional data issued by the government showed last month. The government also plans to invest $300 billion in the oil and gas sector in the coming decade, Pradhan added.
PNG connection reached 0.4 million households in Mumbai in last 4.5 years
Union Minister of Petroleum and Natural Gas Dharmendra Pradhan said that in last 19 years since 1995-2014, Piped Natural Gas (PNG) connection had reached to only 0.6 million households in Mumbai whereas, in last 4.5 years of the ruling government it has reached to over 0.4 million households. Speaking after the inauguration of PNG connection in Kurar village in Mumbai, he said, “PNG is cheap, efficient, reliable and environment friendly and in the next couple of years, more than 1 million households will benefit from PNG in the financial capital of India-Mumbai.” Pradhan further noted that Prime Minister Narendra Modi resolve to provide clean and affordable cooking fuel to the poorest of the poor has provided a huge impetus to transform India into a gas-based economy and has also witnessed rapid expansion of city gas distribution projects across India. “Prime Minister Narendra Modi firmly believes that no household in the country should be deprived of the benefits of clean cooking fuel and Pradhan Mantri Ujjwala Yojana (PMUY) has been a real game-changer in terms of bringing about an LPG revolution in the country,” he added. Asserting that the ruling dispensation has been working for the interests of poor and marginalised and for women empowerment since 2014, Pradhan said, “The unprecedented pace of implementation of public welfare schemes like PMUY, Ujala, PM AwasYojana are self-explanatory schemes.”
Opec rationing a cause of concern for India, says Dharmendra Pradhan
The move by the Organisation of Petroleum Exporting Countries (Opec) to cut crude oil production should not be one-sided and the interest of consumer nations should be taken into account for whom ‘rationing will be a cause of concern’, India’s petroleum minister Dharmendra Pradhan said on Tuesday. The oil cartel has decided to cut production by close to 1.2 million barrels per day (mbpd) following a drop in international crude oil prices in the last one month. “The cut in oil production should not be one-sided. The demand or the requirement of the consuming nations should be taken into account. Rationing of any type is a cause of concern for consumers like us,” Pradhan said on the sidelines of a KPMG summit in Delhi. The OPEC decision is likely to push Brent crude oil prices back to $70 a barrel mark according to industry experts. When asked about the Indian impact on the exit of Qatar from OPEC to focus more on production of natural gas, Pradhan said it would not be having any impact on India as it has diversified crude oil basket. Qatar’s exit was also triggered by the economic boycott of the country from June 2017 by other OPEC members like Saudi Arabia, accusing that the nation was in support terrorism. Pradhan added the ministry of petroleum was in the process of moving the Union Cabinet with a proposal to set up a gas hub that will bring in a new hub-based pricing for natural gas in the country. “The global investor industry is today keenly looking at Indian energy sector as an attractive investment destination,” he said. Brent crude was seen at $60.36 a barrel at one point on Tuesday. If prices go up, that is also likely to have an impact on the prices of petrol and diesel too in domestic market, in addition to the pressure on the government over the increase in crude oil import bill. The share of imported crude oil in India’s overall crude oil requirement has increased to 87.5 per cent during the first six months of the current financial year from 84.7 per cent during the financial year 2014-15. India’s crude oil import bill is expected to be $124.73 billion during 2018-19, as compared to $87 billion during the previous financial year. For every one dollar increase in crude oil prices, India’s import bill is expected to increase by Rs 61.58 billion, while a change of Rs 1 on exchange versus dollar will increase it by Rs 66.39 billion. Addressing the summit, Pradhan further said most transformative reform in the exploration and production sector is moving to a revenue-sharing model and opening the entire sedimentary basin to investors through open acreage licensing. “Various relaxations have been provided under the existing production sharing contracts to provided adequate flexibility to operators to enable early development of discoveries,” he added.
France’s Total sees robust demand for LNG from Russia’s Yamal
French oil and gas group Total believes there is enough demand on the spot market for liquefied natural gas from its Yamal LNG plant in Russia, Total’s chief executive said on Tuesday, as the project has expanded ahead of schedule. On Tuesday, Russian Prime Minister Dmitry Medvedev attended a ceremony marking the launch of the third train, or stage, of Yamal LNG, which expanded its annual capacity to 16.5 million tonnes. The expansion had been initially expected at the end of 2019 and a quicker rise in output has raised questions about Yamal LNG’s ability to sell the additional volumes. It has pre-sold more than 96 percent of its LNG production under long-term contracts for the next 20 years. Russian gas producer Novatek controls Yamal LNG, which is co-invested by Total, China’s CNPC and the Silk Road Fund. It started operations in December 2017. Total’s Chief Executive Patrick Pouyanne said Yamal LNG would start sales under a long-term contract from the third stage of the Yamal LNG project as initially planned. “It is not difficult to sell on the spot market, the LNG market is growing by 10 pct per year or more, so clients are asking for more LNG, it’s not a real issue,” Pouyanne told reporters. “We export more LNG quicker, its good for the project. In fact, it is a surprise, but the (LNG) trains are ready in front of all the vessels,” he said. Last month, an LNG tanker transferred a cargo of Yamal LNG to another vessel off the tip of northern Norway, the first such operation that will help the facility raise production. This has irked the United States, who has said the operations undercut Europe’s energy diversification efforts. By transferring LNG to more conventional tankers in Norway, the Arctic vessels cut in half the distance they would cover to deliver gas to Europe, enabling more frequent shipments from the Novatek terminal and increasing Russia’s gas exports. Russia’s foreign ministry, in emailed comments to Reuters, said the operation’s aim is to reduce transportation costs, calling criticism from the United States “unfair” and “political pressure”.
Mexico cancels oil block auctions for private firms under new president
Mexico’s energy regulator said Tuesday it was canceling its remaining oil block auctions for private firms, the centerpiece of the country’s landmark energy reform, now under attack by new President Andres Manuel Lopez Obrador. The National Hydrocarbons Commission (CNH) said it was scrapping the two pending auctions because the energy ministry had asked it to withdraw the 46 blocks up for grabs so it could “review energy policy and evaluate the results and progress” made under the 2013 reform. “Since the totality of the areas under consideration in each auction have been excluded… we have approved the cancellation of the auctions in question,” it said in a statement. The CNH had already suspended the auctions after Lopez Obrador won a landslide election victory in July. Former president Enrique Pena Nieto launched the ambitious energy reform in a bid to breathe new life into Mexico’s oil sector, where production had plummeted under 76 years of monopoly by state firm Pemex. But Lopez Obrador, an anti-establishment leftist and energy nationalist, has criticized the opening of the sector to private and foreign companies as a corruption-riddled “farse.” The blocks up for auction in what would have been the 10th and 11th tenders of the third round of the process are located in the oil-rich far north and south of the Gulf of Mexico. Since the energy reforms were launched, Mexico has awarded more than 100 contracts to firms including Exxon-Mobil, Shell, Total and BP, for total potential investment that the previous government calculated at $150 billion. Lopez Obrador said earlier that companies should show they are following through on their promised investments within three years or have their oil blocks taken away. “As they say in sports, the ball’s in their court. If there’s investment and they produce, then go ahead. If they’re just sitting on the contracts to speculate, we can’t allow that,” he told a press conference. The CNH also announced a six-month postponement to a separate tender to seek partners for Pemex projects that had been scheduled for early next year. Lopez Obrador said Sunday he was increasing Pemex’s budget by $3.7 billion for 2019 in a bid to boost production.
France’s Total sees robust demand for LNG from Russia’s Yamal
French oil and gas group Total believes there is enough demand on the spot market for liquefied natural gas from its Yamal LNG plant in Russia, Total’s chief executive said on Tuesday, as the project has expanded ahead of schedule. On Tuesday, Russian Prime Minister Dmitry Medvedev attended a ceremony marking the launch of the third train, or stage, of Yamal LNG, which expanded its annual capacity to 16.5 million tonnes. The expansion had been initially expected at the end of 2019 and a quicker rise in output has raised questions about Yamal LNG’s ability to sell the additional volumes. It has pre-sold more than 96 percent of its LNG production under long-term contracts for the next 20 years. Russian gas producer Novatek controls Yamal LNG, which is co-invested by Total, China’s CNPC and the Silk Road Fund. It started operations in December 2017. Total’s Chief Executive Patrick Pouyanne said Yamal LNG would start sales under a long-term contract from the third stage of the Yamal LNG project as initially planned. “It is not difficult to sell on the spot market, the LNG market is growing by 10 pct per year or more, so clients are asking for more LNG, it’s not a real issue,” Pouyanne told reporters. “We export more LNG quicker, its good for the project. In fact, it is a surprise, but the (LNG) trains are ready in front of all the vessels,” he said. Last month, an LNG tanker transferred a cargo of Yamal LNG to another vessel off the tip of northern Norway, the first such operation that will help the facility raise production. This has irked the United States, who has said the operations undercut Europe’s energy diversification efforts. By transferring LNG to more conventional tankers in Norway, the Arctic vessels cut in half the distance they would cover to deliver gas to Europe, enabling more frequent shipments from the Novatek terminal and increasing Russia’s gas exports. Russia’s foreign ministry, in emailed comments to Reuters, said the operation’s aim is to reduce transportation costs, calling criticism from the United States “unfair” and “political pressure”.