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Volume 92 / Number 147 / Tuesday, July 29, 2014
[OIL ]
www.platts.com
OILGRAM NEWS
Top stories
Asia Pacific
Jordan Cove eyes Asia
for 25% of LNG sales	 2
Aussie group buys
Canadian LNG to serve Europe	 2
Europe, Middle East & Africa
Galp’s refining margin
slips into the red	 3
UK launches shale gas
exploration bid round	 3
UK’s JKX eyes more gas
from Ukrainian field	 4
Israeli gas output to
hit 3.6 Bcf/d by 2017	 5
Algeria appoints new
chief at state Sonatrach	 5
The Americas
US refiners should rethink
export stance: Murkowski	 6
Markets & Data
Colombia to send more
troops to oil region	 7
Tesoro’s Uinta Express
pipe runs into zoning snag	 7
Argentina crude imports
steady in June, gas up 2.7%	 7
ICE Brent lower amid
bearish refined products	 8
Iraq threatens to sue if Kurdish oil delivered to US
Washington—With the latest battle between
Baghdad and Erbil over crude sales reaching
US shores Monday, the Iraqi central govern-
ment sent warnings to lightering companies
in Galveston, Texas, not to offload a cargo of
Kurdish oil on the United Kalavrvta, a Suez-
max tanker currently anchored 60 miles off
the port.
“Letters were sent to all of the lightering
companies to make sure they are aware this
crude oil doesn’t belong to the party pur-
porting to sell it,” a senior Iraqi Oil Ministry
official told Platts on condition of anonymity.
“The entire market is on notice.”
The tanker, which loaded Kurdish crude
from the Turkish port of Ceyhan more than
a month ago, has yet to offload its cargo,
according to officials at the US State Depart-
ment and the US Coast Guard.
Earlier Monday, Coast Guard inspectors
examined the ship and gave it clearance to
begin lightering the crude.
“There’s nothing else prohibiting it from
doing business from the Coast Guard’s point
of view,” Petty Officer Andy Kendrick said. “It’s
free to conduct the lightering, [but] nothing
has taken place yet.”
A woman who answered the phone at the
Galveston Pilots Association said officials
there were under orders not to discuss the
tanker and its activities.
The Iraqi central government has sent
similar letters to ports where other cargoes of
Kurdish crude have approached. The letters
warn that Iraq may pursue legal action against
any entity that receives oil exported from the
northern semiautonomous region of Kurdistan.
The KRG has maintained its right to sell
and market the crude produced in its fields.
US crude trading and shipping sources
said the owner of the United Kalavrvta’s cargo
(continued on page 6)
Yukos shareholders claim $50 billion win
But Moscow vows to appeal Dutch court ruling
London—The Permanent Court of Arbitration
in the Hague Monday ordered Russia to pay
over $50 billion to Yukos shareholders, ruling
the oil company was subject to a politically
motivated attack to appropriate its assets
and to remove main shareholder Mikhail
Khodorkovsky from the political stage.
Russia vowed to challenge the judgment
in the Dutch courts, but in London Emmanuel
Gaillard, head of the Shearman and Sterling
legal team that conducted the case in a pro-
cess lasting 10 years, emphasized the out-
come is “final and binding.”
Yukos was declared bankrupt in 2006
after buckling under unprecedented tax
demands and its assets, notably its 1 million
b/d upstream subsidiary Yuganskneftegaz,
ended up largely in the hands of state-owned
Rosneft, with some also going to Gazprom.
Yukos’ founder Khodorkovsky and busi-
ness partner Platon Lebedev were sen-
tenced to eight years in prison for tax fraud
in 2005 and in a later case were found
guilty of money laundering and embezzle-
ment, pushing their sentences to 2014.
They were pardoned in December and Janu-
ary, respectively.
Russia, as a party to the international
arbitration court, is likely to pay up eventu-
ally, despite current diplomatic tensions over
Ukraine, the shareholders’ representatives
said Monday.
“We’re thrilled with this decision. We know
it’s not the end of the road, but it is a giant
step forward,” said Tim Osborne, director
of GML, the holding company that indirectly
owned the majority of Yukos shares.
“It is a major step forward for the majority
shareholders, who have been battling for over
10 years for this decision,” Osborne said.
“It also demonstrates the vital role that
international arbitration plays in resolving
disputes of this nature. Without the bind-
(continued on page 4)
„„ Russia vows to fight verdict
„„ Rosneft says operations unaffected
„„ Claimants see long fight ahead
„„ United Kalavrvta yet to be offloaded
„„ Coast Guard says will not block lightering
„„ Cargo’s buyer remains mystery
2 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014
Asia Pacific
Aussie group buys Canadian LNG to serve Europe
Sydney—Australia’s Liquefied Natural Gas
Limited has agreed to buy 100% of Anadarko
Petroleum’s Bear Head LNG project in Cana-
da’s Nova Scotia for $11 million and plans to
develop the former proposed import terminal
into an export facility to serve markets in
Europe, the company said Monday.
LNG Limited is already aiming to become
a North American LNG exporter from its
Magnolia project in Louisiana, where it is
planning to spend $2.2 billion developing
an export facility with an initial capacity of 4
million mt/year. The company now intends
to replicate that project model to develop a
4 million mt/year export plant at Bear Head
with capacity for future expansion as more
gas becomes available.
Anadarko had invested significantly in the
Bear Head site as a proposed 11.3 million
mt/year LNG import terminal, LNG Limited
said. Bear Head was likely to have signifi-
cantly lower development costs and a faster
approval schedule than Magnolia due to
work already completed, the company added.
The key assets to be acquired include
the 255-acre site, comprising 180 acres of
industrial-zoned land and foundations in place
for two 180,000 cubic meter LNG tanks. The
land has been cleared, most of the site works
completed and roads constructed, LNG Lim-
ited said.
The company said it has already devel-
oped gas supply and transportation plans,
and has interest from several parties to
enter into tolling agreements at Bear Head,
like it has at Magnolia. LNG Limited is in
discussions with gas transportation compa-
nies and owners of gas reserves onshore
and offshore Canada and in the US’ Marcel-
lus Shale gas play to supply the Bear Head
LNG project site.
Under the proposed timetable, the pur-
chase of Bear Head would close before the
end of August this year. The LNG facility is fore-
cast to begin commercial operations in 2019.
Magnolia on track
Meanwhile, the company’s Magnolia LNG
project at Lake Charles remains on schedule
and budget, with financial close expected in
mid-2015. Operations at Magnolia are tar-
geted to start in mid-2018.
The Magnolia project is to be developed in
two phases, the first of which would comprise
two LNG production trains, each with a capac-
ity of 2 million mt/year, two 160,000 cubic
meter storage tanks, and a jetty and ship
loading facilities to accommodate tankers of
up to 180,000 cu m.
LNG Limited expects to double capacity to
8 million mt/year in the second development
stage. Magnolia has signed four preliminary
tolling agreements for a total of up to 6.7
million mt/year of LNG with AES Corporation
Group, Brightshore Overseas, Gas Natural
Fenosa Group and LNG Holdings.
The project has already received
approval from the Department of Energy to
export 4 million mt/year of LNG to coun-
tries which have free trade agreements
with the US. LNG Limited has applied to
increase the current approval by another 4
million mt/year and has sought approval to
export 8 million mt/year of LNG to coun-
tries that do not have free trade agree-
ments with the US. — Christine Forster
Tokyo—The Jordan Cove LNG project on the
US West Coast aims to sell “at least a quar-
ter” of its output to Asia, Don Althoff, presi-
dent and CEO of operator Veresen said last
week during a visit to Tokyo.
The company hopes to conclude binding
agreements with offtakers this year for all of
its initial output of 6 million mt/year at the
planned tolling facility on Oregon’s southern
coast, Althoff said.
“We do continue to market the project
throughout Asia and look for really high-
quality customers who could take at least the
quarter of the output,” he told Platts in an
interview. “We are going to look for customers
who already have infrastructures in place and
strong credit rating.”
Althoff declined to elaborate on whether
the prospective customers in Asia included
Japanese companies. “All of our customers,
especially the ones [with which] we have
signed the heads of agreements, considered
their identity to be important to maintain con-
fidentiality, and we respect that,” he said.
Althoff told delegates at the Canada Alber-
ta LNG Seminar that Veresen has “signed a
number of non-binding heads of agreements
with large-scale prospective customers locat-
ed in various Asian countries.”
The Jordan Cove project, which is currently
wholly owned by Calgary-based Veresen, might
make its prospective offtakers equity part-
ners, he added.
“We are talking to potential offtakers
about equity as well,” Althoff said, adding
that “the majority” of the potential customers
had expressed interest in participating in the
project.
Veresen plans to conclude binding con-
tracts first and then negotiate for potential
ownership shares afterward, Althoff said.
The company is aiming to secure an engi-
neering, procurement and construction con-
tractor this fall, he added.
The Jordan Cove export project will be a
tolling facility linked to gas prices, likely to be
one or a combination of three North American
benchmarks: Henry Hub, Malin Hub in south-
west Oregon and Alberta’s AECO.
Althoff said the price linkages would be
up to customers’ risk tolerance and gas posi-
tions. “All three of the options are very viable
for the Jordan Cove,” he said.
In shopping the project to potential
customers, Althoff said he emphasized the
expected nine-day shipping voyage from Ore-
gon to Asia, compared with 22 days from the
Gulf of Mexico through the expanded Panama
Canal. A few of the US LNG export projects
that are furthest along in the approval pro-
cess are on the Gulf coast in Texas and Loui-
siana.
“We do economics from millions of tons
per annum or delivered costs or MMBtu – that
differential actually allows a greenfield facility
on the West Coast of the US to compete with
brownfield prices because of the difference in
shipping costs,” Althoff said.
Veresen is targeting a final investment
decision for Jordan Cove in the first quarter of
2015. Althoff said the company was “evaluat-
ing the timeline” after it received a sched-
ule on July 16 from the US Federal Energy
Regulatory Commission for receipt of a final
environmental impact statement by the end of
February 2015.
The latest FERC schedule was a “little
longer [than] we planned in the original sched-
ule...but we are hopeful that we go a little
quicker than their schedule notice.”
After issuing the EIS, FERC will hold a
90-day public comment period before deciding
whether to approve the project and allow it to
start construction.
“They [FERC] have traditionally beaten that
schedule a bit, so we are hopeful that we can
have the approval...[in] late May at the lat-
est,” Althoff said.
Veresen has received conditional approval
from the US Department of Energy to export
LNG from the proposed Jordan Cove terminal
to countries that do not have free trade agree-
ments with the US. Earlier, it had secured a
license from Canada’s National Energy Board
to export gas to the Oregon terminal.
The Jordan Cove facility in Coos Bay will
initially have a capacity of 6 million mt/year,
which can “easily expand” to 9 million mt/
year, Althoff said.
The project, which is scheduled to start
operations in mid-2019, also includes the
370 km (230 mile), 1 Bcf/d Pacific Connector
Gas pipeline, owned equally by Veresen and
Williams, and a 420 MW power generation
plant. The pipeline would source gas from the
US portion of the Rocky Mountains and from
the Western Canadian Sedimentary Basin.
Jordan Cove is regarded as one of the
major projects that would provide an export
outlet for Western Canada’s large natural gas
resources. — Takeo Kumagai
Jordan Cove eyes Asia for 25% of LNG sales
Veresen hoping for offtake deals this year on 6 million mt/year of output
3 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014
UK launches shale gas exploration bid round
London—The UK government has started
the long-awaited 14th landward bidding pro-
cess for onshore oil and gas licenses—the
first for six years—with a view to open-
ing up a shale gas production industry
that could relieve the country’s increasing
import dependency.
Since 2008, much more has been
learned about shale gas and its capacity to
transform energy markets, as has happened
in the US.
The newly-appointed UK energy minis-
ter Matthew Hancock published on Monday
details of how companies can apply for
licenses which will enable them to start initial
exploration. Applications will be accepted up
to the October 28.
He said: “Unlocking shale gas in Britain
has the potential to provide us with greater
energy security, jobs and growth. We must
act carefully, minimizing risks, to explore how
much of our large resource can be recovered
to give the UK a new home-grown source of
energy. As one of the cleanest fossil fuels,
shale gas can be a key part of the UK’s
answer to climate change and a bridge to a
much greener future.”
As well as a license, a company needs
to make a further drilling application which
will then require planning permission, as well
as permits from the Environment Agency and
sign-off from the Health and Safety Executive.
As DECC says in its guidance notes for
bidders: “The award of a license does not
imply prior consent to actual activities, and
there are other regulatory and legal provisions
that may restrict a licensee’s ability to carry
out its proposed activities.”
Some regions such as national parks
will be much harder to win a license for as
DECC will also require detailed statements
of environmental awareness to be submitted
with license applications to these areas, and
DECC may reject the application if the state-
ment does not demonstrate sufficient aware-
ness of the site’s sensitivity.
And for companies hoping to tackle
coalbed methane—technology that is set to
transform Australia into a major gas export-
er—or vent gas from disused mines, the
Coal Authority must give approval as it man-
ages the UK’s coal reserves; and a license
from DECC to capture the actual hydrocar-
bons is also needed.
All those consents must be in place
before the many dozens of wells may be
drilled that experts say will be needed in
order to assess the economics of shale gas
production. This is an unknown quantity in the
UK, where the trillions of cubic meters of gas
that the British Geological Survey believes are
in place might not be economically recover-
able unless gas prices double.
Drilling though could prove difficult as
even when all the paperwork is done and
the work program approved, local protestors
can bring activity to a halt by blocking road
access, as has happened at sites in the UK
in the past year or so.
Lawyers at Clyde & Co said Monday
that: “Despite the rhetoric, there are vari-
ous hurdles to overcome before fracking can
even be considered as potentially a serious
proposition in the UK. As things stand, the
combination of intricate procedural hurdles,
local politics and unrest amongst affected
third parties makes it unattractive to poten-
tial investors.”
The DECC announcement however
was welcomed by Igas Energy, a UK com-
pany which has ambitions to produce gas
onshore. It said it would participate and
was “looking forward to continuing our role
in securing Britain’s energy needs for the
future and de-carbonizing the economy.” —
William Powell
Barcelona—Portugal’s Galp Energia said Mon-
day its refining margin in the second quarter
of 2014 turned negative due to a planned
outage at the Sines refinery complex and an
adverse refining environment.
The company reported a negative $0.30/
barrel refining margin for the April-June period,
down from a positive margin of $3.40/b in Q2
2013, it said.
“Refining performance was impacted by
the unbalanced European market,” the com-
pany said. “Recent refining performance was
worsened by planned maintenance at the
Sines refinery,” it added.
Galp said crude volumes processed at its
refineries fell 22.5% year on year to 17.3 mil-
lion barrels, which cut refined product sales
8.1% year on year to 4.1 million mt.
The company operates two refineries in
Portugal—the 220,000 b/d Sines plant and
91,000 b/d Matosinhos. Sines shut from
early March to mid-May for maintenance.
Despite the poor result in the second
quarter, Galp said it expects volumes of
crude processed to rise in the third quarter
following the end of planned maintenance
at Sines.
As a result of the outage, the hydro-
cracking complex registered an utilization
rate of 67%, down from 69% in the first
quarter, which was also affected by the
maintenance, the company said. This com-
pared to a rate of 95% in the fourth quarter
of 2013.
During Q2 2014, medium and heavy
crudes accounted for 79% of the total crude
processed in Galp’s refineries.
Production of middle distillates accounted
for 47% of the total, in line with the year
before, whereas gasoline and fuel oil account-
ed for 17% and 20%, respectively, of total
production.
Brazil production
Looking forward, Galp said in a separate
presentation also released Monday, it expects
increased production in Brazil to push its
working interest production higher by around
17% quarter on quarter to 30,000 b/d of oil
equivalent in the third quarter.
Second-quarter working interest increased
9.7% from the year-ago levels to 25,700
boe/d, as rising output in Brazil offset falling
volumes in Angola amid field maturity.
Net entitlement production from Brazil
rose 41% year on year in Q2 to 15,300
boe/d—mostly due to the contribution from
FPSO Cidade de Paraty, which accounted for
an average output of 4,400 boe/d, Galp said.
The extended well tests performed in
the Lula Central and Iara West-2 areas also
contributed to the increase of production in
Brazil, with a total production of 500 b/d, the
company said.
Galp said it also expects the third Brazil-
based FPSO, Cidade de Mangaratiba, to start
production in the fourth quarter of this year.
In Angola, meanwhile, Q2 working interest
production decreased around 2,200 b/d from
the year-ago levels, or 17%, to 10,400 b/d,
as production declined in the Kuito field, in
Block 14, after the decommissioning of the
respective FPSO in late 2013.
In the gas segment, the company expects
a fall in volumes in the next quarter as it
sees LNG trading opportunities narrowing.
Overall, natural gas sold during Q2 2014
increased 25% year on year to 1.83 Bcm fol-
lowing higher volumes of LNG traded in the
international market.
The total traded volume reached 1.01
Bcm, with 12 cargoes traded in the quarter,
up from six the year before. Cargoes traded
in the period were primarily bound for Latin
America, and they also went to Asian markets,
the company said.
Gas volumes sold for power generation
declined 15% year on year to 120 million cu
m, mainly due to higher imports of electricity
generated in Spain.
Sales in the industrial segment reached
616 million cu m, a decrease of 4% from the
year-ago level, as a result of lower demand
from Galp Energia’s own units, particularly the
hydrocracking complex, following the planned
outage at the Sines refinery, and credit restric-
tions to certain clients.
Volumes sold in the residential segment
decreased 23% year on year to 72 million cu
m, as competition intensified in the Iberian
region, Galp said. — Gianluca Baratti
Galp’s refining margin slips into the red
Setback for Portuguese refiner in second quarter
Europe, Middle East & Africa
4 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014
Europe, Middle East & Africa
ing terms of the Energy Charter Treaty, GML
would have had a much tougher task to
obtain justice.”
The court found that the Russian state
used the tax authorities to conduct a “full
assault on Yukos and its beneficial owners
in order to bankrupt Yukos and appropriate
its assets, while at the same time removing
Khodorkovsky from the political arena.”
The court arrived at the sum to be paid
using the presumed value of Yukos’ assets
as of June 30 this year, but also applied
a discount based on a number of factors
including flaws in Yukos’ own financial
affairs. The shareholders’ claim was for
$114 billion.
The court also ordered Russia to pay $60
million in legal fees. Russia has a 100-day
grace period in which to make its damages
payments, before incurring interest.
Hunt for assets
The winning side said they would now
go after Russian state commercial assets,
potentially entailing wrangles over how these
are defined, but ruled out obvious sovereign
assets such as embassy buildings.
“We are working on a strategy,” said
Osborne.
“We believe we will have a chance of col-
lecting. We didn’t go into this for a Pyrrhic
victory to make a point. We went into it to get
compensation for the loss we suffered. We
still believe that we will ultimately collect on
this award.”
Leonid Nevzlin, a former Yukos co-owner,
said GML should use all legal means avail-
able to pursue Russia to fulfill the Hague
court ruling. “I think the shareholders should
get prepared—if Russia refuses to pay—to
search and freeze the Russian Federation’s
assets all around the world,” Nevzlin told the
Echo of Moscow radio station.
In a statement, Khodorkovsky said it was
“fantastic that the company shareholders are
being given a chance to recover their damag-
es,” but regretted that the compensation was
to come from the state’s coffers rather than
from the pockets of those who orchestrated
the deal against Yukos.
Khodorkovsky also said he was not part
of the legal proceedings and did not seek to
benefit financially from their outcome. Khodor-
kovsky has said he has no Yukos shares and
played no part in the case.
Rosneft impact
Rosneft insisted the judgment does not
make it vulnerable. And Russian foreign minis-
ter Sergei Lavrov noted that a legal challenge
is still possible in Dutch courts outside the
court of arbitration.
“The authorities that represent Russia
in the lawsuit will undoubtedly use all legal
Yukos shareholders claim $50 billion win
...from page 1
possibilities to defend [Russia’s] position,”
he said.
Rosneft said it did not expect the Hague
court ruling to affect its operations as it
“does not believe that any demands can be
made to it due to the [court] ruling.”
“Rosneft believes that all its transac-
tions to buy former Yukos assets and any
other actions towards Yukos were fully legal
and in line with the current legislation,” it
said in a statement.
Rosneft also said it was not a party in the
Yukos lawsuit and was not a defendant under
the ruling.
The state currently owns 69.5% of Ros-
neft via its holding entity Rosneftegaz. Oil
major BP is the second biggest shareholder in
the company, owning 19.75%. BP declined to
comment Monday.
Russia’s finance ministry also said it
would contest the finding, reflecting its
historical involvement in Yukos’ tax arrange-
ments. The court demonstrated a “one-
sided use of evidence” leading to political
bias, it said.
A key part of Russia’s argument in court
was that it never actually ratified the Energy
Charter Treaty, a key plank of the complain-
ants’ case, however this was rejected by the
court in a 2009 ruling.
Russia also highlighted previous findings
by the European Court of Human Rights that
Yukos directors committed tax evasion.
“The unprecedented size of the damages
awarded by the arbitration court is puzzling,
considering that the case was brought on
the basis of an international treaty which the
Russian Federation has not ratified, and is in
direct contradiction to decisions made by the
ECHR,” the ministry said.
In 2011, the ECHR made an interim ruling
that went partly in Russia’s favor, dismissing
the key charge that Yukos had been treated
differently from other companies and was the
victim of a politically motivated attack.
A number of other cases have been
brought, including by Yukos subsidiary Yukos
Capital. In October, a New York court ordered
Rosneft subsidiary Samaraneftegaz to pay
$186 million plus interest to Yukos Capital.
The European Court of Human Rights is
expected to make a ruling on a multi-billion
dollar claim by Yukos on Thursday. — Nick
Coleman, with Dina Khrennikova, Rosemary
Griffin and Nadia Rodova in Moscow
UK’s JKX eyes more gas from Ukrainian field
London—UK independent JKX Oil and Gas
is looking forward to more natural gas
production from its Elizavetovskoye field
in Ukraine in the second half of this year
as its operations remain unaffected by
the ongoing civil unrest in the east of the
country.
JKX is one of a handful of foreign gas pro-
ducers in Ukraine, currently still suffering from
intense fighting in the east, but CEO Paul
Davies said its operations had been unaf-
fected by the unrest.
“There is certainly risk in the country,
although we are not seeing interruptions,”
Davies told Platts Monday.
“We are importing goods and the bank-
ing is working OK. We are reading about the
growing list of sanctions but this has not yet
affected our business,” he said.
The Elizavetovskoye field field in the Pol-
tava province in eastern Ukraine began pro-
duction in January 2014. The two production
wells both came on stream significantly above
expectations, and have required an early
expansion of the processing facility to 30,000
Mcf/d, the company said.
While its gas production rose in both Rus-
sia and Ukraine, its oil and condensate pro-
duction fell. But the collapse of the Ukrainian
currency from Hryvnia 8 to the dollar to Hryv-
nia 12 did the most damage to its earnings,
Davies told Platts.
“We corrected this in April,” he said.
“Before, forex was fixed for three months but
now it moves monthly.”
He said the company now receives about
$11/Mcf for its gas, which is among the high-
est prices in Europe. There has been a year
on year drop but: “We are not complaining,”
he said.
JKX sells 75% of its Ukrainian output to
the Anglo-Dutch major Shell at a small dis-
count to the regulated price and the rest of
its production it sells directly to end-users.
Following the disconnection of Ukraine
from Russian gas in mid-June, the govern-
ment did try to persuade the independent
producers to halve their sales to end-users
and inject the other half into storage as a
means of preparing the country for winter;
but their opposition blocked this move,
Davies said.
The amount of gas they produce is too
small to have any material impact—indepen-
dents produce about 1.5 billion cubic meters/
year, so that plan would only give eight days
of additional storage—while the industrial
sector needs gas, he said.
By his reckoning, Ukraine needs another
3 Bcm or so to inject to be ready for winter.
It now has stored about 14.5 billion cubic
meters. He said the tenders for reverse flow
through Slovakia were “fully subscribed and
a most interesting” way of unlocking capacity
from the west.
Meanwhile, the arbitration court in Stock-
holm is hearing the dispute between Rus-
sian exporter Gazprom and Ukraine which
Davies thinks could last a few months. —
William Powell
5 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014
Algeria appoints new chief at state Sonatrach
Algiers—Algerian energy minister Youcef
Yousfi has appointed an interim head of
Sonatrach to replace the national petroleum
company’s CEO.
Yousfi named Said Sahnoun as Interim
President and Director General of Sonatrach,
replacing former CEO Abdelhamid Zerguine as
the group’s top executive, the ministry said in
a statement.
Sahnoun had been Sonatrach Vice-Presi-
dent Upstream since the beginning of 2010,
and was previously in charge of relations with
international oil companies.
On Saturday, a Sonatrach source speaking
on condition of anonymity told Platts that Zer-
guine had been relieved of his duties.
Zerguine was appointed CEO in Novem-
ber 2011. Earlier, as an executive director
of the state company, he was in charge of
Sonatrach’s international activities.
The ministry’s announcement preceded,
by just a few weeks, the deadline for interna-
tional companies to submit bids for 31 explo-
ration blocks on offer in the country’s fourth
oil and gas licensing round.
In January this year, Zerguine said Alge-
ria’s total annual oil and gas production had
fallen 4% in 2013 to 3.81 million b/d of oil
equivalent, while exports fell 7% year on year
to 2.01 million boe/d.
The latest Platts survey of OPEC output
shows Algeria produced 1.13 million b/d of
crude in June 2014.
Algerian oil and gas exploration has
declined in recent years due to international
oil company dissatisfaction with the terms
offered for exploration contracts. The govern-
ment reformed its oil and gas law in 2013
in a bid to lure back international investors.
— Lies Sahar
Jerusalem—Gas production from Israel’s two
largest offshore fields—Tamar and Levia-
than—is expected to total around 3.6 Bcf/
day by the end of 2017 or early 2018, accord-
ing to the fields’ operator Noble Energy, with
attention still focused on finding export out-
lets for the output.
Current production at the Tamar field is
1 Bcf/d, while commercial production from
Leviathan is expected to start by end-2017.
According to Noble’s estimates, production
at Tamar will be doubled to 2 Bcf/d and Levia-
than will contribute the remaining 1.6 Bcf/d in
the final quarter of 2017 or in early 2018.
The first phase of developing the Leviathan
field is scheduled for completion in the final
quarter of 2017 or the first quarter of 2018.
Noble and its Israeli partners Delek Drill-
ing, Avner Oil and Gas and Ratio Oil Explora-
tion have until the end of the year to present
Israel’s Energy and Water Ministry a detailed
plan for developing the Leviathan field—Isra-
el’s largest offshore gas field with 22 Tcf of
estimated resources.
Noble said the first phase would serve the
domestic and regional exports market, while
in the later phases pipeline capacity could
be expanded, a floating LNG platform could
be built or an onshore LNG terminal could be
built in Cyprus.
The Leviathan consortium in June this year
signed a preliminary deal with the UK’s BG
Group for the sale of 7 Bcm/year of gas for 15
years to supply its Egyptian LNG plant at Idku.
In January this year, an agreement was
signed with the Palestine Power Generation
Company, or PPGC, for the sale of 4.75 Bcm
of gas over 20 years.
In addition, the partners have submitted a
bid to supply Cyprus with 0.7 to 0.95 Bcm of
gas over a five-eight year period.
No Turkey deal
Turkey, however, is not likely to sign a
gas import deal with Israel unless diplomatic
relations between the two countries improve,
according to a report by Israel’s Institute of
National Security Studies published Sunday.
Turkey is seen as a key potential export
market for Israeli gas and earlier this year
Turkish energy group Turcas confirmed it was
in talks for long-term gas supply from Israel.
However Sunday’s report by Oded Eran, a
former Israeli ambassador to Jordan, and Dan
Vardi, former CEO of Israel Natural Gas Lines,
said that “an agreement resolving outstand-
ing disputes between Israel and Turkey is a
necessary condition for an agreement on gas
exports to Turkey.”
The report was issued as relations
between the countries soured further over
the conflict between Israel and Hamas. Turk-
ish Prime Minister Recep Tayyip Erdogan has
vehemently criticized Israel’s military opera-
tion in the Gaza Strip.
Their once close relations deteriorated
sharply after an Israeli commando raid in May
2010 on a Turkish ship Mavi Marmara that
was attempting to break Israel’s naval block-
ade of the Gaza Strip.
A settlement of the dispute has been in the
works for some time but the latest violence in
Gaza has sidelined efforts to improve ties.
The INSS report said the potential for
gas exports to Turkey would depend on the
settling of outstanding political differences,
citing the sale of Egyptian gas to Israel that
was preceded by a government-to-government
agreement. Egyptian gas exports to Israel
were subsequently halted after the overthrow
of President Hosni Mubarak in 2011.
However the authors were pessimistic
about any short-term improvement in relations
as the tension between Israel and the Pales-
tinians is likely to continue.
The two countries are also at odds over
Israeli cooperation with Cyprus on energy
issues. Cyprus and Turkey have their own
dispute over the maritime boundaries of the
island and the Cypriot government’s authority
to make unilateral decisions on gas explora-
tion and revenue. Turkey occupied one third of
the island in 1974.
Turcas Petrol in April said its gas unit was
in talks with Enerjisa, which is jointly owned
by Turkey’s Sabanci Holding and German utility
E.ON, to buy natural gas from Israel’s Levia-
than field for domestic Turkish customers.
Gas infrastructure
While export options remain on the table,
the Israeli government has also now given its
long-awaited final approval for the develop-
ment of gas receiving terminals, Israel’s Inte-
rior Ministry said Sunday.
Israel is currently served by a sole gas
pipeline from the Tamar field, which delivers
gas to a receiving terminal at Ashdod, and the
approval by the Ministerial Interior Committee
to build new terminals will enable the expan-
sion of domestic gas consumption in coming
years, the ministry said.
The latest approval follows that in June by
the country’s National Planning Commission
of the master plan that includes two offshore
receiving stations and two small onshore
facilities that will link to the country’s trans-
mission network.
The ministry said one onshore facility
will be located between Dor and Or Akiva
and will include a treatment facility near the
Hagit power plant, while the other will be
located 10 kilometers (6 miles) to the south
between Beit Yannai and Netanya and will
connect to a treatment facility at the Meretz
sewage treatment plant.
The Energy and Water Ministry’s Natural
Gas Authority has said the two sites will be
able to handle 4 million cubic meters/hour.
The new infrastructure is not likely to be
ready until 2017 at the earliest and will serve
Tamar and Leviathan.
Environmental organizations and residents
have protested land-based gas terminals and
called for all treatment be done offshore. It
was not immediately clear if they will chal-
lenge the latest approval in court.
New infrastructure is needed as Israel
currently relies on a sole pipeline and
receiving terminal with a capacity of 40,000
MMBtu/hour.
An expansion to 50,000 MMBtu/hour
is due for completion next year at a cost of
$216 million, and a second expansion to
60,000 MMBtu/hour, which involves turning
the depleted Mary B field into a storage facil-
ity, in 2016. — Neal Sandler
Israeli gas output to hit 3.6 Bcf/d by 2017
As export options still remain on the table
Europe, Middle East & Africa
6 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014
US refiners should rethink export stance: Murkowski
Pittsburgh—Although the recent US Depart-
ment of Commerce ruling that processed
condensate can be exported under existing
law is not a “game changer,” it is a “step in
the right direction” toward liberalizing crude
exports, the senior Republican on the Senate
Energy and Natural Resources Committee
said Sunday.
Senator Lisa Murkowski of Alaska—who
has called for the US to lift its ban on crude
oil exports and pressed Commerce earlier
this month to drop condensate from its defi-
nition of crude oil—said it is time to revisit
the possibility of lifting the ban because of
the changing energy landscape throughout
the world.
“The United States is the only country
in the world that has a full ban on export of
our crude oil,” she said in an interview on
“Platts Energy Week,” which aired Sunday.
“Even those nations that are net importers,
whether it’s the United Kingdom or New
Zealand or some of our other friends and
allies that are importers, they don’t have a
full-on ban.”
“That’s old energy architecture. It’s time we
revisit this. And that’s what I’ve been pushing.”
The US still views itself as an importer
of crude, Murkowski said, despite increasing
crude oil production in areas like North Dako-
ta’s Bakken and Texas’ Eagle Ford.
“Many of us can remember a time in the
mid-’70s when there were lines in front of
the filling stations,” she said. “We’ve always
viewed ourselves as an importer. And our reli-
ance on others for this resource has been
something that rattles us from a national
security perspective, from an energy security
perspective. And so we’ve got this mindset of
operating from energy scarcity.
“Well, the energy world has changed so
dramatically in the past decade,” Murkowski
added. “It’s the technology that is now allow-
ing us to access it in an affordable and envi-
ronmentally responsible way.”
Murkowski released a report earlier this
month that said six federal agencies put
condensate in a separate category from
crude, while Commerce designates it as
crude oil, which largely bars it from being
exported. Murkowski said she discussed
how condensate is defined by Commerce in
a recent conversation with Commerce Secre-
tary Penny Pritzker.
“She didn’t give any indication that there’s
going to be a breakthrough—that they’re going
to be moving forward on...lifting of the export
ban—nothing of this sort,” Murkowski said
of the conversation with Pritzker. “But again,
talking about where they were with the approv-
al of these two permits that would allow
for exports of condensates, again, I think,
[sends] a signal that within the Commerce
Department...there is consideration of what
might be done incrementally—not moving as
fast as I would like, but moving.”
Tough on refiners
Under a recent Commerce ruling, pro-
cessed condensate would be eligible for
export without a license because it would be
considered a petroleum product and thus not
subject to crude export restrictions. Obama
administration officials have stressed, how-
ever, that this is not a shift in policy.
Murkowski said opponents of lifting the
ban on crude oil exports need to consider not
what is best for the bottom line of refiners,
but what is best for the overall US economy.
“So for the refiners, they’re looking in,
and saying, well this puts us in a pretty envi-
able position,” she said. “We can just take
as much as we possibly can and we can reap
that benefit...In the meantime, you’ve got a
slowdown. You’ve got a choke point. Because
what you have in terms of production that’s
coming up from the ground and ready to go
to the refinery, doesn’t have the place to
move...So I don’t think that we should look at
this from a parochial perspective.”
“Platts Energy Week” airs on Sundays in
Washington on WUSA, a CBS affiliate, and in
Houston on KUHT, a PBS affiliate, as well as
on other PBS stations in the US. The program
is also available on the web at www.plattstv.
com. — Annie Siebert
has not yet been revealed, but noted the port
of Galveston, at the juncture of the Gulf of
Mexico and the Houston Ship Channel, serves
three Texas City refineries: two owned by
Marathon and one by Valero.
A Marathon spokeswoman said the com-
pany does not comment on operational specif-
ics. Bill Day, a Valero spokesman, also said
he would not comment on specific cargoes of
crude oil.
“I can say that some Valero refineries
have processed oil from Iraq,” he said.
At a press briefing, State Department
Iraq threatens to sue if Kurdish oil delivered to US
...from page 1
The Americas
spokeswoman Jen Psaki reiterated the US’
stance that all sales of oil from Iraqi territory
should go through the Iraqi central government.
“Our policy hasn’t changed,” Psaki said.
The US, however, has stopped short of
saying they would block any sales of Kurdish
crude, which Baghdad says are illegal.
If United Kalavrvta offloads its cargo, it
will not be the first volume of independent
Kurdish crude to make its way to the US Gulf
Coast. Several smaller cargoes of Kurdish
oil—heavy Shaikan trucked into and loaded
out of the Turkish port of Dortyol—have
already landed in the region.
The United Kalavrvta is carrying the last of
four confirmed cargoes of Kurdish crude sent
to Ceyhan via the Iraq-Turkey export pipeline.
The United Kalavrvta left Turkey on June 23,
moving to the ship-to-ship transfer area off
the coast of Malta before heading west past
Gibraltar earlier this month.
Only one of the four confirmed cargoes
of Kurdish oil has so far offloaded, into stor-
age at the Israeli port of Ashkelon, accord-
ing to sources.
The United Leadership, which loaded
the first cargo from Ceyhan in late May, has
been off the coast of Morocco for nearly two
months after being turned away from Moham-
media, sources said. The United Emblem, car-
rying the third cargo, is currently heading east
through the Singapore Strait, also according
to Platts ship-tracking program c-Flow.
It remains unclear if any of the four car-
goes have found final buyers.
Even the fate of the offloaded Ashkelon
cargo is unclear. The Kurdistan Regional Gov-
ernment has denied that it sold the crude to
Israel and end-users in Israel have denied
that they have purchased it.
The four cargoes of pipeline oil have
reportedly carried some 4.2 million mt of
crude out of Ceyhan.
According to Turkish energy minister
Taner Yildiz, as of July 17, 6.2 million barrels
of the medium sour Kurdish Blend Test crude
have flowed from the semi-autonomous
region of Kurdish Northern Iraq to Ceyhan
through the Iraq-Turkey export pipeline since
late-December 2013.
Exports of Kirkuk have been halted since
militants sabotaged part of the Iraq-Turkey
pipeline in early March. The KRG linked a
separate pipeline into the Iraq-Turkey route
late last year. It has been using the smaller
of the two parallel lines to send its crude
directly to Ceyhan.
Market sources said current pipeline flows
were averaging below 120,000 b/d.
“I have not heard of any more vessels
loading, but I understand that they have been
pumping,” a crude trader said. — Staff Reports
‘It’s free to conduct the light-
ering, [but] nothing has taken
place yet.’ — US Coast Guard
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PLATTS OILGRAM NEWS is copyrighted
under US and international laws. Reproduc-
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7 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014
Tesoro’s Uinta Express pipe runs into zoning snag
New York—Tesoro’s plan to increase the
amount of indigenous Utah waxy crude oil
transported by pipeline to Salt Lake City area
refineries, including its own 58,000 b/d Salt
Lake City facility, has hit a snag due to newly-
introduced local zoning ordinances.
The 135-mile Uinta Express pipeline would
run through Summit County, Utah, where three
separate ordinances filed in June impose
restrictions on land use, including a six-month
restriction on the placement of hazardous liq-
uids pipelines in the county.
The Summit County “Council’s June 25
actions came unexpectedly as we have been
in consistent and ongoing communications
with the county over the location of the Uinta
Express Pipeline for the past several months,”
Tesoro spokeswoman Tina Barbee said in an
email Monday.
The proposed Uinta Express pipeline would
carry about 60,000 b/d of cheaper local crude
to regional refineries. Including Tesoro’s facil-
ity, there are five refineries with a total refining
capacity of 173,050 b/d, according to US
Energy Information Administration data.
The pipeline would take about 250 tanker
trucks off the road that are currently making
round-trips from the Uinta Basin to Salt Lake
City, the company said.
“In order to follow the proper process, as
both state and local laws mandate, any chal-
lenge to the council’s action must be filed
within 30 days, we are filing our compliant
with the court of jurisdiction. Our complaint
is based on our belief that the ordinances
are both legally impermissible and practically
unworkable,” Barbee said.
Utah produced 3.282 million barrels in
April 2014, or about 111,000 b/d, according
to EIA data. During April, Utah crude was sold
at an average price of $86.38/barrel, even
cheaper than other “price-advantaged” crudes.
Platts data shows that another northern
Midcontinent crude, Bakken ex-Guernsey, Wyo-
ming, sold at an average of $99.72/b in April.
Uinta Basin crude is very paraffinic, mak-
ing it good for feedstock lube plants and as
the direct feed for some fluid catalytic crack-
ing units. The sulfur content is about 0.01%
and. Black Waxy crude has an API of 29-35
while Yellow Waxy crude has an API of 40-45.
“Although Tesoro was not provided notice of
the Summit County Council’s intentions to dis-
cuss and enact Ordinances 825-827, we believe
it is important for us and the county to continue
to work through solutions together,” Barbee said.
Tesoro’s Salt Lake City refinery currently
receives 17,000 b/d of waxy crude via anoth-
er pipeline owned by Tesoro and dedicated to
the refinery. Volumes on that line will increase
to between 22,000 b/d and 24,000 b/d in
the second quarter of 2015 when the second
phase of an expansion project is completed.
— Janet McGurty
Bogota—Reacting to a recent worsening of
security in Colombia’s southernmost oil pro-
ducing region, defense minister Juan Carlos
Pinzon on Saturday said he would send 700
special forces soldiers plus additional marine
and police units to Putumayo province to try
to restore order.
The move comes as the province border-
ing Colombia’s southern frontier with Ecuador
is beset with pipeline bombings, attacks by
suspected leftist rebels on tanker trucks haul-
ing crude and murders in the past several
weeks that have brought oil production from
some fields to a standstill.
The unrest in Putumayo and ongoing rebel
attacks on the Cano Limon and Bicentennial
pipelines in northeast Colombia were also
likely factors in disappointing results in the
first phase of the Colombia 2014 Bid Round
last week, in which just 27% of blocks on
offer received bids.
The attacks have also cut into Colombian
crude production—and thus royalties and
taxes that the government was counting on
to meet 2014 fiscal goals. That has forced
finance ministry officials to step up their cam-
paign for changes in the tax code to increase
government revenues.
So far in July, suspected guerrillas have
forced at least 30 tanker truck drivers to
dump their loads of crude—totaling up to 250
barrels per truck—on rural roads.
The crude has created an environmen-
tal disaster, polluting nearby streams that
some farm communities depend on for
drinking water, said Bogota-based consul-
tant Orlando Hernandez.
On July 23, one of the drivers of a truck
hauling crude was killed for failing to respond to
rebel demands, according to local news reports.
In addition to the attacks, residents of
the rural Puerto Vega Teteye community have
blocked entry into a Vetra Group oil field
since July 10 to protest a government deci-
sion to award a permit to the company to
carry out exploratory drilling in the region,
said Hernandez.
Counter-insurgency plans
After meeting Saturday with community
officials and oil company personnel in Puerto
Asis, the capital of Putumayo province,
Pinzon said he would deploy two helicopter-
borne special operations army battalions—
numbering 700 soldiers—to the zone in the
next month.
Pinzon also said he would send addi-
tional marine units, including two additional
hovercraft to patrol the San Miguel River,
doubling the number of hybrid vehicles in the
area capable of moving on land and water.
A special squadron of riot police will also be
stationed permanently in Puerto Asis, the
minister said.
In addition, special intelligence and judi-
cial units will be transferred to Puerto Asis to
infiltrate, investigate, capture and try alleged
insurgent supporters that are members of
“terrorism support networks,” known by their
Spanish initials as RATS, and who supply
information to the rebels, he said.
In April, after rebels launched a wave
of attacks on the Transandino Pipeline that
crosses Putumayo province, Pinzon ordered
two special forces battalions to the region
and said the defense ministry would step up
flights of drone aircraft monitoring the pipe-
line’s path. — Chris Kraul
Colombia to send more troops to oil region
In an effort to quell attacks oil infrastructure, get production on track
Argentina crude imports
steady in June, gas up 2.7%
Buenos Aires—Argentina increased natural
gas imports by 2.7% in June compared with
the year-earlier level while imports of crude
were steady.
Gas imports rose to 42.6 million cubic
meters/day in June, or 34% of the 126 mil-
lion cu m/d average consumption, from 41.5
million cu m/d in the year-earlier period, the
Energy Secretariat said Monday in a monthly
data report.
The gas imports were up 17% compared
with 36.4 million cu m/d this past May,
according to the data.
Argentina imports gas by pipeline from
Bolivia and in its liquefied form from global
suppliers.
Bolivian gas imports totaled 17.4 million
cu m/d in June compared with 16.7 million cu
m/d in June 2013 and 17.5 million cu m/d
in May.
Argentina also plans to ramp up Bolivian
gas imports to 27.7 million cu m/d in 2017
as more pipeline capacity comes online.
LNG imports averaged the equivalent of
25.1 million cu m/d in send-out capacity in
June, up from 24.8 million cu m/d in the year-
earlier period and down from 18.9 million cu
m/d in May, the report showed.
The Energy Secretariat said in the report
that crude imports averaged 25,363 b/d in
June, the same as in May.
The report did not provide year-earlier data.
Argentina hadn’t imported crude for
years until 2012 when it had to turn to
overseas suppliers to make up for dwindling
domestic production. Crude production fell
36% to 540,000 b/d in 2013 from a record
847,000 b/d in 1998, according to the
Argentine Oil and Gas Institute, an industry
group.— Charles Newbery
Markets & Data
8 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014
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New York—ICE September Brent crude futures
fell 82 cents to settle at $107.57/b Monday
despite an escalation of fighting near the air-
port in the Libyan capital of Tripoli.
NYMEX September crude finished 42
cents lower, settling at $101.67/b.
A bearish refined products market
weighed on prompt Brent, but further falls
were likely arrested amid ongoing battles not
only in Libya, but also in Ukraine, Iraq and
Gaza, analysts said.
NYMEX August ULSD futures settled 2.78
cents lower at $2.8879/gal and August RBOB
fell 1.61 cents to settle at $2.8492/gal.
Two fuel tanks caught fire during fighting
around Tripoli’s airport, AFP reported. “The
situation is very dangerous after a second fire
broke out at another petroleum depot,” the
government said, warning of a “disaster with
unforeseeable consequences,” according to AFP.
But Price Futures Group energy analyst
Phil Flynn pointed to the comparative stability
of the US refining market, where runs have
been running just below record levels.
“What we are seeing is the benefit of US
shale oil starting to take hold,” Flynn said.
“Abundant supply of cheap, high yielding oil is
allowing producers to produce [gasoline] at a
record pace. This has provided a buffer to a
price shock that might have occurred with all
of the geopolitical issues the world has had
to deal with.”
Analysts surveyed Monday by Platts
expect refinery runs to remain strong and con-
tinue to boost product stocks.
NYMEX products failed to rally even after
reports Sunday that a fluid catalytic cracker
at ExxonMobil’s 365,000 b/d Beaumont,
Texas, refinery experienced an upset. The
company acknowledged there could be some
impact to production.
“By the end of the day we basically
bounced,” Tradition Energy analyst Gene
McGillian said. “If it wasn’t for Libya, Israel,
Iraq, Ukraine...the fundamentals suggest the
market should be weaker than it is. The Libya
fighting showed bringing its oil back to the
market won’t be easy.”
“Unless we see some resolution the
market will have trouble breaking through the
$99-$100/b level,” he said.
This is largely evident in technical indica-
tors for NYMEX crude. The front-month con-
tract recently broke below the 30- and 100-
day moving averages, and is testing support
at the 200-day moving average of $99.84/b.
That said, crude is drifting towards the
bottom end of the Bollinger spectrum, which
would indicate the contract is nearing being
considered oversold. And prompt NYMEX
crude is likely garnering some support from
tightness at the contract’s delivery hub at
Cushing, Oklahoma.
US refiners advantaged
Despite an expected crude draw this
week, total US crude stocks at just over 371
million barrels are still sitting more than 3%
above the EIA five-year average.
“Since the US is the country that is mak-
ing the most money on refining and the most
secure with our supply, we need to keep run-
ning high to keep enough in the coffers in
case there’s a run on [supply elsewhere],” Oil
Outlooks President Carl Larry said.
Platts refining margin data backs largely
backs this up. The US Gulf Coast crack-
ing margins for Louisiana Light Sweet was
assessed at $12.28/b Friday. In contrast, the
Northwest European cracking margin for Brent
was assessed at $2.91/b Friday.
Platts margins reflect the difference
between a crude’s netback and its spot price.
Netbacks are based on crude yields, which
are calculated by applying Platts product price
assessments to yield formulas designed by
Turner, Mason & Co.
Product stocks expected to build
US gasoline stocks are expected to con-
tinue to grow, with analysts surveyed looking
for a 1.1 million-barrel build. Distillate stocks
are expected to have grown 1.4 million bar-
rels last week.
Oil Outlooks’ Carl Larry is looking for a 2
million-barrel build in gasoline stocks.
“I’m not really going to say that [gasoline]
demand is easing [but] we’re getting plenty
of supply playing catch-up after nearly two
months of running production (including blend-
ing) over 10 million b/d,” he said. “When you
produce at a record one would expect more
supply.” — James Bambino
ICE Brent lower amid bearish refined products
Markets & Data
NYMEX crude settle, first month
NYMEX natural gas settle, first month
($/bbl)
($/MMBtu)
101
102
103
104
105
104.42
103.12
102.07
102.09
101.67
28-Jul25-Jul24-Jul23-Jul22-Jul
July 28 settle: $101.67, down $0.42
3.7
3.8
3.9
3.772
3.762
3.847
3.781
3.747
28-Jul25-Jul24-Jul23-Jul22-Jul
July 28 settle: $3.747, down $0.034
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Platts oilgram news julio 29 2014 articulo pag 7 Colombia oil Orlando Hernandez

  • 1. Volume 92 / Number 147 / Tuesday, July 29, 2014 [OIL ] www.platts.com OILGRAM NEWS Top stories Asia Pacific Jordan Cove eyes Asia for 25% of LNG sales 2 Aussie group buys Canadian LNG to serve Europe 2 Europe, Middle East & Africa Galp’s refining margin slips into the red 3 UK launches shale gas exploration bid round 3 UK’s JKX eyes more gas from Ukrainian field 4 Israeli gas output to hit 3.6 Bcf/d by 2017 5 Algeria appoints new chief at state Sonatrach 5 The Americas US refiners should rethink export stance: Murkowski 6 Markets & Data Colombia to send more troops to oil region 7 Tesoro’s Uinta Express pipe runs into zoning snag 7 Argentina crude imports steady in June, gas up 2.7% 7 ICE Brent lower amid bearish refined products 8 Iraq threatens to sue if Kurdish oil delivered to US Washington—With the latest battle between Baghdad and Erbil over crude sales reaching US shores Monday, the Iraqi central govern- ment sent warnings to lightering companies in Galveston, Texas, not to offload a cargo of Kurdish oil on the United Kalavrvta, a Suez- max tanker currently anchored 60 miles off the port. “Letters were sent to all of the lightering companies to make sure they are aware this crude oil doesn’t belong to the party pur- porting to sell it,” a senior Iraqi Oil Ministry official told Platts on condition of anonymity. “The entire market is on notice.” The tanker, which loaded Kurdish crude from the Turkish port of Ceyhan more than a month ago, has yet to offload its cargo, according to officials at the US State Depart- ment and the US Coast Guard. Earlier Monday, Coast Guard inspectors examined the ship and gave it clearance to begin lightering the crude. “There’s nothing else prohibiting it from doing business from the Coast Guard’s point of view,” Petty Officer Andy Kendrick said. “It’s free to conduct the lightering, [but] nothing has taken place yet.” A woman who answered the phone at the Galveston Pilots Association said officials there were under orders not to discuss the tanker and its activities. The Iraqi central government has sent similar letters to ports where other cargoes of Kurdish crude have approached. The letters warn that Iraq may pursue legal action against any entity that receives oil exported from the northern semiautonomous region of Kurdistan. The KRG has maintained its right to sell and market the crude produced in its fields. US crude trading and shipping sources said the owner of the United Kalavrvta’s cargo (continued on page 6) Yukos shareholders claim $50 billion win But Moscow vows to appeal Dutch court ruling London—The Permanent Court of Arbitration in the Hague Monday ordered Russia to pay over $50 billion to Yukos shareholders, ruling the oil company was subject to a politically motivated attack to appropriate its assets and to remove main shareholder Mikhail Khodorkovsky from the political stage. Russia vowed to challenge the judgment in the Dutch courts, but in London Emmanuel Gaillard, head of the Shearman and Sterling legal team that conducted the case in a pro- cess lasting 10 years, emphasized the out- come is “final and binding.” Yukos was declared bankrupt in 2006 after buckling under unprecedented tax demands and its assets, notably its 1 million b/d upstream subsidiary Yuganskneftegaz, ended up largely in the hands of state-owned Rosneft, with some also going to Gazprom. Yukos’ founder Khodorkovsky and busi- ness partner Platon Lebedev were sen- tenced to eight years in prison for tax fraud in 2005 and in a later case were found guilty of money laundering and embezzle- ment, pushing their sentences to 2014. They were pardoned in December and Janu- ary, respectively. Russia, as a party to the international arbitration court, is likely to pay up eventu- ally, despite current diplomatic tensions over Ukraine, the shareholders’ representatives said Monday. “We’re thrilled with this decision. We know it’s not the end of the road, but it is a giant step forward,” said Tim Osborne, director of GML, the holding company that indirectly owned the majority of Yukos shares. “It is a major step forward for the majority shareholders, who have been battling for over 10 years for this decision,” Osborne said. “It also demonstrates the vital role that international arbitration plays in resolving disputes of this nature. Without the bind- (continued on page 4) „„ Russia vows to fight verdict „„ Rosneft says operations unaffected „„ Claimants see long fight ahead „„ United Kalavrvta yet to be offloaded „„ Coast Guard says will not block lightering „„ Cargo’s buyer remains mystery
  • 2. 2 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014 Asia Pacific Aussie group buys Canadian LNG to serve Europe Sydney—Australia’s Liquefied Natural Gas Limited has agreed to buy 100% of Anadarko Petroleum’s Bear Head LNG project in Cana- da’s Nova Scotia for $11 million and plans to develop the former proposed import terminal into an export facility to serve markets in Europe, the company said Monday. LNG Limited is already aiming to become a North American LNG exporter from its Magnolia project in Louisiana, where it is planning to spend $2.2 billion developing an export facility with an initial capacity of 4 million mt/year. The company now intends to replicate that project model to develop a 4 million mt/year export plant at Bear Head with capacity for future expansion as more gas becomes available. Anadarko had invested significantly in the Bear Head site as a proposed 11.3 million mt/year LNG import terminal, LNG Limited said. Bear Head was likely to have signifi- cantly lower development costs and a faster approval schedule than Magnolia due to work already completed, the company added. The key assets to be acquired include the 255-acre site, comprising 180 acres of industrial-zoned land and foundations in place for two 180,000 cubic meter LNG tanks. The land has been cleared, most of the site works completed and roads constructed, LNG Lim- ited said. The company said it has already devel- oped gas supply and transportation plans, and has interest from several parties to enter into tolling agreements at Bear Head, like it has at Magnolia. LNG Limited is in discussions with gas transportation compa- nies and owners of gas reserves onshore and offshore Canada and in the US’ Marcel- lus Shale gas play to supply the Bear Head LNG project site. Under the proposed timetable, the pur- chase of Bear Head would close before the end of August this year. The LNG facility is fore- cast to begin commercial operations in 2019. Magnolia on track Meanwhile, the company’s Magnolia LNG project at Lake Charles remains on schedule and budget, with financial close expected in mid-2015. Operations at Magnolia are tar- geted to start in mid-2018. The Magnolia project is to be developed in two phases, the first of which would comprise two LNG production trains, each with a capac- ity of 2 million mt/year, two 160,000 cubic meter storage tanks, and a jetty and ship loading facilities to accommodate tankers of up to 180,000 cu m. LNG Limited expects to double capacity to 8 million mt/year in the second development stage. Magnolia has signed four preliminary tolling agreements for a total of up to 6.7 million mt/year of LNG with AES Corporation Group, Brightshore Overseas, Gas Natural Fenosa Group and LNG Holdings. The project has already received approval from the Department of Energy to export 4 million mt/year of LNG to coun- tries which have free trade agreements with the US. LNG Limited has applied to increase the current approval by another 4 million mt/year and has sought approval to export 8 million mt/year of LNG to coun- tries that do not have free trade agree- ments with the US. — Christine Forster Tokyo—The Jordan Cove LNG project on the US West Coast aims to sell “at least a quar- ter” of its output to Asia, Don Althoff, presi- dent and CEO of operator Veresen said last week during a visit to Tokyo. The company hopes to conclude binding agreements with offtakers this year for all of its initial output of 6 million mt/year at the planned tolling facility on Oregon’s southern coast, Althoff said. “We do continue to market the project throughout Asia and look for really high- quality customers who could take at least the quarter of the output,” he told Platts in an interview. “We are going to look for customers who already have infrastructures in place and strong credit rating.” Althoff declined to elaborate on whether the prospective customers in Asia included Japanese companies. “All of our customers, especially the ones [with which] we have signed the heads of agreements, considered their identity to be important to maintain con- fidentiality, and we respect that,” he said. Althoff told delegates at the Canada Alber- ta LNG Seminar that Veresen has “signed a number of non-binding heads of agreements with large-scale prospective customers locat- ed in various Asian countries.” The Jordan Cove project, which is currently wholly owned by Calgary-based Veresen, might make its prospective offtakers equity part- ners, he added. “We are talking to potential offtakers about equity as well,” Althoff said, adding that “the majority” of the potential customers had expressed interest in participating in the project. Veresen plans to conclude binding con- tracts first and then negotiate for potential ownership shares afterward, Althoff said. The company is aiming to secure an engi- neering, procurement and construction con- tractor this fall, he added. The Jordan Cove export project will be a tolling facility linked to gas prices, likely to be one or a combination of three North American benchmarks: Henry Hub, Malin Hub in south- west Oregon and Alberta’s AECO. Althoff said the price linkages would be up to customers’ risk tolerance and gas posi- tions. “All three of the options are very viable for the Jordan Cove,” he said. In shopping the project to potential customers, Althoff said he emphasized the expected nine-day shipping voyage from Ore- gon to Asia, compared with 22 days from the Gulf of Mexico through the expanded Panama Canal. A few of the US LNG export projects that are furthest along in the approval pro- cess are on the Gulf coast in Texas and Loui- siana. “We do economics from millions of tons per annum or delivered costs or MMBtu – that differential actually allows a greenfield facility on the West Coast of the US to compete with brownfield prices because of the difference in shipping costs,” Althoff said. Veresen is targeting a final investment decision for Jordan Cove in the first quarter of 2015. Althoff said the company was “evaluat- ing the timeline” after it received a sched- ule on July 16 from the US Federal Energy Regulatory Commission for receipt of a final environmental impact statement by the end of February 2015. The latest FERC schedule was a “little longer [than] we planned in the original sched- ule...but we are hopeful that we go a little quicker than their schedule notice.” After issuing the EIS, FERC will hold a 90-day public comment period before deciding whether to approve the project and allow it to start construction. “They [FERC] have traditionally beaten that schedule a bit, so we are hopeful that we can have the approval...[in] late May at the lat- est,” Althoff said. Veresen has received conditional approval from the US Department of Energy to export LNG from the proposed Jordan Cove terminal to countries that do not have free trade agree- ments with the US. Earlier, it had secured a license from Canada’s National Energy Board to export gas to the Oregon terminal. The Jordan Cove facility in Coos Bay will initially have a capacity of 6 million mt/year, which can “easily expand” to 9 million mt/ year, Althoff said. The project, which is scheduled to start operations in mid-2019, also includes the 370 km (230 mile), 1 Bcf/d Pacific Connector Gas pipeline, owned equally by Veresen and Williams, and a 420 MW power generation plant. The pipeline would source gas from the US portion of the Rocky Mountains and from the Western Canadian Sedimentary Basin. Jordan Cove is regarded as one of the major projects that would provide an export outlet for Western Canada’s large natural gas resources. — Takeo Kumagai Jordan Cove eyes Asia for 25% of LNG sales Veresen hoping for offtake deals this year on 6 million mt/year of output
  • 3. 3 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014 UK launches shale gas exploration bid round London—The UK government has started the long-awaited 14th landward bidding pro- cess for onshore oil and gas licenses—the first for six years—with a view to open- ing up a shale gas production industry that could relieve the country’s increasing import dependency. Since 2008, much more has been learned about shale gas and its capacity to transform energy markets, as has happened in the US. The newly-appointed UK energy minis- ter Matthew Hancock published on Monday details of how companies can apply for licenses which will enable them to start initial exploration. Applications will be accepted up to the October 28. He said: “Unlocking shale gas in Britain has the potential to provide us with greater energy security, jobs and growth. We must act carefully, minimizing risks, to explore how much of our large resource can be recovered to give the UK a new home-grown source of energy. As one of the cleanest fossil fuels, shale gas can be a key part of the UK’s answer to climate change and a bridge to a much greener future.” As well as a license, a company needs to make a further drilling application which will then require planning permission, as well as permits from the Environment Agency and sign-off from the Health and Safety Executive. As DECC says in its guidance notes for bidders: “The award of a license does not imply prior consent to actual activities, and there are other regulatory and legal provisions that may restrict a licensee’s ability to carry out its proposed activities.” Some regions such as national parks will be much harder to win a license for as DECC will also require detailed statements of environmental awareness to be submitted with license applications to these areas, and DECC may reject the application if the state- ment does not demonstrate sufficient aware- ness of the site’s sensitivity. And for companies hoping to tackle coalbed methane—technology that is set to transform Australia into a major gas export- er—or vent gas from disused mines, the Coal Authority must give approval as it man- ages the UK’s coal reserves; and a license from DECC to capture the actual hydrocar- bons is also needed. All those consents must be in place before the many dozens of wells may be drilled that experts say will be needed in order to assess the economics of shale gas production. This is an unknown quantity in the UK, where the trillions of cubic meters of gas that the British Geological Survey believes are in place might not be economically recover- able unless gas prices double. Drilling though could prove difficult as even when all the paperwork is done and the work program approved, local protestors can bring activity to a halt by blocking road access, as has happened at sites in the UK in the past year or so. Lawyers at Clyde & Co said Monday that: “Despite the rhetoric, there are vari- ous hurdles to overcome before fracking can even be considered as potentially a serious proposition in the UK. As things stand, the combination of intricate procedural hurdles, local politics and unrest amongst affected third parties makes it unattractive to poten- tial investors.” The DECC announcement however was welcomed by Igas Energy, a UK com- pany which has ambitions to produce gas onshore. It said it would participate and was “looking forward to continuing our role in securing Britain’s energy needs for the future and de-carbonizing the economy.” — William Powell Barcelona—Portugal’s Galp Energia said Mon- day its refining margin in the second quarter of 2014 turned negative due to a planned outage at the Sines refinery complex and an adverse refining environment. The company reported a negative $0.30/ barrel refining margin for the April-June period, down from a positive margin of $3.40/b in Q2 2013, it said. “Refining performance was impacted by the unbalanced European market,” the com- pany said. “Recent refining performance was worsened by planned maintenance at the Sines refinery,” it added. Galp said crude volumes processed at its refineries fell 22.5% year on year to 17.3 mil- lion barrels, which cut refined product sales 8.1% year on year to 4.1 million mt. The company operates two refineries in Portugal—the 220,000 b/d Sines plant and 91,000 b/d Matosinhos. Sines shut from early March to mid-May for maintenance. Despite the poor result in the second quarter, Galp said it expects volumes of crude processed to rise in the third quarter following the end of planned maintenance at Sines. As a result of the outage, the hydro- cracking complex registered an utilization rate of 67%, down from 69% in the first quarter, which was also affected by the maintenance, the company said. This com- pared to a rate of 95% in the fourth quarter of 2013. During Q2 2014, medium and heavy crudes accounted for 79% of the total crude processed in Galp’s refineries. Production of middle distillates accounted for 47% of the total, in line with the year before, whereas gasoline and fuel oil account- ed for 17% and 20%, respectively, of total production. Brazil production Looking forward, Galp said in a separate presentation also released Monday, it expects increased production in Brazil to push its working interest production higher by around 17% quarter on quarter to 30,000 b/d of oil equivalent in the third quarter. Second-quarter working interest increased 9.7% from the year-ago levels to 25,700 boe/d, as rising output in Brazil offset falling volumes in Angola amid field maturity. Net entitlement production from Brazil rose 41% year on year in Q2 to 15,300 boe/d—mostly due to the contribution from FPSO Cidade de Paraty, which accounted for an average output of 4,400 boe/d, Galp said. The extended well tests performed in the Lula Central and Iara West-2 areas also contributed to the increase of production in Brazil, with a total production of 500 b/d, the company said. Galp said it also expects the third Brazil- based FPSO, Cidade de Mangaratiba, to start production in the fourth quarter of this year. In Angola, meanwhile, Q2 working interest production decreased around 2,200 b/d from the year-ago levels, or 17%, to 10,400 b/d, as production declined in the Kuito field, in Block 14, after the decommissioning of the respective FPSO in late 2013. In the gas segment, the company expects a fall in volumes in the next quarter as it sees LNG trading opportunities narrowing. Overall, natural gas sold during Q2 2014 increased 25% year on year to 1.83 Bcm fol- lowing higher volumes of LNG traded in the international market. The total traded volume reached 1.01 Bcm, with 12 cargoes traded in the quarter, up from six the year before. Cargoes traded in the period were primarily bound for Latin America, and they also went to Asian markets, the company said. Gas volumes sold for power generation declined 15% year on year to 120 million cu m, mainly due to higher imports of electricity generated in Spain. Sales in the industrial segment reached 616 million cu m, a decrease of 4% from the year-ago level, as a result of lower demand from Galp Energia’s own units, particularly the hydrocracking complex, following the planned outage at the Sines refinery, and credit restric- tions to certain clients. Volumes sold in the residential segment decreased 23% year on year to 72 million cu m, as competition intensified in the Iberian region, Galp said. — Gianluca Baratti Galp’s refining margin slips into the red Setback for Portuguese refiner in second quarter Europe, Middle East & Africa
  • 4. 4 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014 Europe, Middle East & Africa ing terms of the Energy Charter Treaty, GML would have had a much tougher task to obtain justice.” The court found that the Russian state used the tax authorities to conduct a “full assault on Yukos and its beneficial owners in order to bankrupt Yukos and appropriate its assets, while at the same time removing Khodorkovsky from the political arena.” The court arrived at the sum to be paid using the presumed value of Yukos’ assets as of June 30 this year, but also applied a discount based on a number of factors including flaws in Yukos’ own financial affairs. The shareholders’ claim was for $114 billion. The court also ordered Russia to pay $60 million in legal fees. Russia has a 100-day grace period in which to make its damages payments, before incurring interest. Hunt for assets The winning side said they would now go after Russian state commercial assets, potentially entailing wrangles over how these are defined, but ruled out obvious sovereign assets such as embassy buildings. “We are working on a strategy,” said Osborne. “We believe we will have a chance of col- lecting. We didn’t go into this for a Pyrrhic victory to make a point. We went into it to get compensation for the loss we suffered. We still believe that we will ultimately collect on this award.” Leonid Nevzlin, a former Yukos co-owner, said GML should use all legal means avail- able to pursue Russia to fulfill the Hague court ruling. “I think the shareholders should get prepared—if Russia refuses to pay—to search and freeze the Russian Federation’s assets all around the world,” Nevzlin told the Echo of Moscow radio station. In a statement, Khodorkovsky said it was “fantastic that the company shareholders are being given a chance to recover their damag- es,” but regretted that the compensation was to come from the state’s coffers rather than from the pockets of those who orchestrated the deal against Yukos. Khodorkovsky also said he was not part of the legal proceedings and did not seek to benefit financially from their outcome. Khodor- kovsky has said he has no Yukos shares and played no part in the case. Rosneft impact Rosneft insisted the judgment does not make it vulnerable. And Russian foreign minis- ter Sergei Lavrov noted that a legal challenge is still possible in Dutch courts outside the court of arbitration. “The authorities that represent Russia in the lawsuit will undoubtedly use all legal Yukos shareholders claim $50 billion win ...from page 1 possibilities to defend [Russia’s] position,” he said. Rosneft said it did not expect the Hague court ruling to affect its operations as it “does not believe that any demands can be made to it due to the [court] ruling.” “Rosneft believes that all its transac- tions to buy former Yukos assets and any other actions towards Yukos were fully legal and in line with the current legislation,” it said in a statement. Rosneft also said it was not a party in the Yukos lawsuit and was not a defendant under the ruling. The state currently owns 69.5% of Ros- neft via its holding entity Rosneftegaz. Oil major BP is the second biggest shareholder in the company, owning 19.75%. BP declined to comment Monday. Russia’s finance ministry also said it would contest the finding, reflecting its historical involvement in Yukos’ tax arrange- ments. The court demonstrated a “one- sided use of evidence” leading to political bias, it said. A key part of Russia’s argument in court was that it never actually ratified the Energy Charter Treaty, a key plank of the complain- ants’ case, however this was rejected by the court in a 2009 ruling. Russia also highlighted previous findings by the European Court of Human Rights that Yukos directors committed tax evasion. “The unprecedented size of the damages awarded by the arbitration court is puzzling, considering that the case was brought on the basis of an international treaty which the Russian Federation has not ratified, and is in direct contradiction to decisions made by the ECHR,” the ministry said. In 2011, the ECHR made an interim ruling that went partly in Russia’s favor, dismissing the key charge that Yukos had been treated differently from other companies and was the victim of a politically motivated attack. A number of other cases have been brought, including by Yukos subsidiary Yukos Capital. In October, a New York court ordered Rosneft subsidiary Samaraneftegaz to pay $186 million plus interest to Yukos Capital. The European Court of Human Rights is expected to make a ruling on a multi-billion dollar claim by Yukos on Thursday. — Nick Coleman, with Dina Khrennikova, Rosemary Griffin and Nadia Rodova in Moscow UK’s JKX eyes more gas from Ukrainian field London—UK independent JKX Oil and Gas is looking forward to more natural gas production from its Elizavetovskoye field in Ukraine in the second half of this year as its operations remain unaffected by the ongoing civil unrest in the east of the country. JKX is one of a handful of foreign gas pro- ducers in Ukraine, currently still suffering from intense fighting in the east, but CEO Paul Davies said its operations had been unaf- fected by the unrest. “There is certainly risk in the country, although we are not seeing interruptions,” Davies told Platts Monday. “We are importing goods and the bank- ing is working OK. We are reading about the growing list of sanctions but this has not yet affected our business,” he said. The Elizavetovskoye field field in the Pol- tava province in eastern Ukraine began pro- duction in January 2014. The two production wells both came on stream significantly above expectations, and have required an early expansion of the processing facility to 30,000 Mcf/d, the company said. While its gas production rose in both Rus- sia and Ukraine, its oil and condensate pro- duction fell. But the collapse of the Ukrainian currency from Hryvnia 8 to the dollar to Hryv- nia 12 did the most damage to its earnings, Davies told Platts. “We corrected this in April,” he said. “Before, forex was fixed for three months but now it moves monthly.” He said the company now receives about $11/Mcf for its gas, which is among the high- est prices in Europe. There has been a year on year drop but: “We are not complaining,” he said. JKX sells 75% of its Ukrainian output to the Anglo-Dutch major Shell at a small dis- count to the regulated price and the rest of its production it sells directly to end-users. Following the disconnection of Ukraine from Russian gas in mid-June, the govern- ment did try to persuade the independent producers to halve their sales to end-users and inject the other half into storage as a means of preparing the country for winter; but their opposition blocked this move, Davies said. The amount of gas they produce is too small to have any material impact—indepen- dents produce about 1.5 billion cubic meters/ year, so that plan would only give eight days of additional storage—while the industrial sector needs gas, he said. By his reckoning, Ukraine needs another 3 Bcm or so to inject to be ready for winter. It now has stored about 14.5 billion cubic meters. He said the tenders for reverse flow through Slovakia were “fully subscribed and a most interesting” way of unlocking capacity from the west. Meanwhile, the arbitration court in Stock- holm is hearing the dispute between Rus- sian exporter Gazprom and Ukraine which Davies thinks could last a few months. — William Powell
  • 5. 5 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014 Algeria appoints new chief at state Sonatrach Algiers—Algerian energy minister Youcef Yousfi has appointed an interim head of Sonatrach to replace the national petroleum company’s CEO. Yousfi named Said Sahnoun as Interim President and Director General of Sonatrach, replacing former CEO Abdelhamid Zerguine as the group’s top executive, the ministry said in a statement. Sahnoun had been Sonatrach Vice-Presi- dent Upstream since the beginning of 2010, and was previously in charge of relations with international oil companies. On Saturday, a Sonatrach source speaking on condition of anonymity told Platts that Zer- guine had been relieved of his duties. Zerguine was appointed CEO in Novem- ber 2011. Earlier, as an executive director of the state company, he was in charge of Sonatrach’s international activities. The ministry’s announcement preceded, by just a few weeks, the deadline for interna- tional companies to submit bids for 31 explo- ration blocks on offer in the country’s fourth oil and gas licensing round. In January this year, Zerguine said Alge- ria’s total annual oil and gas production had fallen 4% in 2013 to 3.81 million b/d of oil equivalent, while exports fell 7% year on year to 2.01 million boe/d. The latest Platts survey of OPEC output shows Algeria produced 1.13 million b/d of crude in June 2014. Algerian oil and gas exploration has declined in recent years due to international oil company dissatisfaction with the terms offered for exploration contracts. The govern- ment reformed its oil and gas law in 2013 in a bid to lure back international investors. — Lies Sahar Jerusalem—Gas production from Israel’s two largest offshore fields—Tamar and Levia- than—is expected to total around 3.6 Bcf/ day by the end of 2017 or early 2018, accord- ing to the fields’ operator Noble Energy, with attention still focused on finding export out- lets for the output. Current production at the Tamar field is 1 Bcf/d, while commercial production from Leviathan is expected to start by end-2017. According to Noble’s estimates, production at Tamar will be doubled to 2 Bcf/d and Levia- than will contribute the remaining 1.6 Bcf/d in the final quarter of 2017 or in early 2018. The first phase of developing the Leviathan field is scheduled for completion in the final quarter of 2017 or the first quarter of 2018. Noble and its Israeli partners Delek Drill- ing, Avner Oil and Gas and Ratio Oil Explora- tion have until the end of the year to present Israel’s Energy and Water Ministry a detailed plan for developing the Leviathan field—Isra- el’s largest offshore gas field with 22 Tcf of estimated resources. Noble said the first phase would serve the domestic and regional exports market, while in the later phases pipeline capacity could be expanded, a floating LNG platform could be built or an onshore LNG terminal could be built in Cyprus. The Leviathan consortium in June this year signed a preliminary deal with the UK’s BG Group for the sale of 7 Bcm/year of gas for 15 years to supply its Egyptian LNG plant at Idku. In January this year, an agreement was signed with the Palestine Power Generation Company, or PPGC, for the sale of 4.75 Bcm of gas over 20 years. In addition, the partners have submitted a bid to supply Cyprus with 0.7 to 0.95 Bcm of gas over a five-eight year period. No Turkey deal Turkey, however, is not likely to sign a gas import deal with Israel unless diplomatic relations between the two countries improve, according to a report by Israel’s Institute of National Security Studies published Sunday. Turkey is seen as a key potential export market for Israeli gas and earlier this year Turkish energy group Turcas confirmed it was in talks for long-term gas supply from Israel. However Sunday’s report by Oded Eran, a former Israeli ambassador to Jordan, and Dan Vardi, former CEO of Israel Natural Gas Lines, said that “an agreement resolving outstand- ing disputes between Israel and Turkey is a necessary condition for an agreement on gas exports to Turkey.” The report was issued as relations between the countries soured further over the conflict between Israel and Hamas. Turk- ish Prime Minister Recep Tayyip Erdogan has vehemently criticized Israel’s military opera- tion in the Gaza Strip. Their once close relations deteriorated sharply after an Israeli commando raid in May 2010 on a Turkish ship Mavi Marmara that was attempting to break Israel’s naval block- ade of the Gaza Strip. A settlement of the dispute has been in the works for some time but the latest violence in Gaza has sidelined efforts to improve ties. The INSS report said the potential for gas exports to Turkey would depend on the settling of outstanding political differences, citing the sale of Egyptian gas to Israel that was preceded by a government-to-government agreement. Egyptian gas exports to Israel were subsequently halted after the overthrow of President Hosni Mubarak in 2011. However the authors were pessimistic about any short-term improvement in relations as the tension between Israel and the Pales- tinians is likely to continue. The two countries are also at odds over Israeli cooperation with Cyprus on energy issues. Cyprus and Turkey have their own dispute over the maritime boundaries of the island and the Cypriot government’s authority to make unilateral decisions on gas explora- tion and revenue. Turkey occupied one third of the island in 1974. Turcas Petrol in April said its gas unit was in talks with Enerjisa, which is jointly owned by Turkey’s Sabanci Holding and German utility E.ON, to buy natural gas from Israel’s Levia- than field for domestic Turkish customers. Gas infrastructure While export options remain on the table, the Israeli government has also now given its long-awaited final approval for the develop- ment of gas receiving terminals, Israel’s Inte- rior Ministry said Sunday. Israel is currently served by a sole gas pipeline from the Tamar field, which delivers gas to a receiving terminal at Ashdod, and the approval by the Ministerial Interior Committee to build new terminals will enable the expan- sion of domestic gas consumption in coming years, the ministry said. The latest approval follows that in June by the country’s National Planning Commission of the master plan that includes two offshore receiving stations and two small onshore facilities that will link to the country’s trans- mission network. The ministry said one onshore facility will be located between Dor and Or Akiva and will include a treatment facility near the Hagit power plant, while the other will be located 10 kilometers (6 miles) to the south between Beit Yannai and Netanya and will connect to a treatment facility at the Meretz sewage treatment plant. The Energy and Water Ministry’s Natural Gas Authority has said the two sites will be able to handle 4 million cubic meters/hour. The new infrastructure is not likely to be ready until 2017 at the earliest and will serve Tamar and Leviathan. Environmental organizations and residents have protested land-based gas terminals and called for all treatment be done offshore. It was not immediately clear if they will chal- lenge the latest approval in court. New infrastructure is needed as Israel currently relies on a sole pipeline and receiving terminal with a capacity of 40,000 MMBtu/hour. An expansion to 50,000 MMBtu/hour is due for completion next year at a cost of $216 million, and a second expansion to 60,000 MMBtu/hour, which involves turning the depleted Mary B field into a storage facil- ity, in 2016. — Neal Sandler Israeli gas output to hit 3.6 Bcf/d by 2017 As export options still remain on the table Europe, Middle East & Africa
  • 6. 6 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014 US refiners should rethink export stance: Murkowski Pittsburgh—Although the recent US Depart- ment of Commerce ruling that processed condensate can be exported under existing law is not a “game changer,” it is a “step in the right direction” toward liberalizing crude exports, the senior Republican on the Senate Energy and Natural Resources Committee said Sunday. Senator Lisa Murkowski of Alaska—who has called for the US to lift its ban on crude oil exports and pressed Commerce earlier this month to drop condensate from its defi- nition of crude oil—said it is time to revisit the possibility of lifting the ban because of the changing energy landscape throughout the world. “The United States is the only country in the world that has a full ban on export of our crude oil,” she said in an interview on “Platts Energy Week,” which aired Sunday. “Even those nations that are net importers, whether it’s the United Kingdom or New Zealand or some of our other friends and allies that are importers, they don’t have a full-on ban.” “That’s old energy architecture. It’s time we revisit this. And that’s what I’ve been pushing.” The US still views itself as an importer of crude, Murkowski said, despite increasing crude oil production in areas like North Dako- ta’s Bakken and Texas’ Eagle Ford. “Many of us can remember a time in the mid-’70s when there were lines in front of the filling stations,” she said. “We’ve always viewed ourselves as an importer. And our reli- ance on others for this resource has been something that rattles us from a national security perspective, from an energy security perspective. And so we’ve got this mindset of operating from energy scarcity. “Well, the energy world has changed so dramatically in the past decade,” Murkowski added. “It’s the technology that is now allow- ing us to access it in an affordable and envi- ronmentally responsible way.” Murkowski released a report earlier this month that said six federal agencies put condensate in a separate category from crude, while Commerce designates it as crude oil, which largely bars it from being exported. Murkowski said she discussed how condensate is defined by Commerce in a recent conversation with Commerce Secre- tary Penny Pritzker. “She didn’t give any indication that there’s going to be a breakthrough—that they’re going to be moving forward on...lifting of the export ban—nothing of this sort,” Murkowski said of the conversation with Pritzker. “But again, talking about where they were with the approv- al of these two permits that would allow for exports of condensates, again, I think, [sends] a signal that within the Commerce Department...there is consideration of what might be done incrementally—not moving as fast as I would like, but moving.” Tough on refiners Under a recent Commerce ruling, pro- cessed condensate would be eligible for export without a license because it would be considered a petroleum product and thus not subject to crude export restrictions. Obama administration officials have stressed, how- ever, that this is not a shift in policy. Murkowski said opponents of lifting the ban on crude oil exports need to consider not what is best for the bottom line of refiners, but what is best for the overall US economy. “So for the refiners, they’re looking in, and saying, well this puts us in a pretty envi- able position,” she said. “We can just take as much as we possibly can and we can reap that benefit...In the meantime, you’ve got a slowdown. You’ve got a choke point. Because what you have in terms of production that’s coming up from the ground and ready to go to the refinery, doesn’t have the place to move...So I don’t think that we should look at this from a parochial perspective.” “Platts Energy Week” airs on Sundays in Washington on WUSA, a CBS affiliate, and in Houston on KUHT, a PBS affiliate, as well as on other PBS stations in the US. The program is also available on the web at www.plattstv. com. — Annie Siebert has not yet been revealed, but noted the port of Galveston, at the juncture of the Gulf of Mexico and the Houston Ship Channel, serves three Texas City refineries: two owned by Marathon and one by Valero. A Marathon spokeswoman said the com- pany does not comment on operational specif- ics. Bill Day, a Valero spokesman, also said he would not comment on specific cargoes of crude oil. “I can say that some Valero refineries have processed oil from Iraq,” he said. At a press briefing, State Department Iraq threatens to sue if Kurdish oil delivered to US ...from page 1 The Americas spokeswoman Jen Psaki reiterated the US’ stance that all sales of oil from Iraqi territory should go through the Iraqi central government. “Our policy hasn’t changed,” Psaki said. The US, however, has stopped short of saying they would block any sales of Kurdish crude, which Baghdad says are illegal. If United Kalavrvta offloads its cargo, it will not be the first volume of independent Kurdish crude to make its way to the US Gulf Coast. Several smaller cargoes of Kurdish oil—heavy Shaikan trucked into and loaded out of the Turkish port of Dortyol—have already landed in the region. The United Kalavrvta is carrying the last of four confirmed cargoes of Kurdish crude sent to Ceyhan via the Iraq-Turkey export pipeline. The United Kalavrvta left Turkey on June 23, moving to the ship-to-ship transfer area off the coast of Malta before heading west past Gibraltar earlier this month. Only one of the four confirmed cargoes of Kurdish oil has so far offloaded, into stor- age at the Israeli port of Ashkelon, accord- ing to sources. The United Leadership, which loaded the first cargo from Ceyhan in late May, has been off the coast of Morocco for nearly two months after being turned away from Moham- media, sources said. The United Emblem, car- rying the third cargo, is currently heading east through the Singapore Strait, also according to Platts ship-tracking program c-Flow. It remains unclear if any of the four car- goes have found final buyers. Even the fate of the offloaded Ashkelon cargo is unclear. The Kurdistan Regional Gov- ernment has denied that it sold the crude to Israel and end-users in Israel have denied that they have purchased it. The four cargoes of pipeline oil have reportedly carried some 4.2 million mt of crude out of Ceyhan. According to Turkish energy minister Taner Yildiz, as of July 17, 6.2 million barrels of the medium sour Kurdish Blend Test crude have flowed from the semi-autonomous region of Kurdish Northern Iraq to Ceyhan through the Iraq-Turkey export pipeline since late-December 2013. Exports of Kirkuk have been halted since militants sabotaged part of the Iraq-Turkey pipeline in early March. The KRG linked a separate pipeline into the Iraq-Turkey route late last year. It has been using the smaller of the two parallel lines to send its crude directly to Ceyhan. Market sources said current pipeline flows were averaging below 120,000 b/d. “I have not heard of any more vessels loading, but I understand that they have been pumping,” a crude trader said. — Staff Reports ‘It’s free to conduct the light- ering, [but] nothing has taken place yet.’ — US Coast Guard IT’S AGAINST THE LAW PLATTS OILGRAM NEWS is copyrighted under US and international laws. Reproduc- ing, duplicating, photocopying, telefaxing or inputting it into a computer, is an infringe- ment of copyright punishable by law.
  • 7. 7 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014 Tesoro’s Uinta Express pipe runs into zoning snag New York—Tesoro’s plan to increase the amount of indigenous Utah waxy crude oil transported by pipeline to Salt Lake City area refineries, including its own 58,000 b/d Salt Lake City facility, has hit a snag due to newly- introduced local zoning ordinances. The 135-mile Uinta Express pipeline would run through Summit County, Utah, where three separate ordinances filed in June impose restrictions on land use, including a six-month restriction on the placement of hazardous liq- uids pipelines in the county. The Summit County “Council’s June 25 actions came unexpectedly as we have been in consistent and ongoing communications with the county over the location of the Uinta Express Pipeline for the past several months,” Tesoro spokeswoman Tina Barbee said in an email Monday. The proposed Uinta Express pipeline would carry about 60,000 b/d of cheaper local crude to regional refineries. Including Tesoro’s facil- ity, there are five refineries with a total refining capacity of 173,050 b/d, according to US Energy Information Administration data. The pipeline would take about 250 tanker trucks off the road that are currently making round-trips from the Uinta Basin to Salt Lake City, the company said. “In order to follow the proper process, as both state and local laws mandate, any chal- lenge to the council’s action must be filed within 30 days, we are filing our compliant with the court of jurisdiction. Our complaint is based on our belief that the ordinances are both legally impermissible and practically unworkable,” Barbee said. Utah produced 3.282 million barrels in April 2014, or about 111,000 b/d, according to EIA data. During April, Utah crude was sold at an average price of $86.38/barrel, even cheaper than other “price-advantaged” crudes. Platts data shows that another northern Midcontinent crude, Bakken ex-Guernsey, Wyo- ming, sold at an average of $99.72/b in April. Uinta Basin crude is very paraffinic, mak- ing it good for feedstock lube plants and as the direct feed for some fluid catalytic crack- ing units. The sulfur content is about 0.01% and. Black Waxy crude has an API of 29-35 while Yellow Waxy crude has an API of 40-45. “Although Tesoro was not provided notice of the Summit County Council’s intentions to dis- cuss and enact Ordinances 825-827, we believe it is important for us and the county to continue to work through solutions together,” Barbee said. Tesoro’s Salt Lake City refinery currently receives 17,000 b/d of waxy crude via anoth- er pipeline owned by Tesoro and dedicated to the refinery. Volumes on that line will increase to between 22,000 b/d and 24,000 b/d in the second quarter of 2015 when the second phase of an expansion project is completed. — Janet McGurty Bogota—Reacting to a recent worsening of security in Colombia’s southernmost oil pro- ducing region, defense minister Juan Carlos Pinzon on Saturday said he would send 700 special forces soldiers plus additional marine and police units to Putumayo province to try to restore order. The move comes as the province border- ing Colombia’s southern frontier with Ecuador is beset with pipeline bombings, attacks by suspected leftist rebels on tanker trucks haul- ing crude and murders in the past several weeks that have brought oil production from some fields to a standstill. The unrest in Putumayo and ongoing rebel attacks on the Cano Limon and Bicentennial pipelines in northeast Colombia were also likely factors in disappointing results in the first phase of the Colombia 2014 Bid Round last week, in which just 27% of blocks on offer received bids. The attacks have also cut into Colombian crude production—and thus royalties and taxes that the government was counting on to meet 2014 fiscal goals. That has forced finance ministry officials to step up their cam- paign for changes in the tax code to increase government revenues. So far in July, suspected guerrillas have forced at least 30 tanker truck drivers to dump their loads of crude—totaling up to 250 barrels per truck—on rural roads. The crude has created an environmen- tal disaster, polluting nearby streams that some farm communities depend on for drinking water, said Bogota-based consul- tant Orlando Hernandez. On July 23, one of the drivers of a truck hauling crude was killed for failing to respond to rebel demands, according to local news reports. In addition to the attacks, residents of the rural Puerto Vega Teteye community have blocked entry into a Vetra Group oil field since July 10 to protest a government deci- sion to award a permit to the company to carry out exploratory drilling in the region, said Hernandez. Counter-insurgency plans After meeting Saturday with community officials and oil company personnel in Puerto Asis, the capital of Putumayo province, Pinzon said he would deploy two helicopter- borne special operations army battalions— numbering 700 soldiers—to the zone in the next month. Pinzon also said he would send addi- tional marine units, including two additional hovercraft to patrol the San Miguel River, doubling the number of hybrid vehicles in the area capable of moving on land and water. A special squadron of riot police will also be stationed permanently in Puerto Asis, the minister said. In addition, special intelligence and judi- cial units will be transferred to Puerto Asis to infiltrate, investigate, capture and try alleged insurgent supporters that are members of “terrorism support networks,” known by their Spanish initials as RATS, and who supply information to the rebels, he said. In April, after rebels launched a wave of attacks on the Transandino Pipeline that crosses Putumayo province, Pinzon ordered two special forces battalions to the region and said the defense ministry would step up flights of drone aircraft monitoring the pipe- line’s path. — Chris Kraul Colombia to send more troops to oil region In an effort to quell attacks oil infrastructure, get production on track Argentina crude imports steady in June, gas up 2.7% Buenos Aires—Argentina increased natural gas imports by 2.7% in June compared with the year-earlier level while imports of crude were steady. Gas imports rose to 42.6 million cubic meters/day in June, or 34% of the 126 mil- lion cu m/d average consumption, from 41.5 million cu m/d in the year-earlier period, the Energy Secretariat said Monday in a monthly data report. The gas imports were up 17% compared with 36.4 million cu m/d this past May, according to the data. Argentina imports gas by pipeline from Bolivia and in its liquefied form from global suppliers. Bolivian gas imports totaled 17.4 million cu m/d in June compared with 16.7 million cu m/d in June 2013 and 17.5 million cu m/d in May. Argentina also plans to ramp up Bolivian gas imports to 27.7 million cu m/d in 2017 as more pipeline capacity comes online. LNG imports averaged the equivalent of 25.1 million cu m/d in send-out capacity in June, up from 24.8 million cu m/d in the year- earlier period and down from 18.9 million cu m/d in May, the report showed. The Energy Secretariat said in the report that crude imports averaged 25,363 b/d in June, the same as in May. The report did not provide year-earlier data. Argentina hadn’t imported crude for years until 2012 when it had to turn to overseas suppliers to make up for dwindling domestic production. Crude production fell 36% to 540,000 b/d in 2013 from a record 847,000 b/d in 1998, according to the Argentine Oil and Gas Institute, an industry group.— Charles Newbery Markets & Data
  • 8. 8 Oilgram News / Volume 92 / Number 147 / Tuesday, July 29, 2014 To reach Platts E-mail:support@platts.com North America Tel:800-PLATTS-8 (toll-free) +1-212-904-3070 (direct) Latin America Tel:+54-11-4121-4810 Europe & Middle East Tel:+44-20-7176-6111 Asia Pacific Tel:+65-6530-6430 Vice President, Editorial Dan Tanz Platts President Larry Neal Chief Editor: Gary Gentile, gary.gentile@platts.com Senior Editor: Benjamin Morse, benjamin.morse@platts.com EMEA Senior Editor: Robert Perkins APAC Senior Editor: Mriganka Jaipuriyar Design and Production: David Stark Americas Oil News: Beth Evans Europe and Africa Oil News: Stuart Elliott Asia Pacific Oil News: James Bourne Editorial Director, Global Oil News: Richard Swann Global Director, Oil: Dave Ernsberger Regional offices: New York—Janet McGurty; Washington—Herman Wang, Brian Scheid; Houston—Starr Spencer; London—Margaret McQuaile, Nick Coleman; Cape Town—Jacinta Moran; Dubai—Tamsin Car- lisle, Adal Mirza; Moscow—Nadia Rodova, Dina Khrennikova, Rosemary Griffin; Singapore—Song Yen Ling; Sydney—Chris- tine Forster; Tokyo—Takeo Kumagai Vol 92 / No 147 / Tuesday, July 29, 2014 Advertising Tel : +1-720-264-6631 0163-1284ISSN# Oilgram News is published every business day in New York and Houston by Platts, a division of McGraw Hill Financial, registered office: Two Penn Plaza, 25th Floor, New York, N.Y. 10121- 2298. 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Manager, Advertisement Sales Kacey Comstock New York—ICE September Brent crude futures fell 82 cents to settle at $107.57/b Monday despite an escalation of fighting near the air- port in the Libyan capital of Tripoli. NYMEX September crude finished 42 cents lower, settling at $101.67/b. A bearish refined products market weighed on prompt Brent, but further falls were likely arrested amid ongoing battles not only in Libya, but also in Ukraine, Iraq and Gaza, analysts said. NYMEX August ULSD futures settled 2.78 cents lower at $2.8879/gal and August RBOB fell 1.61 cents to settle at $2.8492/gal. Two fuel tanks caught fire during fighting around Tripoli’s airport, AFP reported. “The situation is very dangerous after a second fire broke out at another petroleum depot,” the government said, warning of a “disaster with unforeseeable consequences,” according to AFP. But Price Futures Group energy analyst Phil Flynn pointed to the comparative stability of the US refining market, where runs have been running just below record levels. “What we are seeing is the benefit of US shale oil starting to take hold,” Flynn said. “Abundant supply of cheap, high yielding oil is allowing producers to produce [gasoline] at a record pace. This has provided a buffer to a price shock that might have occurred with all of the geopolitical issues the world has had to deal with.” Analysts surveyed Monday by Platts expect refinery runs to remain strong and con- tinue to boost product stocks. NYMEX products failed to rally even after reports Sunday that a fluid catalytic cracker at ExxonMobil’s 365,000 b/d Beaumont, Texas, refinery experienced an upset. The company acknowledged there could be some impact to production. “By the end of the day we basically bounced,” Tradition Energy analyst Gene McGillian said. “If it wasn’t for Libya, Israel, Iraq, Ukraine...the fundamentals suggest the market should be weaker than it is. The Libya fighting showed bringing its oil back to the market won’t be easy.” “Unless we see some resolution the market will have trouble breaking through the $99-$100/b level,” he said. This is largely evident in technical indica- tors for NYMEX crude. The front-month con- tract recently broke below the 30- and 100- day moving averages, and is testing support at the 200-day moving average of $99.84/b. That said, crude is drifting towards the bottom end of the Bollinger spectrum, which would indicate the contract is nearing being considered oversold. And prompt NYMEX crude is likely garnering some support from tightness at the contract’s delivery hub at Cushing, Oklahoma. US refiners advantaged Despite an expected crude draw this week, total US crude stocks at just over 371 million barrels are still sitting more than 3% above the EIA five-year average. “Since the US is the country that is mak- ing the most money on refining and the most secure with our supply, we need to keep run- ning high to keep enough in the coffers in case there’s a run on [supply elsewhere],” Oil Outlooks President Carl Larry said. Platts refining margin data backs largely backs this up. The US Gulf Coast crack- ing margins for Louisiana Light Sweet was assessed at $12.28/b Friday. In contrast, the Northwest European cracking margin for Brent was assessed at $2.91/b Friday. Platts margins reflect the difference between a crude’s netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co. Product stocks expected to build US gasoline stocks are expected to con- tinue to grow, with analysts surveyed looking for a 1.1 million-barrel build. Distillate stocks are expected to have grown 1.4 million bar- rels last week. Oil Outlooks’ Carl Larry is looking for a 2 million-barrel build in gasoline stocks. “I’m not really going to say that [gasoline] demand is easing [but] we’re getting plenty of supply playing catch-up after nearly two months of running production (including blend- ing) over 10 million b/d,” he said. “When you produce at a record one would expect more supply.” — James Bambino ICE Brent lower amid bearish refined products Markets & Data NYMEX crude settle, first month NYMEX natural gas settle, first month ($/bbl) ($/MMBtu) 101 102 103 104 105 104.42 103.12 102.07 102.09 101.67 28-Jul25-Jul24-Jul23-Jul22-Jul July 28 settle: $101.67, down $0.42 3.7 3.8 3.9 3.772 3.762 3.847 3.781 3.747 28-Jul25-Jul24-Jul23-Jul22-Jul July 28 settle: $3.747, down $0.034 What crude & natural gas markets are doing...
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