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Articles by Barrel Blog

Oil pipeline threats add to pressure on Azerbaijan

August 25, 2015

Oil-rich Azerbaijan is being rattled by disruption and attacks on pipelines, highlighting its tough geopolitical position and adding to worries about falling oil prices.
Having been courted by previous US governments, international interest in Azerbaijan and fellow Caspian producer Kazakhstan has waned in recent years, not least because of the increase in US shale oil production. Azerbaijan’s oil production is, in any case, thought to have peaked.
But with 848,000 b/d of output last year, Azeri production still matters.
A reminder of the country’s precarious position came when neighboring Georgia said last month that South Ossetia, a Russian-backed separatist region within its territory, had expanded its de facto borders, taking in a short section of the BP-operated Western Route Export Pipeline (WREP).
The WREP runs from Azerbaijan to Georgia’s Black Sea coast and has a capacity of 100,000 b/d. BP said security issues meant it had already been unable to access part of the pipeline since a 2008 war over South Ossetia.
BP has long talked of rerouting the line — which last year was the target of two illegal taps in Georgia, one of which resulted in a spill of more than 12,000 liters of oil — but has yet to do so and is slashing spending on its Azeri operations.

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Watching the dominoes fall for US steel

August 24, 2015

The domino theory in global politics — pertaining to the spread of communism, kids — is a thing of the past, but it is getting new life in the global steel arena — not the communism part, the domino part.
The most recent example in steel is a “double domino.”
First, there is market chatter that US mills may soon file unfair trade cases against plate imports in response to an imminent trade case filing by European producers against plate imports from China and other countries. The thinking is that if Europe blocks plate imports, they’ll look for another home, i.e. the US. So the US must take action as well.
It’s sort of like if you don’t want a gun, but because everybody else has one, you better get one too. Or, you might like driving cars, but if everyone else has an SUV, you may have to get one to survive on the highway — or at least be able to see road signs and traffic lights before they are on top of you.
For the American steel industry, which already wants (has) the metaphorical gun and SUV, plate steel trade case filings are virtually assured, especially now that the US government has made it easier for producers to win such cases.
The second steel domino theory also involves the US plate market, but this time has a domestic slant.

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US crude-by-barge industry faces rough waters in oil markets: Petrodollars

August 24, 2015

While pipelines and rail are often the transportation modes that spring to mind for moving oil in the US, there’s also a market for inland barges. In this week’s Oilgram News column, Petrodollars, Joshua Mann assesses how the market to move oil has shifted under pressure from crude prices.

The inland US crude-by-barge market was a promising one at the start of 2014. Kirby, the leading operator in the field, announced it would add 29 barges to its inland fleet by the end of 2014, and Kirby CEO David Grzebinski said as late as July of that year that the waterborne transportation markets had “strong fundamentals,” and a “good long-term outlook,” with inland contract pricing on the rise.
But the rapid crude price decline has caused long-term inland crude-by-barge contract prices to stall and renewals to wane.
A second price dive earlier this year pummeled market confidence in an early-2016 crude recovery and sent the contracts into a slide.
On top of all that, barged crude volumes have faced deep cuts since their 2013 peak after a slew of pipeline projects eased midstream congestion.
The rise of inland barge shipping mirrored that of crude by rail, as the same factors influenced both. Soaring North American production at the turn of the decade overwhelmed the existing pipeline infrastructure, especially in the Midwest, leaving crude trapped and piling up in producing regions.

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Q2 oil results show strength of US ‘super-shale’ for the price of a slice

August 21, 2015

If the round of second-quarter upstream conference calls showed anything, it was that operators have been humdingers in recent months: incredibly competitive, ruggedly hard-working and totally determined to match their operating costs to slipping oil prices, with a bit left over for profit.
And they have succeeded beyond their most extravagant forecasts. The cost of producing the once-perceived “high-priced” unconventional oil patch has now fallen, in some cases, to per-barrel breakeven prices pretty much on par with an extra-large delivered pizza with all the works, including tip.
According to the North Dakota Oil and Gas Division, some parts of the Bakken Shale in that state have breakeven prices as low as $24/b. And a recent analysis by Moody’s showed that North American independent producers, most of whom have shale operations, can survive at about $42/b — about what oil is right now.
Imagine that.

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US natural gas production holding steady despite low prices

August 19, 2015

Why and how is North American natural gas production not plummeting in this low price environment? I and other folks at Platts and Bentek Energy spend a considerable amount of time trying to find a half-decent answer to this question.
Commodities are well known to go through cycles with booms and busts. As commodities go through these sequences, media outlets clamor and fret about how low or high prices could go.
As many commodities are down at the moment, it is sometimes difficult to explain that one is down more than others and why it stands out from the pack.
The graph below, brought to my attention by Richard Meyer, at the American Gas Association, gives a great visual example of how natural gas has done compared to other commodities since 2005. The data is compiled using IMF primary commodity prices.
Despite a brief rise in prices in 2008, natural gas prices have been depressed compared to other commodities.

On August 18, 2008, the national average price for next-day gas was $7.52/MMBtu. Exactly a year later, in 2009, in the doldrums of the financial crisis, the next-day average price was $3.12/MMBtu. The national average for next-day gas on August 18, 2015, was $2.67/MMBtu. Yes, the price of natural gas is lower today than during one of the nation’s largest economic downturns.
In 2009, US natural gas production averaged 58.7 Bcf/d.

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Oil is everywhere: naphtha in the Bible, and alkylate on Amazon

August 18, 2015

It might be the most interesting thing I’ve learned in 2.5 years of covering energy. Oh, sure, there’s plenty of drama every time the nation’s largest economy, California, goes into theatrics over gasoline supply. It’s still a marvel how a pipeline can keep gasoline and diesel separate with nothing more than a little tweak in pressure. And it seems like every time someone sneezes too loud, the price of gasoline in Chicago goes up by 5 cents.
Then someone dropped “mouse milk” on me.
It’s what they call alkylate, the versatile blendstock that puts the octane in your high-octane gasoline and gets the RVP down to those low summer levels the regulators love so much. It’s the get-‘er-done component for summer blending. If a batch of components is added to a batch of gasoline, odds are good that 80 percent of those components are alkylate, one longtime refined products trader said.
It’s called “mouse milk” because it gets so much done, just like the lubricant Mouse Milk that will free a rusty screw and that you can buy on Amazon for $9.91. It might have been called WD-40, but that is what many in the trade like to call naphtha. That’s another versatile blendstock that’s also a feedstock and that has the added luster of a significant draw in the petrochemical industry. (More on naphtha in an interesting side note later. You’ll want to read that far. It will be good for your soul.

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Oman exports more LNG in move with implications for oil

August 18, 2015

Over the past two years, Oman has quietly expanded the number of countries to which it exports LNG to well beyond those with which it has long-term supply contracts.
In a state that needs increasing gas volumes to fuel its oil and heavy industrial sectors, this raises far-reaching questions about energy strategy.
To be sure, Oman’s government two decades ago saw LNG production as an important means of diversifying the sultanate’s economy and move state revenues away from heavy dependence on crude oil exports. A total of 10.4 million mt of LNG production and export capacity was duly developed at Qalhat, a remote coastal location about 350 km southeast of Muscat, with plants commissioned in 2000 and 2005. This constitutes the second largest concentration of such facilities in the Persian Gulf region, behind only those of Qatar.
The sultanate’s LNG plants and export terminals were for years run by two separate joint ventures between the government and various international partners. Oman LNG and Qalhat LNG signed long-term supply contracts with Japanese, South Korean and Spanish buyers, which in some cases were also their shareholders. They planned to negotiate further contracts with new customers, predominantly in Asia.

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Struggles to cut cost delay oil play production in Argentina: At the Wellhead

August 17, 2015

There are always myriad reasons why vast oil resources worldwide may not be produced, and in this week’s Oilgram News column, At the Wellhead, Charles Newbery digs into challenges facing the biggest shale play in Argentina, which could rival the prolific production of US plays if properly tapped.

Argentina has drawn wide interest for its vast shale oil and natural gas production potential, but when it comes to committing investment to extract the resources, the hesitation is just as significant.
The potential is huge. The US Energy Information Administration estimates that the biggest play, Vaca Muerta, holds 16.2 billion barrels of oil resources and 308 Tcf of gas resources. That’s enough for the country to emulate the US shale boom.
ExxonMobil, Shell, Total, Wintershall and others have taken stakes in Vaca Muerta, but only Chevron has advanced into production in a partnership with state-run YPF. They are producing about 43,000 b/d of oil equivalent, the first shale oil extracted outside North America.
The others are moving toward pilots, a slow progression that is a sign of how hard it is to do business in Argentina and achieve what is most important for developing the play: getting drilling and completion costs down to profitable levels.
YPF is making a go of it.

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Weak iron ore market sends miners far afield in China

August 14, 2015

The persistently weak outlook for iron ore and steel has forced some Chinese miners to get creative to stay in business.
Shenzhen-listed Shandong Geo-mineral is looking to the tire sector after recording losses in iron ore mining and sales since 2014.
The company, based in Jinan, Shandong province, announced August 8 it would to set up a joint venture with Shandong Huitong Tyre, with the iron ore miner investing Yuan 210 million ($33 million) in exchange for a 70% stake in the new entity.
The joint venture will make tires for heavy-duty vehicles for engineering and construction, a company official said Thursday.
“Iron ore prices both at home and in the global market have been declining and the market outlook remains pessimistic, so it is time for us to find alternative businesses to get out of the loss-making,” he said.
Huitong Tyre, headquartered in Laiwu, also in Shandong province, has a large market share in tires sales in the US, which was a key factor in Shandong Geo-minerals seeking the partnership, the official said.
Shandong Geo-minerals, a state-owned iron ore producer, operates two mines in the central Anhui province and one mine in the northern Shanxi province. It produced 446,300 mt of iron ore concentrate in 2014, up 4% year on year.

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The Oil Big Five: No slowdown for oil

August 13, 2015

High summer can often be seen as a slow period, when the heat and prospect of a holiday can make it hard to work up the effort to make news. In the Northern Hemisphere, summer is in full force, and luckily for us, news is also heating up in the world of oil.
This is the August (and slightly belated) version of The Oil Big Five, brought to you by our oil analysts and editors around the globe, from Houston to London to Singapore.
So, as we do every month, we present our list of the biggest oil news and topics for the month and ask you to share yours. How well do your big concerns or fascinations line up with what we’ve been watching lately? And what sort of outcomes do you foresee from the topics included here? Be sure to leave your comments below, or tell us what you think on Twitter (use the hashtag #oilbig5).
1. Nuclear deal with Iran
The US Congress is in the midst of a 60-day review that expires September 17 of the Iran deal, which offers Iran’s oil sector sanctions relief in exchange for dismantling major portions of its nuclear program. Vocal opponents have come forward against the deal, although analysts expect it to pass, and it could set the stage for future US sanctions and oil policy.

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I’ve got a fever, and the only prescription is more wind generation

August 12, 2015

The projected big winner in the Environmental Protection Agency’s pursuit of reduced carbon dioxide emissions by the power sector is wind generation.
The EPA’s Clean Power Plan, whose rules were unveiled Monday, is expected to trigger a boom in wind installations that could amount to a 63% increase in wind generation by the year 2020 over 2013 wind capacity totals, and an increase of 211% by 2030.
Like the music producer in the iconic “Saturday Night Live” skit, the EPA has come back and demanded an increase of something that’s been getting more attention anyway.

While coal-fired capacity is expected to decline 25% by 2020, natural-gas fired capacity is expected to increase just 4.2% over its 2013 capacity total by 2020. This means that wind, and other renewables, such as solar, also have room to grow.
The allure of wind generation as opposed to natural gas-fired generation is the fact that wind generation has zero carbon emissions. States will begin soon to draw-up emission reduction plans to meet EPA requirements, and the emphasis will be on finding the right generation portfolio mix that delivers reliability as well as emission reductions. It should be noted, of course, that reliability is sometimes a struggle for wind generation.
According to a recent Energy Information Administration analysis, there was 1.

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Seaborne nickel ore trade still a deadly ‘game of Russian roulette’

August 11, 2015

“Carrying solid bulk cargoes involves serious risks, which must be managed carefully to safeguard the crew and the ship. These risks include reduced ship stability (and even capsizing) due to cargo liquefaction; fire or explosion due to chemical hazards; and damage to ship structures due to poor loading procedures.” — The opening paragraph of the introduction of Carrying Solid Bulk Cargoes Safely guide, published in 2013 by UK classification society Lloyd’s Register, in association with the UK P&I Club and Intercargo, the trade association for dry bulk shipowners and operators.
A suspected case of cargo liquefaction may have indirectly claimed the life of one seafarer on Friday, July 17, 2015, aboard the 2007-built Supramax Alam Manis in the northern Philippines, just six months after the same phenomenon claimed 19 souls on a Supramax carrying bauxite.
In this latest incident, the one fatality occurred during a rescue operation and the victim — the first officer — died of a heart attack, and  it could be argued that a traumatic rescue was a contributory factor to his death.
It seems like we are hearing and reading more about cargo liquefaction these days, even though the subject has been known among shipowners, classification societies, cargo interests and marine insurers for at least three decades.

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ConocoPhillips pursues Alaskan viscous crude deposits: At the Wellhead

August 10, 2015

New technology has long been one of the driving forces behind oil production, and in this week’s Oilgram News column, At the Wellhead, Tim Bradner explains how a major is using new methods in Alaska with the hopes any success could be more widely applicable — and profitable — in the future.

In the search for new sources of crude, ConocoPhillips is investing a half-billion dollars to boost the production of difficult-to-access shallow onshore deposits on Alaska’s North Slope.
The so-called “viscous” deposits are essentially conventional oil that has seeped up to shallower levels. The depth makes the oil cooler and thus thicker and more difficult to flow.
Also, at shallower depths bacterial action has eroded some of the lighter ends of the crude, making it somewhat heavier.
The deposits that ConocoPhillips is targeting are in the Kuparuk River Field, where the company is already producing about 15,000 b/d.
The I-H North East West Sak, or IH-NEWS, is due to be complete by the end of the year and will add 8,000 b/d at peak production, bringing total production to about 23,000 b/d.
There is not much of a market for viscous crude. In fact, Conoco has to pay a penalty for mixing its heavier crude (about 19 API) with the lighter grades normally carried in the Trans Alaska Pipeline System (TAPS).

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Base metals come to terms with China’s ‘new normal’ in July

August 7, 2015

In July, base metals faced two dominant headwinds in the form of the Greek debt crisis and the China stock market crash that saw metals test fresh multi-year lows on the London Metal Exchange. This led to a number of investment banks adjusting their short-term and long-term price forecasts as they focused on the likely impact of the rebalancing of the Chinese economy and its projected slower growth — what China’s Premier Li Keqiang has coined the ‘new normal.’

Three-months copper hit a six-year low at $5,164/mt on LMEselect at the end of the month with market participants speculating that the metal would soon break the $5,000/mt level in the near term. Three-months nickel also traded at a six-year low at $10,430/mt on the exchange’s electronic trading platform, with LME warehouse nickel stocks also rising at the end of July.
The only metal to buck the downward trend was tin, which rallied higher on the back of confusion over a new Indonesian exchange trading regulation, leaving Indonesian exporters without the necessary documentation to clear their exports. Three-months tin hit a three-month high of $16,345/mt on LMEselect at the end of July.
Greek drama enters final act
July started with metals drifting lower in volatile conditions ahead of the Greek vote on whether the country would agree to its creditors’ terms.

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Bumpy road ahead for US infrastructure and steelmakers who create it

August 6, 2015

Half a loaf is better than none, but what about 1/24 of a loaf? That’s a question the steel industry and other major stakeholders in US infrastructure projects may be asking themselves this week.
Last week Washington legislators rushed out of town after approving a mere three months of federal funding for transportation infrastructure projects — after giving up on a comprehensive six-year plan that authorized the spending of $350 billion.
The eleventh hour crisis measure will only serve to pause the contentious funding debate until October when it will likely get caught up in federal budget talks and renewed government shutdown threats by Republicans.
Infrastructure spending deserves better, and a long-term program of five or six years is needed for planners, engineers and material suppliers, like steelmakers, to gain traction.
A series of short-term funding renewals — 35 over the past decade — has made planning for big projects difficult, if not impossible. And with the nation in its worse infrastructure shape ever — with 65% of its major roads rated as substandard and one in four bridges requiring major repair or replacement — big plans are needed.

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Asia drawing better purchase terms for Mideast crude as competition intensifies

August 5, 2015

There is little doubt that additional crude oil supplies from Iran will intensify competition among Middle Eastern producers, which are already fighting to secure their share of Asia’s dynamic markets against the influx of barrels from western hemisphere suppliers that can no longer rely on the US market.
Tehran’s July 14 nuclear deal with six world powers will eventually lead to additional flows of Iranian oil onto world markets, but oil minister Bijan Zanganeh has already said the thrust of the marketing focus will be on Asia, where Iran has been able to maintain a foothold in the four key consuming countries.
China, India, Japan and South Korea (along with Taiwan, whose purchase volumes are negligible, and Turkey) have been able to continue importing  Iranian oil by accepting — in principle, at any rate — a collective volume limit of around 1 million b/d in return for exemption from the US financial sanctions imposed in mid-2012. Some of the buyers in these countries have already said that they will consider boosting purchases from Iran when sanctions are officially lifted.
So, with a potential flood of Iranian oil in prospect, Middle Eastern producers, already challenged by rising supply into Asia from Africa, Russia and even the Americas, appear to be making further efforts to sweeten their sales terms for some customers in the region.

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Australian may buck a trend with new Queensland oil refinery

August 4, 2015

Australia’s aged refining sector has shrunk by more than half over recent years, but at least one small local player appears to want to buck the trend with ambitions to fill a niche market on the country’s northeast coast.
According to local press reports, privately owned Australian minnow Casper Energy, headed by Brisbane-based businessman Duncan Mackenzie, has teamed up with Nevada outfit Eagle Ford Oil and Gas Corp. on plans to build a small oil refinery in the central Queensland port city of Gladstone. The project is designed to meet demand for fuel, particularly low sulfur diesel, in the burgeoning industrial and agricultural sectors in and around Gladstone.
The $700 million project would involve construction of a greenfield refinery with capacity of 43,000 b/d and a fuel storage facility for up to 100 million liters, Gladstone-based newspaper The Observer has reported. Mackenzie did not respond to Platts’ inquiries on the project, which is expected to employ 1,000 workers during construction and 300 permanent personnel once operational.
The new refinery would be the first to be constructed in Australia since the 1960s and would have greater feedstock flexibility than larger existing facilities, which were built to process light sweet crudes. The plant is expected to refine mainly medium and heavy sour crude oil.

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Why prompting production on the US Atlantic Coast is so slow: Regulation and Environment

August 3, 2015

When it comes to pursuing new offshore oil and natural gas production, the Atlantic Coast is proving to be a tough target. In this week’s Oilgram News column, Regulation and Environment, Gary Gentile explains what’s currently happening — and what’s not happening — off the Eastern shores and why.

In the coming months, a double-engine propeller plane, not unlike those dragging banners advertising Red Bull, will begin crisscrossing the Atlantic off the coast of Virginia.
Sensors on the plane will detect subtle shifts in the earth’s gravitational field. From those observations, ARKeX, a non-seismic, acoustic geophysical company, will begin compiling the first data on possible oil and gas resources in the Atlantic in more than three decades.
The company’s non-invasive method is the only one out of nine permits that have been approved by the US Bureau of Ocean Energy Management to collect resource data off the Atlantic coast. The rest languish in a bureaucratic purgatory, with no apparent urgency being displayed by the government agencies considering them.
On one hand, there is no urgency. The earliest a proposed lease sale off the Virginia coast could happen is 2021, according to the next five-year offshore leasing plan. That’s nearly a decade after Lease Sale 220, which had been proposed for an area offshore Virginia in 2012.

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Sussing out the ceilings over Russian gas prices

July 31, 2015

In this month’s selection from Platts Energy Economist, Managing Editor Ross McCracken explains what is currently contributing to Russia’s slipping grip on the European natural gas markets and questions whether Russian gas will be competitive in the future.

Almost a decade on from the first Ukraine-Russia natural gas crisis of January 2006, Europe faces another winter with the threat of disrupted supplies through Ukraine hanging over it. The region’s  security of gas supply has improved significantly, but it remains vulnerable, not least where dependence on Russian gas has grown as a result of lower import volumes from North Africa. The stubborn facts are that Europe has a structural gas deficit and the only new source of supply is LNG.
From Russia’s perspective, its markets have evolved into three distinct zones. First, captive markets. These are the former Soviet Union and to a large extent south Eastern Europe, but increasingly excluding the Baltic states and Ukraine. In this zone, Russia can dictate pricing terms, has a high degree of control over transmission capacity and a high level of demand security. Nonetheless, prospects for market growth are limited.
Second are hostile markets. In Eastern Europe, including the Baltic states and Ukraine, growing interconnectivity with Western Europe and the ability to import LNG threatens Russia’s market share.

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Poll: Do you think the US will approve the Keystone XL pipeline?

July 31, 2015

With the end of the Obama administration in sight (or at least the 2016 presidential campaigns already making headlines), signs point toward a deadline on the Keystone XL decision.
In a press briefing Wednesday, Eric Schultz, a White House spokesman, said the Keystone XL issue would be resolved by the time President Barack Obama leaves office in January 2017. A review of the pipeline is ongoing at the State Department, and if approved the pipeline would bring 830,000 b/d from Alberta, Canada, to the US Gulf Coast region.
Segments of the pipeline in the US have already been built, but much of the pipeline has been caught in limbo for a long time now.
We want to know what you think: Will the US approve the pipeline? Or is the coming decision going to reject the project? We’re curious about what you think, and feel free to leave comments explaining your decision below.
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Observers wait for Mexico to allay concerns over subsequent bidding rounds

July 30, 2015

Mexico’s debut bidding event in Round One of its energy reform is now history, and resulted in what was widely agreed was a poor showing.
Now, the post-mortems have begun, both within industry and the Mexican government, which openly acknowledged it needs to do a better job of listening to industry’s concerns about contract terms that might have attracted more winners had the sticking points been addressed to begin with.
Of 14 exploratory blocks offered in shallow waters in the Bay of Campeche — the same area that produces a large chunk of Mexico’s current 2.257 million b/d of crude production — the July 15 auction produced winners on just two tracts. Both were captured by a consortium made up of Mexican startup Sierra Oil & Gas, US’ Talos Energy and UK’s Premier Oil. Six blocks received offers, but on four blocks the sole bid on each was below minimum amounts set by the government. The other two blocks received more than one bid.
In addition to bidders’ pre-event complaints about relatively small fields, other objections abounded.
For example, the four-year terms with two-year extensions may have been too short for some operators that wanted longer contract terms for more extensive exploration, a top official for energy consultants IHS said.

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The allure of steel

July 29, 2015

There’s something about steel. Before I joined Steel Business Briefing in 2008, I’d never really known what I wanted to do career-wise. I worked for some good companies, including competitors of Platts (which acquired SBB in 2011), but never really envisaged staying in the price reporting sector. Nothing against it, I was just young and finding my way, armed with humanities degrees that didn’t gear me up for much outside of education.
But there’s something about steel.
My colleagues Joe Innace and Henry Cooke have more than half a century covering it. Anyone who knows anything about attrition rates in the publishing/price-reporting agency sector knows that is a tremendously long time. That’s part of the reason it’s such a good place to be: the knowledge you can acquire by spending time with these guys, titans in our field, if you like.
This longevity is an extension of what happens in the industry itself. I’ve had the fortune of reporting on the UK steel market for some time now. I’ve moved on a little, but I can’t let go totally. People don’t leave it; they can’t. They retire and take consultancy roles. Or sell their businesses and still attend all the events to meet their old customers, competitors, drinking buddies. Through sickness and health, they remain.

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As Rosneft turns to Asia, will spot crude oil sales in the East decline further?

July 28, 2015

Russian giant Rosneft’s recent deals in Asia suggest it is potentially shifting the balance of its crude oil sales in the region — one of its most important export markets — from a spot tender basis to long term contracts and significantly reducing the amount of Russian crude that enters the spot market in Asia.
Last year the company sent 35% of its total crude exports, or around 680,000 b/d, to Asia, with South Korea, Japan and China being the main buyers.
Russia’s crude exports to Asia have been rising steadily, underpinned by term contracts sealed with Chinese buyers, primarily China National Petroleum Corp. By 2018, Rosneft will raise its term sales to CNPC to over 600,000 b/d, doubling from current volumes.
But Russia is already sending far more crude to China.
Data from Beijing shows that Russia for the first time overtook Saudi Arabia to be China’s top crude oil supplier in May, with volumes exceeding 900,000 b/d. Russian flows again surpassed 900,000 b/d in June, although Saudi Arabia reclaimed the top spot.
But Rosneft is intent on marketing even more to Asia, with chief Igor Sechin saying last month that he wanted 40% of its crude sales to go to the region by 2019. It is now looking to pin down buyers through term deals.

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Major US oil trend left out of discussion of Iran deal

July 27, 2015

Secretary of State John Kerry held a question-and-answer session to a packed house Friday in New York at the Council on Foreign Relations to talk about the recently-concluded nuclear deal between Iran and several Western nations, including the US.  It didn’t matter that the breakfast was called on about 24 hours notice on a Friday in the summer; it was a true VIP audience. (For example, among those in attendance: Hess Oil CEO John Hess.)
John Kingston, president of the McGraw Hill Financial Institute and a long-time Platts editorial leader, was in attendance. And as he noted, there was one word that, amazingly, didn’t emanate from Secretary Kerry’s mouth, not even once. You can find out what that word was on the Institute’s blog here.

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Trying to find what works for US steelmakers and employees

July 27, 2015

Negotiating a union labor contract is often a slog. It gets more complicated if it’s a multi-year deal, and a bit treacherous if it’s a highly cyclical business.
All three apply to the steel industry, where major producers are in contract negotiations with the United Steelworkers union for long-term deals to replace current ones, which expire September 1. Throw in weak steel demand and high import penetration and it gets even stickier.
Bad times like these put unions at a disadvantage. Mills can legitimately cite market pressures and red ink in arguments for worker concessions. When the market is strong and mill profits are healthy, the steel-toed shoe is on the other foot and the union can reasonably demand its slice of the pie.
Entering the negotiation season, it may be instructive to view the strategy of ArcelorMittal USA, whose CEO has written a number of blogs about the costs of steelmaking, efficiency improvements, collapsed steel prices and import competition.
ArcelorMittal USA recently kicked off talks with the USW, which promptly reported that one of America’s largest steelmakers — if not the largest — is proposing a three-year contract that includes no wage increases and reductions in incentive pay and benefits.

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Tracking the rise of the refrac: New Frontiers

July 27, 2015

How does one prompt more oil production in a time of lean budgets and low prices? In this week’s Oilgram News column, New Frontiers, Starr Spencer explains how some are trying to find success by revisiting horizontal wells.

If at first you don’t produce, frac, frac again. While hundreds of North American wells remain unfinished due to low oil prices, some operators are embracing technology to refracture horizontal wells in an attempt to eke out more production at a fraction of the cost.
For years, consultants and some oil companies had claimed that the technology, which has been used frequently on vertical wells, wasn’t quite ready to be deployed horizontally.
That may be changing. The drive to tap a potentially vast market for hydraulic refractures of wells — popularly called “refracs” — is getting a shot in the arm as oilfield service companies tout new technology and create what may be the next big industry trend during the current downturn.
“Hundreds of refracs are planned in the US for this year alone,” said Tim Leshchyshyn, president of FracKnowledge, which is building what he said will be industry’s only refrac database.
Although refracs have been performed on thousands of vertical wells for decades to coax more oil and gas bypassed in original completions, they have been less prominent on horizontal wells.

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How did the SPR become so popular on Capitol Hill? The illusion of a piggy bank

July 24, 2015

About 700 million barrels of crude oil stored in four sites along the US Gulf coast seems to have recently inspired the imagination of a cash-strapped Congress.
With US crude production nearing record highs and prices falling below $50/b, federal lawmakers are pushing to sell millions of barrels from the US Strategic Petroleum Reserve to fund bills with little, or nothing, to do with energy.
First Representative Fred Upton, a Michigan Republican and chairman of the House Energy and Natural Resources Committee, included a plan to sell 64 million barrels from the SPR over eight years to fund his health care bill, the 21st Century Cures Act.
Then on July 21, senators included a proposal to sell 101 million barrels of crude from the SPR to at least partially fund a six-year highway bill.
The proposals are expected to raise roughly $5.4 billion and $9 billion, respectively, estimates which assume that crude oil will average $84/b and $89/b, respectively, and ignore the costs of purchasing the crude in the first place.
At the same time, the proposed sales face opposition from the Obama administration and congressional Republicans.
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