Monthly Archives: June 2009

Carola Hoyos

BP and CNPC have won the right to help Iraq develop the Rumaila field. The UK and Chinese companies beat ExxonMobil, the US oil company, which had partnered with Petronas, the Malaysian oil company. BP clinched the contract when it agreed to reduce its fee per barrel from $3.99 to $2.

But the rest of the auction has not gone as smoothly. In fact, so far, the smaller five of the eight oil and gas fields being auctioned off have failed to find a company willing to accept the narrow terms and the relatively low price Iraq is willing to pay for their services. And the future of West Qurna, the biggest of the fields, is looking in doubt after ExxonMobil and CNPC both rejected Iraq’s tougher terms. Royal Dutch Shell has bid for Kirkuk, but no winner has been announced for that field.

Today had marked the beginning of a long-awaited journey. Braving sand storms and the continued violence on Iraq’s streets, oil executives had come to Baghdad to make their bids. It was the first time since nationalisation more than 30 years ago that international oil companies would be allowed back into the country.

After much debate, Iraq had decided to allow foreign oil companies to help repair its oil developments, which have been plagued by years of war, sanctions and violence. The companies will be paid a fee for their service, but they hope their willingness to accept such narrow terms eventually could lead to more lucrative exploration and development deals.

Kicking off the bidding ceremony, Nuri Al-Maliki, the country’s prime minister, promised Iraq would make even more fields available to international companies that want to develop them.

Bid envelopes for the fields were opened every 45 minutes to an hour. They contained two numbers – the per barrel fee the company proposes to charge Iraq for helping repair the field and the point at which it believes the field will plateau.

The plateau is not only an engineering ambition, but also decides at what point companies begin to make money. Thus the lower the first number and the higher the second, the more likely the bid would win the contract.

Here is the line-up for other contracts auctioned so far:

The Mansuriyah gas field got no bids.

There were four bids from different consortia for the Zubair oilfield. But in the end the winning bidder rejected the terms on which Iraq was insisting and the field went unawarded. The groups that had initially bid were BP , together with CNPC; India’s ONGC with Gazprom Russia and Turkish Petroleum Corp. The third was headed by Italy’s ENI, with China’s Sinopec, Occidental and Korean Gas; and the fourth was led by Exxon Mobil, with Royal Dutch Shell and Petronas.

The Maysan field failed to find a developer as Iraq and the single consortium that bid (Cnooc and Sinochem) could not agree the terms.

The Kirkuk field got one bid by a group led by Royal Dutch Shell and including Sinopec and the Turkish Petroleum Corp.

The Bai Hassan failed to find a developer as Iraq and the ConocoPhillips-led consortium that bid on it failed to agree terms.

The West Qurna field got five bids, but its future hangs in the balance after ExxonMobil and CNPC both rejected Iraq’s tougher terms.

The Akkas gas field got one bid from a group led by Edison.

The the group led by Cnooc, the Chinese oil company, that bid on the Missan oil field, ended up rejecting Iraq’s tougher terms.

Ed Crooks

On Energy source today:

LIVE: the first bids for Iraq’s oil contracts come in

Oil rises with economic recovery hopes


At least 15 people dead in Italy LPG accident (Bloomberg)

BG Group invests $1bn in US shale gas (OilVoice)

How to convince conservatives to support public transportation (Infrastructurist)

The Washington Post discovers the problem with energy subsidies, with fun historical headlines (Institute for Energy Research)

Waxman-Markey defended (Belfer Centre at Harvard)

A look at the “synthetic tree” for catching CO2 on the cheap (New Energy and Fuel)

The controversy over the effect of the US Natural Gas Fund on US gas prices (Platts)

US public under-estimates the future need for oil and gas, according to the American Petroleum Institute (PennEnergy)

Oil hit an eight month high on Tuesday and was on track to post its largest quarterly gain since 1990 as optimism for an economic recovery rather than clear news flow continued to drive crude prices.

The energy market defied predications of a quiet US holiday trading period as US crude again broke through the $72 a barrel level, adding to a 3.7 per cent rise in the previous session.

“Crude posted a strong advance yesterday proving that among all those warnings of a cautious approach, optimism about the economic outlook is still making headlines,” said Marius Paun of ODL. “The employment report on Thursday is likely to be the main influencing factor for the energy complex offering guidance on the short term.”

A softer dollar added to crude’s upward momentum, with a weaker greenback boosting the appeal of dollar-denominated commodities such as oil and gold.

Nymex West Texas Intermediate futures for August delivery, the US benchmark, rose 56 cents to $72.03, while ICE August Brent gained 66 cents to $71.65.

Earlier WTI hit $73.38 a barrel, the highest level since late October last year.

Spot gold rose 0.4 per cent to $940.50 a troy ounce, the sheen of the yellow metal enhanced by the dollar’s falls, while base metals were broadly stronger.

“Gold has stabilised against the euro over the past few sessions, recovering from a plunge at the start of last week, but sill in an overall lower trend from recent highs at the start of June,” said analysts at UBS.

Copper rose 0.8 per cent to $5143 per tonne, with aluminium up 0.7 per cent to $1651a tonne.

- Oil watchdog cuts demand forecasts
IEA also says threat of supply crunch has receded (FT)

- EU optimistic on defusing Ukraine gas dispute
But stresses aid dependent on reform of gas sector (FT)

- Green groups to sue over RBS investments
Action could be landmark lawsuit against UK Treasury (FT)

- China unexpectedly raises fuel prices
Raises gas and diesel prices to highest level ever (Reuters)

- Enterprise Partners to buy Teppco for $3.3bn
New company will control 48,000 miles of pipeline (FT)

- French government forces Areva’s ‘iron lady’ to bend
Board meets to rubber stamp the inevitable (FT)

- Canada’s Ontario province suspends nuclear reactor plan
Reactor would have been North America’s first in 30 years (FT)

- Oklahoma attorney-general charges BP with price manipulation
Alleges company artificially inflated US gasoline prices (Reuters)

- US high court nixes Chevron bid for Petroecuador arbitration
Chevron saddled with cost of Amazon environmental clean-up (Platts)

- Lex: Shell in Russia

Carola Hoyos

On Energy Source:

The Waxman-Markey Bill: A start, but environmentalists say lobbyists won too much

A dust storm delays Iraq’s oil bidding round for at least a day

Gazprom says the worst is over and warns Europe not to rely on other sources of gas

The IEA cuts its medium-term oil demand forecast…

…but today the oil price rises slightly


Iraq’s Vice President Hashemi to boycott oil contracts (Reuters)

Baghdad Sandstorm Video (AP)

Cash-strapped US states consider oil and gas levies (WSJ)

Food for thought: The oil intensity of food (The Oil Drum)

Oil prices rose on Monday as the market shrugged off a bearish report from the International Energy Agency, opting instead to focus on news of further attacks on Nigeria’s energy infrastructure by militants.

The IEA, the oil consuming countries’ watchdog, sharply lowered its medium-term forecast for global oil demand, suggesting that economic fundamentals will prevent a repeat of crude’s surge towards $150 last year.

The IEA lowered its 2008-2013 demand forecast by 3.7 per cent compared with its previous estimate in December, but stressed that the chances of an oil shock had only lessened rather than disappeared altogether.

Carola Hoyos

The global economic recession has rescued the world from an impending oil supply crunch, the consuming countries’ watchdog agency said as it cut its medium-term oil demand forecasts.

The International Energy Agency now expects global oil demand to grow each year by a paltry 0.6 per cent or 540,000 b/d in 2008-2014, pushing consumption from 85.8m b/d to 89m b/d. That is considerably less than 1m b/d average yearly increase the IEA had expected last year. If the lower-end GDP forecasts turn out to be correct, oil demand could actually contract over the period, with consumption at 84.9m b/d in 2014.

This means the all-important cushion of spare supply capacity held by Opec is now expected to reach a healthy 7.8m b/d next year, or 8 per cent of demand. Compare that to last year’s forecast, which had foreseen that cushion shrinking to a mere 1.67m b/d.

Ed Crooks

Alexey Miller, Gazprom’s chief executive, fired another warning shot at the European Union at Gazprom’s annual shareholder meeting last Friday.

In his speech to the meeting, he accepted that the company was being tested by “unfavorable global financial and economic trends” but said “our company once again proved itself to be highly reliable, stable and able to achieve sustainable development.”

He added:

A long-term business strategy that we have been recently implementing has been – and remains – true. Our challenge today is to preserve the accumulated potential and not to miss the new opportunities that emerge in times of crisis.

The good news is that the worst of the downturn seems to be over:

The situation has both stabilized and acquired a positive momentum in the past few months: we are witnessing a steady rise in prices and volumes of hydrocarbon consumption. This gives us grounds for believing that we have already passed the bottom of the energy crisis. And although we still witnessed a considerable reduction in exports in the first quarter of 2009, current foreign client orders have all but returned to last year’s levels.

Carola Hoyos

A dust storm has postponed by a day Iraq’s historic opening of the bids entered by oil companies hoping to develop its large oil reserves. Organisers of the bidding round said the delay was prompted by the closure
of Baghdad’s airport due to poor visibility. They noted that some oil company executives therefore had not been able to make it to Baghdad. The bidding round has been condensed from two days into one and will take place on Tuesday and possibly Wednesday if the weather fails to improve. Whenever it happens, it will mark the first time since the nationalisation of Iraq’s oil industry that international oil companies will be allowed back into Iraq’s fields, which holds the world’s third largest reserves of oil. Many of the world’s biggest oil companies, including ExxonMobil and Chevron, of the US, Europe’s Royal Dutch Shell, BP, Total and Eni are expected to bid. Chinese and Indian companies are also expected to make bids. Hussain Shahristani, Iraq’s oil minister and the architect of the bidding round, last week came under some pressure by Iraqi politicians looking to derail the process. But oil companies expect it to go ahead and have already dispatched senior exectutives towards Baghdad.

Sheila McNulty

The Waxman-Markey bill may have needed many compromises to give it a chance of being passed.

Yet six months ago it was unclear whether even this tough a bill could get through the House.

As Frances Beinecke, president of the Natural Resources Defense Council, put it:

The passage of this legislation, which was almost unimaginable six months ago, will help set our country in a new direction by shifting to a clean energy economy and reducing the carbon pollution that causes global warming.

That said, environmentalists are not giving up hope for stronger legislation. All eyes are now on the Senate, where they hope lawmakers can strengthen the bill before it ends up on President Obama’s desk.

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