Energy

Persian Gulf turns to net gasoil imports

Platts,

26 July, 2012

The Persian Gulf region shifted to net gasoil imports in May, in what could be a game changer for a region that was traditionally a supply source, according to latest data on the Joint Organisations Data Initiative's website.

The eight countries in the region for which data is available include Saudi Arabia, Kuwait, Qatar, Bahrain, Oman, United Arab Emirates, Iran and Iraq. In May, these countries imported 211,000 mt more of the utility and automotive feedstock than they exported, according to JODI data.

That was the first time the group of countries saw net imports for several years. Over the previous decade, the countries together had on average seen net exports of 1.3 million mt of gasoil each month. 
 

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MEAN OF PLATTS ARAB GULF CASH PREMIUMS PEAK AT 3-4 YEAR HIGHS

Reflecting the growth of imports, premiums for the FOB Arab Gulf 0.5% sulfur gasoil and 500 ppm sulfur gasoil grades have been climbing throughout this year, and reached near four-year highs this week. Both gasoil grades are typical requirements for the Middle East countries.

Even in April, the premiums were already showing significant strength. The FOB Arab Gulf 0.5% sulfur gasoil premium averaged $1.69/barrel to Mean of Platts Arab Gulf gasoil assessments, up 9.74% from the same period the previous year. The medium sulfur or 500 ppm sulfur gasoil cash premium averaged $4.13/b, up 9.84% from the same period in 2011.

Since then the premiums have risen sharply. The FOB Arab Gulf 0.5% sulfur gasoil premium Wednesday peaked at $2.65/b against MOPAG gasoil, while the previous high was on December 12 2008, when it stood at $3.10/b over MOPAG gasoil assessments.

And the 500 ppm sulfur gasoil cash premium Wednesday stood at $4.75/b against MOPAG gasoil, while the previous high was on March 26, 2009, when it stood at $4.80/b over MOPAG gasoil.

EFFECTS OF RISING DEMAND RIPPLE BEYOND REGION

An environment of sustained or higher cash gasoil premiums in the Middle East could pull more gasoil cargoes from further afield than just the West Coast of India, which has been a significant source of middle distillates.

Middle Eastern refiners have been significant sources of gasoil supply for countries in East Africa and Asia, but the shift in fundamentals has meant that several importers have already had to look elsewhere for supplies, notably to Indian refiners.

In May, Pakistan State Oil, for example, was forced to look beyond its usual term seller, Kuwait Petroleum Company, for increased supplies ahead of its annual peak season. PSO tendered to buy two spot cargoes in May for the first time since November 2010.

"We have no extra volumes available this time round, and we have met all our contractual requirements," a source at KPC said at that time. "Summer is around the corner and Ramadan is approaching." In addition, the source said, there had been a rise in regional demand in part due to a general increase in infrastructure development within the Middle East.

"Gasoil buying is no longer just about seasonal imports," said a source familiar with the region's fundamentals. "The Middle East as a whole has definitely been a net importer for the last four to five years when you consider countries such as Yemen, Jordan, [Israel and Lebanon]."

Some market watchers said they were still uncertain of the possibility of a sustained change in the fundamentals of the Middle East, pointing to the possibility of a reduction in armed conflicts or sabotage and increased refining capacities from countries such as Saudi Arabia, Kuwait and UAE.

"But I'm sure the region will still be net importers next year," a Middle Eastern trader said.

JORDAN, ISRAEL, YEMEN AFFECTED BY INFRASTRUCTURE, PIPELINE ATTACKS

Indeed, of the remaining countries in the region for which data is not available, evidence points to significant imports since at least early 2011.

Continued attacks and sabotage on a Gasco gas pipeline in Egypt's Sinai Peninsula have disrupted supply to both Jordan and Israel since early 2011.

Israel Electric Corp., the largest customer for Egyptian gas, has been forced to switch to gasoil, fuel oil and coal due to the severe shortage of gas supplies. There has been no gas flow to Israel from Egypt since March 2012.

According to figures released by IEC this week, the state-owned utility consumed 929,000 mt of gasoil compared to 51,000 mt in the same period in 2011. Fuel oil consumption totaled 554,000 mt versus 14,000 mt last year.

Over in Yemen, a nine-month shutdown of the Marib oil export pipeline has reduced flows to the country's main refining facility at Aden.

The Marib pipeline carries about 120,000 b/d from the Marib and Shabwa oilfields to the Ras Isa terminal in the Red Sea. The pipeline, however, resumed operations July 16.

SAUDI ARABIA INCREASES GASOIL IMPORTS

Meanwhile, state-owned Saudi Aramco is slated to import around 1 million mt of medium sulfur gasoil over June-August to meet utility demand during the peak summer period when air-conditioning usage goes up in the Middle East country.

While some traders have said the volume being imported seemed significant, in fact Saudi Arabia's imports of gasoil have been steadily growing since 2007, according to JODI data. Prior to that year, imports were a rarity and limited to a few thousand tonnes at a time. But over 2010-11, the country imported on average 221,000 mt of gasoil each month. From January to May this year that figure rose to 619,000 mt/month.

Saudi Arabia may have switched from burning crude oil for utility purposes to using more gasoil and fuel oil, several sources have said. That has allowed the country to boost crude oil exports to make up for declining Iranian crude oil exports due to United States and European Union sanctions.

In the first five months of 2012, Saudi Arabia imported as much as 3.09 million mt of gasoil, versus 1.26 million mt imported in the same period the year before, JODI data showed. Exports from the kingdom in 2012 stood at around 2.024 million mt, while 2011 export volumes were around 4.02 million mt.

The Joint Organisations Data Initiative is an outcome of the producer-consumer energy dialogue. The initiative relies on the combined efforts of producing and consuming countries and the seven JODI partner organizations to build timely, comprehensive and sustainable energy data, according to the JODI website.

Iraqi Oil Showdown and the Syria End-Game

As the Iraqi central government struggles to subdue the implications of the unilateral oil deals northern Iraq’s Kurdish government is making with Western oil majors, an end-game scenario for Syria comes into play in a complicated geopolitics-big oil cocktail.

Oil Price,

25 July, 2012

Chevron, the second oil major to have struck a deal with the Kurdish Regional Government (KRG) in northern Iraq, by passing Baghdad, has been banned from any oil dealings with the Iraqi Oil Ministry.

On 19 July, Chevron announced it had signed a deal with the KRG for oil exploration rights in northern Iraq, taking over exploration from India’s Reliance Exploration and Production in the Rovi and Sarta blocks. This gives Chevron 80% of the contract and Austria’s OMV AG 20%. Last October, ExxonMobil signed a similar deal for six exploration blocks with the KRG, inviting the ire of Baghdad, which is losing control of the country’s northern oil capacity.

The KRG has signed a number of similar deals in the past, but always with smaller companies. ExxonMobil changed the game, as the first Western oil major to step on Baghdad’s toes, with some hefty geopolitical blessings.

Earlier this year, Baghdad held a failed auction of some of its exploration blocks and failed to attract any oil-major bids. Among the concerns during the auction was a clause that banned anyone bidding on exploration blocks to do business separately with the KRG. Chevron held out for the KRG instead. Now, the Iraqi central government is banning Chevron from cutting any oil deals with the Iraqi national oil ministry. But Chevron was prepared for this move in advance, and its usefulness as a deterrent is weak.

Turkey has also inked a number of deals with the KRG, despite warnings from Baghdad. In early July, Ankara and Irbil launched their first oil trade operation via the private sector. Turkish engineering and construction firm Siyah Kalem is going to a KRG contract to transport natural gas from Kurdistan to Turkey.

For now, although Baghdad’s feathers have been seriously ruffled, Ankara’s dealing with the KRG has not kept Turkey and Iraq from making deals of their own.

While Chevron and ExxonMobil are banned from any oil deals with the authorities in Baghdad, Turkey is not. On 16 July, Baghdad signed an initial deal with a Turkey-Kuwait consortium to drill for oil and natural gas. Plans have also been revealed for the shipment of oil from Basra, in southern Iraq, to Turkey via pipeline.

We’ve talked about how Turkey is setting its sights on an unconventional alliance with the KRG, and how Washington is pushing that relationship, which could result in the making of Kurdistan.

Adding the Syria element to this equation sheds more light on the KRG-Washington-Ankara nexus and the wider end game. In this respect, the actions of KRG leader Massoud Barzani are very interesting to follow.

Barzani is a key figure in Washington’s overall Syria plans, but he is walking a thin line at home, though so far he has not tipped the balance critically. The Barzani-Washington relationship can be traced back to ExxonMobil’s deal with the KRG last October. Since then, Washington has been following Barzani around closely and keeping him on a tight leash.

Here it would be fortuitous to take a look at Syria as a convenient transit country for Kurdish oil and gas to Turkey (and beyond, to Europe). From this standpoint, Washington and Ankara have similar interests in Syria. But in order to make these interests viable, the Kurds have to be brought into the game.

Barzani is the key to this, as well as Turkish leader Erdogan, though the latter’s situation is decidedly more complicated at home. It is important to remember that there are various Kurdish groups of Turkish, Iraqi and Syrian origin.

Barzani is working to bring these three Kurdish factions together, with financial help from Turkey. The first goal will be to get the Syrian Kurdish faction to side with the opposition in Syria to help force a regime change.

The reward for the Kurds will be a Kurdistan empowered by oil and gas exports outside the central government’s fold, and supported by Washington and Ankara. And they key to convincing the Kurds to come on board will be convincing them that they can trust Turkey, their long-time foe.

This brings us to a recent explosion and ensuing fire that disabled a pipeline carrying oil from the northern Iraqi city of Kirkuk to the Turkish city of Ceyhan. The explosion hit a portion of the pipeline in Turkey’s southeast, near Midyat. Turkish officials are calling it “sabotage”. Typically, they would immediately blame Kurdish rebels, who have bombed the pipeline before.

If the Kurds, then it signals that Barzani is having some problems in his efforts to unite Kurds around the newest Washington-Ankara policy and that he is treading on dangerous ground. It could also be Baghdad, through Kurds who may not be inclined to understand Barzani’s movements, sending a message that it can go beyond conventional means to suppress the increasing boldness of the KRG with Iraqi oil.

By. Jen Alic of Oilprice.com

Jen Alic is a geopolitical analyst, co-founder of ISA Intel in Sarajevo and Tel Aviv, and the former editor-in-chief of ISN Security Watch in Zurich.

Saudis, Emirates push nuclear power plans

Saudi Arabia is pressing ahead with its ambitious plans to develop nuclear power to meet rising electricity demand, and save oil for export

UPI

26 April, 2012

But the outlook for other Arab states is less promising because of political turmoil and a lack of financial resources.

The Saudis have built a foreign assets cushion of around $500 billion from oil exports. It has used this immense wealth to buy its way out of trouble; for instance, heading off pro-democracy protests with massive social spending in recent years.

But, the Middle East Economic Digest observed, "a more serious set of challenges now faces the kingdom that threaten to be even more destabilizing.

"Inefficient and wasteful energy consumption, coupled with a rising population, is leading the kingdom to burn even more of its natural resources at home rather than selling them abroad and adding to the proceeds of the half-trillion-dollar cash pile.

"Unless action is taken, the kingdom could find it needs the oil price to be $320 a barrel by 2030 just to balance the budget," the weekly, published in the United Arab Emirates, warned.

Nuclear power is seen as the solution. But, as MEED stressed, "time is of the essence."

For one thing, Saudi Arabia and other Arab states, including the United Arab Emirates, Kuwait, Qatar and Egypt, have no wish to lag any further behind Iran and Israel in developing nuclear technologies.

In 2010, the King Abdallah Center for Atomic and Renewable Energy, known as KAcare, was established to oversee the gulf state's nuclear program under its president, Hashim bin Abdullah Yamani, who was accorded ministerial powers.

KAcare consultant Ibrahim Babelli said in 2010 it took 3.4 million barrels of oil equivalent a day -- known as boe/d -- to power electricity generation. This is expected to more than double by 2028 to 8.3 million boe/d.

The aim of the Saudis' $100 billion nuclear program is to achieve an electricity output of 110 gigawatts by 2032.

The Financial Times reports that in 2009, the latest data available, Saudi electricity capacity was 52GW from 79 power stations.

At least 16 nuclear reactors, each costing around $7 billion, are planned, with the first producing by 2019.

Some estimates state the kingdom, the world's largest oil exporter, will burn as much as 1.2 million barrels of oil daily on electricity production, almost double the 2010 total, to meet domestic and industrial demand.

This is crucial, as the Saudis are driving to build an industrial infrastructure to sustain the economy when the oil fields run down. Some have already begun to decline.

For total reliance on nuclear power, Babelli says, 40-60 reactors would be needed by 2030. That's four-six reactors per year from 2020.

"That's stretching it," he said. "The answer is an energy mix."

That means fossil fuels will still be needed, probably as the primary energy source, while wind, solar and nuclear power capabilities are developed. KAcare is developing solar power projects that MEES estimates should produce 41GW within 20 years with geothermal and waste-to-energy systems providing 4GW.

The Emirates, which launched its nuclear energy program in 2009, is the most advanced in the Arab world, with Saudi Arab running second.

The United Arab Emirates' $30 billion program -- $10 billion more than originally planned -- is smaller in scale than that in Saudi Arabia.

Both states benefit from political stability and vast financial reserves. Other regional states are less fortunate.

Bahrain, Qatar, Kuwait, Egypt and Jordan all have announced plans to invest in nuclear energy to crank up electricity generation but all have lagged behind or scrapped their programs because of lack of funds or foreign investment.

"Kuwait has the cash," MEED reported, "but it's been through eight governments in the past six years."

Sunni-ruled Bahrain, an island state neighboring Saudi Arabia, "continues to face destabilizing protests by its majority Shiite population and its budget is already in deficit."

Egypt remains convulsed by the political turmoil that ensued following the February 2011 overthrow of President Hosni Mubarak, its economy sagging dangerously.

In Jordan, heavily reliant on foreign aid, parliament recently scrapped nuclear plans as "hazardous and costly."

Failure to start boosting electricity generation for burgeoning populations in the coming decades almost certainly will mean more political upheavals.